The Age of Ideology is over, cont.

It’s a micro-phenomenon, but I see it enough it really does have me wondering:  the US tort system is expensive, arbitrary and rent-seeking, but remains strangely immune to serious economic and political study.

If you google a few phrases, you might get some Chamber of Commerce discussions about runaway verdicts, or social justice cant that plaintiffs lose forty to fifty percent of the time at trial. Both perspectives ignore that 95% of cases settle. The real bleeding is the money constantly thrown at claimants for accidents and aches and pains that used to be considered part of the vagaries of everyday life. All sorts of distortions happen, with litigation finance companies and medical clinics effectively engaged in speculative finance over litigation. The eight-figure verdicts really are few and far between, and the focus on trial outcomes is inapt because trials generally result from arbitrary determinations that the amount offered for “pain and suffering” is inadequate, or the plaintiff just has an awful case. But like I said, academic economists seem strangely resistant to any critical look at the tort system.

Popular sentiment inclines toward systematizing the risk of medical casualties, like we do for banking and credit, and like we do for the medical casualties of veterans, legislators, government employees, old people and poor people. In other words, medical care for at least a certain level of basic service is considered sufficiently non-rivalrous that we just socialize the expense via taxes, like we do for national defense or education. Of course, medical care, education and other goods are not actually non-rivalrous but that’s not the point with popular sentiment; we are a democracy after all. And when public budgets bear so little relation to actual tax revenue, the moral equation changes completely. Do you incur national debt for F-35’s or basic medical care for all citizens?

The only issue in every tort case is whether the individual or society should bear the risk of injury. The premise of tort law is that careless individuals should bear their own risk and business should be incentivized to take cost-justified precautions. In a simple model of the Hunt Club and the Cabbage Farmer, when the Club tramples the Farmer’s crop during a particularly spirited tally-ho, then the Farmer should get compensated and the Club should pay, and adjust its business model to get a land-lease to ride around on somewhere. I use this model because it’s exactly the sort of thing the English common law judges had in mind.

Modern society with its commercial general liability coverage and third party-medical payments bears little resemblance to the British manorial village but the tort system rides on as if we’re all fox hunters and cabbage farmers. No country which has socialized medical care has anything resembling US tort law, because you can afford a tort system or you can afford a compensation system but you can’t afford both. The tort system really is the low-hanging fruit for funding national medical coverage, but academic economists give this dysfunctional, inapt system a wide berth because it’s one of the last monuments of classical liberalism.

The current reality is that the complexity and scale of modern life are just too high for a Medieval-era system developed on a bucolic island in the North Atlantic, and we’re sufficiently prosperous that it no longer makes economic sense to parse over legal fault, which liability insurance and third party-medical payments render irrelevant in any event. Thus, countries that socialize medical casualty either eliminate personal injury litigation or cap the recoverable damages to the point that it’s not really profitable.

COVID-19 illustrates the degree of interconnectedness, fragility and scale of mass industrial society. It’s all systemic at this point, and public and private resources poured into the case of Farmer Brown vs. The Cotswold Vale Hounds, or even Anti-Gnostic the Schlep vs. Walmart, are just economic waste.

Academic economists are heavily invested in ideation; it’s what they (and lots of us) do for a living after all. Post-modern man is uncomfortable acknowledging that ideology occupies a fairly narrow historical space between scarcity and post-scarcity. When it’s your tribe of troglodytes fighting the other tribe of troglodytes over the same flea-bitten antelope, ideology doesn’t matter. Likewise, when 5% of the US workforce can grow enough food to feed the whole planet, ideology doesn’t really matter. Nobody likes being told that their idea-based jobs are all kind of irrelevant, or that a fundamental belief system no longer describes reality. Our ideological investments are sunk costs, as I’ve said before.

And so the US tort system, a monument to a glorious, long-past and classically liberal civilization remains, immune to criticism and defended reflexively by its ideological adherents.

Confederate Statues New Orleans

4 thoughts on “The Age of Ideology is over, cont.

  1. I agree it does seem redundant to have both litigation and regulation but I’m not sure you’ve made the case that it’s litigation that has to go. One important lesson from Covid has been how regulation stifles rapid market response to crisis e.g. all those industrial N95 masks waiting on special FDA licensing for medical use, or the way the CDC stopped local and private labs from testing for Covid in the early crucial phase of the disease’s spread. Would have been better surely if government had not tied the hands of private medical providers. If any harm did arise as a result of private initiative then litigation would have taken care of it.

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    1. The theory of the tort system is that it eventually puts itself out of business as people take progressively more cost-justified precautions. This progression is confounded by insurance, which incentivizes private squander and collective neglect, and by declining human capital, with market actors increasingly unable to apply hindsight and foresight.

      In a market of 320M million individuals, average IQ 98, with inconceivably large economies of scale, it’s cheaper and more efficient just to substitute a comp system for medical casualties.

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      1. I don’t think our existing insurance system is a market phenomenon. Insurers are forced to cover the sick, but then also are shielded from competition by all the regulation. So the problem is not the concept of insurance but the government-backed pseudo-insurance, which is just quasi-socialization of costs.

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