Thinking Economically: Tort Reform Strengthens the Texas Model

Musings on Economic Freedom from the Texas Public Policy Foundation's Center for Economic Freedom

One of thecomplaints from the left about Texas' government policies is that in "moststates, government financing rests on a three-legged stool – property tax,sales tax, and income tax. In Texas, the stool has only two legs." The result,they say, is "a system of income redistribution that takes from the poor andgives to the rich."

The problem with this complaintis that it ignores the fact that prosperity for rich and poor alike comes notfrom the distribution of income by the government but from the increase insocietal wealth derived from an unencumbered and thus productive privatesector.

To help explain this fundamentaleconomic concept to policymakers, the public, and the media, the Foundationrecently launched a new section on its website, The Texas Model. We define the Texas Model as a mixture of low spending andtaxes, a predictable, low level of regulation, and a sound civil justice systemcombined with minimal dependence on/interference from the federal government.So rather than being based on a shaky three-legged stool designed to take moneyout of the economy, Texas' amazing economic success over the last decade has a solid foundation basedon these four principles with the goal of leaving money in the economy.

We'll discuss more about theTexas Model next week, but this week want to focus on the foundational elementof tort reform and the part it has played in boosting the Texas economy.

Our recent paper, The Texas Model:Improving Health Care through Tort Reform, details the greatbenefits Texans have received from tort reforms enacted in 2003:

Priorto 2003, the State of Texas was in a medical crisis. Doctors were being sued atrecord pace and for record sums as there was no cap on non-economic damageawards. This caused malpractice rates to rise significantly. … As a result,many doctors were choosing not to practice in Texas. In 1998, there were 2,866newly-licensed physicians in the state. By 2002, that number dropped to 2,110,even as the general population in Texas was expanding. By 2003, Texas ranked49th out of the 50 states in doctor-per-citizen ratio.

In Juneof 2003, the Texas Legislature passed a comprehensive package of medicalliability reforms to fix the medical care crisis in the state. It worked. Sincethen, Texas has seen a remarkable medical turnaround. There have been 24,583new physicians licensed in Texas. The Texas Medical Board (TMB) has received 83percent more applications and licensed 60 percent more doctors in the past fouryears than in the four years preceding reform. Today, Texas has more physiciansper capita than ever before.

These benefits were also shownin a great NewYork Post commentary by Center for Economic Freedom Senior Fellow JoeNixon, who authored the 2003 reforms.

Why did these reforms work? Theyworked because they helped restore our civil justice system to its originalpurpose, which is to compensate people harmed by others who behave badly in themarketplace.

What had happened in the yearsleading up to 2003 was that the system had been hijacked to become a source ofincome to plaintiffs and their attorneys regardless of whether anyone had beenharmed. The result was the same thing that happens whenever there is excessivegovernment interference in the market-the market stopped working efficiently.Doctors left, many patients didn't have access to prompt medical care, andthose that did had to pay more for it. Today, this has been reversed, thanks tothe medical reforms of 2003.

In addition to the medicalreforms, Texas has enacted many other civil justice reforms in the last decadethat have gone a long way toward eliminating the plaintiff-driven "system ofincome redistribution" that had caused great harm to the Texas economy. Anaccounting of many of these reforms is contained in our 2008 paper, A History of LawsuitReform in Texas. Additionally, our paper, Returning Justice tothe Judicial System, shows why Texas needed to enact more reformsthis past session-such as "loser pays,"-to keep the Texas Model on a firmfoundation.