BOOKS JULY 31, 2012
by Kenneth R. Feinberg
Public Affairs, 240 pp., $26.99
KENNETH FEINBERG IS a private lawyer best known for administering the September 11 Victim Compensation Fund and the Gulf Coast Claims Facility in the wake of the Deep Horizon oil spill. Feinberg also doled out money on behalf of chemical companies in the 1984 settlement of the Agent Orange litigation, and he distributed philanthropic donations to victims of the massacre at Virginia Tech in 2007. In a different vein, the Treasury Department appointed Feinberg to limit compensation for top executives of companies that received TARP funds—a role that earned him the popular if misleading moniker of “pay czar.” While the September 11 job gave Feinberg the godlike power to adjudicate the value of human life, the TARP job gave him the even more daunting task of telling bankers that they could not earn $20 million a year. Why should this man have been given these powers?
Feinberg’s account begins with the Vietnam War, when the U.S. military spewed Agent Orange, a defoliant, onto the Vietnamese jungle, hoping to deprive enemy soldiers of cover. Years later, veterans complained that Agent Orange had made them ill, and brought a massive tort suit against the eight chemical companies that had manufactured it. Feinberg says that little evidence backed up the veterans’ claims, but the defendants settled and paid $180 million into a fund for victims. The judge who presided over the settlement appointed Feinberg to establish criteria for eligibility for an award. Feinberg was chosen in part because of his political connections—among other things, he was personally acquainted with the trial judge, and he worked for Senator Kennedy, which would open doors for him throughout his career.
Many years later Feinberg became the lead administrator for the September 11 Victims Compensation Fund. Congress set up this fund to provide monetary compensation to the victims of the attack, instructing that payments from the September 11 fund reflect tort principles: roughly meaning, surviving dependents would be compensated for lost income and emotional distress. This meant, according to the lost-income calculation that is fundamental to tort principles, that the families of financiers would receive awards of tens of millions of dollars, while the families of firefighters and janitors would receive awards that were a fraction of the size—an outcome that Feinberg says he regrets because it caused division among the survivors. Uniform emotional distress payments of $250,000 to families of all victims, plus another $100,000 per surviving dependent, ensured that the variation in aggregate awards would not be too extreme.
The BP and Virginia Tech programs followed similar principles. BP knew that it or its partners could not win tort suits brought by victims, because negligence had clearly played a role in the disaster, and so the company made $20 billion available, which turned out to be greater than enough to compensate victims. Feinberg’s main challenge was to distribute the money quickly and accurately. In the Virginia Tech case, the money came from philanthropists who put few constraints on how it should be used; Feinberg made relatively uniform payments to the injured and to families of the dead, while some funds were set aside for scholarships in the victims’ honor.
The executive compensation project differed from these others; it did not involve compensating victims. Feinberg was given the dubious task of quenching the public thirst for vengeance, while ensuring that executive pay was not so low as to deplete the ranks of experienced executives. His strategy was to allow as little compensation in the form of cash as possible, while approving generous stock options with long vesting periods. This tended to minimize the headline-grabbing effect of large cash payments, while also giving the executives a pecuniary incentive to work hard, save their firms, and thus ensure that their firms would re-pay the government.
It is impossible to know whether Feinberg’s judgments were ultimately correct or not. His valuations rest on imponderables that are inherently hard to evaluate. He proudly notes that nearly all September 11 victims used the fund rather than the tort system, but that might mean that his awards were too generous, coming at the expense of the perpetually inattentive taxpayer. But Feinberg enjoys a good reputation among the various constituents affected by his decisions in acrimonious matters. That alone is quite an accomplishment. And he administered these programs efficiently. After he finished this book, the Department of Justice released an audit of the BP fund which found that the facility underpaid claimants by only $64 million. Given total payments of $6.2 billion, this is an error rate of 1 percent (although there was some overpayment as well). This is impressive, and suggests that Feinberg has much to be proud of.
But the book is not entirely satisfactory. It hovers uneasily between a memoir and a policy manual. The book fails as a memoir because Feinberg gives little detail about his thoughts and feelings. He meets a number of important people but reveals nothing of interest about them, instead using the same blandly positive adjectives to describe virtually everyone in the book. He reflects on the difficulty of his tasks, sympathizes with victims, and describes confrontations with outraged, despondent, confused, and irrational members of the public, but their emotions are not adequately conveyed. He speaks in generalities.
As a policy manual, the book also falls short. Feinberg tries to derive some lessons from his experiences, but they are either obvious or undeveloped. Feinberg could have supplemented his narrative with additional case studies in which he was not personally involved. The government has paid out money to disaster victims before—FEMA institutionalizes this process—and has issued reparations to Japanese-Americans who were interned during World War II and the victims of the Tuskegee syphilis experiment. Other mass tort litigation—for example, involving asbestos, defective breast implants, and other products—has resulted in settlements and the establishment of claims facilities. Attention to these precedents would have enriched Feinberg’s effort to provide guidelines for those who follow in his footsteps.
Feinberg also misses the chance to reflect more fundamentally on how the government should put monetary value on lost lives. It is common to say that one cannot value human lives, and as a sentiment such a view is easy to understand, but the fact is that the political and legal systems do just that, unavoidably. American regulatory agencies price a “statistical life” at $6 million, so that pollution and workplace regulations do not shut down industries to save a handful of lives. The tort system typically results in lower payments, but sometimes judges allow juries to issue larger awards to cover pain and suffering, and these numbers always seem arbitrary. (One study of tort cases found a mean award of $3.8 million, but with variation ranging up to $50 million.) Feinberg’s mean award was $2 million for families with victims killed in the September 11 attack, with much less variation. If his goal was to prevent people from using the tort system, as he suggests, then he might have calculated that this figure was just large enough to discourage victims from filing tort claims. But we learn little about the morally right way to go about making these difficult judgments. Feinberg cares more about political realities than moral niceties, which may account for his success.
Still, an interesting theme surfaces. In all five projects, because of the heightened emotions stirred up by events, political controversies erupted over features of legal and economic institutions that the public normally takes for granted. Every day, the tort system awards higher damages to wealthy victims than to poor victims. No one seems to think this is a scandal. Yet when Congress appropriates money to compensate victims of the September 11 attacks, it seems unfair to issue larger awards to rich families than to working-class families. Similarly, most of the time little attention is given to the lavish salaries bestowed on corporate executives. Yet the salaries suddenly seem unfair after the government rescues financial institutions.
The reason for this is probably that the public does not understand the tort system or even the labor market, and how the features of these institutions that deviate from common-sense morality might make sense in a larger economic and legal context. It was Feinberg’s job to design projects that satisfied the public sense of fairness while not departing too much from economic and legal realities. In all of the cases, he played the part of the impartial dispenser of someone else’s money, whose role was merely administrative in theory, but it was his political sophistication that accounted for his success.
The book is thus a helpful reminder that many institutions that we take for granted flourish only because the public does not pay attention to them. When political ruptures expose this machinery, savvy figures such as Kenneth Feinberg are called upon to play a paradoxical role. They convince the public that these institutions are fair by temporarily suspending their operation and using ad hoc procedures that better comport with public notions of fairness, until public attention wanders elsewhere.
Eric A. Posner is a professor at the University of Chicago Law School.