Little Hoovers, Part-Time Employment, and Me

Paul Krugman is generally credited with coining the term “fifty little Hoovers” to refer to our state governments and the current economic crisis. The macroeconomics textbook says that when a recession hits, the government should implement expansionary policy, whether monetary – making cheap money available – or fiscal – borrowing money and spending it to compensate for falling private-sector demand. However, states have no monetary policy, since they don’t control the money supply, and they generally can’t engage in expansionary fiscal policy, because most have made it prohibitively difficult to borrow money and go into deficit. So in a recession, states tend to cut spending and raise taxes, which only compound the effect of a recession. Since most states’ fiscal years end on June 30, some of the effects of this belt-tightening should be hitting right about now.

One thing that states spend money on, but that people generally don’t think about, is legal services for poor people. I think about this because I am spending the summer working (for free) for a legal services provider in Massachusetts. In Massachusetts, like in many states, funding for legal services for the poor comes mainly from two sources: (a) interest on lawyers’ trust accounts (IOLTA) – that is, the short-term interest paid on money that your lawyer is holding for you for some reason; and (b) direct appropriations in the state budget.

Well, you can see where this is going. The Times had an article earlier this year about the impact of the financial crisis and the collapse in short-term interest rates on IOLTA money, talking about staffing cuts of 20% or more. Since then, things have only gotten worse. In Massachusetts, projected IOLTA funding has falling from $26 million to $10 million, and the direct appropriation was cut from $11 million to $9.5 million (it could have been as low as $8 million); put those numbers together, and you get a 47% cut in funding from our two main sources. (Those aren’t the only sources of funding, so the total impact may be less – or it may be more. I don’t really know much about the administrative side of things.)

We’ve adapted mainly through voluntary attrition and severe cuts in hours for most of the staff, but the real losers all over the country will be people who are turned away at the doors of legal services offices. Legal rights, it turns out, are a little like health care; they can be really important – if, for example, your landlord is trying to evict you, or if some government agency made a mistake in calculating your benefits – but you generally need money to defend them. And in this case, if the state doesn’t provide services to people who can’t afford lawyers, no one will.  I’d like to see what the free-market solution is here: maybe someone will suggest having lightly-regulated competition between legal insurance providers.

As an aside, most of my legal services organization is probably now “part-time for economic reasons,” a category that now makes up more than 5% of the work force. That may or may not constitute a drag on the unemployment rate when the economy finally turns around; Calculated Risk thinks not.

By James Kwak

31 responses to “Little Hoovers, Part-Time Employment, and Me

  1. Pingback: Friends of Dave (friendsofdave) 's status on Monday, 06-Jul-09 04:17:09 UTC - Identi.ca

  2. I guess those ads for personal injury lawyers on late-night TV, during NASCAR events, etc. are targeted at the wealthy?

    I would say the problem with our country is that we have too many lawyers (no offense). Also too many bankers. When a nation encourages its best and brightest to produce nothing more than financial products and lawsuits, its best days lie in the past.

  3. Carson Gross

    maybe someone will suggest having lightly-regulated competition between legal insurance providers.

    Nah. The Federal Government should become a single payer for all legal services.

    Problem solved.

    <smile/>

    Cheers,
    Carson

  4. Legal rights, it turns out, are a little like health care; they can be really important – if, for example, your landlord is trying to evict you, or if some government agency made a mistake in calculating your benefits – but you generally need money to defend them. And in this case, if the state doesn’t provide services to people who can’t afford lawyers, no one will. I’d like to see what the free-market solution is here: maybe someone will suggest having lightly-regulated competition between legal insurance providers.

    It’s becoming more and more clear that there really is no such thing as “society”, as the greed fundamentalists are throwing down the mask and revealing themselves in all their viciousness and ugliness.

    Health care is an obvious example, where a handful of entrenched interests are openly trying to prevent what all sane people agree is a deperately needed reform, the government reclaiming what is clearly a public function. It’s really amazing how even the MSM, desperate to present “two sides” to every story, is unable to accomplish that here.

    Rather, in article after article, where in discussing the public option they try to set up their standard “pros and cons of both sides” scam, they are utterly unable to explain what could be the downside for the American people. In every case they are reduced to saying it might harm the private insurance industry.

    IOW, every MSM article on the subject becomes an advertisement for this purely parasitic rent-seeking pseudo-industry. (Private health insurance adds literally zero value. It adds only cost and complexity. No decent human being defends it. It exists at all purely for ideological reasons.)

    (Of course an honest article would frame the article in a reality-based way: the public interest and basic human decency vs. an entrenched antisocial parasite.)

    And in James’ post here we see the same dynamic. The feudalists have finally come around to acknowledging the truth: that there’s no such thing as “the law”. Rather, as with everything you must ask, whose law? The answer is clear: the law is for the rich, for those who have acquired “property” in some usually dubious way.

