A Disgraceful Instance of Orwellian Newspeak

by Don Boudreaux on August 1, 2011

in Crony Capitalism, FDA, Regulation

Here’s a letter to the Wall Street Journal:

F.D.A. Commissioner Margaret Hamburg writes that “Despite common criticisms that our agency impedes innovation by being slow and bureaucratic, we actually play a proactive role in promoting innovation by ushering new products through the approval process and to market – while making sure they meet the standards of safety and effectiveness that have served the American people well” (“America’s Innovation Agency: The FDA,” August 1).

Orwell would be impressed.

For an F.D.A. commissioner to brag about that agency’s “proactive role” in “ushering new products through the approval process and to market” is like an armed troll who, having seized a bridge in order to extract tribute from all who seek to cross, brags that he plays a “proactive role” in seeing people safely to the other side of the river.

And just as that troll has no business second-guessing the reasons that inspire people to seek to cross the bridge, the F.D.A. has no business second-guessing the risks that each American chooses to bear when deciding which foods and medicines to ingest.

Sincerely,
Donald J. Boudreaux

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{ 88 comments }

Gil August 1, 2011 at 10:58 am

So in a world where companies release medicines without need to prove they’re safe then they’ll just have customers sign a waiver in case of a bad reaction?

Don Boudreaux August 1, 2011 at 11:03 am

No. Other institutions will emerge, such as private-labeling, certification by the likes of Good Housekeeping (or some similar organization), physician consultation, and contractual terms struck with private medical insurers on the sorts of pharmaceuticals that the insured are permitted to take under the terms of the insurance policies.

Slappy McFee August 1, 2011 at 11:03 am

Ah, the old “government said it was ok so it must be” defense. And people constantly wonder why The Wizard of Oz is my favorite film.

Craig S August 1, 2011 at 11:05 am

Gil,

Would you sign such a waiver? I wouldn’t . If they make drugs that are truly unsafe, they will go out of business, thru lawsuits and lost business.

What do you say to the people that die because the FDA hasn’t approved some drug that may have saved their life?

vidyohs August 1, 2011 at 12:28 pm

Ah, but doesn’t part of your reply depend on trusting that the courts are not just as much for sale as the FDA?

Can you depend on a lawsuit punishing a company guilty of malfeasance when we know that a D.A. or a judge can be bought just like any other bureaucrat?

Kinda like the fly trying to decide which strand of the spider’s web to land on isn’t it?

Mattheus von Guttenberg August 1, 2011 at 12:46 pm

That’s why there are some really crazy libertarians like me who think that public courts should be done away with too.

dithadder August 1, 2011 at 1:08 pm

Or to the people who die after eating tainted vegetables or pills?

Seth August 1, 2011 at 12:27 pm

Underwriters Laboratories certifies the safety of electric and electronic gadgets. It’s an independent, private company. It doesn’t appear to impede the innovation process of electronic gadgets that much, if at all, and its a trusted source, even though it is not funded by government. It does its job well.

http://www.ul.com/global/eng/pages/corporate/aboutul/history/

Electronics makers have a strong incentive to get the label (even if it wasn’t required) just as drug makers would have a strong incentive to get approval from something similar that might emerge with food and drugs.

dithadder August 1, 2011 at 1:09 pm

You beat me to it.

anomdebus August 1, 2011 at 12:35 pm

So in a world where companies release medicines without need to prove they’re safe, you will just take them without some proof against bad reactions?

Surfisto August 1, 2011 at 1:32 pm

I would not. Or maybe I would if I was ill with a rare disease. People fly all over the world seeking medicines that are not approved by the FDA. I am sure some die in the process, but maybe some get cured, I don not know. If someone offers you a magic pill and you buy it, I would say you are dumb. Companies would emerge doing their own tests and private companies will do their own tests to show which companies are reputable. To suggest this would not happen is in my opinion naive.

anomdebus August 1, 2011 at 1:52 pm

I agree with you completely on all points.

I felt my comment was useful because all of the talk of testing companies becoming more prominent skips the fact that it is because consumers will demand proof of testing.

PoliteEdward August 1, 2011 at 10:58 am

Don: About how often do your letters get published? Thanks.

