‘The American Illness’: How the legal system drags down our economy

GavelThe following post is a transcript of a 4-minute weekly radio commentary aired on several Utah radio stations.

A friend of mine who teaches law at George Mason University in Virginia has edited a new book titled, The American Illness: Essays on the Rule of Law. This friend, Frank Buckley, collected essays from the finest economists and legal minds to discuss the intersection of law and our economy in such areas as corruption, business regulation and federalism.

Lean economic times provide a great opportunity to look at laws and policies that drag down our economy, and the book The American Illness points a big fat finger at the American legal system. American law is the world’s outlier – we have more lawyers, more litigation and more people in jail than any other country.

Of great concern is a legal system that encourages costly uncertainty into business affairs, weakens the economy and ships jobs overseas. While it’s hard to measure, we find that people in other countries sue less than we do and get by with far fewer lawyers. Of course, the real problem isn’t so much the number of lawyers we have so much as it is a legal system that gives excessive jobs to them, robs the economy of many more jobs for non-lawyers and inhibits economic growth.

Business leaders have long complained that the American legal system puts them at a disadvantage compared to foreign competitors. Near the top of the list are wasteful rules of civil discovery. When a company is sued, the plaintiff’s lawyer can demand thousands upon thousands of documents, which befuddled judges order defendants to produce. The cost of discovery is born entirely by the defendant, and it might easily cost millions of dollars. Not surprisingly, the plaintiff’s lawyer will often suggest a settlement for less than the cost of discovery. This is nothing but a form of blackmail in which American courts are complicit.

The substantive rules of tort and contract law also take a considerable toll on businesses. Summarizing tort law in this new book, Yale law professor George Priest decries the “vast excesses in liability that have transformed it into a significant instrument of redistribution that harms economic welfare in the U.S. and places it at a substantial competitive disadvantage to other nations.”

Then there’s corporate law to consider. A decade ago, the New York Stock Exchange launched half of the world’s new public companies. By 2006 this number had dropped to one in 12 as firms moved to the London Stock Exchange and other venues. UCLA law professor Steven Bainbridge writes in The American Illness that he lays much of the blame on Sarbanes/Oxley, whose photographs are displayed favorably by London brokers. They know whom to thank for legislation that drives the American securities industry to Britain and other countries.

American criminal law, with its eager willingness to throw any businessman in jail, contributes to the American illness. The luxurious expansion of criminal offenses that don’t require a showing of guilt puts honest people at risk of jail time, as do rules of criminal procedure that ensure that the prosecutor almost always wins.

And for what? All of these perverse incentives to litigate everything enrich the plaintiff’s bar at an enormous cost to the economy.

Take a look at this new book – The American Illness – and determine for yourself if the legal profession has gone mad.

For Sutherland Institute, I’m Paul Mero. Thanks for listening.

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