    No one with the slightest shred of intellectual or moral integrity would try to claim you can have law if access to the law is dependent upon money. So when we hear armpit noises on the subject, we know we’re hearing from those who reject on principle “law” as anything other than a mercenary weapon.

    I suppose it’s good to have such clarity, or it will be good to the extent that the people come to understand this. The health care fight, with the Washington system (so-called “two party”) clearly far to the right and owned by feudal interests, with the self-proclaimed “Changer” also leaning against the public interest and the clearly stated public desire for Change, proves that the people will find no friend and no reform within this national political system.

    Meanwhile it’s clear that at every state level the preferred response to fiscal crisis will be to beat up on the weak, as we see with every cut to already threadbare public programs.

    So while government at every level can and should be working for the citizenry, it has instead, through feudal capture, become their enemy.

    But nothing’s going to change if people just sit there and take it. The worst part is how easy it would be to take back the country if everyone who needs this were willing to do it. The obstructions, all of which are purely political, would prove to be flimsy in the face of any political will on the part of the public.

    (The pipsqueak Hobbesians claim to want a pure free-fire zone in place of civilization. But how long would they last if we really had that? Not a day. What they really want is big, aggressive government, ponderously tipping the playing field, tilting every “market”, in favor of already-entrenched big interests, while the people, the environment, and every human value are thrown on the bonfire of gutter greed. Which is what we have today.)

  5. What, you mean you didn’t get a summer position at S&C or one of the other New York firms? Shocking! I guess when you demonstrate every day on your blog how little you know about finance — and how uninterested you are in learning the complexities of modern finance — that hurts your chances.

  6. What’s the matter Steve?? Wife forget to put blueberries in your Cheerios this morning??

  7. Perhaps it’s not the lack of interest in learning the complexities of modern finance, but rather the strong interest in simplifying those complexities. All those economic rents vaporizing… How horrid.

  8. As a guess to a free market solution, one possibility are lawyers that work on contingency fees (typically 1/3rd of any recovered money). One the one hand we may think it’s taking advantage of the poor, but knowing someone who does this for a living, I can also say that without people like that the poor would be in _much_ worse shape.

    Also, this has the advantage that lawyers have “skin in the game”. They are unlikely to prosecute cases that don’t pay off, and work hard to recover money for cases with merit. For the most part, this model has been limited to accidents/insurance claims. The model could be expanded. It would, however, not work for cases without monetary claims as the end goal. (many evictions, legal status paperwork, etc.)

  9. CBS from the West

    Skin in the game may be important. But which game?

    There is a huge perceived (and, I think, real) cost to even engaging in the litigation system to resolve a dispute. In one instance, I went to see an attorney about a situation in which I felt aggrieved. After telling me that the law was not on my side and I stood little or no chance of winning in court, he nevertheless offered to take the case on a contingency basis because the mere threat of litigation would induce the other party to offer a settlement to avoid the expense and hassle of going to court. I was appalled at this suggestion, and wanting no part of extortion, I dropped the matter. But many, I suspect, proceed in the same circumstance.

  10. Unfortunately, your focus on the legal services to the poor offered by states is limited. States are responsible for a host of social services for the poor, the sick and the old.

    I am a resident of the Land of Lincoln, Obama and Blagojevich. Our budget ($7 billion, $9 billion or $11.6 billion in the hole, depending on the source of info) is a terrible mess.

    Right now in Illinois, many, many social services will be drastically reduced, due to lack of money.

    http://www.chicagotribune.com/news/chi-ap-il-illinoisgovernor-,0,4825785.story

    So say good-bye to affordable daycare for families who are living below the poverty line (many of these families are single-parent families – and the only work that can be found is minimum wage work – try paying for childcare on that kind of salary.)

    Say good-bye to support for teen moms who’ve “chosen life!”

    Say good-bye to after school programs for at-risk youth.

    And say good-bye to a variety of senior services.

    (Budget is still a work in progress, so we’ll see, but people are losing hope.)

    We should all be terrified the Little Hoovers known as the fifty states will be turning into massive Hoovervilles if the economy doesn’t turn around soon.

  11. you have the right to remain silent. anything you say can and will be used against you. you have the right to an atty. if you can’t afford one, we will provide the cheapest, I don’t give a f@ck atty. we can find.

    No offense sir.

  12. FEMAvilles

  13. FEMAvilles – cuz we need more toxicity in America!

  14. While most commentary about government budgets has centered on the federal government, the real concern is the impact of the economic crisis on state and local government budgets. Unlike the federal government, state and local governments really do need tax revenue to finance their spending. As the economy has slowed, tax revenues have plummeted for these governments. All US states but one have constitutional requirements that dictate balanced budgets. However, even if this were not the case, states try to submit balanced budgets because markets punish deficits by credit downgrades and interest rate hikes. Hence, an economic slowdown forces states to tighten.

