Proponents of supply-side economics have had a simple agenda for a long time. If the fundamental thesis is correct — that economic growth comes from promoting new supplies of goods and services — then supply-siders have been right to focus on incentives. The idea that production requires incentive more than consumption does was embraced by Jack Kemp and Art Laffer in the Reagan era, but it was taught by Jean-Baptiste Say almost 200 years before. The supply-side movement of the last 50 years has focused on the inverse of that core claim — that we best promote new supply when we remove impediments and disincentives. The most obvious disincentives to economic growth were outrageously high marginal tax rates. Since individual income tax rates were reduced, there have been numerous successful attempts to bring down investment tax rates and business-income tax rates, as well as other policy initiatives. Supply-siders like me believe that our work is never done, but we recognize that substantial progress has been made over the last 50 years.

Identifying the supply-side school of thought as merely a tax-reduction effort has been a disingenuous but effective tactic by the left. It has allowed critics of marginal rate cuts to blame runaway budget deficits on supply-side ideology. In reality, those deficits have been caused by massive government spending increases that were opposed by supply-siders and embraced by their Keynesian rivals. The supply-side movement, rightly understood, doesn’t simply support tax cuts. It champions the production of goods and services as the foundation of a flourishing economy, and it should take on forces that oppose this cause.

Today, the greatest threat to economic productivity is America’s noxious legal environment. Excessive legal costs, the prevalence of frivolous lawsuits, and the fear of legal action all massively impede pro-growth decision-making. Legal reform must become the next cause of the supply-side movement. Our economic well-being depends on it.

The question is not whether our legal system has become a blight on our economic well-being, but how a free and enterprising society ever came to tolerate it. The best answer I can offer is that too many people do not realize how bad it is, and those who do have decided that it is easier to pay the toll than to fight back.

But our economy — which has fought stagnation and subpar economic growth for nearly 20 years — no longer has that luxury. We may not be able to reverse excessive government spending and burdensome tax rates anytime soon, but the burden of our unjust, irrational legal system in commercial affairs can be addressed by will and determination. In my estimation, we have no less than 1 percent of annual GDP growth on the line: trillions of dollars of generational economic opportunity for our children and grandchildren. Do we have the courage to change a system unworthy of the American experiment?

The direct costs of tort expenses can be quantified through settlements, disclosed payouts, jury awards, defense legal fees, and insurance costs. A conservative estimate places the annual cost above $500 billion. But the real cost to the U.S. economy goes well beyond the direct expenses of litigation, settlement, and payouts. When corporate America wastes money defending itself against predators and charlatans — money that could be put to productive use — the invisible opportunity costs are immense. These hidden effects include research and development that did not happen, new projects that were not undertaken, the risk capital not invested, and new hirings that did not take place.

Then there’s the impact on the culture at large, as an entire class of citizens, manipulated or influenced by self-serving trial lawyers, forgo productive and useful activity in pursuit of rent-seeking. When we become a nation of litigators, we squander the talents of people capable of far more than signing legal papers placed before them. We also erode something deeper: their sense of purpose and well-being, their self-esteem, and their desire to contribute meaningfully to their country and community.

One could argue that the costs of a corrupt legal system fall most heavily on large companies, which are constant targets of litigation by trial lawyers and plaintiffs seeking the deepest pockets they can find. It’s often safer for such companies to simply settle and make the case go away rather than risk defending their own capital and business operations. But these companies have the capital to perform that cost-benefit analysis. Smaller companies do not. They may be sued less, for smaller amounts, and may settle less frequently, but that is because they have less to take. And they lack the legal and insurance resources of larger companies.

Many companies that would have been significant innovators and contributors to a dynamic economy never came into existence because of the threat of legal exposure. This deprives the economy of the innovation, creative output, and unique goods and services that small and boutique businesses alone can provide. As far as “standing up for the little guy,” neglecting this legal-abuse issue is a loud way of saying that the little guy doesn’t matter.

Describing our legal system as “troubled” or “corrupt” lacks specificity. Americans are used to thinking of politics, for example, as “broken.” Yet this generic negative language can deter genuine reform because it makes the problem seem too widespread and entrenched to be corrected. Our legal system’s problems can be solved if we muster the will to do so. The solutions will be found in a combination of reforms to that system and a substantial change in our moral culture.

