Friday, 23 October 2015 16:14

Understanding the Downtrend

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Understanding the Downtrend

Winkfield F. Twyman Jr.

Winkfield Twyman is a former law professor. Twyman is a graduate of Harvard Law School and the University of Virginia. His writings have appeared in The Pennsylvania Lawyer, Authorship, and Fellow Script.

If one trades stocks and commodities, one learns quickly that money can be made by "trading with the trend." Financial markets can travel in one of three directions. Either the market for sugar, for example, is going up. The market for sugar is going down. Or, the market is directionless. There are no other possibilities.

To make money you size up the trend. You might look over the past 12 months of price data on a chart plotting daily price moves from January through December. If the prices show higher lows and higher highs, you have an up trend. If the prices show a series of lower highs and lower lows, you have a downtrend. Astute traders will draw a line connecting the lower highs. This trend line becomes resistance for future prices. Prices should be repelled by the trend line until the trend is broken.

Knowing the trend is valuable information. Trends tend to persist until the trend line is broken. Trends persist because buyers and sellers are making decisions about their expectations for future prices. Downtrends suggest anticipation of further declines into the foreseeable future.

The subjective art of trend lines can help us understand the market for black law students. Like the financial markets, the market for black law students is defined by supply and demand. There are a finite number of African American law students and there is a measurable demand for black law students. Like the financial markets, mass psychology plays a role in the ebb and flow of the market for black law students. And like financial markets, the market for African-American law students must be going up, going down, or going nowhere.

There are no other possibilities.

What is the trend line for the market of African-American law students?

To determine the trend, let's review the numbers over a representative period of time. Using 1994 as a starting point is sensible for several reasons. The number of black law students appears to have crested in 1994, so we have a visual "peak" or high point for a trend line. The twelve years between 1994 and 2006 represent a full academic cycle comparable in length to the 1st grade through 12th grade period. The length of time is long enough to account for any year-to-year wiggles in the market. Finally, the 1994-2006 time period would capture the psychology of a second-generation affirmative action population. 1968 represents the beginning of an aggressive market for black students. If we presume that twenty-six years represents a generation, then the first generation of black law students since 1968 would have terminated as a demographic cohort around 1994.

What are the numbers?

First-year black enrollment peaked at 3,432 in 1994. Since 1994, the enrollment numbers have dropped 13% to 2,975. In percentage terms, the enrollment dropped from 7.4 to 6.6 percent.

Another way to see the lower highs and lower lows is by examining the number of Black law school admits on a yearly basis:















This market is in a decided downtrend. The highs-3,884 (1994), 3790 (1998), 3664 (2004)-are lower and the lows-3,535 (1997), "lowest level in 12 years" (2005)--are lower. If this market were the commodities market for sugar, a wise trader would sell short his holdings and ride the market down until the trend came to an end.

How long will this downtrend continue? No one can say. Markets continue downward until the psychology changes. Normally, trends change when no one wants the commodity or stock. As a result contrary thinkers who have the courage to buck the trend at its end receive the greatest profit.

Applying these insights from market psychology to the downtrend in the market for black law students, three observations can be made. First, African-Americans remain too bullish on law schools for the downtrend to end anytime soon. The feared downtrend is met with calls for redoubling minority-focused outreach and academic support programs. The assumption remains that more is better. Downtrends do not end when participants fight the trend. Downtrends in financial markets end when participants capitulate and discard the commodity or stock at all costs. The losses become too painful to bear.

Second, demoralization will set in as minority recruiters discover that they cannot fight resistance points. It's about psychology. In the financial markets, prices rebound up to the trend line only to be swamped by waves of selling. Demoralization sets in as the hopeful discover that the momentary correction was a lull before the continuation of the downtrend.

