We welcome letters from readers_ particularly commentaries that by yaofenji

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									LETTERS
                                                                                            sure. For example, it is possible that
                                                                                            licensure benefits larger, more special-
                                                                                            ized law firms at the expense of the
                                                                                            small, generalized law firms that are
                                                                                            overrepresented in our data. A review of
                                                                                            the literature, though, demonstrates that
                                                                                            the impact of licensure, both legal and
                                                                                            for other professions, has an inconsis-
                                                                                            tent impact upon prices and professional
We welcome letters from readers,              of Economics 106:503-30, 1991).               income. At times, or for some profes-
particularly commentaries that reflect           In our research, which used data on        sions, licensure has the price/income
upon or take issue with material we           the prices of various services (adoption,     enhancing effects implied by Stigler’s
have published. The writer’s name,            DUI defense, simple divorce, will) from       capture theory. At other times, however,
affiliation, address, and telephone           a sample of over five hundred small           as indicated by our study, no such
number should be included. Because of         firms in forty-eight states from 1986-        effects are found.
space limitations, letters are subject to     1988, we were impressed by how inex-             Theoretical extensions of Stigler’s
abridgment.                                   pensive many of those services had            early work (e.g., Gary Becker, Quarterly
                                              become. Lawyers, at least for routine         Journal of Economics, 98:371-400, 1983
DON’T RAZE THE BAR                            procedures, are no more expensive than        and Sam Peltzman, Journal of Law and
As the authors of two articles on the reg-    a plumber. For example, in our data the       Economics, 19:211-244, 1976) lend cre-
ulation of lawyers (Journal of Regulatory     average hourly rate was just $55 and the      dence to a complex view of licensure
Economics 7:63-85, 1995 and George            average price of a will was only $48.         where competition among different inter-
Mason University Law Review 14:253-              Leef implicitly relies on Nobel laure-     est groups, including consumers and
286, 1991), we read with great interest       ate economist George Stigler’s “capture       lawyers in general, as well as coalitions
George C. Leef's article, “Lawyer Fees        theory,” which was, arguably, a crucial       of lawyers, would be expected to have an
Too High?” (Regulation, Vol. 20, No. 1,       starting point in the economic theory of      impact upon the outcome of licensure.
Winter 1997). While there is, no doubt,       regulation but one that ignores the forces    Empirically, it is Becker’s and
some truth to the cartel theory of the        of competing interest groups and the role     Peltzman’s more complex view of licen-
legal profession, we believe the article      of bureaucracy. In fact, as we prepared       sure, rather than Stigler’s simple view,
overstates the effects of state bar regula-   our study, we were struck by the lack of      that seems more likely. Their view of
tions on the prices of legal services and     empirical support for the capture theory      licensure is further supported by the
in the process, oversimplifies the regula-    in the literature on regulation even          observation that lawyers have been less
tion of the legal profession.                 though it has almost become folklore          able, in the recent past, to control licen-
   Leef's basic thesis—that lawyers have      among many economists. In our own             sure. Two examples include the recent
a monopoly on legal services that great-      study, we found almost no effect from         loss of the ability to restrict advertising
ly increases their prices—can and             state bar restrictions on in-state residen-   for legal services by bar associations as
should be taken to task. As we note in        cy requirements, bar exam pass rates,         well as the successful attempt by con-
our research cited above (not cited by        reciprocal licensing rules, or on the         sumer groups, title insurers, and real
Leef) the most striking thing about the       prices that lawyers charged for basic         estate groups to block bar association
legal profession is the dramatic entry        legal services. Instead, we found that        attempts to extend legal licensing to title
into the profession in the past thirty-five   variables that approximated relative sup-     searches in many states.
years, more than doubling the number          ply and demand forces were the most              We would be remiss if we did not
of lawyers per capita in this country. In     powerful explanatory forces. It should        acknowledge some of the important
raw numbers, lawyers increased from           be noted, however, our study focussed         points made by Leef. For example, he
286,000 in 1960 to 757,000 in 1988 and        on relatively small firms whose practice      notes how the bar has often, but not
to more than 800,000 by 1991. Indeed,         was generally concentrated in the provi-      always, been able to prevent nonlawyers
many scholars have lamented that there        sion of routine legal services such as        from providing simple services such as
are too many lawyers, encouraging too         uncontested divorces and simple wills,        real estate conveyances. Indeed, many
many frivolous lawsuits and that, in          so our findings may not hold for other,       recent political battles have been fought
effect, the standards of “professional-       more complex legal services.                  over the extent of services for which a
ism” have declined. Some economists              Though our study did not support           lawyer is required. Leef provides a ser-
have gone so far as to argue that eco-        Stigler’s simple capture theory, it           vice by indicating how professional asso-
nomic growth is inversely related to the      remains possible that a more complicat-       ciations can limit entry into markets, but
number of per-capita lawyers in a coun-       ed interest group story does explain the      he does not carefully consider the bene-
try (K. Murphy et al. Quarterly Journal       existence and persistence of legal licen-     fits of such associations or look in detail

