Marie Gryphon on “Loser Pays”

Marie Gryphon, of the Manhattan Institute (and a Cato adjunct scholar), has a terrific new paper advocating a “loser pays” system to deter frivolous lawsuits. Here are excerpts from the executive summary:

This study argues that loser pays could be an important part of a larger effort to reduce litigation costs, better compensate prevailing litigants, and better align tort law with its goal of deterring socially harmful conduct. A loser-pays rule would discourage meritless lawsuits, but because any such rule should also ensure plaintiffs of modest means but strong legal cases access to justice, our proposal calls for:

  1. A robust litigation insurance industry similar to those that now exist in other loser-pays countries; and
  2. A cap on recoverable fees to eliminate the incentive that large litigants might have to attempt to “buy a verdict” under loser pays.

This study explores in depth how a loser-pays rule would change litigation in America. It includes key findings about the likely effects of loser-pays reform and evaluates previous experiments with loser pays in America.

The Status Quo

This study delves into the available evidence about how the legal marketplace works, which lawyers file low-merit lawsuits, and how they stay in business:

  • The subgroup of lawyers that file most nuisance lawsuits works to obtain settlements in weak legal cases before its members ever see a courtroom.
  • The American system facilitates nuisance lawsuits, since the high cost of defending against weak cases gives defendants a strong incentive to settle.
  • In contrast to nuisance suits, low-merit mass torts and class-action suits are able to attract some of the best lawyers in the United States because the potential damages stemming from these suits make them very lucrative, even when they are settled for a small fraction of the amounts demanded.

Effects of Loser Pays

This paper infers from its examination of the scholarly literature how loser pays would affect the American legal system:

  • Almost every economist who has studied loser pays predicts that it would, if adopted, reduce the number of low-merit lawsuits.
  • A loser-pays rule would encourage business owners and other potential defendants to try harder to comply with the law. Doing so should produce fewer injuries.
  • Loser pays would deter ordinary low-merit suits, but it would not discourage low-merit class actions to the same extent because the risk of enormous losses, rather than the costs of legal defense, is the primary source of pressure on defendants to settle.

The Auto Bailout vs. Free Speech

I’ve been blogging at the Politico’s Arena site. Today’s comment is worth posting here as well:

Surprise! President Bush is willing to spend taxpayers money and inject the federal government into the economy – yet again. The financial bailout might have been justified on the grounds that finance is the lifeblood of the entire economy, and a frozen credit system brings every industry to a halt. But a bailout for a specific manufacturing industry has all the hallmarks of lemon socialism. It puts the federal government in the business of picking winners and losers, reduces the incentive of other industries to avoid excessive risk, creates a lobbying frenzy, and brings the inefficiency of the government sector to the normally more efficient private sector, which under free enterprise must stay in the black or go out of business. But I want to focus on a particularly scary part of this bailout bill.

The bill provides that if the government gives companies money, the government will make some of their decisions: limit executive compensation, ban dividends, review large contracts, get rid of their executive jets (certainly a reduction in corporate efficiency, where the time of their top executives is the most valuable resource), make “green” cars rather than the cars consumers want, and so on. But it adds a new twist: The bill currently bars the car companies from pursuing lawsuits against California and other states trying to implement tougher tailpipe emissions standards. Jonathan Cohn of the New Republic suggests taking that concept further and requiring General Motors to fire a vice chairman who has expressed skepticism about the catastrophic effects of global warming.

This ought to scare any genuine liberal. Congress is going to use our money to censor political dissent? Usually libertarians warn that if you take government money, you’ll eventually find yourself subject to government restrictions on your freedoms. In this case, there’s no phase-in, no “eventually.” Congress wants to tell private companies, private individuals, that once they take government money, they will shut up and toe the government’s line.

If economics isn’t a good enough reason to oppose this bailout, preserving independent thought ought to be.

Law and Disorder in Philadelphia

This mini-documentary does a great job of capturing how the drug war is wreaking havoc in our cities.  Police engage in a futile game of cat & mouse with low level “corner boys.”  Gang members kill one another over turf (drug sales territory).  And the chasm between the ordinary residents and the government (police, prosecutors) is palpable.  The police are frustrated by the lack of citizen cooperation.  Witnesses and victims do not come forward with information, for example.  But there is little mystery here.  If the police cannot protect witnesses from retaliatory attacks, coming forward is practically suicidal.   Criminals oversee a thriving black market drug trade while policymakers dither about drug courts and “Plan Colombia.”

