Posted July 10, 2013, 12:07 ET | Comments Off
A student has asked for my comments on the books that GMUSL recommends as summer reading. I can’t say I found the list very helpful, Boring and confusing, nearly all of them. No doubt, one’s views on the subject are bound to be idiosyncratic, as I am sure mine are. But here they are: Philip Howard’s The Death of Common Sense is still as good read, as is Walter Olson’s The Rule of Lawyers; more recently, there’s Cass Sunstein’s Nudge and Bob Frank’s Darwinian Economics. You might also look at Harvey Silverglate’s Three Felonies a Day and Tyler Cowen’s Creative Destruction.
Please note that the first class in Contracts I is on August 22.
Enjoy the rest of the summer!
Posted May 30, 2013, 08:05 ET | Comments Off
The American Illness
This provocative book brings together twenty-plus contributors from the fields of law, economics, and international relations to look at whether the U.S. legal system is contributing to the country’s long postwar decline. The book provides a comprehensive overview of the interactions between economics and the law—in such areas as corruption, business regulation, and federalism—and explains how our system works differently from the one in most countries, with contradictory and hard to understand business regulations, tort laws that vary from state to state, and surprising judicial interpretations of clearly written contracts. This imposes far heavier litigation costs on American companies and hampers economic growth.
Other books have decried one part or another of the American Illness. This book differs from prior studies of the problem in three respects. First, it includes chapters by many of the finest scholars, people like Richard Epstein, Frank Fukuymama, George Priest and Robert Cooter. Second, it covers the waterfront and deals with the inefficiencies of American law in not merely one but a whole range of areas. Third, it compares American law to the law of other first world countries, and makes the point that America is the world’s outlier. To say “I’m all right, Jack” of American law is to say that every other country got it wrong, and that requires an absurd level of chauvinism.
Why the Book Matters
We used to think we could throw several hundred billions dollars at the trial lawyers, and it wouldn’t matter. But that was then, before the Great Recession of 2008. Five years later, we’re still struggling to emerge from the hole, with jobs for the millions of Americans who are out of work.
This is a leaner time, one that asks us to take a closer look at things that drag the economy down, and one of these must be the American legal system. American law is the world’s outlier. We have more lawyers, more litigation, more people in jail than any other country. Now, one possibility is that we’ve gotten it right, and everyone else is pretty stupid. If we reject bit of chauvinism, however, we’re left with the realization that this particular form of American Exceptionalism might be regrettable. Just possibly, the rest of the world has gotten it right and we have gotten it wrong.
Looking at it more closely, as this book does, one discovers that the fees paid to trial lawyers are only a very small part of the problem. By far the greater concern is a system of law that introduces costly uncertainty into business affairs, weakens the economy and ships jobs offshore. We can’t measure that, but we do find, when looking at the numbers, that people in other countries sue less than we do and that they get by with far fewer lawyers. In the end, the problem isn’t the number or lawyers, or even their fees, so much as 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 their list are wasteful rules of civil discovery, especially those dealing with discovery. When a company is sued, the plaintiff’s lawyer can demand thousands upon thousands of documents, which befuddled judges thereupon order the defendants to give up. The cost of discovery is born entirely by the defendant company, and might easily cost it many millions of dollars. Not surprisingly, the plaintiff’s lawyer will often suggest a settlement for less than the cost of discovery, say a mere million dollars. This amounts to a form of blackmail, with which American courts are complicit.
That’s only one of the ways in which the civil procedure system beckons plaintiffs with frivolous claims to hold up companies. There’s also a class action system that has little parallel in the rest of the world and a rule of costs that doesn’t penalize parties who bring non-meritorious claims.
The substantive rules of tort and contract law also take their not inconsiderable toll. Summarizing U.S. tort law, George Priest descries 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.” Making a similar point about the differences between U.S. and British contract law, Michael Bridge describes an American legal system that seems to think that uncertainty is costless and that the rest of the world doesn’t exist. That’s simply foolish. The ability to commit to perform one’s promises through a binding contract is crucially important in business planning, and the willingness of some American courts to excuse parties who want to get out of a contract is immensely costly.