    Read more here:
    http://neweconomicperspectives.blogspot.com/2009/06/fiscal-storm.html

  15. This is a function of the system in the US. In the UK, the loser of the litigation pays the attorney’s fees for the winner, so it’s much riskier to sue when you think you have a weak case. It’s also much riskier _not_ to settle when you are defending against a strong case.

    But the UK system has its own perverse incentives. It makes it even harder for modest income folks to sue wealthy folks (or big companies). If the wealthy person loses, the legal fees of the modest income person are likely to be modest. If the modest income person loses, they could be bankrupted if the wealthy person deployed expensive legal services.

  16. Mark, like a lot of people you’re confused about the right to a lawyer thing. That’s only for criminal cases. Legal aid programs, like the program James is working for, help people with non-criminal problems, like child custody, eviction, foreclosure, health care denial and other such things. There’s no right to legal help in these cases, though there should be. If your local legal aid program doesn’t have the money to help you, you’re on your own. There’s no balanced scales of justice when one side has a lawyer and the other side has none. And in these kinds of cases there’s no contingency money to attract private lawyers either.

  17. You need to read How To Win Friends And Influence People. Your starting point is to say that those who do not agree that health care must be a public function are not “sane,” and that defending health insurance is “indecent.” Funny, I’m not inclined to listen to your blathering arguments after that introduction.

    Actually, there isn’t any perfect free market solution to health care or legal services, just as there isn’t a perfect government solution. We have varying degrees of imperfection.

    Right now we cannot afford our legal system or our current health care system. We cannot afford a government solution either, unless you’re willing to ration medical services and legal services.

    Until we learn to live within our means, whether you adopt a public model or a private model, the point is moot — we’re screwed.

  18. Perhaps more people should have gotten behind a Sales Tax Holiday as part of the stimulus. Since it would be phased out eventually, it also provided an incentive against deflation. Here’s the plan:

    http://blogs.wsj.com/economics/2009/01/05/state-sales-tax-cuts-get-another-look/

  19. “Legal rights, it turns out, are a little like health care; they can be really important – if, for example, your landlord is trying to evict you, or if some government agency made a mistake in calculating your benefits – but you generally need money to defend them.”

    This is a great point as it underlines the fact that many of us go about our lives assured of this right or the other, never once considering that money and its exponential relationship to time can be exhausting if not prohibitive in the legal arena. Small businesses and technology concerns come up against this fact when infringement enters the picture. Often, time and its related billable hours conspire to rob little companies with the law on their side, not of their day in court, as most can afford a day; the problem is, days quickly turn to years and the corporations know this.

    I suspect the Founding Father’s never once considered how placated the population would be, merely believing their precious rights assured. Sadly this is not so. This country loves the term humane and civilized and in so many of our endeavors we are far from the mark. Of note is that so many of us, who can count ourselves among the “haves” today, forget that Tomorrow excels at changing fortunes. Especially the fortunes of those of us subject to time. Unless all of us are protected, none of us are.

    Healthcare, legal rights, and education of an entire nation are being affected for all. Its astonishing that we have all these discussions about nationalizing corporations, but only when business is expected to give something back. Corporate America, is for Socialism in everything except profits. When they pollute water tables, soil and the entire environment, are not the side effects felt by all and so socialized. People who have nothing to do with those companies are touched by them when they drink the water and breath the air. Even now, elementary students, who’ve never been in the job market, are affected by the poor decisions of Wall Street. When their teacher’s are laid off, there’s serious familial medical complications or family involvement in the courts; they are experiencing the socialized side effects of corporations. We need to be honest with ourselves and admit that corporations socialize everything but profit. They don’t have separate water and resources they pull from that don’t deplete our own. No, what they use belongs to us all. When things go well for them, very few of us are directly enriched. Let things go bad however and very many of us experience very real and very destructive consequences. Whether cancer, near everything simply being priced out of reach, or a glut of the previously employed, almost homeless, used to be upper middle class beating the streets looking for work with everyone else corporate america laid off, for its transgressions as it continues to reward itself for poor performance, believe me, they socialize all of the bad.

    This is a scary thing, because the courts are the place where all things are settled or at least a place of last resort. Other than murder or some other gross personal wrong, where the states all too willingly, sometimes overzealously assail individuals for the purpose of protecting the public, states aren’t always nearly as effective at going after large entities and corporations that can really do the ‘true’ public a lot of harm at scale. So, if you can’t afford a good lawyer, I hope knowing in your heart that you are in fact right, will be enough, because it will be all you have.

  20. eric: “Actually, there isn’t any perfect free market solution to health care or legal services, just as there isn’t a perfect government solution. We have varying degrees of imperfection.”

