The blog from which this article came is co-written by a friend of mine: http://traiberman-li.blogspot.com/2010/03/recipe-for-prestige-li.html. Thanks to Eric for the link.
One of the things that has been rehashed a number of times has been how much larger the finance sector has gotten as a percentage of GDP. I'd present another interesting factoid, which is that something like 25% of Ivy graduates end up in law school, and another 10% or so in finance. An additional 10%, or thereabouts, start off in consulting, and then either transition to normal industry or stay in consulting.
Law and finance are both areas that are essential for the proper functioning of the economy, but unlike other areas (general business, science/healthcare, etc), we have many more smart people going into those fields than we actually need to ensure proper function.
This problem seems to my eyes to be more pronounced with law than finance. While excess M&A banking tends to be largely unproductive (and at times destructive), it's a small absolute number of people. Day trading is also highly unproductive and at times destructive, but it's also a small number of people. Law is a very, very large number of people, and excess law is often destructive - to the point where people can actually alter their behavior to be more extreme and less beneficial because they know that legal action is an option.
Simple solutions are supply-demand oriented.
1) Institute "loser pays" litigation, in which the loser of a lawsuit has to compensate the winner of a lawsuit some percentage of legal fees. This presumably reduces litigiousness by people who know they will lose but wish to stall. That should reduce demand for lawyers and thus get people out of law. This system is used in much of Europe, with relative success.
2) Corporate board reform. Proxy voting should be illegal. Additionally, the CEO, CFO and all board members should be significant shareholders, and should be forced to commit to holding those shares for a very long time. Board members should not be paid. The problem with this, of course, is that it encourages executives not to work for "turnaround" companies, which means that the "shareholder" provisions shouldn't be as strong for CEOs and CFOs. If board members have enough teeth and enough incentive to regulate the CEO (through large ownership and a lack of reciprocity related to the fact that they're not paid), it shouldn't matter. (These steps may be valuable in fostering further long-term focus in companies, which would mean better research positions and higher pay)
3) Turnover taxation to minimize day trading and thus, the people employed in day trading. Details here: http://tfideas.blogspot.com/2010/01/how-to-deal-with-high-frequency-trading.html
4) enforcement of antitrust provisions (reducing M&A banking and making profitable startups easier).
5) tax-advantaged venture capitalism
Finance and law seem, at least in my experience, to pick up different subsets of the population.
To get fewer people into law, you need to either make law less attractive to that group, make alternatives more attractive or change the fundamental way the group perceives jobs. This isn't any sort of negative reflection on their character - given the set of options they had, law was the most appealing choice. But I have to wonder if they wouldn't have ended up happier (and society better off) if they had better options.
Making law less attractive is challenging, but still somehow "easier" than the others.
This is anecdotal, but most (certainly not all, but most) of the future lawyers that I know majored in either "soft" social science (political science/government, anthropology and history, as opposed to the "harder" psychology and economics, with sociology somewhere in the middle) or humanities (philosophy, English, etc.). A large number of people I know who ended up in law school are doing it because they wanted a stable, low-risk job that was guaranteed to pay well.
Some of them were genuinely interested in the study of law, and I presume those people would have ended up in law school anyway (this most probably applies to everyone who entered law from more quantitative backgrounds - engineering, economics, etc - as well as a number of the more academic people I know). But a number of them did it because it was the one high-pay, low-risk option that did not require the quantitative skills they had never acquired.
There are a few different ways law could be less attractive, but none seem very easy to engineer. One method would be to bring the quantitative skills in law up to par with the quantitative skills of other options, making it less attractive to those who aren't quantitative. There are a number of ways to do that. The first way would be to require lawyers to be more quantitative. The easiest way to do that would be to incorporate statistics, math, etc into the bar exam, because that's something nobody can ignore. Incorporating it into the LSATs would be less useful, because law schools could ignore it. Attacking law school curricula to require more math or quantitative skills would be fine for public universities or for schools/students that rely on public grants, but ultimately, schools have their own curricula and top-down engineering of that probably isn't a great idea.
Conditioning federal scholarship money on not going to law school is another option (if you go to law school within 5 years of graduation, you have to pay back the scholarship money). Reducing federal financial support of law schools is a third way.
A final way would be pressure on some standards boards to encourage "contingency" payments instead of billable hours. Making law a less "safe" profession would drive away people who are simply looking for safety.
If none of these seem particularly appealing options, that's because there isn't really a single "silver bullet" policy apparent to me that would actually successfully reduce the number of people going into law. A combination of the above, however, would probably do the trick. Ideally, however, you wouldn't redistribute by making law worse, but by making other options easier.
Marketing and PR are other jobs that require education but little quantitative skills, and general management works as well. There aren't easy ways to make these more appealing than they are, except perhaps to get them more exposure in undergraduate life. A better option would be to require students to pick up math skills so they feel confident enough to do other work. Undergraduate curricula are usually woefully weak in teaching quantitative skills to non-quantitative undergrads. A degree of pressure (by states on public schools, and also on funding) to strengthen the quantitative curriculum for humanities and soft social science majors could be beneficial (and if that means that quant kids need to take more writing or philosophy, that's not a bad thing). Offering better funding or more funding for people majoring in different areas could be beneficial, as well. This goes against the "be free and study anything that captures you" philosophy of colleges, but sadly, students who are free to study what they want will tend to shy away from classes that are harder, more work or grade poorly. Your typical math or science class is harder and grades lower than your typical humanities class, so students move away from that. Standardizing grades across majors probably isn't fair, because you probably should see more math students get A's than cultural studies students get A's, for the simple reason that to even select math you have to be in a better cohort. Currently, the reverse proves true.
Finance is a wholly separate case, because typically, the people going into finance number among the most quantitative undergraduates, not the least. Finance pays a great deal, entails a lot of responsibility and looks good on a resume moving forward. Unlike law, many people who go into finance don't intend to stay in finance. After a few years, many look for other career paths (often, ironically, law school, as well as business school and its associated careers). Finance is also one of the most brutal career paths out there - long hours, no security or stability, lots of travel, etc. So short of cutting pay or responsibility, there's not much you can do to make finance itself a worse option for those going into it. Government intervention in private salaries is a massive political landmine, and it would certainly be misapplied. Thus, reducing demand for complex finance is really the only way to pressure people out of finance. This could occur through standardization (sticking derivatives on exchanges, for example, or making it harder to complete mergers and acquisitions, and the "turnover tax" listed above).
Improving outside options is more of a possibility here, though. Firstly, finance people are often somewhat less risk-averse than lawyers (though still often are risk averse), and secondly, there are more high paying other-options. One possible alternative would be medicine, but the current system of HMOs and Medicare has been eroding the attractiveness of medicine for a decade and a half. Venture capital is a societally constructive option (hence the proposal above to reduce taxes on it). Startups would be wonderful but they still have too much of a "lottery" component to be a successful option for those who would otherwise go into the much-more-secure finance sector, but these would accompany venture capital. Patent reform would need to occur to incentivize the research required for startups, and R+D tax credits would be useful as well. I've outlined these in my "government priorities" posts, among others.
There are certainly "educational" and university-structured options I'm not considering.