Posted by on January 5, 2017

What happened to legal reform, particularly of tort law, as a major political issue?

Maybe it was just because I was growing up with a lawyer as a father, but I remember legal reform being a big part of the political conversation of my youth.  Yet, I cannot remember a single time it was discussed during the 2016 elections.  It certainly never made the presidential debates.

This is worse than a pity.  Because legal reform could greatly help with some of America’s biggest problems.  The crazy standards of medical malpractice are certainly a major factor behind the excessive cost of healthcare.  Foolish product liability suits increase costs and reduce innovation.  These are not secrets.

Legal reform is also very good politics for the Republican Party.  As Paul Krugman acknowledges, the Democratic Party is “a coalition of teachers’ unions, trial lawyers [emphasis mine], birth control advocates,….”  I have previously lamented the failure of the Republicans to exploit the political opportunity created by the stranglehold that teachers’ unions have over the Democrats when it comes to the civil-rights crime called “public education.”  Legal reform is another stick with which the Democrats should be beaten.

The American legal system took early lessons from England.  It is time for another round of learning.  Having experienced both systems, I can assure you that, like their acting[1] and taxi driving, the English do law much better than we do.  Many of the suggestions below already form part of the UK system.

I am sure that someone like Richard Epstein (a spooky smart and pragmatic libertarian legal theorist from NYU, the Hoover Institution and the University of Chicago) could do an even better job of it, but here is my list of changes:

  • We need to improve the quality of judges by replacing judicial elections with appointments. I don’t know how the appointments should be made, but England and other countries probably have useful lessons for us here.  If it is also necessary to increase the amount we spend to get more and better quality judges, then we should do this.  The gains in economic efficiency from a faster and more competent legal system will easily outweigh the extra expense.
  • Although I don’t know the American legal system well enough to say whether this isn’t already (de jure or de facto) happening, we should consider establishing specialized commercial courts, as many European countries have, to hear business cases. Judges in these cases need economics, business, finance and accounting training, in addition to law, and would ideally have some real-world experience.
  • Jury trials should be restricted to only serious criminal matters. There should certainly not be any jury trials for civil cases.  This will greatly improve the quality and consistency of judicial decisions.  It will also speed up the legal system since it won’t be necessary to empanel juries or “dumb down” the presentation of evidence.
  • Most important of all, we must implement a system of “loser pays.” Until we do this, we will have a legal system that is nothing more than legalized extortion.  This is doubly important to offset the incentives of contingency fees; the upside of the contingency fees must be balanced with the downside of having to pay for a losing suit.
  • We should liberalize the market for third-parties to provide financial support for lawsuits, particularly in an environment of “loser pays.” There is no reason why independent parties should not be allowed to “invest” in lawsuits.  This will provide an important market test for the validity of the litigation.
  • There is a strong incentive argument for triple-damage (or some other multiple) awards in situations where the probability of being caught and ordered to pay damages is less than 100%. However, there is no reason why anything above actual damages should be granted to the private litigant.  The excess should be treated as what it actually is: a tax designed to discourage certain behaviors.  Like all taxes, it should be collected by the state.
  • Liability standards need to be redressed. For instance, in medical malpractice, doctors are held to an unrealistically high standard of care.  This forces them to practice defensive medicine, ordering tests and procedures beyond what a “reasonable” practitioner would require.  This bumps healthcare costs and should be stopped.

In addition to the efficiency gains, these changes will have two other major benefits.

As I have commented before about financial services, our legal system diverts some of our best human capital into fundamentally unproductive activities.  Like banking, the core activity of providing an efficient legal system is absolutely necessary.  But our bloating and largely parasitic legal system is now drawing away resources that would be much more usefully employed elsewhere.

The other benefit is more subtle.  There is nothing more corrosive to a society than the loss of a sense of fairness and justice.  The legal system is not the only way in which this can occur but it is certainly a major factor.  Like the welfare system, this is another area where the loss of legitimacy causes a “tipping point” where even the fundamentally moral feel they have to join the cheating just to get a fair shake.

French Presidential Election

For those of you who haven’t been paying attention, the odds-on favorite to be the next President of France is that rarest of things: a French politician who understands the meaning of laissez faire.[2]

His name is François Fillon and he was formerly a workmanlike Prime Minister during Nicolas Sarkozy’s exercise in presidential form over substance.  Among other things, he wants to repeal the notorious 35-hour work week, shrink France’s over 3000 pages of employment regulations to less than 200, and cut 500,000 employees from France’s bloating government sector, which consumes 57% of the country’s GDP[3].  He openly compares himself to Margaret Thatcher, whose name is usually only invoked as an insult in France.  And not just because she was English and doggedly unstylish.

All of this is long overdue.  But there is a dark cloud to this silver lining.  Fillon’s likely opponent in the run-off round of the election, in the highly probable case that no one obtains a majority in the first round, is Marine Le Pen of the National Front.  The Socialist and Left Front (former Communist) Parties will urge their supporters to vote for Fillon in the second round to stop Le Pen.  But Fillon’s free-market positions make him an easy target for the National Front’s brand of fascist populism, which is already very popular with the lower classes.  So the good news of Fillon comes with a heightened risk of a Le Pen victory.