Don Boudreaux August 1, 2011 at 11:05 am

About 4 to 5 percent get published. (Down from a high of about 7 percent a few years back.)

PoliteEdward August 1, 2011 at 11:10 am

Thank you for your answer.

Daniel Kuehn August 1, 2011 at 11:07 am

I have a lot of problems with the way the FDA does business, but I still think you’re wrong here in make your case so decisively, and its because of the information asymmetry problems with drugs.

Other institutions could (and probably should) emerge to elicit that information besides the FDA but this is not the same as saying that it’s being Orwellian. It’s likely being accurate. In your troll metaphor, the presumption is that were it not for the troll there would be no obstacle to getting to the other side of the river. Not so for situations with information asymmetry. Whatever harm is done as a result of FDA bureacracy it’s not clear at all that the outweighs the rule-enforcing and information-revealing role it plays in terms of bringing drugs to market successfully. On a theoretical level the impact of the FDA is ambiguous – there are some positive and negative effects. But since the United States is still a strong leader in medical and pharmaceutical innovation I have a hard time believing it’s a substantial net loss.

As I did in a previous post, I strongly recommend Buchanan’s lecture to the University of Richmond, particularly in light of this post. He talks a lot about how market-level efficiency cannot be analogized to more aggregated efficiency. He talks specifically about “rule making” (as he often does) which is why it’s relevant to this post. Now, certainly there are public choice issues preventing efficient public rule making – Buchanan would be the first to note those and I wouldn’t be too far behind. But it’s erroneous to extrapolate from that that on net the situation without the FDA would be any better. That’s a big question mark for me, and I don’t think we can say that with cetainty.

Don Boudreaux August 1, 2011 at 11:24 am

What plausible, compelling reasons can you offer for why a political institution such as the F.D.A. will more reliably solve information-asymmetry problems than will privately evolved institutions? Markets are chock-full of information asymmetries and other imperfections; ALL markets have these in one degree or another.

It’s long been fashionable, I know, to justify the F.D.A. and other bureaucracies’ existence by trotting out terms such as “information asymmetries” – a fancy phrase of the sort that inspires awe in the gullible. But too seldom is such justification supported by any serious investigation into the imperfections that infect politics and political decision-making.

I see no reason why information asymmetries are worse in the market for Viagra or the latest blood-pressure medication than in the market for Flintstones vitamins or for lima beans.

And I have no doubt that were lima-bean growers sufficiently politically powerful to persuade Uncle Sam to ‘regulate’ the fruit-and-vegetable market in order to protect consumers from newly devised fruits and vegetables (“Donut peaches? Are you sure they’re safe?”), Joe Stiglitz and his ilk would have written several scholarly, equation-filled papers explaining why Uncle Sam’s fruit-and-vegetable police are justified by “information asymmetries” and other imperfections in the fruit-and-vegetable market to regulate the types of fruits and vegetables people are allowed to purchase and consume. And that conventional wisdom would today be accepted as scientific evidence that people simply cannot be allowed, on their own, to buy and eat whatever fruits and vegetables they fancy.

Those of us who dare to question the wisdom of politicians and bureaucrats to determine what fruits and vegetables consumers should be free to purchase and consume would be assaulted with accusations that we are insufficiently sensitive to the information asymmetries that Everybody knows are a serious problem in the fruit and vegetable market. There are countless scientific, jargon-filled papers in refereed journals, after all, many of which prove – prove! – that social welfare can fall if just the ‘correct’ conditions hold and people are misled by information asymmetries into poisoning themselves with dangerous or insufficiently nutritious fruits and vegetables.

Don Boudreaux August 1, 2011 at 11:33 am

It occurs to me to explicitly state that “the gullible” to whom I refer in the above comment does not include Daniel. I have in mind, rather, non-economists and non-political-scientists who, when exposed to a term such as “information asymmetries” as a justification for this or that regulatory regime are bedazzled by that term’s many syllables and by the fact that its meaning requires inside knowledge of economics or political science.

Daniel Kuehn August 1, 2011 at 11:40 am

You see this with Deepak Chopra devotees too. Physicists – annoyed as they are at the gulibile – don’t find this to be a persuasive reason to stop talking about quantum mechanics.

