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« Wednesday Caption Contest: Part 97 | WILLisms.com | Trivia Tidbit Of The Day: Part 431 -- Democrats Are Gearing Up To Enact A Drastic Tax Increase. »

Trivia Tidbit Of The Day: Part 430 -- Jackpot Justice.

Excessive Tort Costs Harm American Competitiveness-

The Pacific Research Institute this week released a study on excessive tort costs in America. One of the interesting and relevant findings (.pdf):

The United States had a 2.2-percent ratio of tort costs to GDP, compared with Germany (1.1 percent), Japan (0.8 percent), and the United Kingdom (0.7 percent). Aside from Italy (1.7 percent), the other countries examined in the study have tort costs comparable to historic levels observed in the United States in the 1960s and 1970s.

2.2% of America's GDP is the "total" cost of our tort system. The good news is that some of those costs are perfectly legitimate. According to the study, though, 59% of those American tort costs are "excessive" (1.3 percent of the 2.2 percent).

"Excessive" tort costs account for nearly 600 billion dollars in lost American awesomeness, annually:

America wastes $589 billion each year from excessive tort litigation. This is roughly equivalent to losing the entire annual output of the state of Illinois. It is equivalent to a seven-percent tax on consumption or a 10-percent tax on wages. The annual price tag, or “excess tort tax,” for a family of four in terms of costs and forgone benefits is $7,848. The capitalized value of the waste, assuming it continues at its current level into perpetuity, is $11.32 trillion.48 Americans shoulder this burden through higher prices, lower wages, decreased returns on investments and land, and less innovation.

The Jackpot Justice study, 68 pages long (.pdf), explains what makes a tort cost "excessive" in a lot of detail. When Home Depot, for example, includes a built-in "what if someone sues us" component in its prices on saws or hammers or other items, that's an excess cost. When R&D is stifled, resulting in fewer new and innovative medicines, gadgets, other products, and services, that's an excess cost. When companies choose to relocate to other countries to avoid dealing with ambulance-chasers, taking jobs with them, that's an excess cost. When stock prices are adversely impacted by frantic news/rumors of blockbuster litigation, that's an excess cost. And so on.

Regardless of the exact number, it's pretty clear that the United States, in order to compete for capital and jobs in a global economy, is going to need to look at some serious tort reform.

The U.S. has a lot going for it (relatively competitive tax rates, a well-educated, highly-skilled workforce, etc.). America's economy is the largest in the world. In just the past few years, it has grown so much that it has added the equivalent of the entire Chinese economy. We're kind of a big deal.

But we could still do better. Our society's excessive litigiousness clearly has harmful effects, but eliminating some of those negatives could help the American economy stay on top for generations to come.


Previous Trivia Tidbit: Redistribution.

Posted by Will Franklin · 28 March 2007 11:00 PM


2.2% extra grit in the wheels of the economy.

I call it the "lawyers' tax".

Posted by: Ken McCracken at March 29, 2007 01:08 AM