Ahealthy legal system is not a drag on the economy; it is vital for many reasons. Bad actors exist in the marketplace, and they may do things that warrant remuneration to a damaged party. People have a civil right to bring claims as plaintiffs against defendants and to seek remedies through the legal system when appropriate. Legitimate claims deserve fair and equitable resolutions, but they are often presumed to be illegitimate because of the corruption of our era. Legitimate cases are overshadowed by frivolous claims, and legitimately bad actors cannot be properly ostracized because society is left to assume that they, too, are mere victims of a pernicious legal system in which verdicts and settlements are seen as just a “cost of doing business.” The bad guys are unidentifiable because rational people have no way of discerning who is actually bad. Those seeking justice are failed by the current system — it inflicts unspeakable damage to those who do not deserve it while doing inadequate damage to true wrongdoers.

It may be idealistic or naïve to assert that those who have not done anything wrong need to stop settling cases, but that is where reform should begin. For large companies in particular, the existential risk, in certain high-exposure cases, is too high not to approach legal risk as purely a business calculation. In practice, these decisions are often effectively made by their insurers, who have every right to minimize exposure and seek limited damages relative to what their contractual liability may prove to be.

So what legal reforms can be imposed to stop frivolous litigation? One suggestion is some version of a “loser pays” system, in which the legal bills of the defendant will be paid by the plaintiff if the defendant prevails at trial. This is difficult to implement. The defense counsel will likely need to be paid as litigation proceeds, and collecting from a defeated plaintiff at the conclusion of a case may be easier said than done. Some also argue that this approach risks unduly burdening legitimate plaintiff claims, while almost giving a free ride to bad actors who know that injured parties may lack the resources to take on the risk of litigation.

This warrants a couple of replies. First, it must be pointed out that this is exactly the system we have now, only in reverse. Defendants with no ability to take on the risk of what is being thrown at them suffer this exposure every day, regardless of the legitimacy of the claim or their capacity to absorb the legal cost. Even a vindicated defendant will be subject to inordinate costs. This creates an incentive for defendants to settle and for plaintiffs to file — to secure not justice at the hands of a judge or jury, but rather a negotiated settlement brought about by the economic reality of risk mitigation. It is, in other words, legalized extortion.

Second, implementing a “loser pays” system would not be so challenging as to prevent trying it. My proposed model would merely allow the plaintiff to absorb the legal costs of the defendant in failed cases. I would prefer a far more expansive system, in which a plaintiff who files a frivolous $1 million case against a defendant becomes liable for the claim when it loses. But this would be politically untenable. A “loser pays” system limited to the defendant’s legal costs would be equitable, sensible, and effective at disincentivizing frivolous claims. Logistical challenges could be resolved through tools such as escrow accounts, pre-funding, and pretrial assessments from judges about the general likelihood and reasonability of the case. Most important, the system would not ask anything more of plaintiffs than what is already expected of defendants.

Another realistic reform is substantially increasing the evidentiary burden for establishing harm and the legitimacy of claims before discovery begins. It is only fair to expect specific, corroborating prima facie evidence from a plaintiff before the legal system and a defendant spend massive amounts of time and money on discovery. Requiring this phase to take place without higher burdens violates the due process rights of defendants and provides the very quasi-incentive to settlement that plaintiffs and their parasitic attorneys count on. Until this reform is in place, many claims will amount to little more than legal shakedowns.

The legal system should also not tolerate “professional plaintiffs.” When a single plaintiff files dozens or hundreds of lawsuits in a year, it makes a mockery of justice and depletes the legal system of the resources necessary to address genuine cases. An unbarred citizen may have a legal right to file suits, but the judiciary has the right to substantially penalize attorneys who participate in this fraudulent abuse of the system. Attorneys can, and should, be fined and sanctioned when frivolous cases are filed, and legal designations should be created to identify serial filers who lack standing and credibility.

It is time to create specialized forums for complex litigation that provide necessary subject matter expertise. Asking juries to assess cases that involve advanced medical, scientific, environmental, or financial issues defies common sense. Many other nations have used such forums for high-stakes disputes with great success, and our own country has already had similar success with drug courts and military courts. Unscrupulous plaintiffs and attorneys are far less likely to pursue bogus cases if they must face specialized forums that understand the actual evidence and cannot be swayed by charisma or appeals to emotion.

Iwould dare say that it is time to get rid of class action lawsuits entirely. They clearly do not provide any material benefit to plaintiffs who have truly been harmed, and they exist only to facilitate massive shakedowns of large companies so attorneys can line their pockets. As this is unlikely to happen anytime soon, there must at least be limits on what the plaintiffs’ attorneys can recover in these cases relative to the payouts that individual class members receive. As it stands, attorneys receive tens or hundreds of millions while the average member of a class may receive $10 or $25. But attorneys’ fees are based on the theoretical value of the settlement, not the amount actually distributed. In what world is this reasonable?

