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Lawsuit-crazy culture costs U.S. billions
PRI in the News
7.13.2007
Northwest Florida Daily News, July 13, 2007
Jul. 13--An administrative law judge in Washington, D.C., last month lost his $54 million case against his drycleaners for misplacing a pair of his pants. Fifty-four million dollars. Over a pair of pants. Thankfully, he didn't prevail, but why was such an absurd lawsuit even allowed to get that far? The wrangling over Judge Roy Pearson's pants was only the latest in a long line of such lawsuits. America's "out-of-control legal system imposes a staggering economic cost of over $865 billion a year" on business and the economy, according to a study released in March by the Pacific Research Institute, a free-market think tank in San Francisco. The study was based on figures from 2006. The $865 billion sum includes all costs related to tort law, such as administrative and legal fees as well as the cost of lost innovation for businesses. A "tort" is wrongful conduct or negligence by one person that results in injury to another. One particularly striking consequence of our nation being sue-happy (remember the McDonald's hot-coffee incident?) is that it's hurting the ability of U.S. businesses to compete overseas because it unnecessarily raises costs. PRI found that the United States spends 2.2 percent of its gross domestic product on direct tort costs, whereas other advanced countries spend an average 0.9 percent. This means that more than half of all U.S. tort costs are excessive if compared with other advanced countries, PRI says. When our rivals don't face a constant barrage of absurd lawsuits, they gain a competitive advantage. Of course, access to the courts is necessary for consumers and businesses as a system of checks and balances in the marketplace for serious misdeeds and product failures. However, lawsuits too often become the first-reach response to compensate for even the smallest misfortune, and sympathetic juries too often order companies to pay large sums to individuals who see the court system as little more than an ATM. What are the potential reforms? In the United Kingdom, as in other developed countries around the world, losing plaintiffs are required to pay the court costs. This allows for serious allegations of business negligence and the like to surface, supported by strong evidence, while keeping citizens from taking advantage of the system to score a big payday. PRI's research gives credence to a growing movement for legal reform in the United States. "If tort reforms that eliminate waste are enacted in the United States, the U.S. economy will approach its full productive potential," PRI argues, adding that roughly $684 billion in annual wealth is lost to U.S. stockholders because of tort lawsuits. Perhaps it's time to consider adopting a policy similar to the United Kingdom's. Then people may have to start taking responsibility for their own risks.
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