2                                              REGULATION • SPRING 1998
                                                                                                                             LETTERS

at the tremendous recent entry into the        prices for at least some legal services         ly paid for. I find that morally repugnant
legal profession. He states: “UPL              would fall (as was the case in England          and incompatible with the proper role of
statutes, however, are still a major barrier   when nonlawyers were permitted to               government in a free society
to competition in legal services.” In our      enter the conveyancing market) if it
view his “Global Warming” style crisis         were not for the mandate that you must          G EORGE C. LEEF
                                                                                               East Lansing, MI
call seems unwarranted mainly because          be a bar member, with all the human
his policy recommendations are not tied        capital investment that entails, before
to a compelling study of the regulation of     you can legally offer any service.
the legal profession but, instead, are         Lueck, et al. may well be correct in            CHECK THE SOURCE
based upon simplistic theory.                  finding that the prices of some legal ser-      Bridgitte Madrian, in her winter 1998
                                               vices are no more expensive than hiring         article, considered in detail the available
D EAN LUECK                                    a plumber, but that is quite compatible         alternatives for insurance portability
Montana State University
                                               with my argument that they would be             under current employment-linked insur-
R EED O LSEN                                   lower still if we had a freer market in         ance. In conclusion, she demonstrated
Southwest Missouri State University            legal services. They are also indis-            that there are no good alternatives. She
M ICHAEL RANSOM                                putably correct in saying that there has        proposed medical savings accounts, but
Brigham Young University                       been a great deal of entry into the legal       failed to elaborate.
                                               profession over the last few decades.              The nature of employment-linked,
                                               That is not surprising, given the enor-         rather than individual-based insurance,
LEEF RESPONDS:                                 mous volume of legislation and regula-          goes against a free market approach to
Professors Lueck, Olsen, and Ransom            tion that creates a demand for legal            health care and health insurance.
criticize my article on the grounds that I     assistance. But again, that fact does           Employment-based insurance gives sub-
did not develop or defend a more com-          nothing to rebut my argument that the           scribers little or no choice of policies,
plete theory of regulation, but instead        nation would have been better off if the        and shields them from their own
based my attack on the legal profession’s      training of those legal practitioners had       expenses. In short, employees get the
UPL barrier to competition on a “sim-          occurred under the efficient standards of       best deal when they use their employer-
plistic” theory. In fact, it was not my        the market rather than under arbitrary          sponsored insurance the most.
intention to develop any theory of regula-     political standards demanded by the bar.        Employers are left to handle the expens-
tion at all, but only to argue that occupa-       They maintain further that I failed to       es, but are not allowed to discriminate
tional licensure backed up by legal sanc-      consider the benefits of professional asso-     among employees, such that each
tions against individuals who offer their      ciations. The possible benefits of profes-      employee would more closely con-
services without having gone through the       sional associations was beyond the scope        tribute his own costs.
bar’s prescribed pathway into the legal        of my article, but I did argue that con-           Portability problems are inherent to
services market is neither necessary nor       sumers derive no benefit from the restric-      an employment-linked system for the
sufficient to achieve any legitimate pub-      tion on entry into the legal marketplace—       simple reason that the employer, not the
lic policy objective. Nothing in their let-    UPL prohibitions—that professional              subscriber, owns the policy. Under
ter argues to the contrary.                    associations of lawyers have labored to         employment-based policies, subscribers
   As I noted—although, I submit, with-        have enacted. If there are, in fact, benefits   cannot purchase a policy that would
out any hint of “Global Warming style          to consumers from contracting for ser-          protect them from exorbitant rate hikes
crisis” rhetoric—prior to the days of          vices with the members of a professional        following an illness. It is equivalent to
UPL prohibitions, people desiring to           association, they will pay the price and do     having a life insurance policy that could
enter the market for legal services could      so voluntarily. I can see no reason, how-       raise rates without limit should the poli-
choose among various training options.         ever, to limit their choices to members of      cyholder get a terminal illness.
Until the organized bar succeeded in           a bar association only. A free market              Employment-based insurance grossly
locking in place the current standard of       backed by remedies for the occasional           distorts the medical system. The med-
the three-year law school, many schools        instance of incompetence, negligence,           ical customer is essentially split into two
offered only one-year to two-year pro-         breach of contract, or fraud provides con-      entities—the patient who seeks services
grams. Moreover, a majority of lawyers         sumers with at least as much protection         and the employer who directly pays
learned their trade in law offices. In the     against bad legal practice as do UPL pro-       most of the costs. Employers respond by
days when law school had to pass the           hibitions, without limiting their options.      sharing the costs among all employees,
test of the market, only a tiny percent-       Beside all of that, UPL enforcement nec-        via wage reductions and equally distrib-
age of lawyers chose as optimal the now        essarily means the sanctioning of coer-         uted insurance expenses. The incentives
mandatory three-year investment.               cion against individuals who have done          are reversed—thrifty patients with ill-
   My contention is that we would make         nothing more than render services to oth-       nesses lose out because they cannot get
better use of resources and that the           ers; services that were sought and willing-     protection from rate hikes, and often

