I say, definitely no. The blame for subprime should be firmly placed in Bernanke’s, Greenspan’s, and Congress’ collective laps. The poor policy decisions prompting the creation of pseudo-capital, created an incentive system that heavily rewarded short-term thinking over long-term evaluation. I don’t fault the banks one bit for the subprime crisis; this whole exercise has just reconfirmed my faith in (what I think is) the Keynes quip that inflation is the most insidious of all forms of policy because it enlists all the benevolent forces of the market on the side of destruction. Here, the inflationary policy (high liquidity, Congressional duress through the Community Reinvestment Act, etc.) forced banks to lower their standards to make loans in order to stay competitive in the short-term marketplace, thus “enlisting the benevolent market force” of competition on the “insidious side” of wealth destruction in the long-term. With respect to Lord Keynes, we should be worried about the long-term because we never know when it will decide to activate itself.

It seems to be the sentiment de jure that more governmental interference/regulation is required; I think this faith is misplaced. The State is given the monopoly over coercion; its proper role is the insurance of property and autonomy rights from outside encroachment. The proper role of the State is to fight fraud and strive to increase transparency so as to limit the potential for future fraud; the State’s responsibility is not to try and “fine-tune” the economy, or the environment, or any of the other projects which the State has been charged to “fix”. Moreover, when the State does try to stray from its sole mandate, it actually acts completely contrary to that mandate; in other words, by attempting to meddle, the State has thereby harmed property rights and autonomy. What one must realize when he advocates increased regulation is that he is choosing the Hitman over the Repairman to fix the leak in the pipes or the crack in the foundation. The market will, when left alone and not meddled with by the State, diagnose and remedy any short-comings with a keen eye toward the foreseeable viability of such a structure. When the State meddles, it creates entirely new, unforeseen incentive-structures which significantly change the human behavior inherent in the market. Blaming the banks, the credit-agencies and even the people who bought the homes in such a liquid market, without first taking the Creators of the environment (Congress, the regulatory agencies) to task (i.e. voting every single one of the scoundrels out and also returning/shrinking Leviathan to its proper role) is like blaming a man who had never learned how to swim for drowning when he was forced to dive into the deep end of a pool at gun-point.

So these are the days of miracles and wonders, huh? It’s been a long time since I’ve been able to post, and it will probably be another long-time before I find the time to do so again. My first semester went pretty well; hopefully things fall into place and I have some work lined up for the summer. Enough about me: it’s time for the show.

Jim Cramer thinks what we need is a rate-cut. Donald Trump, too. And for good reason: they are at the forefront of where increased liquidity makes its debut. The following theory may or may not be backed up by empirical data and/or reputable economic philosophy, but here it goes. The reason Wall Street and the initial consumers of capital want rate-cuts is because they are able to get their hands on the pseudo-capital (capital that would not have existed but for the alchemy of monetary policy) and utilize it before the market as a whole (stocks, commodities, etc.) can digest the increased liquidity, meaning the Joe Q Public who gets his paycheck is usually the last to receive the marginal benefits of higher liquidity. It is the inverse nightmare of trickle-down economics: The initial consumers use it before the market realizes that the capital is actually worthless and adjusts other commodities upward to reflect the lower marginal value of the pseudo-liquidity. It is a little wonder the Private Equity and Hedge Fund gurus made off like bandits over the last 3 years. And frankly, I don’t blame them for making hay while the sun shined. Had the government-incentive system provided by Helicopter-Ben not existed, there would have been no pseudo-liquidity of which to take advantage. Additionally, as a nation, we were fortunate enough to be able to (1) literally export our inflation to China and other foreign nations that hold our dollars as reserves; and, as a corollary (2) Make all sorts of imprudent (see: high-risk high-yield) investments that would not have been made had interest rates been held higher and closer to what would have been proper in a market-based monetary regime. But what are we going to do if (and when) those who accept our shreds of cotton-paper for goods decide that they don’t want anymore cotton-paper?