Excellent work, Mr. Theroux.  These festering problems are too often ignored by our MSM.  Americans get excessive coverage of OJ Simpson, Natalie Holloway, and Caylee Anthony.  For scholarly work on the drug war go here, herehere, and here.     If you liked this mini-doc, be sure to check out The Wire.

More Like $355 Million Per Plane, but Who’s Counting?

Today’s New York Times reports:

Two of President-elect Barack Obama’s stated goals — cutting wasteful spending and saving or creating millions of jobs — are on a collision course in a looming decision over whether to keep building the F-22 fighter jet.

That is a dubious claim. The predicted job losses associated with allowing the F-22 program to come to an end are exaggerated, and insignificant when compared against the many other jobs in our $13 trillion economy. Yes, some people currently employed manufacturing F-22s might have to find new work, but these workers should not receive special treatment; military necessity, not politics, should drive our decisions on what military hardware to buy. By that standard, the F-22 program should be terminated because the plane is ill-suited to the types of missions that the U.S. military is likely to undertake.

But the more egregious error pertains to the Times’s use of Air Force and industry estimates for per unit F-22 costs going forward. “Supporters of the F-22 program…argue that Mr. Obama should extend its production, at least temporarily, to preserve thousands of jobs related to building the jets, which cost $143 million each.” (my emphasis)

The actual per unit costs of each F-22 can be compiled from other figures cited in the story. To date, the F-22 program has cost taxpayers $65 billion, and has delivered 183 aircraft. My calculator doesn’t do real well with so many zeroes, but that comes out to more than $355 million – making the F-22 the most expensive fighter aircraft in history.

The Air Force contends that it is unfair to translate all of the program’s research and development costs into the price tag of the newest planes rolling off the assembly lines. According to this creative accounting, the “flyaway” costs of prospective purchases, which essentially write off program R&D as sunk costs, will range between $176.8 million and $216.3 million per aircraft. This assumes, however, that this next stage of F-22 production will not encounter any of the cost growth that has plagued the program from the very beginning. At every stage of its development, actual F-22 costs have exceeded projections. Even the flyaway estimates have proved woefully inaccurate. (In 1986, the Air Force estimated F-22 flyaway costs at $35 million.) When weighing the prospects of additional F-22 purchases, it seems prudent to assume that the plane will cost much more than its supporters want you to believe.

If President-elect Obama is serious about cutting wasteful spending, the F-22 is a pretty good place to start. The contention about jobs saved or lost is a red herring. So-called military Keynesianism might have been popular in the 1960s, but subsequent research has shown that expecting to stimulate the economy through military spending is a bad bet.


Don’t blame me, I gave him an “F.

From the Cato Report Card on the Governors:

Rod Blagojevich … has been relentless in his advocacy of large tax increases on businesses. In 2007, he pushed for a massive $7.1 billion annual tax increase in the form of a business gross receipts tax and increased payroll taxes, the largest proposed or enacted hike of any governor in this study. Blagojevich has proposed schemes to wallop businesses nearly every year, including plans to raise taxes on refineries, gaming businesses, software companies, and businesses in general through “loophole” closing initiatives. His approach ignores that Illinois is competing against other states and nations for investment in the global economy.

When doing the study, I wondered how a governor could be so reckless with the economy of his state. We know the answer now: There appears to be a total and complete lack of public interest sentiment in this character. It is all me, me, me.

