About this blog

Aspects of law and jurisprudence are analyzed and critiqued, generally in terms of the POOP. Occasionally, non sequiturs!

Billable hours and the distribution of costs

Pretty much everyone involved in the legal profession in any meaningful way spends much if not most of his/her time trying to allocate costs. Whether you’re a judge structuring a judgment or consent decree, a litigator structuring a settlement, a transactional attorney structuring a deal, or a legislator or regulator structuring new rules or laws, you’re inevitably left with the fundamental question: “Who is going to bear the cost?” Indeed, any transaction between two or more parties (and even parties acting alone, if you consider externalities) implicates questions of cost distribution.

This is why it is absolutely mind-boggling to me that law firms – ostensibly the veritable pinnacles of rationality and enlightened self-interest – overwhelmingly employ a direct billable-hour model, a model which creates perverse incentives and uncritically distributes costs inefficiently and inequitably.

O, let me count the ways:

The cost-benefit divide

So we do a lot of cost-benefit analysis in our daily lives and in our long-term planning, and in everything in between. It's not always something we do consciously, and it can be hard to decide what counts as a cost and what counts as a benefit. Assuming you're past those initial steps, though, the whole point of doing cost-benefit analysis is, in economic terms, to get the best return on your investment. It's a ratio of the benefit you accrue to the cost you incur. If you have multiple options, you generally choose the one with the most favorable ratio.

It really starts to get wonky, though, because doing the cost-benefit analysis in itself costs you something. That is, one of the costs you incur is the time and effort you spend doing the cost-benefit analysis. This means that it sometimes seems rational to cut corners in the analysis, since cutting costs anywhere improves the ratio. Now, if you'll think back to your basic pre-algebra class, you'll recall that the value of a/b gets bigger when a gets bigger or b gets smaller. The potential problem, then, is that being less careful about the comparison lets you reduce b. Why is this a problem? Because the point of doing cost-benefit analysis is to choose between options, and doing the analysis carelessly reduces b by the same amount across the board. That is, it doesn't actually help you prioritize.

The interesting thing is that there are two really simple ways to be careless without appearing to be: one is to maximize a while ignoring b, and the other is to minimize b while ignoring a. And it's certainly true that, ceteris paribus, doing so would optimize a/b . Unfortunately, most of the time, all other things are not equal; forcing a change in a almost always drives a change in b, and vice versa. By focusing on a to the exclusion of b, or on b to the exclusion of a, we  make ourselves less accurate in our estimation of a/b .

Curiously, the two ways of "cheating" on cost-benefit analysis are exemplified in the two core handlers of funds in our culture. The entire narrative surrounding public money (money raised through taxes, government money) is focused on cutting spending (that is, on minimizing costs); there's never any consideration of the benefits accrued by paying those costs. This is why it looks rational, to some people, to constantly cut education budgets. The entire narrative surrounding private money (corporations), on the other hand, is focused on maximizing profits. The problem here is that profits are a function, but not a ratio, of costs to benefits – profits equal the benefits minus the costs. In many ways, this is a misleading metric – if your costs are $100 and your income is $150, your profits are $50 even though the ratio is only 1.5. On the other hand, if your costs are $10 and your income is $50, your profit is only $40 while the ratio is 4. (The converse of this, of course, applies to the cost-cutting attempts with public money.)

This means that making decisions based on either a or b to the exclusion of the other, or on an a - b metric rather than an a/b metric, can yield gross inefficiency. This, in turn, means that taking cognitive shortcuts when doing cost-benefit analysis is a generally poor way to reach optimal decisions.

Transcendental method vs. the internet blacklist bill(s)

Okay, so there was this guy a while back named Immanuel Kant. He was pretty sharp. He said a lot of things, and a lot of them were wrong, and we don't really know which ones just yet. Anyway, one of the things he came up with is called "the transcendental method." The transcendental method is a way of learning new stuff based on the stuff we already know. The way we usually do this is through deduction, wherein we draw conclusions by synthesizing statements we know to be true. You can think of the transcendental method as a sort of reverse deduction, wherein we derive true statements from the conclusions we're able to observe (or otherwise accept as true).

The textbook example of deductive reasoning is "All men are mortal and Socrates is a man. Therefore, Socrates is mortal." An application of the transcendental method here, on the other hand, would look more like this: "Seeing that Socrates has died, I must infer that Socrates was mortal." Another way of saying this is that "Socrates being mortal is a condition of the possibility of Socrates having died." It seems a bit trivial on this level, but is actually a really useful reasoning tool.

Now, let's look at law. Laws essentially come in two forms – prescriptive and proscriptive. Prescriptive laws mandate certain acts/behaviors, while proscriptive laws prohibit them (legal scholars also like to claim that there are "permissive" laws that explicitly permit you to do things – a quick run through the POOP, however, reveals that a permissive law is simply a prohibition on prohibiting a given act/behavior). Similarly, acts/behaviors come in three flavors: impossible, possible, and necessary (this is cheating somewhat, since it is necessary for me to breathe only insofar as it is impossible for me to not breathe; but for rhetorical purposes here, the spectrum suits).

