The Tort Number Crunch

Oklahoma has new “tort reform” law, and now John Brock, the chairman of Oklahomans for Lawsuit Reform, wants Oklahomans to know that prosperity is just around the corner. “The new law will substantially reduce the cost of living in Oklahoma because of the savings in products and services that will result. It also will enhance job formation in the state and improve the number of doctors available,” Brock says.

Advocates of tort reform never tire of listing “reform’s” miraculous benefits. It helps consumers! It creates jobs! It grows the economy! It will get your children into college! It whitens teeth, rids your house of fleas and makes your hair shiny and manageable! Whatever.

You can find arguments about tort reform creating jobs and growing the economy going back 20 years. And there are no end of “studies” cranked out by right-wing think tanks that appear to document these benefits. The studies to me seem like so much number salad, and they don’t persuasively connect cause to effect. For example, one will be informed that since such-and-such a state passed a tort reform bill, X number of jobs were created as a result. But one is never told which jobs were created and exactly how changing tort law created them; nor is one shown job creation numbers in other states that did not pass tort reform for comparison.

Excuse me for being skeptical.

Further, one sees all manner of what I call Numbers of Mysterious Origin (NoMOs) that are picked up and repeated in news stories and all over the web, but if you try to track down exactly where and how these numbers were crunched, usually you hit a dead end.

One series of annual reports that is often cited and really does exist is by Tillinghast-Towers Perrin, more recently just Towers Perrin, an actuarial firm. These studies show Americans paying a “tort tax” of several hundred dollars per person, which is the amount of money that allegedly comes out of the pockets of Americans because of the “unreformed” tort system.

However, see “The frivolous case for tort law change; Opponents of the legal system exaggerate its costs, ignore its benefits” by Lawrence Chimerine and Ross Eisenbrey (Economic Policy Institute, May 2005). Chimerine and Eisenbrey write,

“Half of the ‘costs’ that Tillinghast-Towers Perrin attributes to the tort system are not costs in any real economic sense. They are transfer payments from wrongdoers to victims. As the Congressional Budget Office points out, costs that ‘merely shift money from injurers to victims…are not true costs to society as a whole.’” (CBO 2003, 19).

Chimerine and Eisenbrey also say,

1. The tort system is not the cause of insurance premium increases in recent years. I will go into that in more detail in another post.
2. There is no evidence the tort system has reduced real wages and caused job loss, or that tort reform will result in more jobs.
3. Much of Tillinghast-Towers Perrin’s data cannot be verified.

In fact, Chimerine and Eisenbrey argue that overzealous “tort reform” might have a slightly depressing effect on the economy. You can look at their data and make up your own mind about that.

Barbara O’Brien
May 30, 2009

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