Don Boudreaux August 1, 2011 at 11:51 am

It’s a matter of presumptions, Daniel. While it might seem wise and scientific to have no presumption one way or the other about how markets work – about how well or how poorly information asymmetries and other issues are dealt with by private market forces rather than by political institutions – such a lack of presumptions is, in fact, unwise and scientifically imprudent.

I never denied that information asymmetries exist; quite the opposite. I agree that they infect ALL markets. What I disagree with is the presumption that, because the F.D.A. exists – and because its existence has been explained as a science-based mechanism for solving information asymmetries – that it is proper to conclude that information asymmetries are a problem in the market for pharmaceuticals that can be solved only, or best, by the likes of the F.D.A.

There’s a huge literature on the F.D.A., one that that includes lots of papers (no less scientific than the sort spit out by Joe Stiglitz and his ilk) that argue that the F.D.A. worsens the market for pharmaceuticals.

Given the proper set of presumption – namely, that private markets work much better than political ones at marshaling dispersed knowledge and at getting people to make trade-offs and decisions in ways that yield maximum possible social welfare – I believe that I am fully justified in expressing deep skepticism that the F.D.A. does more good than harm.
….
Regarding your specific point about quantum mechanics and information asymmetries, I never argued – and do not believe – that economists should not talk about these. They do exist, after all, and affect market institutions and outcomes. But the province of such discussions ought not be limited to how such asymmetries justify political ‘solutions.’

Indeed, the talk about such asymmetries as justification for the alleged miracles of political solutions (for that is all they are) is akin to the discussion of quantum mechanics by whatever groups of bozos you mention in your comment. The discussion of information asymmetries in the context of how private institutions deal with these (e.g., brand-named products and branded retailers such as Walgreen’s) is indeed important and much more scientific, in my view, than the quick-step that goes from (1) Omigosh! Information asymmetries!, to (2) set up a government agency and charge it with solving the problem.

Slappy McFee August 1, 2011 at 11:52 am

And this is why I continue to watch “Through the Wormhole – with Morgan Freeman”. I have no idea what they are talking about but it still fascinates me.

James Hanley August 1, 2011 at 12:00 pm

It occurs to me to explicitly state that “the gullible” to whom I refer in the above comment does not include Daniel. I have in mind, rather, non-economists and non-political-scientists

Heh, nice of you to include my profession (political scientist) among the non-gullible, but I would estimate that more than 3/4 of political scientists believe that information asymmetries can only be solved by government. My attempts to offer examples such as Snell, ANSI and Green Label result in nothing but a measurable increase in hand-waving.

PrometheeFeu August 1, 2011 at 11:38 am

But Don, you obviously are ignoring the fact that the food supply is necessary for our survival. Consider the following scenario: An unscrupulous farmer wanting to cut corners starts producing lima beans in a way that taints them with lead. How will consumers know? There is clearly an information asymmetry here. Think of the countless unnecessary deaths before we find out. Think of the children! The food supply is too important to leave to the market’s disorganized greed. Even you should realize that the VPA (Vegetable Protection Agency) is necessary.

Daniel Kuehn August 1, 2011 at 11:39 am

re: “What plausible, compelling reasons can you offer for why a political institution such as the F.D.A. will more reliably solve information-asymmetry problems than will privately evolved institutions?”

I don’t think I’ve ever claimed such a thing, Don.

re: “I see no reason why information asymmetries are worse in the market for Viagra or the latest blood-pressure medication than in the market for Flintstones vitamins or for lima beans.”

Really????

Gil August 2, 2011 at 2:31 am

Maybe, it’s more of a case of letting retards self-cull themselves by ingesting things that an intelligent person would know better.

yet another Dave August 1, 2011 at 1:11 pm

But too seldom is such justification supported by any serious investigation into the imperfections that infect politics and political decision-making.

I thought this deserved a repeat saying. DK seems to be consistently, perhaps even willfully, blind to the realities of politics, so I’m glad you mentioned this point in a reply to him.

Daniel Kuehn August 1, 2011 at 1:34 pm

No I don’t. You consistently – perhaps willfully – misdiagnose this, and I’m tired of answering the point.