The call for another round of rate-cuts showcases a certain myopia to the economic realities that surround us: namely, that inflation is everywhere a monetary phenomenon and not a commodity-phenomenon; and, that we are on the brink of a very-real possible hyper-inflation. What the Fed uses to measure inflation is useless: “Core” inflation? Is it hard or soft? Measuring inflation by virtue of what a governmentally-defined “basket of goods” costs is kind of stupid and very tautological. It’s like allowing a convicted criminal to impose his own sentence with minimal guidelines. The value of our currency isn’t really based in loafs of bread, blades of lawn-mowers produced, or even the price of a barrel of oil. Sure, what a dollar can buy in those commodities is important to the functioning of the economy; but the causal link reported in the media is completely backward. The price of oil is not “inflating” the dollar; rather, the “inflated dollar” is driving up the dollar-denominated price of oil, since the marginal value of the dollar is decreasing.

The true value of our currency in a fiat system is its relative value to other currencies around the world, and, even more importantly, to the greatest yard-stick of monetary value ever: Gold. And, as any reasonably literate person can tell you, the price of Gold is through the roof, increasing by as much as 50% in the last 2 years, and 100% in the last 42 months. That’s one hell of a rate of return for a metal with minor industrial applications and nearly zero currency applications. So why is the price of Gold vs. the Dollar increasing at such an astronomical rate? Because Gold is the best retainer of wealth in the world. There’s a reason that Gold was the first currency of international trade, going back as far as Rome (or farther, I’m sure). And, as the best retainer of wealth in the world, it is subsequently a refuge for people who may have had their wealth in what is no longer a valuable reserve (see: the Dollar).

The reality is, our government has debauched our currency heavily, but we’ve been fortunate enough to hide behind our reputation as a productive nation so long that the impacts have yet to be felt. The Sub-Prime mortgage meltdown and all this other talk of recession is, in reality, a small hill of beans compared to coming storm of inflation caused by the Central Bank of the U.S. Our monetary policy over the last decade has been an absolute disaster, and things can only get worse with every unnecessary increase in pseudo-liquidity. The party is over (at least it should be). The punch-bowl should have been taken away back in 2001 with the .com burst. Instead, the Fed decided to replace the punch-bowl with Everclear-laced Jungle Juice and allow the party to continue into the wee-hours of Too Long. The hang-over is coming…

Up-to-date readers of this blog know that the last two posts have been on the topic of first-year associate pay (what, how, why, where its going? etc.) Friend of GetIntuit, Pete L. made some very valid and interesting points in the comment box to the first post citing, among other things, “The firms that are below the most elite firms that are competing with those firms in the market for clients, prestige and respect, believe they have to keep up with the elite firms in as many ways as possible. Firms in this class are in no position to rock the boat basically, because like the most elite, their profits per partner keep rising. If they are competing for the same clients and the same type of work as the elite boys, they are in the position that they pretty much have to play the same game dictated by the elite firms. This is why a firm like Sullivan and Cromwell or Simpson led the pay raises from 125 to 145 and then from 145 to 160 and why within a month about 60-80 other firms fell in line and matched. The partner told me he pretty much believes there are law students more than willing to take my job for half the pay who can probably do it as well, but that pretty much the need to compete and the significance of prestige and reputation in the legal field prevents such a thing from happening.”

This brings up two extremely interesting points for further examination: (1) What is it about law as an industry that currently allows its participants to seemingly flout the corrective dynamics/cost-pressures that occur in every other industry; and (2) How accurate was Pete’s partner in his statement?

I cannot give an empirically verifiable or testable answer to the first question because I am wholly uninformed about the incentive structures facing particular clients of law firms (particularly the ones who employ “the big boys”). I think some of it has to do with the economizing factor of prestige/correlative factor of “going to the right school,” but I don’t think its the dominating factor Pete’s post implies. The market punishes irrationality not based on productivity in the long-run; perhaps I am not taking a long enough historical prospective (note: I purposely used prospective versus “perspective” as it fits the phrase and underlying thought better).

