Tag Archives: Regulation

Commentary

How lawsuit abuse hurts businesses and raises unemployment

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Consdier this paper from the Heritage Foundation, featuring a variety of views on lawsuit abuse.

Excerpt:

LAWRENCE J. McQUILLAN, Ph.D.: I am an economist. I focus on this issue as an economic issue, an economic problem. I have been working on this issue for about four years as a full-time project, and the first study that we did in 2006 was Jackpot Justice, which Hans mentioned earlier.

In this study, what we set out to do is measure the total cost of the U.S. tort liability system and put that cost in perspective. Hans mentioned a figure of $252 billion a year. That is the direct cost of the tort liability system, but what we wanted to do in this study is also measure the indirect cost. When we crunched the numbers, we arrived at a total of $865 billion annually as the cost.

It is a lawsuit industry. That’s really the way to look at it. It truly is an industry in terms of the size, scope, and amount of resources devoted to it. To put it in perspective, it’s roughly the size of the U.S. restaurant industry: About 6.5 percent of GDP would be the equivalent. It is about 30 times what the National Institutes of Health spends each year on finding cures for deadly diseases. It’s a huge amount of resources that are diverted toward, basically, a transfer system.

The Costs of Lawsuit Abuse

Every year, lawsuit abuse costs each American about $2,000. That is the cost that is factored into all the goods and services that we buy, from ladders to lawnmowers. Built into every price is a component to pay for liability insurance and lawsuit defense.

We estimated the wasteful part of that $865 billion to be about $589 billion a year. In other words, you could remove that part from this total cost and not change manufacturers’ incentives to produce safe products. You could still fully compensate truly injured individuals.

Here is one of the ways that lawsuit abuse changes the free market:

Indirect Costs: Defensive Medicine[…]The first one that gets talked about a lot these days is defensive medicine. Ninety-three percent of all physicians report practicing defensive medicine. These are basically unnecessary tests, procedures, referrals that they know are not really medically necessary to protect the patient, but they do them anyway to protect themselves from litigation. About 25 percent of all procedures, according to a survey last year by the Massachusetts Medical Society, are deemed by the physicians themselves to be unnecessary defensive medicine procedures.

We crunched the numbers in terms of how much this defensive medicine costs the economy. We arrived, in 2007, at $124 billion a year, which is about 8 percent of total health care expenditures. Today, that number would be roughly about $191 billion a year.

You also have to remember that these defensive medicine expenditures get passed along to all of us. We all end up paying for this in terms of our insurance. So insurance premiums go up, which then crowds out a lot of people from being able to afford insurance that they normally would be able to afford. We wanted to estimate what that costs. After crunching the numbers, we estimate that about 3.4 million Americans would have insurance today but do not because of the higher premiums due to just defensive medicine: today about $191 billion.

I think yesterday there was a report that came out that showed something like 14,000 people a year die because they do not have health insurance. It would not surprise me if a lot of these 14,000 people that die every year are part of those 3.4 million people.

And one more:

Indirect Costs: Research and Development

Another indirect cost of the excessive tort liability system is R&D impact. Of course, businesses have to spend a lot more money on legal defense that would otherwise go to product research and development, new product innovation, and new products being introduced. We estimated that total at about $367 billion a year of lost sales of new products that would otherwise come to market but do not because of the diversion of resources basically away from R&D and new product development toward legal defense: again, another huge indirect cost where it is hard to measure what would have been but is not.

Basically, the vaccine industry has fled the country. It is hard to find a manufacturer anymore in the U.S. that does vaccine development and manufacturing, primarily because of liability concerns. It was reported that the FDA granted the H1N1 virus vaccine to four companies to be manufactured, and without much of a surprise, three of the four companies are actually located outside the U.S.: Swiss, Australian, and French companies were all awarded the vaccine licenses.

There is one company in the U.S in Maryland, but I think it got the license to manufacture only because they have a technological advantage. They are going to produce an inhalable version of the vaccine rather than the standard injectable version. I think that is probably why they got a license. Otherwise, I think all of the manufacturers would have come from Europe or Australia.

