Coyote Blog

Christopher L. Eisgruber
1 Nassau Hall
Princeton University
Princeton, NJ 08544

Mr. Eisgruber:

The other day I received a call from a Princeton student calling to encourage me to participate in annual giving this year. I was in a hurry, and I feel bad that I gave the student a rushed answer, but I told him that I thought universities were lost and that I no longer had any desire to donate money to any of them. The word “lost” is admittedly imprecise, but it was the best I could to summarize my concerns in a brief call.

When I was at Princeton, we used to laugh at those crotchety alumni who wrote angry letters about Princeton letting in women, or integrating the all-male eating clubs, or whatever else. I never imagined that someday I would find myself writing one of those “I can't donate to Princeton any more” letters, yet here I am doing just that.

Continue reading ‘Why I Don't Donate To My University Anymore -- A Recent Letter to Princeton President Christopher L. Eisgruber’ »

Megan McArdle writes:

There was a great deal of back-and-forth in the left half of the blogosphere this weekend over employers who use FICO scores as a way of weeding out job candidates.  In a sort of peculiarly American fashion, our nation seems to have decided that one's credit history is a good proxy for one's worth as a human being, and thus should be used to determine eligibility for everything from employment to excellent rates on car insurance.

I have no trouble believing that the FICO score is often a proxy for what some researchers call conscientiousness; I've certainly had roommates and others around me who had terrible credit because, well, they didn't bother to pay their bills, and regarded rent as something optional that could be turned in if no more exciting commercial opportunities immediately presented themselves.

That said, it's going to be at best a weak proxy.  It's also a proxy for things that, as a society, we may not want employers to consider, like a past history of depression.  And for things that have nothing to do with your job performance, like a car accident that left you with huge medical bills and no job, or a sudden job loss.  Looking at our national savings rate, lots and lots of Americans live very close to the edge of their paychecks; they can't all be terrible employees.

I have never really even considered asking employees for their FICO score, in part because all small business people hate these scores as, even with perfect credit records, our scores tend to be smaller than people with similar income and history due to the constant credit checks made on us by vendors and other partners.

That being said, as someone who has 500 service employees working for me, I understand the insatiable desire for information on employee reliability and conscientiousness.  A large number of our employees we hire who interview well tend to get released within 60 days of their hire.  I can't tell you how many people who seem totally normal and friendly turn out to be raving maniacs in stressful customer contact situations.

The elephant in the room that neither McArdle or folks like Kevin Drum mention is that businesses are starved for reliability information on potential employees.  It used to be the best source was to check job references.  Nowadays, though, very few employers will give a honest job reference, or will provide any information at all.  I know I am guilty of that -- my company does not allow any manager to give out performance data on past employees.  I only needed to be sued once over somehow interfering with someone's living by giving honest information about that employee's reliability to change my behavior.

I understand that this is exactly what the Left is shooting for - an environment where the competent have no advantage over the incompetent.  If employers are resorting to FICO scores, it just demonstrates how all the other reasonable avenues of obtaining information have been closed to them.

The only saving grace in this country is that employment is still mostly at-will, meaning we can fire our hiring mistakes and move on.  Of course the Left wants a European-style system where it is impossible to fire anyone too -- this is the system the post office has, and one can see how well it works out.  If they are victorious on this final front, I will be forced into a game of Russian Roulette, where I can't find out anything about those I hire, I can't fire the incompetent people I do hire, and I am infinitely legally liable for any mistakes any of these employees make.

I have written on this before on the context of Vioxx, but is it really rational public policy to have juries be allowed to effectively ban products, products that both legislatures and regulatory bodies have explicitly or implicitly deemed as legal?  Ted Frank takes this on at Overlawyered in a nice follow-up post on a $31 million jury verdict against Ford:

SUVs are designed to have high clearance to traverse rugged terrain.
This raises the center of gravity and affects the handling: it's a
known tradeoff of the laws of physics. There are a wide variety of
tests of varying degrees of scientific merit one can use to suggest a
vehicle is "too prone" to roll over, and plaintiffs have the benefit of
cherry-picking which tests to apply to which vehicles. You'll find lots
of lawyers complaining that the Bronco II allegedly responded poorly in
"J-turn tests", where the steering wheel is turned 330 degrees in one
third of a second and held there for another 4.67 seconds. Ford
designed the Explorer to pass the J-turn test to take away this claim,
and the trial lawyers started using different methodologies to claim
that the Explorer was too prone to roll over.

Empirically, however, the Bronco doesn't roll over more than several
other SUVs on the market, which is why NHTSA, in both the Bush I and
Clinton administrations, refused to recall the Bronco when the
plaintiffs' bar asked it to. When I say Ford was held liable for
producing an SUV, I'm not spinning: it was because it was held liable
for producing an SUV.