                                                REGULATION • SPRING 1998                                                                    3
LETTERS

become locked into their job.                ving consumers to lower tar and nico-          behavior include: smoking more, faster,
   Caregivers face distortions as well.      tine (T/N) yield products, (3) advancing       closer to the butt; pinching and defeat-
They are responsible to patients for care,   public health as the result. Each of those     ing the filter effectiveness; and covering
and to insurers for costs. Rationing of      three necessary premises is in serious         filter vent holes (often invisible and
care is done by distant third parties,       doubt. When the industry and its advo-         placed were fingers naturally fall).
rather than the caregivers and patients      cates sing “Hallelujah,” others should         Those product designs and compensa-
familiar with the situation and circum-      shout “Humbug!”                                tion behavior undermine any potential
stances. Similarly, insurers are responsi-      Because the author has consulted            health benefit that otherwise might
ble to subscribers for their coverage, and   with R. J. Reynolds has been on the            result from low yield products.
to employers for costs. Policy selection     FTC staff, and has been active in, and            Calfee ignores all health conse-
is based on the employer’s situation, in     recognized by, consumer behavior and           quences but lung cancer. The narrow
a one-size-fits-all manner, rather than      marketing academic associations, read-         focus helps make any movement toward
the subscriber’s desires.                    ers might wrongly suppose that his is a        lower T/N products more intuitively
   The system is inherently flawed.          well informed, thoughtful argument,            appealing, but we now know that is an
Regulations cannot change these incen-       integrating and balancing supplemental         illusion. He ignores the more numerous
tives—an overhaul of the system is nec-      perspectives. His evidence is flawed and       rates of death and disease from circula-
essary. Current regulations have served      there are serious omissions in his argu-       tory effects (strokes and heart attacks),
to worsen the situation, with major          ment. He errs in describing cigarettes as      and other lung diseases like emphyse-
breaks given for group policies (primari-    a “mature” market in the 1920s, when           ma, and cancers in myriad sites other
ly ERISA protections and tax treatment),     sales to women were just taking off and        than the lungs. Smoking low T/N prod-
which are denied to ordinary citizens.       would grow substantially over the next         ucts may change the relative incidence
   Medical Savings Accounts answer           decades. He also ignores recent low-tar        of those various afflictions, but Calfee
those problems well. When individually       competition. But more important than           never establishes any public health ben-
owned, policies are selected and owned by    those sorts of errors is what in his article   efit for that. Calfee naively accepts, like
subscribers, who are financially rewarded    is misconstrued or totally missing. He         countless millions of duped smokers,
for thrift, and can purchase protection      misconstrues the health benefits of low        the premise that lower yield products
from rate hikes. Caregivers and insurers     yield tobacco products. Most amazingly,        are healthy, or least healthier than high-
are then responsible to subscribers for      he ignores addiction and related con-          er yield products. He is grievously
