Michael Lewis Doesn't Think To Ask Whether Compensation for Lost Wages Makes Sense

by Michael C. Dorf

Longtime readers of this blog know that I am a sometimes-critical fan of author Michael Lewis. (Here are links to my columns on The Big Short, Flash Boys, and Boomerang. I have also occasionally made reference to Liar's Poker, Moneyball, and The Blind Side.) Lewis now has a podcast called Against the Rules that is generally quite good, although, like some of his other work, a bit too taken with its framing metaphor. The basic idea Lewis explores is that neutral arbiters have increasingly come under fire in a wide variety of contexts, which is dangerous, because societies need neutral arbiters.

Episode 5, The Neutral, begins with a story about how difficult it is to be a referee, before turning to the remarkable case of Ken Feinberg, who, over the last four decades, has become the country's go-to authority for divvying up victim compensation. Lewis rightly expresses amazement that one individual wields as much power as Feinberg does, eventually pivoting to the characteristics Feinberg possesses that enable him to play this role effectively. Before that pivot, however, the podcast contains a discussion of victim compensation in tort that warrants some discussion and very substantial criticism.

Feinberg was the first special master for the September 11th Victim Compensation Fund. In that capacity, he processed claims by victims and family members of victims who were injured or killed as a result of the 9/11 terrorist attacks. In the course of introducing the segment, Lewis and Feinberg discuss the fact that Feinberg's awards deviated a bit from a strict economic loss model. Under a strict  economic loss approach, an investment banker would have lost expected lifetime earnings much greater than the lost expected earnings of a busboy and thus the investment banker's surviving family members would have received many times the award that the busboy's family received. Feinberg softened this disparity by adjusting downward at the top and upward at the bottom. At the extreme, Feinberg says he reduced what would have been a strictly earnings-based recovery from $35 million to $6 million and increased what would have been a $200,000 recovery to over $1 million.

In the ensuing discussion, Lewis brings in Prof Eric Posner as a guest to raise what Lewis calls the "principled objection" that Feinberg's success could "make a mockery of the legal system." Those are quotes from Lewis, but Posner himself says that "the legal system doesn't always reflect people's ordinary moral intuitions about how disputes should be solved." Lewis asks for an example, and Posner supplies the very one under discussion: the fact that the surviving family members of a wealthy person who is accidentally killed are entitled to a much greater recovery in tort damages than the surviving family members of a poor person who is accidentally killed.

Lewis then intones that this is just what might have happened "if Feinberg hadn't been there." Posner says that "it looks quite unfair, because it's as if the law is saying that the wealthy person's life is worth a lot and the poor person's life is worth not that much -- and that's very much inconsistent with our moral intuitions about equality." Lewis then says that the "disconnect" between what "the legal system" and morality produce chugs along until a big event like 9/11 spotlights it. Posner agrees, saying that the legal system works "as long as people aren't paying too much attention to it, but" then "people see how" it "operates out of context," and they can get very angry. Lewis then sums up the discussion by saying "that the only reason the legal system works is that people don't pay attention to it." He concludes that "the stability of the entire society depends on people not looking too closely at its foundation." Posner adds that "our system of law and politics has to address" the public's "anger in some way," because the "anger is a political problem that the legal system is really not set up to address."

Lewis then adds that when that anger is boiling over, Feinberg arrives to bring calm, because "just about everybody accepts his judgment [and] agrees it's fair." Lewis characterizes Feinberg as "a political solution." Posner heartily agrees. Lewis then closes this part of the segment by saying that a legal scholar (i.e., Posner) wonders why Feinberg's "justice is so obviously different from what our legal system might supply."

The Lewis/Posner exchange is problematic in multiple respects.

The whole framing of Feinberg operating outside of the rules but gaining acceptance because people trust him is simply nonsense. Feinberg says quite clearly that the relevant law authorized him to take account of factors besides lost earning potential in making awards. He's right about that. The key statutory provision states that the Special Master shall award compensation after making a determination for each eligible claimant of:
(i) the extent of the harm to the claimant, including any economic and noneconomic losses; and
(ii) the amount of compensation to which the claimant is entitled based on the harm to the claimant, the facts of the claim, and the individual circumstances of the claimant.
Part (i) explains why the banker's family gets more than the busboy's family. Part (ii), especially the "individual circumstances" provision that Feinberg characterized as requiring "justice," explains why the ratios of awards are less extreme than the ratios of lost expected earnings. In departing from a strictly earnings-based calculation of damages, Feinberg didn't work outside the law; he followed the law.

So why do Lewis and Posner think otherwise? Why do they consistently talk about the results that "the legal system" is supposed to produce rather than acknowledging that we don't have a single legal system; we have the tort law of fifty different states and then we have a federal statute that, in various particulars, differs from the approach of most states. Lewis, who is not a lawyer, can perhaps be barely excused for not knowing that federal statutes differ from state tort law. What's Posner's excuse?

Perhaps Posner thinks that, notwithstanding those pesky "ordinary moral intuitions," the well-disciplined Homo Economicus understands that the right measure of damages is lost wages. But why? Posner doesn't say. One might think that the point of tort law is simply to do corrective justice between the tortfeasor and the victim, and that therefore the tortfeasor should pay the full damages; although this approach means that rich victims get paid more, one might say that this isn't because the law values rich people more than poor people; it's just a side-effect of the full damages rule.

That's not a bad argument, but here's the thing: It doesn't work in the context of the September 11th Victim Compensation Fund, which disburses what are (at least primarily) public funds. The corrective justice model doesn't fit well at all when we are talking about what the public is prepared to pay victims. Now the model should be something more like distributive justice, for which lost earnings are less relevant.

Does Posner have some other reasons for thinking that the tort model of lost earnings should apply to the September 11th Victim Compensation Fund? Did he offer it to Lewis in a part of the interview that got cut by the editors? One cannot tell from the podcast.

Perhaps most importantly, the conclusion that Lewis and (so far as one can tell from what made it into the final version) Posner draw is bizarre. They both suggest that when widely shared moral intuitions conflict with the law, we should just hope that people don't find out about the law's content. They thereby overlook two other possibilities, both of which one would expect to work in a democracy.

One possibility is to reform the law. Maybe the widely shared moral intuition is actually sensible. Above I noted that the corrective justice rationale for a lost-earnings-based award in tort doesn't apply to a publicly funded system, but it might not be right even for private law. How to calculate damages in a tort case is a matter for state common law in the first instance, but it is also subject to state legislative revision. In other contexts in which moral intuitions or -- heaven forbid! -- politics made an existing tort rule (such as the fellow servant rule) untenable, the legal system responded by changing the rule.

Another possibility is education. Sometimes a rule of law may be justified, all things considered, even though it appears to lead to injustice in particular cases. The Fourth Amendment exclusionary rule may be an example. Robust protection for free speech -- including very offensive speech -- may be another. It's not important what examples one uses. The fact that we can point to this phenomenon pretty strongly suggests that the people can handle the idea that their ordinary moral intuitions could be right and yet a rule that contradicts those intuitions in particular cases could also make sense, all things considered. Contrary to Lewis, the stability of our society does not rest on a lie, noble or ignoble.