It’s time to continue the discussion on the current “attorney bubble” that we discussed in the last article. As an attorney, the bursting of this bubble could easily mean you’ll be out of business — if you’re not prepared.
It’s not too late, though; if you take action soon, it’s entirely possible to avoid getting hit as hard as those businesses who aren’t prepared.
But first, let’s catch everyone up to speed on precisely what the “attorney bubble” is, and why it’s such a big problem in the first place.
What is the Attorney Bubble?
A “bubble” occurs when the current market isn’t sustainable, with much of it based on an implausible future.
Or in simpler terms, when the current market size doesn’t match the economy’s future, you’re in a bubble. And often, people don’t realize they’re in a bubble until it’s too late — such as after it already bursts.
Let’s look at a few examples to get a better idea of what we’re talking about. Starting with the Dot-com Bubble
During the Dot-com Bubble, investors believed that businesses like Walmart were about to be put out by the internet. Because of that, loads of investors poured massive amounts into tech startups — assuming the whole world was going digital in a near-instant.
And as we can see now, things didn’t quite happen like that.
Notice the massive spike and subsequent drop? That’s what it looks like when a bubble “bursts.”
Or we can look back to the housing bubble that occurred a little over a decade ago, where many people operated under the assumption that prices were just going to keep rising. (Which, again, didn’t happen.)
In both of these situations, the market was operating under a false assumption.
In the first example, internet companies sprouted up like crazy, assuming that there’d be enough demand to support them all. In the second, people were making decisions as if prices were going to keep rising.
These are both classic examples of economic bubbles, and after those assumptions turned out to be wrong, the bubbles burst.
Bubbles are either fueled by exterior factors, general “market mania,” or a bit of both. For instance, the housing bubble’s cause was a mix of investor demand for subprime mortgages and cheap access to money.
When the demand dried up, and interest rates rose, that’s when everything burst.
On the other hand, the Dot-com bubble was due to easy capital access, a tax act, and some incorrect predictions for the internet’s future.
Is There a “Bubble” of Attorneys in the United States?
So now we know what a bubble is — a market that’s mismatched with future economic conditions. Let’s go over the numbers to see where the legal profession sits right now.
So, attorneys went from .25% of the population to .41% in that time — a relative increase of 64%. The problem? The demand for legal services didn’t increase at the same rate. From 1988 to 2012, the average solo practitioner’s income dropped from $70,747 to $49,130. (Adjusted for inflation)
All of this shows that the legal sector is growing at a rate that isn’t supported by the future economic conditions — which happens to be the exact definition of a bubble.
Need more proof? Let’s look at some numbers from the Bureau of Labor.
When we take a peek at the “legal services” sector (which includes lawyers, legal assistants, paralegals, etc.) from January of 1993, the sector as a whole employed 924,000 people. During that time, the country only had 846,036 lawyers. This adds up to around 78,000 more people employed in the legal sector than there are lawyers in total.
Flash forward to 2017, and the legal sector has 1,128,000 employees. The problem is that the attorney population had grown to 1,335,963 by that time. At this point, the number of attorneys outweighed the number of legal employees by over 208,000.
But what does this all mean? It means that jobs in the legal field are being created slower than lawyers are being produced. Which, again, is a key sign of a current bubble.
Just like the housing bubble caused home production faster than demand could catch up, more lawyers are entering the field than the market has any need for.
What Caused the Current Bubble?
Now that we’ve established that the attorney population has reached bubble proportions, it’s useful to know precisely why it’s happened in the first place. That way, we have a better idea of how to tackle the issue.
We can pin the creation of the bubble down to three main factors:
- The rise in automobile use
- The War on Drugs
- An overproduction of law schools
Before we get into these points, we’re not talking morals here or whether these things are good or bad. We’re just looking at exactly what’s caused the bubble.
First, let’s tackle the rise in automobile use. From 1921 to 1960, Americans jumped from driving roughly 55 million miles to 719 million. An increase of about 664 million miles over nearly four decades.
But from 1960 to 1980, the number of miles increased to over 1.5 billion, an exponential growth, which led to more auto deaths. (from over 36,000 to around 51,000)
This increase in auto accidents led to the creation of the modern car accident firm. The creation of these firms also called for more lawyers to fill the spots. This is further proved by the fact that in 2005, 35% of all civil trials were on vehicular collisions.
Since 2005, the number of car accident death has dropped by around 7,000 per year.
Again, fewer deaths to car crashes is an excellent thing — there’s no doubt about it. It does mean that any car accident firms are going to have less demand, though.
The War on Drugs
The second factor that fueled a massive increase in demand for attorneys was the War on Drugs.
By the 1980s, nine years after the war was started, the number of drug arrests in the United States had risen by a whole 126%. And from 1986 to 2011, there were more arrests related to marijuana than there were for all other violent crimes combined — leading to an increase of prison population from 300,000 to over 2 million in that time.
To say that the War on Drugs partially fueled the increase in demand for attorneys is a vast understatement. Just think of all the prosecutors, public defenders, and private attorney jobs created as a result of it.
With more and more states legalizing marijuana as time goes on, the number of marijuana-related arrests is going to drop significantly, which means that there’s going to be less demand than there is supply when it comes to attorneys in the sector.
Notice how cannabis arrests seem to be on the decline now, after peaking between 2005 and 2010 — this means a decreasing need for attorneys in that field.
The Overproduction of Law Schools
And the last of the main factors fueling the attorney bubble are the law schools.
As we explained above, the demand for legal services grew immensely between the 1970s and 1980s, and at that time, our system wasn’t producing enough attorneys to keep up. In 1960, the number of attorneys in the US was 285,933, only growing to 326,842 by 1970. And in the four decades leading up to this point, the US had only opened 46 law schools.
But with the increased demand for lawyers due to the aforementioned War on Drugs and automobile situation, the US had to meet the higher demand, leading to the creation of 81 law schools between 1970 and 2012.
Just like with the housing crisis where we built homes as if demand would never go down, the market produced law schools as if the demand for attorneys would never stop rising. And as we’ve mentioned before, this demand isn’t increasing forever; we’re starting to see the plateau and eventual decrease.
Why it’s so Important to Recognize the Attorney Bubble Now rather than Later
Why is it so important? Well, it’s due to one simple fact: Bubbles don’t burst calmly.
Think back to any of our previous examples. Take the Dot-com bubble, for instance. When that bubble burst, the NASDAQ lost 78 percent of its value in less than two years.
When things burst, it’s already too late to start taking action. The best way to make it through is by being prepared and proactive rather than reactive.
I’ve spoken to plenty of attorneys who aren’t aware of how dire things could get. Some of them even recognize that we’re in a bubble, but many think that they’ll have ample time to work things out as they correct. And I’m sorry to say, but that’s not how things tend to go when a bubble bursts. In the next 12-24 months, the attorney landscape is going to look much different than it does now that the fuel is going away.
Luckily for you, the first step to prepare is to recognize that the bubble exists. So you’re already part of the way there.
The next step is to realize the changes you need to make and start taking immediate action.
A good place to start might be a revamp to your marketing strategy — to put you ahead of the competition
Have you noticed the current bubble we’re in? Please let us know some of the changes you’ve noticed down in the comments below!