Why don’t you forget about me and get to writing letters to Richard Dawkins about how he’s “blind to the realities of politics” because his relentless advocacy of evolution leads some unintelligent creationists to believe that he is promoting moral relativism at best and moral depravity at worst.

yet another Dave August 1, 2011 at 2:43 pm

Your implausible assertion aside, I can only go on what you write here. You consistently endorse and justify government intervention, and all the weasel-word conditionals in the world don’t change the fact that such intervention will never resemble the theoretical ought you claim to limit yourself to. If you are not blind to the obvious reality of politics why would you continue to endorse that which is impossible? The only other explanations are mostly less flattering to you than the one I’ve stated.

Oh, and your second paragraph makes absolutely no sense whatsoever in this context, but it is amusing that you’d analogize yourself with an arrogant condescender who’s blind to the fact that he’s as faith-based as those he ridicules.

Daniel Kuehn August 1, 2011 at 3:02 pm

In this very post I’m advocating doing away with a LOT of government intervention! You’re enraged that I think it might be reasonable to keep one non-coercive part of what the FDA does.

That’s absurd yet another Dave. Feel free to tell me you think we should do away with all of what the FDA does, but don’t tell me I’m sanguine about government when I’m supporting doing away with a lot of the FDA’s mandate.

re: ” If you are not blind to the obvious reality of politics why would you continue to endorse that which is impossible?”

What have I endorsed that’s impossible???

Andrew_M_Garland August 1, 2011 at 10:42 pm

The FTC is already protecting us from information asymmetries in fruits and vegetables.

Protected From UglyRipe Tomatoes
02/24/05 Mises.org by Gary Galles
-> mises.org/mobile/daily.aspx?Id=1753

== ==
[edited] UglyRipe tomatoes come from 10 years of work by Joe Procacci. Customers say they have the luscious taste they remember from the good old days. Few UglyRipe meet the FTC’s standard of beauty for selling out of state, because they fail the roundness standards.

This is the latest in a long line of rip-offs in the name of consumer protection, enforced by government empowered marketing boards. Marketing boards trace from New Deal legislation to “save” agriculture.

Florida growers of pretty but bland tomatoes dominate America’s winter supply, and they protect their profits at consumer expense. Marketing boards block the sale of “lower quality” tomatoes to restrict competition from newer varieties that consumers might prefer.
== ==

AMG: So that’s why Winter tomatoes are pretty but tasteless. The government is protecting me from having to think too much about them. This also applies to other fruits and vegetables such as oranges and apples.

PrometheeFeu August 1, 2011 at 11:31 am

There need not be any assumption that the troll is the only obstacle. What the FDA said was that they were: “promoting innovation by ushering new products through the approval process and to market”. If it were not for the FDA, there would not be any approval process to usher new products through and products would make it to market much faster. The information asymmetry issues you bring up are a different issue altogether as they don’t prevent the product from making it to market in the first place.

Daniel Kuehn August 1, 2011 at 11:45 am

re: ” If it were not for the FDA, there would not be any approval process to usher new products through and products would make it to market much faster.”

If it were not for the FDA, the demand schedule would be completely different and the state of the market would be (as I said) one big question mark.

I don’t know the details of the operation of the FDA, but what we ought to have is a public institution like the FDA that does these approvals, but doesn’t hold back drugs that don’t meet their approval. Those drugs that don’t meet their approval could market themselves without any approval or they could try to get private approval from private organizations doing much the same thing that the FDA does. There are big backlogs at the FDA. If those backlogs get approved by the private organizations and they seem to do fine, then by all means let’s abolish the FDA. Identifying the public choice issues impacting the FDA is one thing. Ignoring the problems with or assuming the efficiency of private rulemaking is another.

James Hanley August 1, 2011 at 12:05 pm

what we ought to have is a public institution like the FDA that does these approvals, but doesn’t hold back drugs that don’t meet their approval.

Daniel, how is that different from having a private organization that approves products that meet their standards but lacks any authority to keep sub-standard items off the market?

You say we “ought” to have such a “public” agency. I agree with the “ought” for an approving agency, but you haven’t explained why the “public” part is required.

Daniel Kuehn August 1, 2011 at 12:13 pm

re: “Daniel, how is that different from having a private organization that approves products that meet their standards but lacks any authority to keep sub-standard items off the market?”

It’s not, except that it acknowledges the collective action problems associated with the provision of this sort of information and allows for the public provision of the information.

