Monday, February 2, 2009

Philip K. Howard is wrong. Everybody needs lawyers.

Dahlia Lithwick at Slate has a review of a book called Life without Lawyers." The book seems to combine complaining about tort suits with advocating deregulation. Lithwick's review digresses into off-point complaining about the Bush administration's treatment of terror detainees.

Here's what I think about this guy's argument:

1) Frivolous lawsuits are very unusual

Frivolous lawsuits are terrific anecdotes for people who are intentionally trying to mislead. In fact, frivolous lawsuits are only borderline relevant to the issues surrounding personal injury torts, because they are infrequent and easily disposed of.

Lawyers who represent injured plaintiffs are paid contingent fees, which means that the lawyer doesn't get paid unless the client recovers money. This means that injury lawyers have a tremendous disincentive to represent clients in frivolous actions; when the case inevitably reaches an unfavorable resolution, the lawyer's work and expenses poured into it will be uncompensated. And in case that isn't disincentive enough, there are various sanctions that can be imposed on frivolous plaintiffs and their attorneys.

The legal system creates plenty of bizarre anecdotes, like the one about the man who sued his dry cleaner for $50 million over lost pants. The cases are generally disposed of quickly, and comprise a miniscule percentage of total tort litigation. Some unscrupulous advocates for reform try to cherry-pick a handful of the most egregious crazy lawsuits to make a point that society is overly litigious or that the legal system is sick in some way.

To assume, based on the existence of this single lawsuit, that courts are clogged with similar disputes is fallacious for the same reason it is incorrect to assume that shopping malls are full of naked dope fiends because a junkie took a nude walk in a mall once.

2) "Less law" or "less lawyers" won't really help

Howard quotes a bunch of random statistics; for example, the fact that Congress passed 70,000 pages of legislation. It appears he is insinuating that the volume of legislation has some sort of causal connection with the increase in tort litigation that Howard contends is occurring. He is lying.

Injury lawsuits and the volume of federal legislation have absolutely no relation to each other. There is a lot more to legislation than injury suits; those 70,000 pages are mostly about how to spend Federal money. Almost none of it is related to tort suit, and Congress certainly isn't rolling out lots of new torts to sue for.

Virtually all personal injury torts are based in state tort law; to imply to lay readers that Congress is spending its time inventing new ways to sue for frivolous personal injuries is a kind of intellectual fraud.

What Howard actually seems to be doing is using unusual anecdotes about tort suits and weird nostalgia for dangerous playground equipment to make a completely obsolete argument for deregulation.

The people who rolled back the regulatory restrictions on Wall Street assumed that more money could be made without burdensome laws getting in the way, and where investors and money managers were allowed to innovate with minimal government intrusion, accountability would take over. The opposite happened.

Hedge funds were allowed to run proprietary "black box" investment strategies because we assumed that the sophisticated (usually institutional) investors who were buying into them could conduct proper diligence and hold them accountable without needing the government looking over everyone's shoulder. That is how Madoff happened.

Deregulation advocates assumed that market incentives could steer participants into efficient decisions without government intervention. Instead, investors and managers took on too much leverage in pursuit of higher profits, and invested heavily and detrimentally in arcane and convoluted financial devices that nobody seems to have understood.

I'm sure Howard's book was written long before the collapse of Lehman, but, as it turns out, the roll-back of law doesn't result in a culture of accountability. It results in catastrophic failure and bailouts. Howard should be mildly embarrassed that his book contains a chapter titled "The Freedom to Take Risks."

Risk, we've learned, is not free. It will take a lot of pages of federal legislation and a lot of lawyers to untangle the mess lightly-regulated and ostensibly accountable people made.

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