Archives: 12/2008

Blagojevich Rex

Illinois Gov. Rod Blagojevich (D) is innocent until proven guilty.

That said, as I blogged in October, this is a man who thinks he has the power to write the laws:

Gov. Rod Blagojevich’s agenda was dealt a major blow Friday after a state appellate court ruled he doesn’t have the power to expand state-subsidized health care without lawmakers’ approval…

Last year, Blagojevich sought to expand health-care coverage through an “emergency rule” allowing families with higher incomes—up to $83,000 a year for a family of four—to sign up. The move was quickly shot down by a legislative rules-making panel and blocked by Secretary of State Jesse White, but Blagojevich signed up people anyway…

“This is a clear and predictable message to the governor that no matter how laudable the goal is, he is not a one-man legislature and he has to work in conjunction with the General Assembly to pass this kind of program,” said state Rep. John Fritchey (D-Chicago).

So it hardly stretches credulity to believe that a man who fancies himself a monarch might also be guilty of lesser acts of corruption like using his office to enrich himself, which is pretty much what all politicians do.

Automakers Should Learn from Public Schools

The Big Three automakers seem ready to settle for a $15 billion bailout that will probably do very little good and considerable harm.

They’re thinking too small. Much too small.

If they model themselves on the public school system, as I suggest in a new Cato Commentary, they will have a truly risk-free business model in which they will be well protected from the rigors of competition and fickle consumers.

Update: It seems I’m not the only one to see the merits of modeling the auto industry on our famously efficient and successful school monopoly. Jay Greene proposes an NCLB act tailored to the automakers.

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.