If the FDA proves entirely redundant, surely it should be abolished.

Daniel Kuehn August 1, 2011 at 12:15 pm

You might even call it “marginal libertarianism” ;-)

Daniel Kuehn August 1, 2011 at 12:16 pm

re: “If the FDA proves entirely redundant, surely it should be abolished.”

My problem with Don’s post is only that I insist on being an empiricist about whether it would prove redundant in this role, whereas Don seems to think he knows what will happen.

James Hanley August 1, 2011 at 1:40 pm

Daniel,

Are you sure that there is in fact a collective action problem associated with the provision of such information? The key is whether someone can profit by providing that information. If customers are wary of goods that don’t have an accepted stamp of approval then the makers of those goods will be willing to pay someone to provide that accepted stamp of approval. It works for Snell, ANSI, Green Seal, ISO…

If there’s a serious collective action not solvable by the market, I’m not opposed to a government agency filling the role. But where is the collective action problem here? Who gets to free ride on the information?

Daniel Kuehn August 1, 2011 at 1:45 pm

re: “Are you sure that there is in fact a collective action problem associated with the provision of such information?”

No. That’s exactly what I’d like to see.

James Hanley August 1, 2011 at 2:20 pm

Daniel,

I’m confused. Either we find collective action problems with this kind of information or we do not. Granted that we cannot predict the future with perfect confidence, wouldn’t the smart money bet on this case being like similar cases, rather than unlike them? And the similar cases all seem to have been handled satisfactorily by the market, giving no evidence (that I’m aware of) that a collective action problem in information availability exists. (Consumers’ Reports is a real organization, not just something I saw in a movie, right?)

yet another Dave August 1, 2011 at 1:18 pm

…what we ought to have is a public institution like the FDA that does these approvals…

Why?

Don Boudreaux August 1, 2011 at 1:37 pm

Daniel: I agree that empirics matter. But so too do presumptions based upon sound theory and history.

Here are some empirical facts:

(1) Adult Smith knows his or her preferences (including preferences for risk) better than third-parties know Smith’s preferences.

(2) Preferences differ from person to person, therefore

(3) there is no ‘correct’ level of safety for pharmaceuticals; what’s correct for you is likely incorrect for me;

(4) bureaucrats will inevitably choose one (or a limited range) of risk preferences to which each of hundreds of millions of people will be obliged to conform; therefore

(5) a large number of people will be prohibited from assuming risks (and enjoying the prospective associated benefits) that they would have voluntarily assumed (and enjoyed) had the likes of the F.D.A. not arbitrarily prevented them from freely choosing which drugs to use and which to avoid.

I could list other empirical facts (such as that F.D.A. regulators are subject to political pressures that do not necessarily impel them to do even what is, by some objective medical standard, ‘best’).

The above facts strike me as pretty compelling. What evidence are you aware of that, were you to show it to anyone with a presumption that free markets work better than central planning and top-down regulation, would cause that person to say “Oh, I see. The F.D.A. really is an institution that promotes people’s welfare as people themselves – as individuals, not as ‘voters’ – evaluate that welfare.”

James Hanley August 1, 2011 at 1:49 pm

D.B.
(4) bureaucrats will inevitably choose one (or a limited range) of risk preferences to which each of hundreds of millions of people will be obliged to conform;

Well that’s probably going to happen with a non-governmental bureaucracy setting the standards, too. I haven’t noticed that there are many competitors to SNELL and ANSI, but I have noticed that every bicycle helmet I see for sale has been approved by both.

A multitude of proliferating standards would leave customers too confused (even though it’s true acceptable risk levels vary by individual), so market forces would likely converge on one or a very few standards. So a market system isn’t really going to allow consumers to adjust their purchases to suit their risk level that much. It will likely just be the dichotomous “approved by one of the few big approvers” or “unapproved.”

Not that I’m arguing against the market approach, but I don’t think it’s realistic to expect much fine-tuning on individual risk in a case like this.

yet another Dave August 1, 2011 at 1:14 pm

DK,

So you think “…we actually play a proactive role in promoting innovation…” is NOT Orwellian???????