That the vast majority of class action suits provide so little benefit to class members — who often have virtually no burden in proving they were actually harmed — and such wildly disproportionate financial remuneration to attorneys has exacerbated a principal-agent problem. Attorneys are incentivized to file suits for which the upside is overwhelmingly beneficial and the downside is almost nonexistent. Class action suits are regulatory in nature, punitive to the core, and frequently unjust in their outcomes. They should be replaced by legislation that could codify into law what businesses are not supposed to do.

To that point, it is time to prevent cases from being brought where a plaintiff cannot show that he suffered harm. Buying a product that did not harm you is not an event requiring litigation. The fact that we even have such a thing as “no injury” cases is appalling in a free and just society. Standing is supposed to matter in our legal system, and it’s outrageous that attorneys can bring cases for code violations where no one has been harmed. If the government wants to fortify its own enforcement of certain codes and regulations, let it do so. But turning unscrupulous attorneys into agents of the state, armed with the ability to commit financial assault on well-meaning small businesses, is undemocratic and corrupt.

It is important to note that many of these reforms are not hypothetical — we already have versions of them in place, but they are not implemented with proper legal force. Rule 11 of the Federal Rules of Civil Procedure provides sanctions to deter frivolous litigation. Some states have adopted similar rules, but if we are to make real progress, all states must enforce some version of Rule 11. Even in federal courts, Rule 11 is applied so sparingly that it is laughably ineffective. Judicial discretion is important, but in the 39 states with elected judges, the influence of trial lawyer associations has had a more corrupting effect than even public-employee union contributions.

This raises the issue of whether judges should be chosen via merit-based selection or elections at the state and local level. Nonpartisan screening commissions and gubernatorial appointments — both already used in other contexts — offer alternatives to the corrupt influence of trial lawyers over judge selection. Strengthening disclosure requirements and enforcing recusal rules would also be important steps in the right direction.

This would also require a willingness of the legislature to act, but it is time to raise the burden of proof in civil trials from “preponderance of the evidence” to “clear and convincing evidence.” If a defendant is 51 percent likely to be liable, that is not sufficient to justify ruining a business or a family. While the “beyond a reasonable doubt” standard of a criminal trial may be too severe, a “clear and convincing evidence” standard would be fair and appropriate. The rationale for a lower burden has historically been that liberty is not on the line in civil cases, unlike criminal cases where personal freedom is at stake. This is a distinction without a difference in modern society. The financial and time burdens of civil cases are themselves a threat to the liberty of proprietors and entrepreneurs as well as to broader economic prosperity.

Using legislation to place a cap on damages would remove many incentives for frivolous cases, deter “ambulance-chasing” behavior among attorneys, and create more consistency across our civil court system. It would also substantially reduce the insurance premiums that small and large businesses incur as a basic cost of doing business, and these savings would benefit both customers and employees.

The statute of limitations on civil cases must be substantially limited and strictly enforced. A system in which claims can be initiated years after an alleged incident is ripe for abuse. It defies common sense that an employee does not have to inform his employer that he believes he was wronged — giving the company the chance to remedy any alleged infraction — and can instead file suit years later. If a verbal agreement was allegedly violated, a claim must be brought in as short and reasonable a time as possible. There can be no legitimacy to a claim brought 30 years later for violation of a verbal agreement — yet such claims are filed frequently and not prevented by current law.

Finally, legal reforms should equally apply to K–12 schools and government bodies. The legal system’s incentives have become deeply perverted by the fact that the liabilities a mom-and-pop business and a government agency face for the same alleged tort or infraction are unequal. I am not mentioning this to argue for more litigation against agencies and schools but rather less litigation against private businesses. The fact that different rules, standards of evidence, and means of enforcement apply to various groups has created a perverse set of incentives in state and local governments. The same bureaucrats enforcing unjust legal standards against private economic actors have virtually exempted themselves from the same standards. If we create an even playing field, the risks will quickly change for the business community.

Ultimately, the legal reforms necessary for economic flourishing will require changing individual behavior. My proposed reforms to policy and practice are necessary only because many Americans have decided that any entity with deep pockets is a fair target for litigation. To some extent, the broken legal system has created our sue-happy culture. But our moral infirmity is equally to blame. Too many people are eager to take things they haven’t earned, and the legal system has become a nonviolent method of doing so without consequence. We must create a moral culture where those who abuse the legal system for frivolous gain are seen as what they are: parasites and thieves. American society needs, in short, to revive its ethical framework.

Legal reforms must become fundamental to the supply-side economic agenda. The damage we are doing to our economy by tolerating the absurdity of our current legal system is incalculable. And so is the damage to our sense of ourselves as free Americans.