Moreover, a vehicle should be viewed in totality: an auto that is
more likely to roll over may be safer in other particulars that more
than compensate for that increased propensity. So I question the
premise. One can't change the rollover propensity without creating a
different vehicle entirely. The vehicle should be viewed holistically,
and holistically, the Bronco is a safe car when used as designed.

Perhaps we as a society would be better off taking the nanny-state
step of banning SUVs, forbidding people from wildnerness driving
because too many drivers don't know how to drive SUVs in highway
conditions, but that's a decision that not only would end the American
auto industry, but should be made other than by a 12-person jury of
laypeople. This vehicle rolled over because the driver drove off the
road.

I had similar thoughts about the Vioxx cases:

Anyway, the point of this post is that this verdict represents a very dangerous assault on individual choice.  Recognize that there are many, many activities in life where individuals are presented with the following choice:

If I choose to do X, my life will be improved in some way but I may statiscally increase my chance of an early death.

You
may react at first to say that "I would never risk death to improve my
life", but likely you make this choice every day.  For example, if you
drive a car, you are certainly increasing your chance of early death
via a auto accident, but you accept this risk because driving allows
you to get so much more done in your life (vs. walking).  If you ride a
bike, swim, snow ski, roller blade, etc. you are making this choice.
Heck, everyone on the California coast is playing Russian Roulette with
an earthquake in exchange for a great climate, beautiful scenery, and
plentiful jobs.

The vast majority of drugs and medical therapies carry this same
value proposition:  A drug will likely improve or extend your life in
some way but carries a statistical chance of inducing a side effect
that is worse than the original problem, up to and including death.
The problem is that we have structured a liability system in this
country such that the few people who evince the side effects can claim
more money in damages than the drug was worth to all the people it
helped.  For example, if a drug helps 999 people, but kills the
thousandth, and that thousandth person's family is awarded $253 million
in damages (as in this case), the drug is never going to be put on the
market again.  Even if the next 1000 people sign a paper saying we are
willing to take the one-in-a-thousand risk to relieve the pain that is
ruining our lives, they still are not going to get the drug because the
drug companies know that some Oprah-loving jury will buy the argument
that they did not understand the risk they were taking and award the
next death another quarter of a billion dollars....

By the way, have you noticed the odd irony here?  Robert Ernst (the
gentleman who died in the Vioxx case) is assumed, both by the FDA and
the litigation system, to be unable to make informed decisions about
risk and his own health.  But a jury of 12 random people who never
experienced his pain can make such decisions for him?  And us?

Alex Tabarrok at Marginal Revolution said it even more succinctly:

How did we arrive at a system in which 12 random Texans are assigned
responsibility for evaluating the scientific merits of statistical evidence of
this type, weighing the costs and benefits, and potentially
sending a productive blue-chip American company into bankruptcy protection?

I won't go too much into the details of the recent Vioxx jury verdict.  Professor Bainbridge has a complete roundup which is worth reading, and Reason had an analysis of the merits of the case a while back.  Though its not really the point of this post, I can't resist a few snippets:

Jurors who voted against Merck said much of the science sailed right over their
heads. "Whenever Merck was up there, it was like wah, wah, wah," said juror John
Ostrom, imitating the sounds Charlie Brown's teacher makes in the television
cartoon. "We didn't know what the heck they were talking about."

One juror considered the fact that the CEO, whose company faces thousands of law suits, didn't show up as an admission of guilt:

... [juror] Ostrom, 49, who has a business remodeling homes, was also disturbed
that former Merck Chief Executive Raymond Gilmartin and another top Merck
official gave videotaped testimony but weren't in the courtroom. "The big guys
didn't show up," said Mr. Ostrom. "That didn't sit well with me. Most definitely
an admission of guilt."

And of course there is this now famous gem:

One juror, Ms. Blas, had written in her questionnaire that she
loves the Oprah Winfrey show and tapes it. "This jury believes they're going to
get on Oprah," Ms. Blue told Mr. Lanier. "They only get on Oprah if they vote
for the plaintiff."

Read the Bainbridge post, it has much more.

Anyway, the point of this post is that this verdict represents a very dangerous assault on individual choice.  Recognize that there are many, many activities in life where individuals are presented with the following choice:

If I choose to do X, my life will be improved in some way but I may statiscally increase my chance of an early death.

You may react at first to say that "I would never risk death to improve my life", but likely you make this choice every day.  For example, if you drive a car, you are certainly increasing your chance of early death via a auto accident, but you accept this risk because driving allows you to get so much more done in your life (vs. walking).  If you ride a bike, swim, snow ski, roller blade, etc. you are making this choice.  Heck, everyone on the California coast is playing Russian Roulette with an earthquake in exchange for a great climate, beautiful scenery, and plentiful jobs.

