Ogden Nash said that for babies “a little talcum is always walcum.” That was true for decades, but a series of liability suit decisions against Johnson & Johnson, long the dominant manufacturer of baby powder, is changing things.
This past week a Missouri jury awarded a California woman $417 million because that firm’s powder purportedly caused her ovarian cancer. This is not the first such finding of liability nor will it necessarily be the last, but it is by far the largest one. Hundreds of other cases are pending.
An economist isn’t qualified to opine on the merits of the case. But it serves as an example of economic aspects of our nation’s system of tort laws. These concern compensation for harm to one person or entity caused by another. Some argue that existing law harms our nation’s economy greatly. Whether that is true is a key question, but not the only one.
The idea is that if one person harms another, whether intentionally or not, the person harmed deserves compensation from the one who caused the harm. Requiring such compensation is simple fairness and is enshrined in law going back to the Old Testament and the Code of Hammurabi. So at first glance, one might see this as a question of “equity,” the term economists use for fairness, and not a question of “efficiency,” or how many goods and services an economy produces from a given set of resources and hence how many of the needs and wants of its people are satisfied..
That assumption is incorrect. When property is damaged or destroyed or people injured or even killed, the well-being of society is lowered. Economic efficiency is impaired. So limiting such harms involves equity as well as efficiency. Even if only two parties are involved, there are broader implications for society as a whole.
A legal system that allows those causing harm to escape paying for all or part of the damage caused means that the losses by victims will reduce the collective well-being of society. It goes beyond this, however. When productive resources are used to produce harmful things, these resources produce less satisfaction of people’s needs that they would if applied elsewhere.
A concrete example may help. Yes, if I bat a ball through my neighbor’s window, she deserves compensation to have the window fixed, but no one else really is affected. However, if a company manufacturing insulation produces a type containing cancer-causing asbestos that harms installers and building occupants, then society as a whole is harmed.
Note there are dangers on both sides. Establish a legal system that requires overcompensation of those harmed and society also loses. Just the possibility that a producer may be required to pay exorbitant damages, plus legal costs, will deter them from selling useful products for which all risks are not known. Harms do not occur, but neither do the benefits that consumers might have had from the products.
This is the crux of the baby powder case. It is also a key issue for business in Minnesota, which has a large liability-prone medical technology sector.
If there is no legal requirement to pay for damages caused, then a manufacturer of personal care products or heart valves will not devote enough resources to ensuring that the product is truly safe. If legally required compensation is too high, firms will be leery of producing useful goods. More babies will have rash on their cute little butts and heart patients perhaps will have shorter lives.
If $417 million is awarded to one person who got ovarian cancer, then the legal system probably is overcompensating. (It should be noted that enormous settlements like this usually are reduced substantially on appeal.) The costs of proactive product-harm mitigation, court judgments, settlements and legal fees also are borne by someone — either shareholders though lower profits and share values, or consumers through higher prices.
I buy the argument that the U.S. often errs in this direction of overcompensation. But not everyone agrees.
Moreover, there are countries that err on the side of under-compensation. In Japan, for example, getting paid for a harmful consumer product or drug or for medical malpractice is very difficult. This is unfair to those harmed and the Japanese economy has inadequate incentives to produce safe products.
As is often the case, “imperfect information” reduces efficiency. Even if the asserted link between use of Johnson’s baby powder and ovarian cancer is true, J&J did not set out to harm anyone. Talcum powder had been used for personal comfort since Roman times. It was generally considered safe and it seemed effective to most users. It met a need. No one knew of any harm for a long time.
Similarly, unbreakable plastic baby bottles were seen as safer than glass ones. No one knew that BPA, an ingredient in the plastic used, might leach out and harm infants. Zonelite insulation was fireproof and easy to use. Shingles that happened to contain asbestos fibers were inexpensive and lasted a long time. And Takata spent millions on engineering airbags that worked and were as safe as possible. These ideas all turned out false.
Yet lack of intent does not eliminate liability. Saying “But Mrs. Jones, I didn’t want the ball to hit your window” doesn’t eliminate responsibility to replace the glass. Insulation installers who got mesothelioma deserve to be taken care of.
This all is complicated when scientific evidence of harm is not clear. One credible researcher says that daily use of baby powder for feminine hygiene increases the risk of ovarian cancer by 30 percent. Other credible researchers say there is no link. At what level of certainty should a manufacturer stop turning out the product? Most of the $417 million awarded was as “punitive damages” meant to punish J&J for continuing output after initial tentatively adverse studies were published. Should it have stopped producing something thought useful by millions based on those studies? If not right away, then when? The American Pediatric Association now recommends against regular use of talcum-based powders on infants. But this is a recent decision.
Those who see corporations as inherently evil may deem a $417 million settlement just punishment for greed-based harm. But more than 2,000 other women are in the process of suing. J&J is a huge company, but if awards continue at this level, only a few will benefit before the well goes dry.
Weighing of relative risk is not something courts are good at. More Americans are killed in a day because of texting while driving than have died because of defective Takata airbags in three decades. Takata is replacing tens of millions of bags under threat of liability suits. Its shareholders when the issue emerged have lost all their money. Clearly there are hundreds of ways in which more lives could be saved by applying these resources to solving other problems, but we have no mechanism to make that happen. And no public official dares criticize the process under way.
There is yet another side of the issue. While big liability awards make headlines, many torts never are compensated. There are information problems and there are transaction costs. Say some plastics additive really harms health. But people harmed by exposure that occurred decades earlier probably won’t know the cause and effect. It would be impossible to prove to a jury. The costs of filing suits are prohibitive. Ditto for health affects felt decades later from exposure to emissions from a smelter or metal plater.
There are no easy answers. No nation has a perfect system of liability law. Ours clearly has many faults, and probably is inferior to that in many other nations. But powerful forces “on many sides” of the issues have something at stake and oppose change. So the status quo largely prevails.