In a recent issue of the Hillsdale College publication Imprimis, financial historian John Steele Gordon offers five lessons from the 405-year history of America:
• Governments are terrible investors
• Politicians have self-interest too
• Immigration is a good thing
• Good ideas spread, bad ones don’t
• Markets hate uncertainty
The article is available online and worth reading, but it’s the fourth lesson that resonates most for us, since it focuses on a bad idea that plagues our legal system: “the so-called American Rule, whereby each side in a civil legal case pays its own court costs regardless of outcome.”
As Gordon explains, “The American Rule was a relatively minor anomaly in our legal system until the mid-20th century. But since then, as lawyers’ ethics changed and they became much more active in seeking cases, the American Rule has proved an engine of litigation. For every malpractice case filed in 1960, for instance, 300 are filed today. In practice, the American Rule has become an open invitation, frequently accepted, to legal extortion: ‘Pay us $25,000 to go away or spend $250,000 to defend yourself successfully in court. Your choice.’”
Trial lawyers embrace the American Rule and are determined to maintain it, cleverly disguising self-interest as public-mindedness.
Nevertheless, the American Rule is a bad idea that “has spread exactly nowhere since its inception.” As Gordon points out, “There is not another country in the common-law world that uses it.”
It’s only a matter of time before America abandons the American Rule, too – and the Lone Star State is leading the way.
“Few things would help the American economy more than ending the American Rule,” Gordon affirms. “Texas reformed its tort law system a few years ago and the results have been dramatic. Doctors have been moving into the state, not out of it, and malpractice insurance costs have fallen 25 percent.”
Gordon insists that “good ideas always spread.” We think he’s right.