Tag Archives: Unemployment

How lawsuit abuse hurts businesses and raises unemployment

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.

Obama’s SOTU speech: more spending on Democrat special interests

From Hans Bader at the Washington Examiner.

Excerpt:

In his State of the Union address, President Obama will call for even more spending on his cronies – what he euphemistically refers to as “targeted investments” in things like “green jobs.” Such spending benefits companies that donate millions to liberal politicians, like GE, which recently spent $65.7 million on lobbying to extract special favors from the government.

[…]“The new spending” Obama will call for will likely “include initiatives aimed at building the renewable-energy sector—which received billions of dollars in stimulus funding.”

This is a bad sign for the American worker, because such green jobs programs have wiped out thousands of American jobs in the past.  The $800 billion stimulus package used “green-jobs” subsidies to send American jobs overseas.  79 percent of those subsidies went to foreign firms, such as an Australian firm that imported Japanese wind turbines, effectively outsourcing American jobs.

[…]The Wall Street Journal reports that the President will also call for “new government spending” on education. This is also a dubious idea, given that America already spends much more per capita on education than most other wealthy industrialized countries, with worse results.

[…]Dumping more money on the educational system is unlikely to spur economic growth, since so many college students learn little in college, are not interested in learning, and only go to college in order to get paper credentials rather than an education.

[…]Unlike other countries, which focus on educating engineers and other economically-productive occupations, America focuses on superficial, ideologically-fashionable liberal-arts majors.

If I had to summarize Obama’s speech, I would say “the government will give you a unicorn in every stable”.

Let’s put the teleprompter away and review the facts.

Government spending: (i.e. – what Obama calls “investing”)

CBO Projected Federal Budget Deficits
CBO Projected Federal Budget Deficits

Unemployment rate:

Unemployment Rate
Unemployment Rate

The Democrats controlled ALL SPENDING starting in January of 2007, when they gained control of the House of Representatives and the Senate. When spending increases, businesses understand that there are only two ways to pay it off. Higher taxes, or inflation. So they stop hiring here and ship their jobs overseas. That’s Obamanomics.

Republican Congressman Paul Ryan’s response.

Democrat-controlled Congress added 5.34 trillion to national debt

The last Republican budget was in 2006
The last Republican budget was in 2006

Here’s the story from CNS News, which the OFFICIAL NUMBERS from the Treasury Department.

Excerpt:

In the 1,461 days that Rep. Nancy Pelosi (D.-Calif.) served as speaker of the House, the national debt increased by a total of $5.343 trillion ($5,343,452,800,321.37) or $3.66 billion per day ($3.657,394,113.84), according to official debt numbers published by the U.S. Treasury.

Pelosi was the 52nd speaker of the House. During her tenure, she amassed more debt than the first 49 speakers combined.

[…]When Pelosi was sworn in on Jan. 4, 2007, the national debt stood at $8,670,596,242,973.04. At the close of business on Jan. 4, 2011, her last full day in the speakership, it stood at 14,014,049,043,294.41–an increase of $5,343,452,800,321.37.

[…]When Pelosi became speaker in  January 2007 she was emphatic that there would be no new deficit spending.

“After years of historic deficits, this 110th Congress will commit itself to a higher standard: Pay as you go, no new deficit spending,” she said in her inaugural address from the speaker’s podium. “Our new America will provide unlimited opportunity for future generations, not burden them with mountains of debt.”

And a quick refresher about who controlled the House and the Senate at different times:

Year Congress President Senate (100) House (435)
2009 111th D D – 55*** D – 256
2007 110th R D – 51** D – 233
2005 109th R R – 55 R – 232
2003 108th R R – 51 R – 229
2001 107th R D* R – 221
1999 106th D R – 55 R – 223
1997 105th D R – 55 R – 228
1995 104th D R – 52 R – 230
1993 103rd D D – 57 D – 258

All government spending originates in the House of Representatives, so spending was a Democrat problem since the Democrats took over the House (and Senate) in January 2007. They own this recession.

And the reason that things went well in the Clinton Presidency is because the Republicans were in control of all the spending.