System viscosity

So, our legal system is slow. Like, really slow. Even without taking into account appeals and the like, it can often take years for even legitimate cases to get from filing to trial. And even when we all agree that something we're doing is dumb to do or something we're not doing would be smart to do, consensus is slow to effect effects, wikiality be damned. Sometimes, this is tragic, as injustices persist despite widespread opposition. Other times, it's a good thing, putting the brakes on social change and protecting the public from its own fickleness (ironic that the inefficiency of the system makes it more efficient by avoiding the need for frequent revision). Most of the time, it just is what it is.

This is true also of the satellites and subsidiaries of the legal system, including all or most of its internal bureaucracy and infrastructure. An unfortunate consequence of this is that all bureaucracies take their cue from the legal one.

One of the clear and major downsides to highly viscous systems is that they quickly become unwilling or unable to accept inputs from outside the system; today, this is most obvious as new and powerful technologies are developed with increasing frequency while bureaucracies cling to how-we've-always-done-it. Which brings me to...

My Beef
Suppose for a minute that you're a landowner and you're looking to rent out one of your properties. A potential client comes to you and you negotiate terms until you both find them agreeable. You shake on it. You draft a contract outlining those terms in writing and present it to your soon-to-be tenant, who signs it, eager to move in.

"What's that?", you exclaim. "No, no, we'll have none of that scribbling. All you did was write your name! Anybody could do that, so there's no way to verify that you're the one authorizing this document. No, you run home and get your signet ring, and we'll drip some hot wax on the contract and then you can put your seal on it, and then we have a deal."

The metaphysics of rights

For the purposes of this discussion, I'm going to be talking about legal rights rather than moral ones. A legal right, of course, is a right which is protected or guaranteed1 by law; it is distinguishable from a moral right in that it has no normative element. That is, strictly speaking, a discussion of whether or not you have a legal right to X cannot involve questions of whether or not you should have such a right. The existence of  legal rights raises questions of "should" only to the extent necessary to balance competing rights and interests (e.g., my right to swing my fist versus yours to not get punched in the nose), but without access to some sort of objective morality or ethics.
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Now, when you bring a lawsuit alleging that your Constitutional rights have been violated, the court will engage in what is essentially a two-step inquiry:
  1. Does the right you're claiming actually exist? That is, is it a legal right, granted/created under the proper authority?
  2. If so, is your attempted exercise of that right a valid exercise?2
For rights enumerated in the Bill of Rights, the answer to the first question is simple. The second question is the one that raises the need to balance competing rights and interests. Because this part of the inquiry calls for a consideration of a variety of policy arguments, it becomes very easy for the court to sneak its normative judgments into its decisions.

The value of parsimony

Most of us are familiar with Rube Goldberg machines. In general, we find them duly impressive. But why? Because at every juncture – every time the falling domino frees the marble that bumps the needle that pops the balloon  there is a risk of something going wrong. We're impressed by the fact that they work, despite so many opportunities for failure. The more complex a system – the more entities it is comprised of  the greater the potential for error.

In many ways, "the law" is a Rube Goldberg machine, with myriad entities of various sizes and types  everything from judges to Congressmen to statutes to regulatory agencies to beat cops – rebounding off each other and setting each other in motion. Heisenberg would have a field day. So how is it that the mind-boggling complexity of our legal system doesn't yield catastrophic failure? It works (or seems to work, anyway) for three primary reasons:
  1. Huge margins of error. The system is so large, so complex, that it can essentially absorb a lot of individual failures (the marble missing the needle) without yielding system failure. I'm not convinced that this is an asset in what we like to think of as a system of justice.
  2. Layers upon layers of redundancy. If a cop drops the ball, the judge will catch it; if a judge drops the ball, the higher courts will catch it; if the judiciary drops the ball, the legislature will catch it; if the legislature drops the ball, the voting public will catch it (by replacing the elected officials, that is). 
  3. Too big to fail. Because the system is so large, and because it has grown organically over the centuries rather than being planned, it is riddled with internal entanglements that would give Otto von Bismarck pause. And because we've invested so much time and effort in our legal system, not to mention so much of our cultural identity and self-conception, everyone who might be qualified to change things has too much invested in the status quo.
While I don't think we'd have much luck dismantling the entire system and starting from scratch, even assuming that that would be a good idea, I believe that we could improve its functioning by keeping an eye out for unnecessary complexity and, where possible, reducing it. I'm going to use this blog as a venue to discuss some of the places in our legal system where we could benefit from some tightening of belts, so to speak.

Here's to simplicity.