That is a great example of how it really does impact U.S. business and how the liability system is forcing more and more business overseas. As a result, it hurts us in terms of the economy and job growth.

As another example, Volkswagen was going to introduce a three-wheel vehicle, very green technology, that gets about 49 miles per gallon. They were going to sell it in the U.S. for about $17,000 a vehicle. Probably most people in this room would not want to drive this vehicle, but I can tell you that where I come from in California, it would have sold well. It would have had a big market. It actually got qualified, too, to use the HOV lanes in California.

At the last minute, Volkswagen decided to pull it from the U.S. and not market it here because of liability concerns, but it is available in Europe. So once again, another example where European markets are perceived to be more favorable in terms of liability than the U.S.

I do not think it is any accident, too, that they tend not to have punitive damages in Europe and, also, that they have the loser pay system. This is another example of the indirect costs, fewer products available in the U.S. A lot of people probably would have loved to buy this car, but it is not available.

In terms of how expensive the U.S. system is compared to other countries of comparable standards of living, the estimate is that we have about 59 percent higher tort costs. These are direct costs. These are awards, attorneys’ fees, and administrative expenses. This does not include the indirect costs that I just talked about, but it gives you a good indication of our system compared to other systems in the world. It is just much more expensive for compensating injured individuals.

That is just one of the perspectives provided in this excellent article.

If we expect to have jobs in the future, then we should be thinking about who we expect to hire us. Tacking on frivolous costs onto business owners who develop products and services that we need means that there will be fewer businesses to hire us when we are looking for jobs and less choice and competition when we make purchases.

Keep in mind that trial lawyers are one of the pillars of the Democrat party, and they fight against any regulation of lawsuit abuse.

I noticed that Hans Bader published an article here talking about how the Supreme Court has been attacking businesses. This is one of the reasons why we are bleeding jobs to other countries. Judicial activism is hostile to business and the free market.

News

When you let Democrats control health care, they close hospitals

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From the Weekly Standard. (H/T ECM)

Excerpt:

Under the headline, “Construction Stops at Physician Hospitals,” Politico reports today that “Physician Hospitals of America says that construction had to stop at 45 hospitals nationwide or they would not be able to bill Medicare for treatments.” Stopping construction at doctor-owned hospitals might not seem like the best way to boost the economy or to promote greater access and choice in health care, but that exactly what Obamacare is doing.

Kenneth Artz of the Heartland Institute explains, “Section 6001 of the health care law effectively bans new physician-owned hospitals (POHs) from starting up, and it keeps existing ones from expanding.” Politico adds, “Friday [New Year’s Eve] marked the last day physician-owned hospitals could get Medicare certification covering their new or expanded hospitals, one of the latest provisions of the reform law to go into effect.”

This little-noticed but particularly egregious aspect of Obamacare is, by all accounts, a concession to the powerful American Hospital Association (AHA), a supporter of Obamacare, which prefers to have its member hospitals operate without competition from hospitals owned by doctors.  Dr. Michael Russell, president of Physician Hospitals of America, which has filed suit to try to stop this selective building-ban from going into effect, says, “There are so many regulations [in Obamacare] and they are so onerous and intrusive that we believe that the section [Section 6001] was deliberately designed so no physician owned hospital could successfully comply.”

Artz writes, “According to Russell, the AHA, along with Sen. [Max] Baucus (D-MT) and Congressman Pete Stark (D-CA), are responsible for the language in Section 6001.”  But the responsibility for all aspects of the overhaul primarily lies with outgoing-House speaker Nancy Pelosi, Senate majority leader Harry Reid, and, particularly, Obamacare’s principal champion, President Barack Obama.

This is just like letting the Democrats control energy policy. They block coal production, oil drilling, oil refining and construction of nuclear power plants. What happens where there is less power being produced and demand is increasing because of India and China? Well, supply decreasing, and demand increasing = SHORTAGE = HIGHER ENERGY PRICES. And that’s exactly what they’ve done with health care.