Then there’s corporate law. A decade ago the New York Stock Exchange launched half the world’s new public companies. By 2006 this had dropped to one in twelve, as firms moved to the London Stock Exchange and other venues. Stephen Bainbridge lays much of the blame on Paul Sarbanes and Mike Oxley, sponsors of the Sarbanes-Oxley corporate reform legislation, whose photographs (as their favorite Americans) are displayed 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 willingness to throw businessmen into jail, contributes to the American Illness. You might think that honest businessmen have nothing to fear from criminal prosecutors. You might think that—but you’d be wrong. The luxurious expansion of criminal offences that don’t require a showing of a guilty mind puts honest people at risk of jail time, as do rules of criminal procedure that ensure that the prosecutor almost always wins.
All of that, and for what? It enriches the plaintiff’s bar, at an enormous cost to the economy. It doesn’t make the country safer or more honest. Instead, it is a leading if hidden cause of American decline, and will result in a poorer country for our children.
Buckley has assembled essays by many, perhaps most, of the best economic and legal scholars in the Anglo-American world to consider seriously the ways in which the American legal system burdens our citizens and our economy and puts us at an international competitive disadvantage. The “rule of law” we so earnestly commend to other countries is clearly in need of serious reform at home. The rigor of these historical, economic, and comparative studies, and the logic of the framework within which Buckley presents them, make a compelling case for law reform scaled to our needs for the 21st Century.
Judge Douglas H. Ginsburg, U.S. Court of Appeals
This book presents strong evidence of American hyper-litigiousness and the social costs it creates. The editor has assembled an impressive array of authors, who attack these issues with rich empirical evidence.
Eugene Kontorovich, Northwestern University School of Law
This authoritative collection of essays draws a vivid portrait of a legal system that is out of control. The Rule of Law in America has become a kind of Frankenstein’s monster, bashing indiscriminately both good and bad conduct without proportion or self-awareness. These vivid essays let the facts drive you to this unavoidable conclusion: American law is indeed “exceptional”—but no longer in a way that supports either freedom or regulatory protection.
Philip K. Howard, author of The Death of Common Sense and Chair of Common Good
Fifty years ago we thought we knew how to make a country rich: self-government, good education, free markets and loads of World Bank infrastructure grants. Nothing very complicated, in short. We know better now. The gap between rich and poor countries, which we expected to shrink, has grown larger. What we failed to recognize was the role of intangible assets: the cultural values of thrift and industry, honesty in government and the rule of law.
F.H. Buckley, Chapter One
American Exceptionalism is benign, to the extent that it promotes a healthy optimism and a willingness to court economic risks, to gamble on new ideas, to pick oneself up after a fall. At the same time, exceptionalism is a two-edged sword, for it can breed a dangerous complacency about the country’s problems.
F.H. Buckley, Chapter 2
There is an economically optimum ratio of lawyers to population across countries, and … a third of U.S. lawyers are above the world economic optimum.
Stephen Magee, chapter 3
Foundational precepts of economic, moral and political theory dictate a dramatic alteration in the structural operation of the discovery process.
Martin Redish, chapter 4
Modern tort law today exhibits 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.
George Priest, chapter 5
English courts tend to be acutely aware that their decisions will have an impact on sensitive, market-driven contract activity. This degree of concern is not one that I have detected in American judicial activity.
Michael Bridge, chapter 6
U.S. corporate governance was not at fault in the economic crises, but rather generally worked well throughout the period. Instead, it was “quack corporate governance” regulation that was at fault.
Stephen Bainbridge, chapter 7
There is no good reason why the land of free should also be the land of the largest incarcerated population on earth, both per capita, and, with the possible exception of China, in absolute terms. With 5 percent of the world’s population, we hold nearly 25 percent of its prisoners. That is embarrassing.
Jeffrey Parker, chapter 7
If I had to name one constellation of ideas that has exerted disproportionate influence, it would be the stunning persistence in the United States of Progressive thought, which more than any other intellectual movement has driven the overall expansion in the size of government for the past one hundred years.
Richard Epstein, chapter 9
It is … not surprising that the rule of law first originated in societies that were dominated by a transcendental religion, and that the first laws that rulers had to respect were religious ones.
Frank Fukuyama, chapter 9