Imagine you are a Minority Affairs administrator. Your mission in life is to increase the numbers of black law students. In 1994, the future looked sunny and bright. The next year, things took a dip but you kept the faith. You remained hopeful. By 1998, you had gotten the numbers back up again, not as high as in 1994 but you convinced yourself that your hard work had made a difference. Now imagine your demoralization by 2005. The same thing happens in other markets for commodities and intangibles all the time. When participants become demoralized by resistance points at the downward sloping trend line, the downtrend is strengthened and prices collapse.

Finally, downtrends reward those who ride the trend. For whatever reason, the market for African-American law students is in decline. If more and more black law students viewed law school as a good thing, the numbers would be going up, not down. Wise African-Americans will use this time of a declining market to discover their real passions in life and cast their lot accordingly. The market rewards those who respect market trends.

Is a downtrend in the market for African-American law students unprecedented?

History tells us that there have been ebbs and flows in the market before. In Emancipation: The Making of the Black Lawyer 1844-1944 by J. Clay Smith, we can see a strong downtrend in the market for black law students between 1922 and 1936. These figures are based on the number of professional degrees granted African-Americans from Black and Northern Schools:

















Notice the series of higher lows and lower lows. The market achieved a high in 1922, a lower high in 1926, a still lower high in 1929, and flat out cratered in 1936. The psychology of the 1936 market for black law students must have been bearish beyond belief.

The economic data says as much. While twenty-five percent of Americans were unemployed during the depths of the Great Depression, a whopping fifty-percent of African-Americans were unemployed. For young blacks just starting out, finding any job proved elusive. Ninety-eight percent of blacks in the age category 15-24 were looking for work.

Today black students should take these lessons to heart. There are good reasons to just say "no" to law schools. Those reasons are economic.

First, signing up for law school requires too much debt. Let's take Thurgood Marshall as an example. When Marshall graduated from Howard Law School in 1933, he had no student loan debt. He also had no clients. Life was a struggle for survival. As one black lawyer put it, "[n]obody had very much money and what little they did have they weren't going to spend on a lawyer." To occupy his time, Marshall made a game of trying to guess what sandwich his secretary would bring to work each day. If he guessed well, that small satisfaction would be the highlight of Marshall's day.

Even as late as the 1970s, student loans were virtually unheard of because federal grants covered 84 percent of a student's tuition. The current Chief Justice of the Virginia State Supreme Court, Leroy Hassell, graduated from Harvard Law School with around $5,000 of total student loan debt. When I left Harvard in 1986, my student debt burden was about $40,000 (principal plus interest).

Today African-American law students are saddled with outlandish debt upon graduation. Some blacks owe over $100,000 to both the federal government and private lenders at market rates. Accounts of freshly-minted black lawyers carrying nearly $200,000 in total debt can be found as well.

This level of debt for a ten-year period only makes financial sense if you have a high expectation of a high income. Some students even consolidate their loans, so that the repayment period lingers for 15 or 20 years. Can black law graduates expect a comfortable lifestyle under these circumstances?

For the vast majority of black law graduates, the answer is a resounding "no."

If you are devoted to public interest law and social justice, for example, one discovers that these jobs average starting salaries of $36,000 a year. The Thurgood Marshall-like jobs will not pay our students $135,000 a year, the going rate at the very top law firms.

What is life like for a law student with about $100,000 of student loan debt and a $36,000 a year job?

If you run the numbers, our hypothetical student will be grossing about $3,000 a month in income. After taxes, social security, and other withholdings are removed from his salary, our student should be taking home $2,000 a month net income. Then the fun begins. $1,000 a month will be paid back to student loan creditors, unless the student consolidates his loans and extends his repayment over 20 years. This crafty strategy might reduce his monthly net by 50 percent but the student will increase his total debt obligation by nearly 50 to 75 percent. Let's assume the student pays $750 a month for rent, although in a large city, monthly rents might approach $1,000 to $1,500.

These debts do not leave much room in our student's budget for car payments, clothes befitting an attorney's position, furniture befitting an attorney's apartment, or even the bare necessities like food.

