The Policy of the One Hoss Shay

Walter Russell Mead had about the same reaction (“Paul Krugman Gets It Half Right”) to the Paul Krugman column I remarked on yesterday and has about the same prescription:

Faced with this catastrophe, the Progressive mind can only echo Samuel Gompers’ cry for “More!” But the cry is doomed to be fruitless. The only thing that will help is more subsidies: aid to universities and to students to allow the unsustainable education bubbles to continue to rise; aid to states and local governments to pay spiraling wage and pension bills; aid to home buyers to stave off price collapses; and most crucially, massive aid to both health care providers and consumers.

Wrong. We need to reduce the ‘friction’ in American society: the costs of our legal, health, educational and other government services. Some of this will come through the use of exactly those abilities of the computer that Paul Krugman dreads: their ability to replace human beings for much routine office work. Making government (and private sector) bureaucratic payrolls massively smaller is what the general interest requires.

Bonus points to him for quoting Oliver Wendell Holmes’s poem “The Wonderful One Hoss Shay”, to which I’ve alluded here from time to time. It isn’t merely a feature or two of the Fordist system that’s in need of repair: all of its pieces are collapsing at once under the pressures of scale, globalization, technological innovation, and the sheer rate of change. Today’s world is too big, too fast moving, and has too many moving parts for central planning.

These things have a way of sneaking up on you. Attorneys initially resisted then embraced dictaphones, xerography, word processors, answering machines, personal computers, optical character recognition, databases, and automated text search. However, those technologies, sometimes in combination with off-shoring, mean that large law firms no longer need armies of associates. There is a danger here that I suspect the practice of law will not identify (since most other businesses have failed to recognize the analogous situations in their own business areas): senior partners were once associates and reducing the pool of associates necessarily narrows the field from which tomorrow’s partners will be drawn. Inbreeding and ossification are inevitable (not to mention consolidating power and income into far too few hands). It’s not merely that large law firms need fewer lawyers today. It’s that a single lawyer can do the work that might have required a hundred a few decades ago. Large law firms only exist to do serve the needs of large companies (and enormously wealthy individuals). Why do companies that outgrew their economies of scale hundreds of billions of dollars ago exist?