However, I think I do have the answer to the second question, at least in part, thanks to the same writer who broke the bi-modalism story a few weeks ago. According to Amir Efrati, it looks like the legal market outside of the “big boys” are doing exactly what Pete’s partner said they couldn’t: they’re rocking the boat. These “lesser firms” are maximizing their strengths vis-a-vis the “big boys”: While they cannot compete directly on the dollar-amount wage, they can, and seem to be offering the trade-off of significantly lesser demands for lesser pay. For example, typical “billable hours requirements” (a part of the total hours an attorney works) are about 2000 hours/year. Seems reasonable: 2000 hrs/50 weeks= 40 hrs per week; however, billables are an inaccurate measure of an attorney’s total time in the office or working: billables are ONLY what the assigning partner will be recognizing as valid worked-time. I’ve read somewhere that the typical ratio between work hours vs. billables is something like 3:2, meaning for every 3 hours at work, an attorney should be billing for approximately 2 of them. Doing the math, that means for attorneys to get their 40 hour billables over the course of the week, they need to do 8 hours of billing a day (not counting weekends), which ultimately means attorneys need to work 12 hours a day (1.5 * 8 billing hours), 5 days a week, for 50 weeks to meet what is deemed an industry standard of productivity.

The firms in question in Efrati’s piece, however, significantly discounted their requirements, and their overall wages, instead, offering a concomitant increase in “personal time” for the associates billing. Simultaneously, this may have resulted in (and here, I’m intuiting it) a significant increase in the firm’s demand for attorneys to pickup the “slack.” (The argument from here on assumes equal productivity): For example, the Dallas firm cited in the piece has decreased their requirements from 1920 (let’s just say 2000 for ease of comparison) to 1600 hours, while paying $140k. Cutting the 400 hours from each associate means that 1 additional associate is needed to cover the lost hours from 4 original associates. So, instead of 4 associates making 160k and getting burnt out after 3-4 years, this firm has 5 associates making 140k, working the same amount of aggregate hours and (presumably) not getting burnt out as quickly, at the cost, to the law firm, of approximately -60k nominal dollars per cluster of five (140 * 5= 700k in wages vs. 160*4=640k in wages), or -12k per associate per year, nominally. While this may seem like a lot (and it certainly is) I think that the probably resulting increase in firm longevity/loyalty, morale, and “quality of life” versus the losses the firm would sustain by having high turnover might be enough to offset the nominal cost. I don’t know, as I’m not entirely handy with the quantifiable variables here (calling all economists!) but it seems like a very valid and interesting topic for further inquiry.

In my previous post on BigLaw pay, I talked about the irrationality of first-year associate pay vis-a-vis productivity, and how I think the intra-industry labor market should be more open to bidding and price-sensitive evaluation. In that post, I mentioned that US law firms are in a sellers’ market in the global economy, and by extension many newly minted law students, particularly the ones from the vaunted Top 10 schools, stand to reap ridiculous benefits. Well, as it has done so many times before, the Market has proven to be a brutal, honest teacher and punisher who’s temperament turns on a dime. In a recent University of Illinois Business Law Journal post, the writer has taken notice and conveyed what he sees as a potentially looming market dynamic shift regarding outsourcing. It seems initially that socially-intensive professions such as law should be immune to the market dynamic of outsourcing because clients demand the “face-time” and those “face-time” partners/associates require on-hand support. However, as the U of I journal article points out, those partners/associates in need of support may get exactly what they need due to the time-difference and leaps in technology: “Another advantage of outsourcing to India is the time zones difference. [15] An attorney can electronically send work to India as he is leaving the office, and return the next morning to the completed assignment. [16] The ten hour time difference also has its drawbacks, however.”