Ken Mueller August 1, 2011 at 11:21 am

Perhaps Comm Hamburg was referring to the necessary and cosy relationship between her agency and the drug companies that they regulate: sort of the big guys in cahoots against the little guys.

muirgeo August 1, 2011 at 11:32 am

Many of our lives… Don’s too, have likely been saved from harm or death because of the existence of the FDA. Complaining about the FDA while eating it’s inspected meat and taking regulated drugs more likely to help him than harm him is an easy pot-shot from ones comfy chair. But this sort of thinking requires once again for its holders to ignore history, reality and pragmatism.

I am so happy we have an FDA. In Don’s world you can be assured that your death by a tainted product will surley… eventually result in a drop in their profits …. at least for a while… or at least after enough people have been harmed to make it so.

PrometheeFeu August 1, 2011 at 11:41 am

Would you really in such a world purchase drugs that have not been inspected/reviewed by a trusted independent third party? That sounds stupid.

PrometheeFeu August 1, 2011 at 11:45 am

Unless of course you are rapidly dying of a disease for which the only drugs available are brand new out of the lab and there isn’t enough time to go through the review process. In which case, it’s quite sensible to just try anything and everything.

muirgeo August 1, 2011 at 4:50 pm

You mean like financial products that were “tested” by independent third parties who received more money rating shit as AAA? That worked out well.

PrometheeFeu August 2, 2011 at 10:42 pm

You really trusted your investments to the rating firms and not to an advisor/fund manager who did independent research and had incentives aligned with your interest?

Ken August 1, 2011 at 11:44 am

Many people’s lives have been lost due to the FDA dragging their feet on drug approval or outright rejecting a drug. In fact, studies have shown there is a net loss of life due to the slow rate of drug innovations being brought to market because of the armed troll called the FDA.

Regards,
Ken

Craig S August 1, 2011 at 11:55 am

muir,

if you theory of unregulated markets is true, why wouldn’t marijuana dealers just sell people oregeno? How would it be possible for anyone to buy any illegal product if, as you suggest, absent gov’t regulator bodies, suppliers would just sell dangerous or ineffective products.

Beth August 1, 2011 at 1:58 pm

Craig,
Excellent point.
Look at the unregulated (underground) markets right now and you will see that they have to conform to certain unregulated rules or else they will go out of business. Of course, since the marijuana market is illegal for the most part and if a dealer tried to sell oregano instead of mj, the buyers might react adversely! In a normal market, consumers would have the legal process to go through. Of course, the best regulator of sellers and businesses is the ability to not buy and put them out of business.

muirgeo August 1, 2011 at 4:51 pm

Yeah … good point the mafia does a great job regulating it’s black market products… now that’s a world I want to live in….

brotio August 1, 2011 at 10:17 pm

now that’s a world I want to live in – Yasafi

Whether you like it, or not, you’re already living in it. Your beloved State is every bit as ruthless as the Mafia in enforcing its protection rackets.

One big difference is: the Mafia isn’t as interested in what’s up your ass as the TSA is. The TSA must love you, though. With your head so completely jammed up your keister (even as big as it is), they’ve gotta be sure there’s no room for contraband.

The Other Tim August 1, 2011 at 2:07 pm

Yes, because obviously meat can only be inspected by the government. Benighted peasants could never create effective private food inspection companies. That’s a job only to be trusted to our social betters.

I would also like to know where this infallible state bureau is which would have prevented us from the last salmonella outbreak. After all, if it’s unacceptable to have private inspectors because they’ll make mistakes and people will invariably die of poisoned beef, that standard has to apply to the FDA as well.

In addition to which, you are not new here, Muirgeo, and know these to be the objections to what you wrote. Since you launched into a talking point which you know that we know is flawed, you can’t possibly have hoped to have engaged in intellectually valuable discourse by presenting it. I would suggest to you that you consider whether the satisfaction you gain by trolling actually warrants its opportunity cost in time better spent elsewhere.

Invisible Backhand August 1, 2011 at 11:37 am

Mary had a little lamb,

Then she watched it sicken,

Sold it to Don Boudreaux,

who thought he got chicken.