both care and costs. MSA’s would pro-        sumer behavior, the oligopolistic and          inconsistent on that point, however,
mote competition to provide value.           collusive nature of this industry, and the     admitting at one point to “no epidemio-
   The transition from employer-based        dynamic and adaptive nature of its mar-        logical evidence that reduced tar meant
to individual responsibility for health      keting strategies. Industrial organization     improved health” while none-the-less
care (MSA’s) would leave the ill, with-      and marketing, and consumer behavior           holding elsewhere that lower yield prod-
out rate hike protections, in a bind. That   would seem to be domains of his exper-         uct forms were “improvements.”
transition, instead of propagation of        tise, but apparently are not.                     Calfee ignores current policy prefer-
employer-based health care, should be           Calfee ignores recent low tar ads.          ences. The public health community has
the focus of policy analysis.                Low-tar advertising in the 1980s by            seen the folly of simply switching
                                             brands such as Now, Cambridge, and             smokers to lower T/N products. That
S USAN A TKINS, MD                           Carlton did not seem to have the effects       policy objective was always conditional
Mechanicsville, VA
                                             he finds salutary. Some of those cam-          upon the premise that if, and only if,
                                             paigns were misleading in an ingenious         smokers were too addicted to quit that
                                             and invidious way—by advertising a             they might be better served by smoking
BAH HUMBUG!                                  product variety with very low tar and          lower yield products. That hopeful con-
Like Dickens in his Christmas Carol,         nicotine data for image purposes, e.g.         ditional advice is now dated, as the evi-
Calfee tells tales of “The Ghost of          70mm in a hard box, but then selling           dence accumulates on the high inci-
Cigarette Advertising Past” (Regulation,     consumers other varieties soft packs           dence of diseases among smokers of
Spring 1997, Vol. 20, No. 3) to scare us     with literally hundreds of times as much       such products. Only the industry prefers
into reforming our ways. He would have       T/N e.g. 100mm.                                that smokers switch rather than quit.
us be more charitable toward the tobac-         Calfee ignores consumer behavior.              Calfee ignores industry learning. He
co industry, rejecting regulatory            He fails to recognize the addictiveness        takes no account of the possibility that
restraints on their advertising to allow     of nicotine and the resulting well docu-       industry learned lessons from “The
them to engage in “unbridled” activity.      mented set of compensation behaviors           Ghost of Cigarette Advertising Past.”
Using experiences four decades old, he       that maintain nicotine intake for smok-        The tobacco and advertising trade presses
holds that: (1) deregulated competition      ers even when they use lower yield             both exhorted the industry to recognize
will produce “fear” advertising, (2) dri-    products. Examples of compensation             the folly of hectoring the public with

4                                            REGULATION • SPRING 1998
                                                                                                                         LETTERS

