John Stossel writes today in Real Clear Politics about abuses of the tort liability system. He begins as follows:
Imagine if an evil business routinely deprived us of products that would help us live longer with less pain and more comfort. We'd be outraged, and lawyers would line up to sue. Yet something similar happens today, thanks to lawsuit abuse. Makers of all kinds of products are afraid to sell them to us because one lawsuit could ruin them.
Personal-injury lawyers claim they make America safer, but that's a myth. It's easy to see who benefits from those big damage awards we read about. Less obvious -- but just as real -- are the things we'd all like to have but never will get because of this climate of fear. Here are a few examples.
Monsanto once developed a substitute for asbestos -- a new fire-resistant form of insulation that might save thousands of lives. But Monsanto decided not to sell it for fear of liability. Richard F. Mahoney, the CEO at the time, said, "There may well have been a safe, effective asbestos replacement on the market, and now there isn't."
Stossel goes on to provide many other examples where fear of litgation has allegedly prevented companies from researching or producing valuable new products.
I am a big fan of John Stossel, but I am not sure he is on target in this particular case. Stossel's lament is a common refrain among conservatives and libertarians, and the anecdotes that Stossel and others offer in support of their view are indeed disturbing. But the criticism may suffer the same short-sightedness as the judge in the beauty contest who, having seen the first contestant, declared the second one the winner. We have to be careful what we wish for; the tort liability is plausibly better than the alternatives, despite its own imperfections.
To see this, note first that everyone benefits when companies consider the potential risks and liability from any products they produce. Without question, an overly zealous liability system might result in too little innovation and too few new products; but an insufficiently zealous one could produce the opposite effect. To know we are on the wrong side of the tradeoff requires more than examples of products that "should have been introduced" but were not; it requires a systematic accounting for all such cases and for the cases where companies thought better of developing and selling products that would have carried excessive risks relative to their value. I am aware of no such accounting, nor it is obvious how one could produce it.
In addition, it is a mistake to compare the current, imperfect tort liability system to a hypothetical but "perfect" tort liability system; that is not the choice we face. Perhaps there are reforms of the current system that make sense, but there will always be abuses. Lawyers are simply too clever at circumventing rules that attempt to limit their payoffs.
Worse yet, the alternative to a tort liability system, with all its warts, might be a government regulatory agency that decides what products can be researched and sold. That is roughly what occurs for medicines under the Food and Drug Administration, and the result is not encouraging. In particular, the FDA seems to err on the side of caution and introduces enormous delay and cost in the production of new drugs. The actual choice society faces, therefore, is likely between an imperfect tort liability system and an imperfect regulatory system. At a minimum, the choice is not obvious.
My own hunch is that the tort liability system is the lesser of the evils. One reason is that, for the most part, this system is run by individual states. This allows for variety, innovation, and experimentation. It also means competition between states to provide a business environment that is not excessively hostile. These considerations will not guarantee an ideal outcome, but I suspect the results will be better than under a federal regulatory approach like the FDA.