So, what could this mean? If the article is correct in its reasonable forecasts, it could mean that profits-per-partner, the industry standard for measuring the overall efficiency and profitability of a law firm would soar in the interim. For some of the firms, the the tempering aspect of the market-pricing mechanism (that which causes prices to fall), and which has proven itself to be largely absent in the associate-pay arena (because of their standing at the nexus), can and will be largely ignored, resulting in substantial savings and grand profit margins to those firms to move first. How long the time horizon on this bulge is indeterminable, but I would say that if the market acts as viciously and quickly as it has in centuries past, the good times won’t roll on for long. This means that the big firms reaping the huge profits per partner (because they will have laid off a great many of the associates whose work will have been outsourced) will have their figures reported by the news outlets and will come under intense competition from their non-outsourced peers, who will follow suit. This could mean brutal lay-offs/cutbacks in the near term for early law firm associates as they find themselves completely priced out of the market (due to an inability to bargain for wages…) and the firms recalibrate their local talent searches. In the long-term (aka: after the dust settles) we will probably see a return to the fragmented firm/solo practitioner model inherent in the “long-ago” days of law: firms built around one person or a small group of very knowledgeable people.

But, perhaps I am wrong, and this is either an aberration (and it won’t occur due to the continued explosive global economic growth,) or, the law firms will become more flexible in their hiring/wage-setting practice. There are so many market dynamics to try and keep track off in regards to this topic that it may take more investigation before a definitive answer can be posted.

[Note: Click here for another interesting blog on the potential for offshore-outsourcing of legal processes.]

Here’s what I think the bi-modal distribution shows: 1) The big law firms are maximizing their positions at the top of the global (read: not only American heap) and are so awash in cash that they are able to offer more money than should rationally be justified in paying a first-year associate, and 2) A decision on the part of the big shops to irrationally compete on the basis of price with each other for rather homogeneous talent, and, in doing so, take the market functionality of the labor market out of the hands of their potential employees. There is a perception that the firms reputation is tied directly to its compensation, and in particular, the compensation for first-year associates: the more a firm offers, the more “prestigious” the firm.

I think that’s a bunch of malarkey, and the anecdotal evidence proves as much: associate turn-over at a lot of the big-shops is upwards of 30%+ and has been so for many years. As Steve Miller says “they took the money and ran.” Many of the hotshots from the “Top 14″ schools get burnt out by the time of their first evaluation (2-3 years in), meaning that the big-shops essentially gave the now 3rd-4th year associate A) Their Brand-name; B) Invaluable on the job training; and C) Extremely high pay…all for inefficiency that doesn’t come close to equating that investment. The inefficiency doesn’t stem from the stupidity or laziness of the associates, as many of them are indeed intelligent and motivated individuals; it’s just that they can’t work “smart” enough to warrant their high salaries because they don’t know what they’re doing. Given the deep pockets of the firms, and the seeming inexhaustible amount of work to do (because of their positions at the nexus of the burgeoning global economy…who’s lawyers’ get the work done in China, India, Dubai, and around the world? I’m sure those countries have decent law schools, but their students don’t come close to competing with American grads), the firms and market can act “irrationally” in their hiring practices, as there is no market punishment mechanism.

So, what? Well, as a firm supporter of the market system, I think bigger law firms should allow graduates to compete on price, instead of strict-pedigree. I’m not saying that a student from Podunk Law School is just as good as a Harvard grad, but why not allow the two of them to apply to Dewey, Scruem, and Howe in the light most favorable to them? Why don’t law firms allow prospective candidates to submit bids for the work the firms have to do? The law firms are then put in a position where they could begin to trade-off the economizing feature of the “prestigious school” brand-name versus the value of the work they can expect from the graduate (which would REALLY test whether students from HLS, Chicago, etc. are really that much smarter than their brethren at “lesser schools”). For example, if DS&H has applications from Carl from Podunk and Winston from HLS, with Carl saying he’d be willing to work for 80,000 and Winston saying he’d be willing to work for ONLY 160,000, the law firm could measure the candidacies according to what they’d expect to lose/gain from employing either individual. If a firm decides, given Carl’s background, that he won’t be able to perform/learn, it could eliminate him as easily as it does now…except it would be doing so along much more honest and objective factors than “Harvard? Yes. Podunks? No.” But, in all honesty, are HLS grads going to be 2x as productive in the near term or in the distant future? Probably not (assuming pay is a direct correlative measure of productivity). Simultaneously, this system allows people from Podunk to measure their chances and discount their prestigiousness vis-a-vis HLS students in the near term.