health claims. Their commissioned moti-       ing and promotion, is, by definition,        is more likely to advance the public inter-
vation research studies taught them that      drug pushing with deadly delayed con-        est—the cigarette industry or public
verbal health claims were akin to saying,     sequences. If done expertly and with         health regulators. We shouldn’t conclude
“I don’t beat my wife.” They mean to          media weight, much less with license to      from the regulatory failures of the 1950s
reassure, but ultimately they raise doubt     lie, how can we expect the net conse-        that all regulations from the FTC or oth-
and keep the health criterion salient. Far    quence to be beneficial? Consider the        ers are inevitably doomed, however.
better, they counseled, to use pictures of    following satirical ad copy (written in      Perhaps only those regulations the indus-
health and implied healthfulness that are     the Christmas season) glorifying a low       try willingly accepts are flawed.
taken in at a glance with minimal cogni-      tar product.                                 Regulation endorsed by the industry is
tive processing and counter-argumenta-           GLORY TO THE LOW-TAR KING                 almost certain to be in its self-interest
tion. Small wonder that in their “secret         Hark! The herald angels sing:             and necessarily in conflict with the public
negotiations” the industry lawyers draft-        Glory to the Low-Tar King                 interest. That simple fact is all too easily
ed and agreed to advertising regulations         Best on earth, and oh so mild             overlooked in the rush to legislate the
to create a cease fire in the tar wars.          Health and pleasure reconciled.           current national settlement.
Since then, industry lawyers (not the
FTC) have killed health ad claims and           Joy! The brand we sanctify.                RICHARD W. P OLLAY
                                                                                           Professor of Marketing, Faculty of
new product development projects lest           Joy! The triumph of our lie.               Commerce, University of British
they impugn the balance of the products         Joy! Angelic ads proclaim                  Columbia; also Curator, History of
by implication.                                 Smoke in peace—no fear, no phlegm.         Advertising Archives.
   Calfee ignores potential collusion.
With only five current participants, this        Hark! The herald angels sing:
oligopoly finds it relatively easy to act        For God’s sake smoke the Low-Tar          WRONGING THE RIGHTS
in concert. That is illustrated by their         King.                                     We recently read the informative and
history pricing, the jointly acquired PR         There are lessons to be learned.          interesting piece on “The Politics of
activities of Hill and Knowlton, the          Calfee is or should be highly familiar       Public Lands” by Dale Arthur Oesterle
industry wide Tobacco Institute, the          with tobacco industry structure, market-     in the fall 1997 issue of Regulation.
Center for Tobacco Research, their lob-       ing practices, and relevant consumer         However, we were surprised to read, at
bying activities, their shared defense        behavior. Ignoring those seems to be a       the very end, the characterization of the
strategies against law suits, the phalanx     willful blindness and a dereliction of       bulldozing of roadways through wilder-
of CEOs asserting the nonaddictiveness        intellectual and public duty. Those sorts    ness study areas ordered by County
of nicotine to Congress, and on and on.       of errors and omissions have been point-     Commissioners in three Utah counties
In the rare event of defections, such as      ed out to Calfee by others and myself in     as a “blatant trespass on federal land”
Ligget’s recent admissions regarding          response to other publications a decade      and that the Commissioners’ arguments
standard industry practices, the industry     ago, giving him ample time to at least       concerning their justification for bull-
can punish the renegade. Clauses puni-        attempt an improved analysis.                dozing those roads were based upon an
tive only to “nonsigners,” i.e. only             Despite my utter rejection of Calfee’s    “obscure statute from the Civil War
Liggett, is part of the draft national set-   limited analysis and interpretation, I       era.” The article then suggested that
tlement agreement being considered for        agree that the history of the tar wars       “torturing the language of old statutes is
congressional endorsement.                    might have important lessons for us          a game all can play.”
   Calfee ignores primary demand              today. The industry played the FTC              We believe the article refers to public
effects. That was then—this is now.           process like a fiddle, just as they have     rights of way established across public
How confidently can we expect the tran-       frequently befuddled Congress. They          lands under RS-2477. We live in rural
sient changes seen four decades ago to        frustrated the FTC complaints of the 40s     Nevada and are very familiar with RS-
be replicated today? In the 1950s filters     with very protracted litigation, resulting   2477 rights of way, public roads estab-
were a novel technology just becoming         in trivial fines and sorely belated deci-    lished through public use and custom
a popular product form. Today filters         sions with limited precedent value. They     under Revised Statute 2477 (recodified
already totally dominate the market. In       co-opted to the agency in the 1950s          as 43 U.S.C.§ 932). That Act of 26 July
the 1950s the majority of adults were         through its Bureau of Consultation, so       1866 stated simply that “The right of way
smokers, whereas today a far smaller          that the FTC ended up being the mecha-       for the construction of highways over
and harder core of smokers persists.          nism for the establishment and enforce-      public lands, not reserved for public uses,
   Think—for God’s sake. Enactment of         ment of the cartel-like advertising stan-    is hereby granted.” This right to create
Calfee’s position would allow the indus-      dards drafted by the industry committee      public rights of way over public lands by
try total license to engage in the most       of Washington lawyers for what Calfee        use and custom was in effect until the
misleading and egregious of health            calls “secret negotiations.”                 passage by Congress, in 1976, of the
claims for cigarettes. Cigarette advertis-       A bottom line policy question is who      Federal Land Policy and Management

