March
27, 2007
— America’s out-of-control legal
system imposes a staggering economic cost of over $865 billion
every year according to a new scholarly study released today by
the
Pacific Research Institute
(PRI), a free-market think tank based in San Francisco,
California. This figure is 27 times more than the federal
government spends on homeland security, 30 times what the
National Institutes for Health dedicate to finding cures for
deadly diseases, and 13 times the amount the Department of
Education spends to help educate America’s children.
The authors of Jackpot Justice: The True
Cost of America’s Tort System calculated that the
nation’s tort system imposes a yearly “tort tax” of $9,827 for a
family of four and raises health care spending in the U.S. by
$124 billion.
“For years, AJP has warned about the negative
economic impact of our lawsuit-happy culture, both at the state
level and across the country,” said Dan Pero, AJP President.
“Personal injury lawyers always know to the dollar how much they
cash in from lottery-sized verdicts. It’s about time someone
added up how much the trial bar’s excesses are costing America.”
The new PRI study provides the most comprehensive
examination ever of U.S. tort costs. According to the study’s
lead author, Dr. Lawrence J. McQuillan, unlike previous studies,
Jackpot Justice calculates both the direct and
indirect costs of America’s legal system.
These include not just the direct cost of annual
damage awards, plaintiffs’ attorney fees, defense costs and
administrative expenses from torts but also the indirect cost of
the legal system’s impact on research and development spending,
the cost of defensive medicine, the related rise in health care
spending and reduced access to health care, and the loss of
output resulting from deaths due to excess liability.
“America’s legal system doesn’t just transfer
wealth from companies to personal injury lawyers,” said Dr.
McQuillan. “It also changes behavior in economically
unproductive ways. Any true estimate of the economic cost of
our tort system must include these dynamic, negative-spillover
costs.”
Among the report’s critical findings:
Burden on the U.S. Economy
- The $865
billion annual cost of America’s tort system is equivalent
to the total yearly sales of the entire U.S. restaurant
industry.
- Every day,
the American economy takes a $2.4 billion hit to sustain our
out-of-control legal system.
Lost Jobs and Lost Retirement Savings
- More than
51,000 U.S. jobs have been lost due to asbestos-related
bankruptcies alone. Employees at these bankrupted companies
have lost $559 million in pension benefits.
114,000 Needless Deaths; Increased Cost of
Health Care
- An overly
expensive liability system increases the cost of many
risk-reducing products and services and health care
services, making them less accessible, and in some cases
unavailable to consumers. PRI estimates that more than
114,000 people would be alive and working today, but are not
due to inefficiencies in the tort system over the last two
decades.
- The
practice of “defensive medicine” by litigation-fearing
physicians increases American health care costs by $124
billion per year and adds 3.4 million Americans to the rolls
of the uninsured.
Suppresses Innovation
- American
companies suffer over $367 billion per year in lost product
sales because spending on litigation curtails investment in
research and development.
Loss of Shareholder Wealth
- Lawsuits
against American corporations generate an annual loss of
$684 billion in shareholder value. Who are American
shareholders? Not just Bill Gates and Warren Buffet. 50% of
all US shareholders are ordinary individuals.
Decline in U.S. Competitiveness
- U.S. tort
costs far outstrip our economic competitors. According to
another study cited by PRI, the U.S. spent 2.2 percent of
its GDP on tort costs, compared to 0.7 percent for the
United Kingdom, 0.8 percent for Japan, and 1.1 percent for
Germany. If you assume U.S. costs should be in line with
our rivals, the authors project that America wastes $589
billion per year on excessive social tort costs, equivalent
to the total annual output of Illinois.
“America’s tort system is costing us billions,
raising the cost of health care, inhibiting innovation, lowering
our standard of living, and making it harder for U.S. companies
to compete in the global marketplace,” said Pero. “It’s time
our political leaders at the state level wake up and realize
that America can no longer afford to be a nation of the lawyers,
by the lawyers and for the lawyers.”
Jackpot Justice: The True Cost of America’s
Tort System, authored by Lawrence J.
McQuillan, Hovannes Abramyan, and Anthony P. Archie, can be
downloaded by
clicking here.
For Comments:
Dan Pero, President
American Justice Partnership
517-214-4254 (cell)
Dpero@AJP-mail.org
www.AmericanJusticePartnership.org
About PRI
For 27 years, the Pacific Research
Institute (PRI) has championed freedom, opportunity, and
individual responsibility through free-market policy
solutions. PRI is a non-profit, non-partisan
organization. For more information please visit the PRI web
site at
www.pacificresearch.org
¯¯¯¯¯¯¯
