Why Are Lawyers So Expensive Even With The Excess Supply Of Lawyers?

Traditional supply-demand economics assumes a 1:1 ratio where there is one buyer and one seller and there is some amount of economic surplus that the two parties play tug-of-war with. Traditional supply-demand economics works great when buyer and seller negotiate directly.

But in middleman industries, the middlemen can hop on either side, and play for either team. They are able to effectively scope out surplus from either or both sides, predatorize the weaker side with almost _no risk_ to themselves, and destroy a lot of the potential realized value between the original parties in their process.

So basically it creates a "parallel" economy where prices aren't determined by supply or demand, but rather by fear and a kind of high-stakes prisoner's dilemma between buyers and sellers where buyers and sellers bear all the risk and lawyers and agents reap all of the rewards.

This is generally true. However, there's increasing pressure from clients, not to simply push billing rates lower, but for flat-fee arrangements.

While in many areas of law the billable hour is secure [1], in many others there not only isn't a strong argument in favor of it, but clients are increasingly pushing back against it [2].

And I'm not surprised to see a successful lawyer completely ignoring it, even in a post that serves largely as a setup for his pitch about coming disruption. IME every lawyer who hasn't seen his primary clients insist on flat-fee billing would prefer to pretend the issue didn't exist. And those that are dealing with flat-fees, would prefer not to talk too loudly about it, for many of the prestige/traditional reasons behind the ever-increasing billable rate itself.

Now, most firms are structured in a way that can wrap their minds around a $400 billing rate and remain profitable without changing things too much -- indeed they likely already have attorneys making the firm money charging "only" $400/hr.

But a flat-fee is not only anathema to their pride, but largely unsustainable given their structures. Between the lines of those comments about "overhead" is the fact that most of it is unnecessary, legacy nonsense that has persisted solely because the billable hour warps incentives. [3] Most law firms are simply not ready for pricing that will require them to so optimize their internal operations. And this is where the real disruption will appear and where middle firms have an opportunity. [4]

[1] Mergers, acquisitions, litigation, etc.

[2] Legal zoom-type work, some ip registration, etc.

[3] Hourly billing rewards inefficiency. If an attorney can generate enough business to keep themselves and their billable staff busy for as many hours per day that they care to work, cutting the time it takes them to perform their tasks by 20% means they bill 20% less. Which means they need to go scare up 20% more work to merely maintain their previous revenues. And as generating new business is not itself billable, Attorneys tend to treat "increased efficiency" as "more work for the same money".

[4] They have some experience, less 'pride' clouding their vision, but sufficient revenue to fund experiments in innovation.

That's exactly the problem, regulatory capture of government protected guilds. It's exactly the same with Doctors and the AMA, or electricians, hell in some places even interior decorators.

If you've ever had to hire a commercial electrician, it's absolutely terrible. Once they pull a permit and start working, it's extremely difficult to replace them, and they know it.

Recently the general contractors in Georgia convinced the state to raise the net worth requirement for contractors. They are already required to have massive insurance coverage, so the only reason was to protect the incumbent contractors from new competition.

Anywhere you end up with government sanctioned guilds ran by industry or ex-industry people, you're just asking for regulatory capture and the resulting protectionism.

Also demand is static regardless of price changes. Quantity demanded is what changes. Apologies for the pedantry but don't want anyone reading too much here and making that mistake on a econ test :)