Michell J. White writes,
That asbestos was so widely used from the 1950’s to the 1980’s suggests that multiple regulatory systems failed, including workers’ compensation, workplace safety regulation, product safety regulation, and liability law.
...Will the asbestos mess at least have the beneficial effect of changing firms’ attitudes toward the risks of using asbestos-like products in the future? Unfortunately, neither liability nor regulation works very well when the harm that results from exposure has a long latency period like that of asbestos. Because managers tend to heavily discount the future, if they can increase profits for 20 or more years by using dangerous substances, they are likely to ignore the high price that their firms and society will eventually pay.
She sees a potential for total legal fees to reach over $100 billion by the time all of the lawsuits are finished. I would note that this could represent $1 million apiece for 100,000 lawyers. As a result, she predicts an increase in the supply of lawyers filing class-action lawsuits, trying to find the "next asbestos."
For Discussion. White says that one of the reasons that the asbestos lawsuits were so successful is that regulators who might have prevented the problem much sooner instead were captured by asbestos producers. What would you recommend to prevent such a debacle in the future?
Obviously the firms did not take into account exorbitant legal fees in their cost-benefit analyses.
White's question, "Will the asbestos mess at least have the beneficial effect of changing firms’ attitudes toward the risks of using asbestos-like products in the future?" presents it's own solution: Just as capital is depreciated, liabilities (legal or otherwise) should be amortized.
Failure to do so, no matter management incentives to "ignore" LT costs, will eventually result in litigation, as it should. I fail to see the so-called "debacle" as Arnold describes it.
It's called business. Risk is the cost of doing business given an uncertain future. Unless you can predict the future, if you propose a way "to prevent such a debacle in the future," I can show you a few remaining communist countries I can kick your ass towards who'll welcome your recommendations.
I think the question is how do we address the fact that managers discount long term liabilities too heavily. This appears to be part of the agency problem of corporations. Stockholders must trust managers to run a corporation in their best interests. Yet after 20 years most of the managers who made the decision to use a dangerous product have retired or moved on leaving the stockholders with the liability.
I wonder if this is simply an unresolvable problem with large corporations? In a family owned business, the owner will want the business not only to be successful during the next 20 years but also in 30-40 years when it will be feeding his kids.
This is a two-headed monster: Current managers are expected to foresee and forestall future debacles while paying for past debacles, and the issue of Current managers defraying lost-term Profits for immediate short-term Windfall profits. Deliberate malfeasance should be punished--this is generally accepted, but lacking proper elements of prophecy should not be punished. Should overgenerous pursuit of the Profit motive be punished, even if it can be proven to have been dangerous?
The nature of Damage awards must be altered in basic nature. Individuals are injured by the unguarded action of Managers, but should they (or award Juries) be given Carte Blanche is awarding settlements. I have heard of Cases where Workers were awarded Millions of Dollars for non-medical awards, when they did not even work for Minimum Wage. Lawyers should be limited in the amounts they can receive for Fees, over and above their expenses, I once proposed no more than the awarding Judge's annual salary. I would also suggest Damage awards should be limited to an equivalent of forty years of working for the Company--paid as Weekly or bi-Weekly salary to the Injured. Medical restitution awards should be limited to normal Government provision Costs to the like Indigent. lgl
I noted for my classes when the $100 Billion figure started being tossed around a year or two ago that this was in the ballpark range for all economic damage associated with 9/11.
Personally, I find that ethically indefensible.
I have read the article by Professor Michelle J. White, titled “Asbestos and the Future of Mass Torts.” Although Prof. White did not intend to offer an explanation for the current range of the Conference Board’s (www.conferenceboard.org/economics/index) help-wanted index or for the current range of non-financial commercial paper outstandings (www.stlouisfed.org), that is exactly what she did.
The Conference Board’s help-wanted index has been under 48, despite the Bush tax cuts of 2001 and 2003, for the last two-and-a-half years. The help-wanted index is usually at 90 or above. The current readings mean that employers are not now hiring.
The reason that employers have not been hiring (for example, recent college graduates bearing economics degrees) is that businesses have not been borrowing and, so, have not been making new investments. The amount (or lack thereof) of new borrowing can, according to the cover article in the October 2002 issue of “National Economic Trends” (The issue may be found at the Federal Reserve Bank of St. Louis website.) be measured through non-financial commercial outstandings.
The current readings have been lower than its 52-week simple-moving average for the last three-and-a-half years.
The reason for the new-investment/hiring drought has been, of course, the asbestos litigation. Legal conditions, as Prof. White shows, are too unsettled for businessmen to plan for and to invest in new projects.