Greg Adams August 1, 2011 at 11:44 am

at which point he will decide whether or not to continue trading his federal reserve notes for “chicken”…a powerful force…one that compels Mary to rid herself of liabilities for loss of business and reputation. Otherwise, a happy don thinking he is eating lamb is a rather peaceful and productive exchange, if you ask me

Greg Adams August 1, 2011 at 11:45 am

ha! but he won’t be happy if he gets sick. there…plugged up that hole in my half response, I think

Greg Adams August 1, 2011 at 11:47 am

oh wait…but you’re implying he gets sick? oh, even worse. she has every incentive to make that not happen…

Don Boudreaux August 1, 2011 at 2:24 pm

You are truly ungenerous in your assumptions about the intelligence of your fellow human beings. The people I know are smarter, wiser, and more concerned with their and their families’ well-being than, apparently, are the people you know.

Richard Stands August 2, 2011 at 1:33 am

An awful lot of arguments in favor of government solutions are Appeals to Fear or Appeals to Envy.

It seems like a fairly miserable way to choose to look at life.

Gil August 2, 2011 at 2:40 am

* spit take! *

keddaw August 1, 2011 at 11:38 am

I applaud your libertarian principles, but unless we abolish limited liabilities then this is a non-starter for me.
If I start a company that creates a drug where health problems only show up after 5 years then I can milk the public and withdraw the money from my limited company leaving only an empty shell for the public to sue.
It is also the case that many people would happily sell the public poison claiming it was manna and live the high life now not caring about the future (Bernie Madhoff?)
These issues could be solved if we had a fully engaged public as they’d demand consumer watchdogs be given access to the company before endorsing it, which the public would require before buying it, but we don’t. We have an ignorant public who buy homeopathic medicines, crystals and go to psychics. These people would fund the bad companies and there are not enough of the rest of us to have enough market power to demand a consumer focussed and funded, independent watchdog.

Greg Adams August 1, 2011 at 11:48 am

pointing out that there is risk in life is not a new observation. perhaps the govt should ban driving?

Greg Webb August 1, 2011 at 12:02 pm

keddaw, I don’t agree. We already have the Health issue of Consumer Reports, and my guess is that we would have much more if the government was not so actively involved at giving the appearance that they are ensuring public safety. Also, your example of Bernie Madoff works against you because several people told the SEC that it needed to investigate, but the SEC refused to do so. Later, it was discovered that several SEC officials were viewing internet porn rather than following up on leads provided to them by the public. The rule still is buyer beware…even in an environment where “enlightened” government officials are “protecting” us.

keddaw August 1, 2011 at 12:11 pm

I don’t deny that caveat emptor, but when I get (illegally) stung I want to be able to sue for damages, not simply get the shell of a company. Imagine if the tobacco companies had stripped the assets and formed limited liability companies to transfer the risk to, would that have been fair – ignoring the issue of whether the suit was fair in the first place?

Or if Ford created a limited liability company for each new car, would the Pinto owners (or, more accurately, their relatives) be satisfied taking the Pinto company to court rather than being able to sue Ford in total? Should the burden of consumers be so broad that they have to investigate the corporate structure of every company they buy from to ensure there is enough left to sue should the product be catastrophically damaging?

You simply cannot have limited liability within a libertarian state, the risk must remain with the people who profit in order to avoid needing public institutions like the FDA, the people must be able to sue those who harmed them – which is the owners since companies should not be legal entities in that sense.

Greg Webb August 1, 2011 at 2:38 pm

keddaw, I believe that the law includes an appropriate remedy through tort law. I am concerned that you got “(illegally) stung”, but since you do not provide any additional information, it is difficult for me to answer.

There is a doctrine in the law called “piercing the corporate veil” so companies like Ford cannot escape liability by creating some shell or dummy company as you suggested. The shell company scenario only works if the people or other company or companies sponsoring the shell company have no material assets or continuing sources of income to begin with. So, yes, the most important thing a consumer can do to minimize the risk of being ripped off is to know something about who you are buying the good or service from.

Don Boudreaux August 1, 2011 at 12:25 pm

I too believe in tort law, and – unlike many of my conservative and libertarian friends – I oppose so-called “tort reform” (except to move to a rule of loser pays).

But your insistence that abolishing limited liability is a necessary prerequisite for abolishing the FDA cuts too broadly. Do you wish also to have an agency with FDA-like powers regulating supermarkets and furniture makers and gas-grill manufacturers and laundry detergents?

vidyohs August 1, 2011 at 12:36 pm

LOL Don, my good man, a move to “loser pays” is the biggest tort reform possible!

