Economics

Center on Wealth & Poverty

Tort Reform’s Ground Zero

William Tucker is a Senior Fellow of Discovery Institute

Today President George Bush will fly to Scott Air Force Base, Illinois, then drive 15 miles northwest to address a crowd at the Gateway Center in Collinsville, which is right next door to Edwardsville, the epicenter of America’s tort crisis.

Madison County, Illinois, has earned all this attention by becoming the nation’s number-one “judicial hellhole,” as the American Tort Reform Association has coined the phrase. “It’s a place where the judicial system has broken down,” says Sherman “Tiger” Joyce, executive director of the American Tort Reform Association.

Actually, Dickie Scruggs, the Pascagoula, Mississippi attorney who started the original $275 billion Medicaid/tobacco lawsuit (and collected several billion in the process) put it better. Speaking before an asbestos conference sponsored by Prudential Securities in 2002, Scruggs — who at least has a streak of honesty — described what he called “magic jurisdictions” in this way:

[W]hat I call the “magic jurisdiction,”…[is] where the judiciary is elected with verdict money. The trial lawyers have established relationships with the judges that are elected; they’re State Court judges; they’re popul[ists]. They’ve got large populations of voters who are in on the deal, they’re getting their [piece] in many cases. And so, it’s a political force in their jurisdiction, and it’s almost impossible to get a fair trial if you’re a defendant in some of these places. The plaintiff lawyer walks in there and writes the number on the blackboard, and the first juror meets the last one coming out the door with that amount of money.… The cases are not won in the courtroom. They’re won on the back roads long before the case goes to trial. Any lawyer fresh out of law school can walk in there and win the case, so it doesn’t matter what the evidence or the law is.

Madison County is one of those little rotten boroughs that — with the help of the trial lawyers — has turned lawsuits into a cottage industry. At last count close to 20 percent of the asbestos lawsuits in the nation were being heard before a single Illinois state judge in Madison. Out-of-state corporations as diverse as Prudential, Ford, AIG, Philip Morris, General Motors, and dozens of others have had to troop down to Madison County before judges and juries obviously intent on stripping them of their worldly goods.

In one particularly ironic case, Judge Nicholas Byron decided in 2003, without benefit of jury, that Philip Morris and its parent company, the Altria Group, had tricked the class of Illinois smokers out of $10.1 billion worth of damages by selling them Marlboro Lights, which plaintiff attorneys said fooled smokers into thinking they were less dangerous than Marlboro regulars. Judge Byron demanded that Altria post a $12 billion bond just to appeal the case to the state supreme court. Altria said it would have to declare bankruptcy.

The decision set off fire alarms in the offices of 49 other state attorney generals, who immediately rushed down to Madison to intervene. What’s the problem? Most states have now built their entire budgets around the Master Tobacco Settlement of 1998, which promises the states $275 billion over the next twenty years. Since Philip Morris pays the lion’s share of this settlement, bankrupting the company in Madison County would set off a financial crisis in 49 other states. Judge Byron finally lowered the bond to $6 billion but the case is still under review by the Illinois Supreme Court.

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What We Don’t Know

Do you know how long you will live? Do you know how long the average American will live 50 years from now? Do you know what birthrates will be for the next 50 years? Do you know the rate of immigration for the next 50 years? Do you know the rate of economic growth for the next 50 years?

Of course, neither you nor anyone else the answer to any of the above questions. However, those who tell you we do not need to change Social Security or need only make minor adjustments to the existing system can honestly do so if they know the answers to the above questions — which they do not.

Let’s start with what we do know. The present Social Security system is a “pay-as-you-go” system, in which the taxes paid by workers and their employers are used to fund the monthly benefit checks for the existing retirees. We know that in 1950 there were 16.5 workers paying Social Security taxes for every retired person receiving benefits. We know there are now only about 3.3 workers for each person receiving benefits and there probably will only be 2.2 workers for each benefit recipient 25 years from now in 2030, if we continue with the existing system. We also know the so-called Social Security Trust Fund actually contains no money, because Congress has spent all the money (the surplus from the Social Security tax over actual outlays) on other things since the program’s 1937 inception.

To fully understand the problem, let us go back to what we do not know.

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The Trial of John Snow

Treasury Secretary John Snow “can stay as long as he wants, provided it is not very long,” is destined to go down in history as one of those classic Washington phrases. The phrase appeared in an article in The Washington Post as a quote from “a senior administration official” one week before the president finally announced Mr. Snow would be Read More ›

Do We Need a National ID Card?

Are you in favor of a national identity card? Even though many Americans are against the idea of a national identity card, it is coming. In fact, in many ways, it is already here. Every American citizen and every foreign worker in America is required to have a Social Security card. Your Social Security card is only supposed to be Read More ›

Euro vs. $ Myths

The dollar has fallen about 35 percent against the euro over the last three years. What in practical terms does the fall mean, how important is it, and what should be done? Three years ago, the typical American worker had to work about 15 minutes to earn enough after taxes to buy a “Big Mac Meal” in either the U.S. Read More ›

End Corporate Income Tax

On Nov. 18, in a speech given at the Finance Ministry in Vienna, Austria, the very highly regarded European economist and first woman president of the Mont Pelerin Society, Professor Victoria Curzon Price, called for eliminating the corporate income tax. There, in the center of socialist Europe, was not only the call to get rid of this destructive tax, but Read More ›

Primitive Party Animals

Since the 1976 presidential election, the Democrats have not received more than 50 percent of the popular vote. Most organisms, except for very primitive ones, usually modify their behavior after repeated failure in order to survive. Much has been written about why the Democrats continue to fail in the polls. But as an economist, I have been particularly struck by Read More ›

Good News From Europe

Back in 1984, if you had bet Bulgaria would in 2004 host a convention of European free market think tanks including many from what were then communist countries, you probably would have been given very good odds. Yet during the last days of October, a remarkable conference — the First European Resource Bank — was held in the pleasant ski Read More ›

Halting French Economic Thrust

Are you aware of the ongoing world war between a French-led high tax alliance and the United States and its free market allies? France and its statist allies have been losing the war for economic supremacy to the lower-tax developing and developed countries, like the United States. The French are well aware that their economy and those of other statist Read More ›

Tax Hypocrisy

Sen. John Kerry keeps telling us that “the rich” need to pay more in taxes. The senator and his wife are among the 400 richest Americans. He says that he has “a plan to tax the rich.” Under the senator’s tax plan, what percentage of the Kerrys’ income do you think they would pay the IRS? (a) 50 percent, (b) Read More ›