The Market for Ideas vs. The Market for Services

There's been a lot of discussion lately regarding restrictions on advertising for lawyers. Allison Shields has an interesting post on November 20, 2006, New Restrictions on Advertising in Florida.

Bruce Marcus has two excellent posts on this topic, the first from September 25, 2006, Rushing Back to the Past: The Proposed NYS Bar's Rules on Advertising In a Time Warp. Marcus claims the famous Bates decision from 1978 was the Declaration of Independence for professionals, and I agree with him. More importantly, it was a boon to the customer of legal services.

The fact the Bar Associations opposed lawyer advertising shows you exactly where their interests are. It's not to protect the public from the profession, it's more about protecting the profession from the public, and open, unfettered competition. As Milton Friedman so often taught us, competition is the best way, ultimately, to protect the public.

The second post from Bruce is a letter to the NYS Bar Association, which cogently explains his arguments against the proposed changes in the advertising code for lawyers.

He makes some very compelling arguments, including:

Lawyers who lie or misrepresent will not long succeed or sustain. The acoustics of the marketplace will ultimately catch up to them. Moreover, there are laws aplenty to deal with this kind of chicanery.

At the same time, the proposed rules seem to lose sight of the ultimate objectives of ethical codes, which are not merely to protect the integrity and reputation of the profession, but to protect the clientele—the consumers of legal services. In reading the proposed rules, I get no sense that this aspect of regulation is adequately addressed, in which case the rules are inadequate to the needs of the 21st century practice. I suggest that integrity is not addressed by rules, but rather by behavior, which, unfortunately is too often too nuanced to regulate beyond empirical observations of right or wrong. Here, too, the marketplace (as well as existing criminal law) will do more to adjudicate behavior than will excessive regulation.

It's not regulation that prevents a lawyer from claiming that he or she writes better briefs, or is a greater silver tongued devil in the courtroom. It's that these claims are patently unprovable, and too outlandish to be expected to be believed.

Bruce's posts got me to thinking about Ronald H. Coase, the 1991 Nobel Laureate in economics. He wrote a great little book, Essays on Economics and Economists, where one of his essays is titled, "The Market for Goods and the Market for Ideas."

As usual, economists cut right through the clutter, and get to the heart of the argument. All of this self-serving gobbledygook about protecting the public is put to the test by watching what people actually do, not what they say—revealed preference in economic parlance. Coase's logic is penetrating:

...in the market for goods, government regulation is desirable whereas in the market for ideas, government regulation is undesirable and should be strictly limited (pg. 65).

I do not believe that this distinction between the market for goods and the market for ideas is valid. There is no fundamental difference between these two markets and, in deciding on public policy with regard to them, we need to take into account the same considerations. In all markets, producers have some reasons for being honest and some for being dishonest; consumers have some information but are not fully informed or even able to digest the information they have; regulators commonly wish to do a good job but are often incompetent and subject to the influence of special interests, because, like all of us, they are human beings whose strongest motives are not the highest (pg. 72).

Or consider the question of consumer ignorance which is commonly thought to be a justification for government intervention. It is hard to believe that the general public is in a better position to evaluate competing views on economic and social policy than to choose between different kinds of food. Yet there is support for regulation in the one case but not in the other (pg. 73).

Given the history of Nazism and Communism, it's obvious that ideas have killed far more people than faulty products and services. Yet no one would deny me the right to enter a library or bookstore and buy a copy of Mein Kampf or The Communist Manifesto.

Why do we have faith in the market's ability to reject bad ideas—embodied in the First Amendment—but not bad products and services?

It's a great question, and more importantly, it's the right question. The restrictions on lawyer advertising are just the manifestation of asking the wrong questions. I'd love to hear the NYS Bar Association's answer to Coase's question. Wouldn't that be interesting?