Meanwhile, new conservative House majority leader John Boehner has introduced a bill to REPEAL OBAMACARE. (H/T ECM)

Commentary

A great article that explains what is at stake with “net neutrality”

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From the American Spectator. (H/T ECM)

Excerpt:

Yet, without compelling reason, law or even politics on their side, on December 21, on a 3-2 party line vote, the FCC voted to impose its “net neutrality” rules on the Internet. What net neutrality means is that the government now has the power to decide how ISPs and broadband operators manage the access they provide to the Internet. It is as if the government decided to regulate how FedEx delivers its overnight mail, and what routes and what vehicles they use.

The FCC starts out by proclaiming that its net neutrality rules are just meant to ensure equal access by all to the Web. But as George Orwell showed us, that is how socialism started out too, until we later discovered that some were more equal than others. Once the founding principle is laid for government regulation and control, then that power can be used to regulate and control access to the Internet “in the public interest.” In English translation, that means in the special interest of the Ruling Class. There are precedents in China and Iran for how that has worked out in practice.

Dissenting FCC Commissioner Robert McDowell explained further in the Wall Street Journal on December 20 why the FCC’s net neutrality regulation makes no sense:

Nothing is broken and needs fixing, however. The Internet has been open and freedom-enhancing since it was spun off from a government research project in the early 1990s. Its nature as a diffuse and dynamic global network of networks defies top-down authority. Ample laws to protect consumers already exist. Furthermore, the Obama Justice Department and the European Commission both decided this year that net neutrality regulation was unnecessary and might deter investment in next-generation Internet technology and infrastructure.

But what I have learned in life is that when something doesn’t make sense, that means there is something else behind it that people are trying to hide.

And that is exactly what we have here. For what is behind the FCC’s net neutrality crusade is reflected by an organization calling itself Free Press. That is an Orwellian title in this case, because what Free Press is for is the opposite of a free press. Free Press is one of those pseudo-Marxist front groups that Barack Obama has always traveled with so easily throughout his life. It is a grown-up, slick, sophisticated version of those campus radicals who shout down college speakers with whom they don’t agree.

That is what Free Press is after with its “net neutrality” regulation. It is laying the groundwork for government control of the Internet. Once that it is established, it will be able to shout down websites with which it doesn’t agree, if not shut them out altogether.

The entering wedge for net neutrality so far is not public freedom to access and navigate the Internet, which no one can credibly claim is not currently as free as could be. The entering wedge for now is use of Internet access and broadband services by competing commercial concerns like Netflix and YouTube, which consume huge proportions of bandwidth that can consequently interfere with use by consumers and others.

The problem has not become unmanageable yet, but threatens to be. The concern is that broadband operators will limit use of their service by other commercial operations that are effectively bandwidth hogs, to preserve the viability of their service for the general public, which is exactly what they should do. The supposed purpose of net neutrality regulation so far is to prevent broadband operators from doing this.

The solution is for broadband operators to charge heavier commercial users of their service heavier fees to cover the costs. Those heavier fees can then be used to build even bigger and better broadband and Cyberspace access, sufficient to fully accommodate even the heaviest commercial broadband users.

But that [solution] doesn’t involve the expanded government power that Obama’s FCC and net neut advocates like Free Press are after. So it is not on the table as the answer. Government takeover is the only answer they will consider, just as in health care. But if the government is going to take control over the big investment bucks broadband providers put in the ground or into orbit, America is not going to get the Internet investment and access it needs. That is why America’s Internet access is already lagging behind other countries.

[…]This FCC episode raises a broader question about the Obama Administration in the next two years. Because what we see here is what we are already seeing elsewhere in the Administration as well, from HHS Secretary Sebelius’s takeover of health insurance, to the EPA’s takeover of the economy based on global warming fantasies. That broader question is: Are we going to be governed by democracy and the rule of law in America, or not?

Worth reading. I am trying to write about the problems in Obamacare and with the EPA raising energy costs on American consumers and businesses. But taking over the Internet could be an even bigger disaster if the government can prevent the truth about what they are doing from being reported.