I can see someone saying, “well, doesn’t the prestigiousness of the law schools do that to a great degree, leaving the firms being price takers as all the ‘necessary sorting’ has already occurred?” No, as a matter of fact, I don’t think it does. There are many negatively-impacting factors that completely skew the results for incoming students that effect the prestigiousness label of the law schools (see also: George W. Bush getting into Yale). The emphasis on LSAT scores is a case in point. I did fairly well on the LSAT (though, according to one Abovethelaw blogger, being at the 80th percentile is tantamount to being at the bottom) but I don’t think that test did my abilities as a future lawyer any justice in the least, and I’m sure the same thing can be said for many other students. Furthermore, the fact that I went to a small undergraduate school instead of State University of ____ probably impacted my chances of admission at some of the “better schools,” despite having competitive GPA stats and Involvement. As a result, my fellow classmates and I are put at a disadvantage for no reason other than “school name.”

Ultimately the question is: Should/Would/Could BigLaw take the steps of opening up the bidding in either the near or far term? One firm has went part of the way by setting reportedly their incoming pay so low (relative to market) for newer associates, and then ratcheting the pay WAY up for seasoned senior associates and partners. As much as it hurts to say this, I think this may be the most rational way of attacking the problem of inflated associate pay and it may signal the beginning of a movement toward a market solution to “market pay.” According to the WSJ blog-piece linked above, the partners at this firm are making at or near BigLaw partnership incomes, while the starting associates are making 60k, or about 38% of the BigLaw starting associates. Effectively, the incoming grads who lack the “prestigiousness” of HLS, etc. but still have very good GPA, involvement credentials (Law Reviews, etc.), and potential upside/desire are rightfully discounting their initial perceived value in the short-term for the opportunity to gain the experience of working in a BigLaw shop. As a result, their initial wage is much more in line with their initial productivity, and the increases in pay (with associate pay meeting/exceeding market by the beginning of the critical 3rd and 4th years) mirror the increases in their productivity as they begin to learn how to work “smart.” Some commenters on the Abovethelaw and WSJ Law Blog claim that this is “partner greed masquerading as concern for the client.” I don’t think this could be further from the truth: Partners can and should command the market salaries justified by their expertise and productivity. This firm recognizes that and clients seeking this firm’s representation understand that as well: they are getting exactly what they are paying for. However, what this firm seems to do that the other firms don’t seem to recognize is that clients don’t like to subsidize “rookie” mistakes, and they especially don’t like to pay $400+/hr for those mistakes. This allows the firm to be much more price-competitive in a buyer’s market. The commenters who say that everyone wins in this situation hit the nail on the head.

One final comment: I can reasonably foresee someone claiming, “but, wait, you claimed that US BigLaw stood at the nexus of the global economy and is able to dictate terms and now you’re claiming that it’s a buyer’s market? How can that be reasonably defended?” Well, it’s simple. US BigLaw as an industry does indeed stand at the nexus; however, individual firms have the flexibility and need in a dynamic, competitive marketplace to offer their own terms to clients at that nexus. Currently, the market for legal services dynamic is not punishing (though, it probably isn’t rewarding much) BigLaw firms paying 160k to first year students…but this doesn’t mean this will always be the case. The firms like this one (and their employees), who have constructed creative solutions to the problems of associate-bloated pay stand in much greater stead at every juncture and turn in the dynamic economy. They are (currently it is) doing a great service to its new associates, its senior level associates/partners, and, most importantly, its client-base.

Last word: This post is null-and-void if I ever get an offer at one of those BigLaw shops paying 160k/year. It’s not likely, but if I do, please ignore this post!

In Canada, health care is distributed along what is called the “queue system” which is basically a fancy way of saying the “get in line and wait your damn turn without the ability to move ahead in times of necessity” system: you can’t say to the guy who’s waiting for a kidney transplant ahead of you, “um, excuse me sir. I really need this valve replacement. Do you think we can switch spots?” (Before you say, “well, we could have that adjustment,” you have to realize the existence of that possibility in the system would invalidate the entire system and just result in what we have now, but instead of choosing along lines of convenience in time, one would choose along lines of money spent on attaining the advanced spot in the queue, creating all sorts of distortions that would exacerbate the current problem.)

