Thoughts on “The Taxpayer’s Burden Product-Related Harm”

On some level, we miss law school.  Mostly the extended breaks between semesters, and that  cachet has been replaced by the tenth-of-the-hour.  But we thank the TortsProf Blog for providing some stimulation on the academic side, and most recently providing this link where we were able to glance an interesting paper entitled “The Taxpayer’s Burden from Product-Related Harm,” a collaboration among Ruth Ruttenberg, Jonathan Cardi, and Estye Fenton.   You can find the abstract and download it from SSRN here.  We get really excited when we get to talk about “externalities,” a word and concept far too often left out of memoranda in support of summary judgment.

So, the flavor of the paper is that tort recovery is often insufficient for individuals who suffer product-related harms, and that the economic results of the insufficiencies is the injured person being on the government dole or somehow passing along medical bills or other costs to the taxpaying public, which apparently is an ever-declining population.  The paper looks at two methodologies for tracking the externalities.  The thrust of the paper is that the externalities due to product-related harm may be as high as $1 trillion, and that the cost of products are artificially low, and the taxpayers are getting hosed.  While we agree that taxpayers generally get hosed, externalities or not, we now take a minute to explore some other issues necessarily related.

While we agree that as a general principle externalities should be internalized, we have allocated risk in a certain way that is best for society.  There is a certain systemic logic that runs through the law.  For instance, part of the paper discusses barriers to court and compensation, which contributes to the externality problem.  I would say that we need to reframe the argument.  What we have said is that if a plaintiff can’t prove a product defect, then he shouldn’t recover, or, in a sense, society would rather have the product as-is and pay for the injury.  In this sense, society perhaps has taken on the externality of the injury, but only after making a jurisprudential choice that product innovation may be worth more than that injury.  If the authors of “Burden” make the argument that externalities include one individual’s lost wages, lost taxes paid, and value of benefits paid, then certainly there is a counterargument that the designers and manufacturers produce a benefit in taxes and wages paid, and the legal burden for determining whether society or the manufacturer subsidizes innovation is whether the product is unreasonably dangerous.  If there is a systemic cost, then there should be a systemic benefit.  I think it could just as easily be argued that if the injured party is always compensated, then the systemic cost is the lost opportunity of innovation or ideas.  While externalities may be internalized, that does not necessarily mean that the cost imposed on society is necessarily lessened.  But it is impossible to measure empirically the business ideas or products that are not brought to bear or are made economically infeasible (hence less taxes or wages paid and perhaps a different set of people on the government dole).  We say all this to ask, what’s so wrong with a bit of externalities?  Isn’t inefficiency a value judgment?  But perhaps this doesn’t make any sense, as we are litigators and not professors.  After all, no matter injury or innovation, there is some kind of insurance pool, and we all end up paying.