    Hear, hear! :)

    “Right now we cannot afford our legal system or our current health care system. We cannot afford a government solution either, unless you’re willing to ration medical services and legal services.”

    Well, under our current system both are rationed, anyway. Legal services are even more rationed than medical services, it seems.

  21. Stats Guy: “As a guess to a free market solution, one possibility are lawyers that work on contingency fees (typically 1/3rd of any recovered money)”

    How about contingency fees for health care? E. g., bills to be paid off over 5 years, if the patient is alive. ;)

  22. D. Christopher Leonard

    was it not Marx and Engels who noted that the state is the executive committee of the bourgeoisie?

  23. That’s hilarious. I wonder if an escrow system could be fashioned so that it would work.

    But perhaps there are kernels of this idea that could be used. For instance, Medicare could compensate scanning at two rates:

    rate 1) Marginal cost of providing the scan (no profit). This is paid when the scan is conducted but nothing is found.

    rate 2) A highly profitable rate. This is paid when the scan is conducted and something is found. However, to receive compensation, the doctor must submit radiological records electronically for verification (and 1/10th of scans are audited, with penalties being applied for lying, including possible revocation of license to practice).

    Benefits: No incentive to over-treat, and high incentive to treat patients who are likely to need treatment.

  24. StatsGuy: “Medicare could compensate scanning at two rates:

    “rate 1) Marginal cost of providing the scan (no profit). This is paid when the scan is conducted but nothing is found.

    “rate 2) A highly profitable rate. This is paid when the scan is conducted and something is found. However, to receive compensation, the doctor must submit radiological records electronically for verification (and 1/10th of scans are audited, with penalties being applied for lying, including possible revocation of license to practice).

    “Benefits: No incentive to over-treat, and high incentive to treat patients who are likely to need treatment.”

    Interesting idea. :)

    My grandfather was a doctor, and he actually did treat one patient on a contingency basis. For a while he lived near a lawless, rural area, and one afternoon he was driving his buckboard home when out of the trees came three armed men on horseback, a man and two of his sons. A third son had been wounded in a gun fight, and my grandfather was told, just like in the movies, “If he lives, so do you.” Fortunately, he did. :)

  25. 1stboybandfan

    Trust me it hit, I am worried about the economic future of northern states like where I live. Where small businesses go belly up so fast these days, and I think everyone should read money saving and good investment books, as well as law books. As for lawyers they get paid on comission mostly anyways and in most cases, you can go online to websites to find affordable ones, and even have stuff done like registering a business. Besides, I have seen enough contracting fraud on fan websites from the last teeny bopper boom before this one, even my haters can’t screw me since I spent the last 6 years learning better skills and thinking, as well as laws online and off, from the libary, etc. Also, your lying, because what your stating is illegal in almost all of the US, provenices maybe, but the rest of the US, they can’t because then people can sue the goverment over someone else’s crimes and that is bad, so please, get your facts rights and stright, I know I do. Also, save the libaries.

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  27. CBS from the West

    A very interesting idea, indeed. It would need further refinement. There’s no real value in a scan that turns up something for which there is no effective treatment. So the high rate would have to be restricted to scans that uncovered something that is treatable in some meaningful way. Also, one would have to actually review not just the scan but a whole record and history of scans to be sure we aren’t just re-scanning something we already knew was there.

    There are probably dozens of other ways this system could be gamed, but it does seem to have an essentially good core idea: pay more for the test when it generates value. With enough structure it might actually work!

  28. “The macroeconomics textbook says that when a recession hits, the government should implement expansionary policy, whether monetary – making cheap money available – or fiscal – borrowing money and spending it to compensate for falling private-sector demand.”

    Should expansionary monetary policy say attempt to create more private debt on the lower and middle class?

    Should expansionary fiscal policy say attempt to create more gov’t debt?

    Can too much debt lead to falling private-sector demand?

    Is there already too much debt???

  29. One part of the solution should be debt forgiveness of educational tuition in exchange for a specific number of pro bono hours per week for the decade after graduation. In addition, perhaps there could be tax forgiveness for those who also choose to work in underserved areas. Both the tax forgiveness and debt forgiveness could be aimed at specific specialties, so that we don’t see the country flooded with corporate lawyers.

    I also see this as a viable part of the solution for our lack of primary care physicans and geriatritians (sp?), and for bringing badly-needed medical care to places in the country (like Indian reservations, city slums, and poor rural areas) that are already part of the rationing that is the great “free market”.

  30. You are confusing expansionary monetary and fiscal policy.

    Expansionary fiscal policy with contractionary monetary policy (aka, Reagan) creates debt.

    Expansionary monetary policy tends to create inflation, which wipes out existing debt but generally increases future interest rates.