The Pope Launches Ill-Informed Attack Against Low-Tax Jurisdictions

It is troubling so see collectivists (perhaps deliberately) confuse the acts of personal compassion and charity with the coerced redistribution imposed by government. This moral bankruptcy is particularly disappointing when it comes from religious leaders. The Pope, for instance, has launched an attack against so-called tax havens. As the UK-based Guardian reports, he apparently believes that low-tax jurisdictions somehow caused the financial crisis and he argues that the developing world will grow faster if corrupt politicians get more money to spend:

The Roman Catholic Church is calling for the effective closure of secretive tax havens as a ‘necessary first step’ to restore the global economy to health. In a policy paper from the Holy See, Pope Benedict pins the blame for the international financial crisis largely on ‘offshore centres’… The Pope points to estimates that the global fiscal deficit caused by offshore activities could amount to a staggering $255bn (£175bn) which is ‘more than three times the entire sum of [global] development aid’. …the reflection paper argues that tax havens, which banks use to escape the gaze of international financial watchdogs, facilitate the transfer of wealth from poverty-stricken nations to the rich world. …Intriguingly, the Vatican Bank…makes very limited financial disclosures, but the Rev Thomas Resse in his book Inside the Vatican claimed a cardinal told him in 1994 that it had $4bn in deposits and an annual income of $40m. Many experts believe this to be a spectacular underestimate.

This is not the first time the Pope has sided with big government over people. I addressed this issue last year, but he inexplicably missed my post on this topic. I guess this means the Pope has not watched my three-part series on tax havens. The Economic Case for Tax Havens would show him how low-tax jurisdictions boost global economic performance. The Moral Case for Tax Havens would warn him of the unpleasant consequences of giving too much private information to corrupt, venal, and incompetent governments. And Tax Havens: Myths vs. Facts would explain to him why attacks against low-tax jurisdictions are empty demagoguery. If the Pope is not a fan of, he would benefit from reading Tim Ridley’s column, which was published by Cayman News Service:

Pope Benedict commands huge respect but one wonders where his advisors are getting their economic and financial advice, possibly from the German Finance Minister or the French President, since it is so misguided and wide of the mark. On the first point, there is clear and incontestable evidence where the current crisis started, but it bears repeating that its origins were in the bad lending practices and financial engineering of regulated entities in major onshore economies, not in offshore centres. On the second point, His Holiness should also look much closer to home. The Vatican has a very patchy history of transparency, fiscal accountability and rectitude. It also has no problem with its own tax free status. It cut a deal with Mussolini in 1929 that effectively made the Holy See a tax haven itself.

…to charge that small economies that are able to operate without direct taxation and have thriving financial services industries are ipso facto responsible and punishable for the evils of tax evasion and official corruption beggars belief. Those charities, politicians, bureaucrats and now it appears, the Catholic Church, that clamour for the summary conviction and elimination of these small countries (who have few international votes and limited bargaining strength) should think long and hard about the implications if they get what they wish for. Small Islands like Bermuda, the Bahamas, the British Virgin Islands and the Cayman Islands will be impoverished and consigned back to the poverty of times gone by. The despots of the world will continue to find ways to pillage their countries’ treasuries and to have the proceeds available in one form or another in onshore financial centres in Europe and elsewhere (convenient after all for Harrods and Bergdorf Goodman). Will Oxfam, Christian Aid and the Vatican then send care packages to both Zimbabwe and the Cayman Islands?

Shocked, Shocked.

Sen. Jon Kyl (R.-AZ) on the judicial filibuster, circa 2005 [.pdf]:

Republicans seek to right a wrong that has undermined 214 years of tradition – wise, carefully thought-out tradition. The fact that the Senate rules theoretically allowed the filibuster of judicial nominations but were never used to that end is an important indicator of what is right, and why the precedent of allowing up-or-down votes is so well established. It is that precedent that has been attacked and which we seek to restore….

My friends argue that Republicans may want to filibuster a future Democratic President’s
nominees. To that I say, I don’t think so, and even if true, I’m willing to give up that tool. It was never a power we thought we had in the past, and it is not one likely to be used in the future. I know some insist that we will someday want to block Democrat judges by filibuster. But I know my colleagues. I have heard them speak passionately, publicly and privately, about the injustice done to filibustered nominees. I think it highly unlikely that they will shift their views simply because the political worm has turned.

Uh, never mind:

Jon Kyl, the second-ranking Republican in the U.S. Senate, warned president-elect Barack Obama that he would filibuster U.S. Supreme Court appointments if those nominees were too liberal

For the case against the case against the judicial filibuster, check here and here. For good arguments against the JF, check here.