Can you think of another system that deals with matters of importance but has excrutiatingly long times between the raising of an issue and its settlement? Well, here it is: The American Civil Judicial System (or, “the judicial system” for further reasons of expediency). The Judicial system is supposedly accessible to all citizenry for all manners of disputes, be they minor or major, much like a universal health system would be; The important thing to realize here is that since the opportunity cost of filing a complaint in court is minimal to the plaintiff, and in many cases, results in unearned/untrue transfers of wealth to the plaintiff by the defendant (who might choose to pay off a settlement instead of incurring all the charges necessary in a trial, even if they are the righteous party). The court system is literally choked with what are probably unnecessary cases that may not even reach trial (nor were they designed to get that far in the original complaint), but probably will follow some of the procedural steps toward the final trial: thereby wasting the resources of the judges, clerks, lawyers, etc, when such resources could be better used in more pertinent cases.

But how would one decide the pertinence of a case? It is in this case that health care should be more like law/jurisprudence in terms of innovation. The latest trend in law (as far as I can see) is toward the use of “alternative dispute resolution” (mediation, arbitration) in instances where a full trial is unnecessary. Let me make a metaphor which may help with dispelling any confusion. Let us assume two points along an X-axis: Point A is “the free market approach” where participants decide how much health care they want and purchase as much, and Point B is the “egalitarian/socialist approach” where health care is supposedly available to all, but the rationing mechanism is the queue (first come first serve approach) instead of the pricing system.
US health care                                Judicial System
A———|->—————————<-|–B
Obviously nothing in the US would lie on either point in its entirety: However, one could see that current health care is erring on the side of Point A’s half of the axis, insofar that people decide how much healthcare they desire and pay (somewhat) for it accordingly. However, Healthcare is sliding toward Point B with the expansion of governmental insurance, etc and the demand for “universal access”. Meanwhile, the court system, by definition in the Constitution is heavily B-sided, insofar that people supposedly have “universal access” but the system operates along lines of a queue system where people traditionally have to wait long times between when the issue is raised and the issue is finally brought to court/resolved/decided. However, with the creation and utilization of “alternative dispute resolution” the system is operating more efficiently; at the same time, the alternative dispute resolution typically costs the parties involved some additional money in gaining access. Essentially, such an alternative provided people a choice to get out of the line (or never get into it).

So, here we have two very important topics that are operating on completely different dynamics while simultaneously they can learn much from each other, and much can be taken by comparing the two. Essentially, the imposition or creation of a full universal health care system would mimic the current judicial system: long lines, unnecessary wasting of resources, and no effective way to reveal preference (i.e. through pricing).

So you say you want universal health care revolution? Well, now you know…

Here it is: The Anglo-American common-law tradition can effectively be studied when one is in elementary school. Everything one learns on the playground is applicable to my introductory courses. For example, take the law of Property, and in particular the criteria governing valid inter-vivos gifts. The criteria is made up of 4 parts: 1) Capacity; 2) Intent; 3) Delivery; and 4) Acceptance. This means 1) The thing you are giving is yours and you know it is yours; 2) You want to give it to the person you are giving it to; 3) You are giving it to that person; and 4) He/She accepted it. We learn this on the playground. If you have a juice-box and you want to give it to Suzie, the juice-box 1) had better been yours; 2) you wanted to give it to Suzie and not Janie; 3) You handed it to Suzie; and 4) She gleefully accepted (glee not required).

Torts and remedies (civil actions to recover for injuries) are found on the playground: If Biff punches you in the face and takes your juice-box (on your way to give it to Suzie), you go and tell the lunch-mom. After she listens, she will most likely get your juice-box back and give Biff a time-out (or, as I’m rather familiar with, 10 minutes “on the wall”). This isn’t a crime, as time-outs are not typically documented. Now, if Biff really “went to town” on your face, and the lunch-mom sent him to the Principal, who subsequently suspended him, this would be criminal.