To survive, the typical black law student with hundreds of thousands of dollars in debt must work at a law firm. Unfortunately law firms require good grades. If the typical black law student has grades in the bottom tenth percentile of the class, the firms that pay the big bucks will not be knocking down his or her door.

Now, add into the mix the rabid desire of law schools to increase their rankings. To drop down in prestige is a very bad thing. You become less attractive to good law students. You become less attractive to great faculty. And you are less likely to attract the big firms to recruit at your school. The quickest way to boost rankings is to increase the average LSAT score for entering students. Such techniques are proving successful but they have a disparate impact on African-American applicants. Fewer and fewer black students are competitive as admissions standards rise out of institutional self-interest. This divergence of institutional interest and diversity efforts is a dirty little secret that no one wants to discuss. But the patterns are in place and they are accelerating the downtrend in the market for black law students.

Finally, even if our hypothetical student surmounts the hurdle of rising admission standards, throws caution to the wind and mortgages his future for the next ten years, and graduates with his class, he must pass the bar examination. As the economy becomes wobblier, bar examiners are lifting up the ladder for admission into the bar. Across the country bar exam rates are dropping. In California, perhaps only one-third of out-of-state attorneys pass the California attorneys bar exam. Even a less crowded state like Arizona has seen the bar passages rates decline from 81 percent in July 1997 to 65.1 percent in February 2006.

And remember-most black attorneys do not earn the lofty salaries at big law firms. Instead, the vast number of African-American lawyers land positions with the government where salaries hover at $62,000 on a starting basis. In other words, the typical black graduate with student loan debt over $100,0000 must live like a student for years. As a result, marriages are delayed. Children are delayed. And the prospect of buying a house is remote, if not out of reach.

If Harry S. Dent, Jr., the best selling market forecaster and Fortune 100 consultant, is correct in his economic forecast, we face a deflationary future. As the housing market continues to decline, people will feel less wealthy and have less home equity to bolster their spending. Around the year 2010, we should see a demographic tidal wave of baby boomers begin to remove their money from the economy as they retire in greater numbers. As the declining housing market continues and departing baby boomers slow economic growth, unemployment should increase with market demand lessening for goods and services.

The black law students who are now applying to law school will graduate in the Class of 2010. No one can forecast the future with certainty. But the market for black law students is sliding down a twelve-year downtrend for, most likely, economic reasons. Could the Class of 2010 students graduate into a severe economic slump where, rather than expanding, law firms would be scaling down to save themselves? And might grants to nonprofit, public interest employers dry up in a watershed downturn as well?

If we take lessons from the past we can see that waterfall drops in black student enrollment have followed boom times. Who in 1922 might have imagined the severe drop in black law graduates that followed for 14 long years? Might the future for the Class of 2010 be as grim?

Recent demand side efforts such as the American Bar Association's standard to condition law school accreditation on concrete results in recruiting blacks are misguided. The demographic and economic trends point towards times of economic distress ahead. African-Americans are already a poor people, possessing 9 cents in net worth for every $1 owned by white Americans. Why redouble efforts to saddle more black law students with suffocating debts as we approach the edge of an economic cliff?

Trends develop because market participants act upon expectations about the future. In the case of legal education, black students saw a bright future in becoming lawyers, particularly during the 1960s, 1970s, and 1980s when grants predominated over loans. As the economy recovered from the 1982 recession, the numbers of black law students gathered strength, cresting around the year 1994. Since 1994, black students have been recalculating the allure of a legal education and for good reason. Debt loads are increasing while public interest and government salaries have remained static. Out of self-interest, institutions are lifting the LSAT scores for admission, a move that strikes at the heart of a student community mired in the bottom tenth percentile of the class. And even if one survives these hurdles, ahead loom higher scores required to pass the bar examination.

While the competitive and those cut out for law practice will not be deferred, many black law students are uncompetitive at the front end. In a few years, the passionate debate about the need for law school diversity will be moot. Talk of diversity will seem ill-placed as private lending sources dry up and political interests are captured by a wave of retiring baby boomers. Like dominos falling in a child's game, these retirements will lessen the demand for corporate goods and services. As demand drops, lay-offs will commence. As the unemployment rate increases, fewer people will part with their hard-earned dollars. Demand for legal services will drop, thus adding to the angst of recently graduated students with hundreds of thousands of dollars in law school debt.

