"My point is that these cases have finally disclosed an inconvenient truth: The plaintiffs tort bar makes obscene profits at incredible profit margins. ... The reason we hear nothing about these law firms is simple: The tort lawyers are among the biggest contributors to the Democratic party. Not only does Congress ignore the obscene profits of the tort bar, but new laws are being proposed or passed that protect or enhance those profits. An example is the recent bill to allow tort lawyers to deduct 'loans' made to clients to finance their litigation", John Watson letter to the WSJ, 25 June 2008.
This is one of the most economically illiterate pieces the WSJ ever printed. WSJ, you should be ashamed of yourself. It reminds me of a lecture about predatory pricing George Stigler once gave in his class, "The Organization of Industry". Stigler discussed the "counterfactual" we should have seen but didn't. Suppose Watson is right, i.e., the tort bar makes "obscene" profits, however measured. What should we see? Harvey Pitt (HP), the worst SEC chairman we've ever seen, in my opinion, would not have joined Fried Frank, oh no, he would have joined William Lerach, or set up his own plaintiffs' firm. I await Chris Cox's leaving the SEC to join HP in their new plaintiffs' firm. Sure. And pigs will fly. Why aren't partners leaving large New York law firms like: Cadwalader, Sullivan, etc., to form sucessors to Milberg Weiss? Milberg Weiss is no more. The door is open. Where are the profits? What is Watson talking about?
5 comments:
If you are going to make such a sweeping generalization about the WSJ article, perhaps, as a University of Chicago trained accountant, you could back it up with some facts rather than an esoteric analogy.
Obviously tort laws and the attendant lawsuits are a necessity to keep us capitalists in check since an unfettered free market would permit unscrupulous abuses. As a layman, I'm not sure which is worse--the headline cases such as the McD's coffee spill or the thousands of suits that are settled out of court for five-figure amounts just because the cost of defending is less than the cost of settling even if the defendant was not in the wrong.
Living in TX, I presume that you have noticed the recent benficial effects of tort reform on malpractice premiums and reduced venue shopping.
What amount of profits "slip and fall" lawyers accrue is obscene is a matter of opinion. Perhaps the most egregious example that pops into mind are the BILLIONS that law firms "earned" from the tobacco industry lawsuits.
Like so many things in our society, the corrupt politicians continue to enable those who are diverting productive resources and merely game the system instead.
NDALLSJ:
I am saying that if the profits were obscene, they would be competed away. That's in the best George Stigler tradition. As for the tobacco settlement, I opposed it. Why? It resulted in the cartelization of the tobacco industry which the federal government approved. The tobacco companies paid nothing. You heard right. Tobacco consumers had their cigarette prices increased, they paid for the tobacco settlement, check it out. A Stanford Law School professor did an excellent economic analysis of the tobacco settlement saying just this.
I see many cases which should be brought and never are. The McDonald's case was an aberration. That's why it made the news. You should learn about "what is seen and what is not seen".
I don't see any beneficial effects of tort reform in Texas. So there.
I agree, the system is gamed. We disagree about who is gaming it. Read my numerous posts on the SEC, DOJ, US Treasury, etc. Like the proverbial "Boy named Sue", you may come away with "a different point of view".
The tobacco law firms earned nothing. We agree! So? The tobacco companies and the related law firms all conspired to bilk tobacco consumers. You do not understand what happened at all.
NDALLASJ:
Rick Casey had an article in 11 July 2008's Houston Chronicle which illustrates my point. Houston gave 10,000 student athletes steroid tests. Two came back positive. Some people complain since the "cost" was $1.5 million per positive result, $3 million was spent on the program. Others say the result is wonderful. Why? 99.98% of the tests came back negative, which means the program has a significant deterrent effect. Who is "right"?
I am still parsing through much of your prior commentary to obtain more context regarding our original discussion. You are very prolific and obviously intelligent and knowledgeable.
In the meantime, re: steroid testing, I guess the answer depends upon one's value system. This sounds to me more of a societal issue than an economic one.
When I owned a business with 65 employees, I elected not to do drug testing for practical and economic reasons. I didn't foresee much marginal likelihood that someone who failed a drug test (vs. say, an alcoholic or a klutz) could cost me much money and that actual detrimental drug use would eventually become evident in the workplace (it did on a couple of occasions with no harm other than poor productivity; the ee's were fired and didn't even receive unemployment compensation). If my business had involved working around dangerous machinery or producing precision products, my decision may have been different.
BTW, since you are a skeptic, do you really believe that only 2 of 10,000 used steroids?
NDALLASJ:
No I don't believe 99.98% of student athletes tested do not use steroids. I am reporting what the Houston Chronicle wrote.
See my 27 July 2007 post mentioning the Politics of Industry (POI). When I read the POI, I thought the author was crazy. After I got out in the real world, I concluded he was right. I see lawsuits as an unfortunate part of industrial regulation, which in part, compensates for regulatory failure.
Further, in drilling oil wells, you will drill some dry holes; the plaintiffs bar brings some bad lawsuits along with the good. It's a cost of doing business.
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