This would be an earthquake in the heart of Europe and the West, far exceeding the impact of Brexit or Renzi’s loss in Italy.  Or, for that matter, the election of Trump.  Among other things, Le Pen has promised a referendum on France’s continued use of the Euro.  She also has a lot of bad things to say about immigration and the Schengen passport-free zone.  Le Pen’s election could easily be a fatal blow to at least the Euro and possibly even the broader EU.

The first round of voting is scheduled for April 23rd.  The second round would take place on May 7th.  Watch these dates.

Roger Barris

Weybridge, United Kingdom

“By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s” by Paul Krugman in 1998 and To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the NASDAQ bubble” by Paul Krugman in 2001, who is still A Thing only because he has a Nobel in a specialization unrelated to nearly all his comments and is willing to tell the liberal media what it wants to hear

“I think the idea that innovation is slowing down is one of the stupidest things anybody ever said” by Bill Gates, who probably knows a bit more on this subject than some of the economists who are saying that economic growth is dead

 

[1] I am sure that you have noticed the superiority of English actors and actresses.  Part of this is the greater command that the English have of our shared language.  But the major factor is that, as anyone knows who has had significant experience with the breed, the English do nothing but act from the moment they are born.

[2] At least when it comes to economics.  Fillon is a traditional Catholic conservative when it comes to many social issues, but he has no intention of touching abortion rights or the recently passed law on gay marriage.

[3] By this highly meaningful metric, this makes France a more socialist country than Denmark.  Quick, someone tell Bernie Sanders!

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Posted in: Foreign Affairs, Policy

Comments

  1. Neil Winward
    January 5, 2017

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    Book recommendation – on the theme of mass incarceration and some of the worst aspects of the US legal system – The New Jim Crow

    • Roger
      January 5, 2017

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      Thanks. Although this blog post was mostly about changes to tort law, which hasn’t received much attention while changes to criminal law and sentencing have been pretty widely discussed, this is also an interesting area.

  2. Anonymous
    January 7, 2017

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    Insightfull Tort reform article. My contribution was to induce/employ Mark Goldsmith, with the help of my and his mother, from Cravat (NYC) after his graduation from Harvard Law to his recent appoitment as Federal District Court Judge after election/appointment as Oakland County Circuit Court. The process was orchestrated by political contributions.
    Mark’s ability is at the Learned Hand/Cardozo level. The principal issue is the election costs are prohibitive at the effective (Circuit Court) level, limiting replacement to political appointments.
    Muggs

    • Roger
      January 8, 2017

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      We are the only country mad enough to elect judges. Absolute insanity.

  3. Dave Anderson
    January 9, 2017

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    My uncle did over 900 jury trials, and moved from defense to plaintiff’s lawyer over time. His proudest results were:
    (1) a $4 mi verdict against Johnson & Johnson, which long refused to put a “keep away from children” label on its Baby Oil — unlike all other mineral oils. Babies don’t have a developed epiglottal response to close off their trachea, so if they swallow something as slippery as baby oil at the wrong angle, the mineral oil goes into their lungs, and the body has no way to get it out. Permanent pneumonia. After that verdict, J&J finally changed the label.
    (2) a series of verdicts starting in the 60s which eventually bankrupted a farm equipment maker whose products were especially unsafe. The verdict I remember was another $4 mi verdict for a North Dakota farmer who lost both arms in a badly-designed corn picker.

    I’m a Chicago economics kind of guy, but I have always thought my uncle did some real good that the market was unable to achieve. Ronald Coase was right, but when there is a lot of transactional cost stickiness, sometimes non-market mechanisms can be helpful.

    • Roger
      January 9, 2017

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      Dave, don’t get me wrong. I am not saying that I am against any form of tort suit. In fact, these have a huge role to play in a free market society to prevent abuses. But there has to be a balance and I think that we can all agree that the tilt in the US is way too much in the direction of the plaintiff. The UK has almost all of the reforms that I have described and it still is a functioning, non-Dickensian world. Also, many of the reforms I prescribe are designed merely to improve the efficiency or reduce the randomness of the legal process, by improving the quality of judges and removing juries from situations where they clearly don’t have the motivation or expertise to form good judgments — if their claims are legitimate, then plaintiffs should also welcome these changes. I also want to remove the extortion element from our legal process, where companies settle merely to avoid the expense and unpredictability of the courts. Finally, I would note that this a classic case where the benefits (in terms of tort cases which stop abuses) are clearly visible and concentrated, but the costs (in terms of unnecessary costs, companies that are not formed, products that are not introduced, etc.) are largely hidden and dispersed, so it is only natural that our political process “produces” too much tort activity.

      • Dave Anderson
        January 16, 2017

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        I agree with those responsive points, particularly if the English rule on legal fees is offset, as you say, with making it easier to invest in law suits.

        As an sidelight of which you might not be aware, California has a very competent set of trial and appellate judges.

        • Roger
          January 16, 2017

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          Are the trial judges elected or appointed? I think that the appellate judges are always appointed, right?

          Correct me if I am wrong, but Federal judges and appellate judges are all appointed, right? How would you characterize their quality versus the elected judges?

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