Under these circumstances, fear will develop and the idea of attending law school in a deflating economy will be a non-starter. Even the most die-hard minority recruiter cannot fight the force of economic deflation. If there are no black students to recruit because private and government loans are unavailable and government grants have run dry, law schools will themselves consolidate and downsize, leaving many minority recruiters out in the cold. Few black families will be positioned to pay in cash for a legal education during a deflationary period.

The mighty force of economic deflation will bring strong-armed diversity demands to an end. And the downtrend in the numbers of black law students will gather momentum.

What good can come out of this bearish future?

All markets cycle. Markets go through bullish and bearish trends. The market for black law students is no different. The year 2004 is roughly comparable to the year 1929 for African-American enrollment in law schools. We are passing the third peak, the third lower high of black law students in a downtrend. If I am correct, the years ahead and into the next decade will resemble the 1930s. We can already see pressures to raise standards and escalating financial costs producing a backlash among applicants. African-American males in particular are making other choices. Only 30 percent of the black law students at Harvard are male these days.

As the downtrend reaches its end, we will begin to see the silver lining. In the 1930s, black law professors were no nonsense. Teachers like Charles Houston, William Henry Hastie, George Marion Johnson, and Judge James Adlai Cobb worked hard to raise standards. And students like William Henry Hastie expected the highest standards of themselves. Hastie would serve on the law review at Harvard in 1930 and teach at Howard during the early 1930s. Thurgood Marshall graduated first in his class from Howard Law School in 1933. Oliver Hill graduated second in the same class.

Slackers did not survive. Only eight of the thirty-one first year students who entered with Marshall and Hill received a law degree. Both Marshall and Hill would prove pivotal to the Brown litigation effort. Marshall became the first African-American on the U.S. Supreme Court. Hill founded one of the oldest black law firms in American history. His firm, Hill, Tucker, and Marsh, continues to represent the interests of the black community as a new generation takes up the baton.

Judge Adlai Cobb taught law at Howard during the 1930s. Not only did he earn a fierce reputation for high standards in his classroom but he served as a model for engagement in the real world. President Calvin Coolidge nominated Cobb for the municipal court of the District of Columbia in 1926. From this position, Judge Cobb awakened black lawyers to the power of the bench. In 1930, for example, Judge Cobb ordered U.S. Senator Cole Blease of South Carolina to pay a $186 note to a South Carolina bank. Ten days after Judge Cobb's ruling, Senator Blease took to the floor of the Senate and railed against n____ judges. Cobb did not flinch. President Hoover reappointed Cobb to the bench and black law students saw the power of a law professor on the bench.

As the current downtrend continues, those passionate about and cut out for the law will continue to choose law school. These competitive students, like Hastie, Marshall, and Hill during the Great Depression, will choose law school regardless of the numbers. The black community needs more black lawyers passionate about the practice of law, not the making of money or status. And black law professors should loosen their grip on theoretical dessert like Critical Race Theory. Students will demand as much during hard times.

Of course, forecasters have been wrong before. Economists are known for speaking in terms of contingencies and probabilities. At best, market forecasting is rough guess work. But to his credit Dent displayed a keen eye in predicting the boom of the 1980s and the l990s.

Law schools must do more than take the money of black law students. Minority recruiters should provide a sober assessment of whether law school makes sense for individual students, a calculation that should take into consideration competitiveness, temperament, and financial risk. If law schools burden black law students with great debt at the edge of a foreseeable deflation, the damage to the black community will take years to repair. And the downtrend in black law students will become unstoppable until speculation in diversity is purged from the market. *

"Gratitude is a quality similar to electricity; it must be produced and discharged and used up in order to exist at all." --William Faulkner

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