The vast majority of drugs and medical therapies carry this same value proposition:  A drug will likely improve or extend your life in some way but carries a statistical chance of inducing a side effect that is worse than the original problem, up to and including death.  The problem is that we have structured a liability system in this country such that the few people who evince the side effects can claim more money in damages than the drug was worth to all the people it helped.  For example, if a drug helps 999 people, but kills the thousandth, and that thousandth person's family is awarded $253 million in damages (as in this case), the drug is never going to be put on the market again.  Even if the next 1000 people sign a paper saying we are willing to take the one-in-a-thousand risk to relieve the pain that is ruining our lives, they still are not going to get the drug because the drug companies know that some Oprah-loving jury will buy the argument that they did not understand the risk they were taking and award the next death another quarter of a billion dollars.

This exact same effect nearly killed the vaccination industry.  In the end, Congress had to pass legislation  immunizing (ha ha) vaccine makers from lawsuits when known 1-in-10,000 side effects occur.  While I am not a big fan of the FDA, if it is going to exist and put drugs through 20 years of tests and a forest full of paperwork to get approved, I think that approval process should confer some sort of litigation immunity. 

By the way, have you noticed the odd irony here?  Robert Ernst (the gentleman who died in the Vioxx case) is assumed, both by the FDA and the litigation system, to be unable to make informed decisions about risk and his own health.  But a jury of 12 random people who never experienced his pain can make such decisions for him?  And us?

Richard Epstein said it better than me, in the WSJ but I will like to Reason which is free:

I would like to send my message to [plaintiff's lawyer Mark] Lanier and
those indignant jurors. It's not from an irate tort professor, but from
a scared citizen who is steamed that those "good people" have imperiled
his own health and that of his family and friends. None of you have
ever done a single blessed thing to help relieve anybody's pain and
suffering. Just do the math to grasp the harm that you've done.

Right now there are over 4,000 law suits against Merck for Vioxx.
If each clocks in at $25 million, then your verdict is that the social
harm from Vioxx exceeds $100 billion, before thousands more join in the
treasure hunt. Pfizer's Celebrex and Bextra could easily be next.
Understand that no future drug will be free of adverse side effects,
nor reach market, without the tough calls that Merck had to make with
Vioxx. Your implicit verdict is to shut down the entire quest for new
medical therapies. Your verdict says you think that the American public
is really better off with just hot-water bottles and leftover aspirin
tablets.

Ah, you will say, but we're only after Vioxx, and not those good
drugs. Sorry, the investment community won't take you at your word. It
realizes that any new drug which treats common chronic conditions can
generate the same ruinous financial losses as Vioxx, because the flimsy
evidence on causation and malice you cobbled together in the Ernst case
can be ginned up in any other. Clever lawyers like Mr. Lanier will be
able to ambush enough large corporations in small, dusty towns where
they will stand the same chance of survival that Custer had at Little
Big Horn. Investors can multiply: They won't bet hundreds of millions
of dollars in new therapies on the off-chance of being proved wrong.
They know they'll go broke if they win 90% of the time.

Your appalling carnage cries out for prompt action. Much as I
disapprove of how the FDA does business, we must enact this hard-edged
no-nonsense legal rule: no drug that makes it through the FDA gauntlet
can be attacked for bad warnings or deficient design.

Just finished up preparing our sales tax returns for October.  We file in 9 states (Oregon does not have a sales tax) and about 5 municipalities or counties.  Being located outside of cities cuts down on the number of separate returns we have to file, but being in the lodging business adds returns (there are a lot of local lodging taxes out there).  NONE of these taxes work the same, and every return is unique.

I am working on a longer post with some observations about sales taxes, the states that have it right and the states that are over-complicated messes.  However, in the mean time, one observation.  Most states offer an online filing option.  If every state had a nice online tool, or better yet, a tool I could upload data to right out of Excel, I would love it.  This is a true win-win, with the business owner saving time and the state saving LOTS of time by not having to re-key handwritten returns.

However, several states currently have awful, totally non-intuitive online filing systems, or systems that are down all the time, or systems that make correcting errors a real pain in the butt, or all three.  The problem is, in most states, there is no way to try before you switch.  Many states play a kind of brinkmanship, requiring that if you file even once online, you can never go back to paper.  I did this with one state and the online tool really sucked, and now I am stuck  using it, despite the fact that their paper return is easier to use.

So, as a result of this nutty requirement, despite being totally committed to doing things online, I sit here filing paper returns, too risk-adverse to play Russian Roulette with various states' online filing systems.