Monday, May 05, 20085
How tort reform can stimulate the economy
The success of Texas' tort reform continues:
Savings from reduced damages awarded by juries and fewer lawsuits filed against large businesses since the mid-‘90s has created a climate in which medical and insurance companies can expand, the study states. Across Texas, the reforms have resulted in nearly $113 billion in additional annual spending, almost 500,000 new jobs and $2.6 billion a year in increased state budget resources.
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This is what economists call the Broken Window Fallacy.
You are only seeing the macroeconomic benefits achieved (for insurance companies and defendants). You are not seeing the macroeconomic benefits foregone (for affected plaintiffs).
The additional money meritorious plaintiffs would have received but for tort reform would also have "stimulated the economy" in one form or another.
The net effects may tilt one way or the other -- there's little way to know for sure. But evaluating a policy -- any policy -- based only on the gross effects ("what is seen") while ignoring the offsets ("what is not seen") is an fundamental logical error.
Unfortunately, it is a fundamental logical error that permeates almost every aspect of American factional politics -- including health care policy generally and tort reform specifically.
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The Honda dealers will benefit when we buy a new car with savings from our malpractice premiums. A few luxury car dealers may bear some pain-and-suffering when the plaintiff's attorney and his Medicaid client find non-economic damages no longer pay for a new ride.
We will be able to hire some new nurses and see some more patients; a few paralegals may be laid-off.
The yellow pages and billboard companies will lose advertising revenue from ambulance chasers. Our forests and city streets will never have looked more beautiful.
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