                                                   REGULATION • SPRING 1998                                                          5
LETTERS

Act (FLPMA). Though, under the               tained by a public agency or by mechan-      the Department of the Interior, tried to
FLPMA, new roads can no longer be cre-       ical means. Perhaps that is why the          change the definition of RS-2477 by
ated over the public lands under RS-         Commissioners called out the bulldoz-        internal memo, not even bothering with
2477, public rights to continue to use all   ers. There are no such requirements in       the requirements of the Administrative
RS-2477 rights of way established prior      RS-2477 or in the court decisions con-       Procedure Act for publishing proposed
to 1976 were explicitly preserved under      cerning RS-2477 rights-of-way. In arid       rules in the Federal Register and allow-
the “savings provision” of the FLPMA.        Nevada, there is usually no need for         ing for public comment. This year, the
   Since wilderness areas must be, by        mechanical maintenance. Moreover,            U.S. Forest Service is also using an
definition, roadless, the existence of an    RS-2477 roads are generally maintained       internal memo to attempt to extinguish
extensive crisscrossing of the public        informally by the users of such roads        RS-2477 rights of way. We are fighting
lands of the West by tens of thousands       rather than by a public agency.              those unlawful and unconstitutional acts
of RS-2477 roads established by use and         In the West, much of the vital infra-     and shall continue to do so.
custom prior to 1976 is a serious hin-       structure, such as rights of way for tele-
drance to the creation of more wilder-       phone lines, electric power lines, water     D URK P EARSON AND S ANDY SH A W
                                                                                          People for the Constitution
ness areas. If the Commissioners of the      pipelines, access to private property, and
three Utah Counties referred to in the       privately owned water, consists of rights
Oesterle article bulldozed to reopen RS-     of way created under RS-2477 prior to
2477 public rights of way that were ille-    1976. If the federal government is able      OESTERLE RESPONDS:
gally bulldozed closed (as many are) by      to gain control of those rights of way by    The letter is correct, I was referring to
one of the U.S. government land agen-        extinguishing those rights (without com-     Section 8 of the Act of 26 July 1866, 14
cies, then they were entirely justified in   pensation), it would be a catastrophic       Stat. 253. The 1866 Act granted rights
doing so. If the roads the Commission-       blow to the independence of most towns       of way for the construction of highways
ers had bulldozed were new roads, not        and cities of the West. That applies to      over public lands and any rights of way
used as RS-2477 rights of way prior to       many towns and cities in the East as         established before the repeal of the
1976, then they could not justify their      well, though it is not as well known         statute in 1976 survive. At issue is what
actions under RS-2477 and the “savings       there. The feds could hold all those         rights of way predated the 1976 Act.
provision” of the FLPMA.                     towns and cities up for ransom by            The counties are taking a very liberal
   There is nothing obscure about RS-        demanding all sorts of concessions in        view of what is a preestablished right of
2477. Many court decisions into the          order for the feds “allow” them to con-      way and asserting that anywhere there is
1990s upheld the public right to use RS-     tinue using the RS-2477 rights of way.       currently evidence of a vehicle track a
2477 rights of way over federally con-          The legal and constitutional battle       right of way was established in 1976.
trolled lands and defined what consti-       over the status of RS-2477 roads is far      Even if they are correct on th existence
tutes RS-2477 rights of way. There are       from over. Since 1994, we have made          of the right-of-ways, the counties have
ongoing attempts by the Bureau of Land       public comments over a series of             no right to expand them. Moreover, the
Management, the Forest Service, and          Bureau of Land Management and U.S.           counties are not content to await a judi-
other federal land agencies to extinguish    Forest Service proposed new rules pub-       cial hearing on whether their controver-
those rights unilaterally, in defiance of    lished in the Federal Register concern-      sial claims are correct, they are using
an explicit Congressional ban—Sec.           ing RS-2477 rights of way that are           self-help and blading all roads they
108 of the 1996 Department of the            designed to extinguish roughly 95 per-       claim, which of course destroys the evi-
Interior appropriations bill—by, for         cent of such rights of way. In early         dence on the character of the tracks that
example, requiring that roads be main-       1997, Bruce Babbitt, the Secretary of        they have enlarged.




6                                            REGULATION • SPRING 1998

								
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