Even the most intricate/abstract of courses, Civil Procedure, is governed in large part by the rules of the Playground. If, after being hit and having your juice-box converted, you go to some other class’ lunch-mom who doesn’t know you or Biff, your “case” would most likely get referred to the proper “jurisdiction” for “adjudication.” If you don’t like the result, (because the lunch-mom is Biff’s aunt, or she didn’t let you speak, etc.) you can appeal on the merits to the  “appellate court” (your teacher). If you aren’t satisfied there (because the teacher is Biff’s cousin, or she didn’t give you a chance to talk) you could appeal to the “final arbiter,” (Dean/disciplining official/Principal).

This is not to say that Law School is worthless, or a waste of time, or any other potential inference–there are some important things that are obviously a bit more complicated due to the innate complexity of the real world vis-a-vis the playground. This thought is more of a reaction to the way my peers have been acting and talking in regards to  my classes, as if the study of law requires some sort of intellectual re-calibration. The common-law system seems simple and the core-concepts are rooted in reason and common sense: You cannot give someone something that is not yours; you cannot hit someone and take his stuff without expecting to be punished; you must go to someone who knows what he/she is doing to decide a case.

Law school may end up being one of the most fecund generators of ideas for this blog. I officially started on Monday (last Thursday and Friday most certainly DO NOT count. Orientation…bah!) and in my first class, Torts, I ran into an application of the Knowledge Problem Hayek and Sowell talk about in their most pertinent works (not to say their other works were irrelevant, but for reasons of this post, they will be treated as such). According to Professor A. the role of “Caveat Emptor” (”Let the Buyer Beware”) before the 1950s drove the courts to throw out many products liability cases. The Courts claimed that the Buyer was responsible to search any and all of his purchases for defects, and if one such defect occurred, it was the responsibility of the Buyer to have noticed it before he bought it. Seems reasonable enough, I think.

With the 1950s, and the increasing reliance on Mass Production/Manufacturing, courts began to decide in favor of the consumers, stating that the pervasiveness of the products/brands lulled the consumer into “a false sense of security.” Additionally, the courts cited that the manufacturers had processes that were completely hidden from the consumers, and that this prevented the consumer from finding the flaw/defect before the purchase of the good. While it was never stated in class, nor have I read any of the relevant cases (beside perusing the lead Professor A. gave me with Greenman v. Yuba Power Products (1963, Supreme Ct. of CA)) I think the issue for debate and examination is not a matter of contract or some other warranty; rather the issue is a fundamental example of the Knowledge Problem, and the disproportionality of the Knowledge between a Producer and a Consumer when the producer uses techniques of mass manufacturing, and statistical quality controls. What the rulings that shifted away from Caveat Emptor implied was that it was an inequitable accessibility to knowledge, and this inequality gave the producer such an advantage as to seem unjust.

But what if that inequality was erased? What if, as one of my astute classmates Chris B. put it “it was like the person could go down to the blacksmith and watch the horse-shoe being made like in the olden days?” Would that mean this concept of “strict liability” should be erased and a subsequent re-embrace of the principles of Caveat Emptor? I think so.

The Information Technology Revolution has diminished the marginal cost of information gathering and synthesis to near zero: nearly everyone has the knowledge of the whole world at his finger tips, and this includes knowledge about products and all their potential concomitant issues. The issue now isn’t what the information is, how to get it, or what to do with it, but, rather, how to look for it efficiently (an issue that is only resolved through trial and error), and this has no bearing on the issue of producer liability in the least. One can go to any website and/or Consumer Report and find all the relevant information and feedback for every type of good and even service desirable. With this being the case, why should producers now shoulder an inequitable burden without the additional inequitable benefit of knowledge superiority? Frankly, they shouldn’t.

Judgment is quashed and remanded to the trial court for re-trial…oops, I’ve been reading so many cases! My synopsis of Week 1 of Law School will be coming shortly!