It would cut my income probably by 85%, but God how I wish the American system would move to it. I cringe at the billions of dollars sucked out of the market by those leeches in the plaintiff attorney field. Money that could have gone into financing innovation, inventions, expansion of businesses, but instead winds up being a luxury yacht for a scumbag like John Edwards, ex-presidential candidate.

keddaw August 1, 2011 at 12:37 pm

There is a qualitative difference between food/drugs and gas grills. Gas grills tend to work or not, there is no need for a long term study on their impact on human health whereas drugs may not show any problems until many years later. And those problems tend to be more severe and much more prevalent in the public than a dodgy gas-grill. Although the Ford Pinto was quite common – but cars do have to meet some requirements before being deemed road-worthy, do they not?

James Hanley August 1, 2011 at 1:56 pm

The commenter does not understand the concept of limited liability. It does not prevent an injured person from being made whole (the legal jargon) and it does not prevent punitive damages designed to give incentives for better behavior. It does protect my 80 year old mom as a GE stockholder from being financially responsible if a GE toaster burns down someone’s house.

vikingvista August 2, 2011 at 12:12 am

Nor does it apply to professional liability, except to the extent some states protect a home, a car, and/or a retirement account from liability.

Norm Benson August 1, 2011 at 11:48 am

The FDA came about (at least partly) through egregious claims for medicines and foods by producers and retailers, and the inability or lax regulation by individual states. Given that most libertarians subscribe to some minimal level of government oversight, what would such oversight/enforcement look like? I’m assuming that double-blind trials and the results published to allow people to judge the efficacy and risks themselves would be required by law.

The Other Tim August 1, 2011 at 2:10 pm

No, they’d be required by the market.

GrizzlyAdam August 1, 2011 at 11:51 am
JKGDS August 1, 2011 at 6:57 pm

The Federal dietary and motorcycle helmet standards are inferior to private standards like SNELL or any decent nutritionist. Its a harmless waste of money because the Federal govt doesn’t force producers to abide by their standards, but we would be less safe if they changed their mind.

Gil August 2, 2011 at 2:43 am

Since there’s a big market in astrology, naturopathy and psychics then, yes, there people who aren’t very smart and can’t make good choices.

John Dewey August 2, 2011 at 9:18 am

Professor Boudreaux,

I have learned much from you and from Cafe Hayek commentors over the past five years. I rarely disagree with you, and I’m uncomfortable when I do.

Can you explain why the free market failed to protect consumers in many nations from the thalidomide tragedies 50 years ago? It was thalidomide births more than any other cause which led the public and Congress to grant such strong powers to the FDA.

Dr. Frances Oldham Kelsey, an FDA investigator, prevented thalidomide from being marketed in the U.S. I don’t know whether or not a private agency would have employed someone as tenacious as Dr. Kelsey. All I know is that she protected my mother and my siblings born in the early 1960′s. And, if I remember your age correctly, Don, she may have protected you as well.

SomeGuy August 2, 2011 at 10:46 am

The thalidomide debacle, if I recall, was a lot like 9/11. Private security forces wouldn’t have prevented 9/11, but the Patriot Act and the TSA are not very smart responses.

John Dewey August 2, 2011 at 11:16 am

How was the thalidomide debacle like 9/11?

The FDA prevented the marketing of Thalidomide in the U.S. As I understand it, the FDA did not then have the authority to prevent all distribution of the drug. So Dr. Kelsey sent letters to thousands of physicians urging them to not distribute the drug at all. Dr. Kelsey personally prevented the worldwide tragedy from being common in the U.S.

Other nations did not restrict the marketing of Thalidomide. As a result, thousands of babies were born without arms or without legs ot with only partial arms or legs. Estimates of such Thalidomide victims worldwide range from 10,000 to 20,000.

You may believe that granting the FDA the power to restrict drug sales in the U.S. is not a smart response to the thalidomide tragedy. But that doesn’t answer the question I asked:

Why did the free market fail to protect the thousands of babies born without arms or legs as a result of thalidomide use?

Ken August 2, 2011 at 11:24 am

JD,

When actors in a free market hurt others like this, there are tort laws to cover this.

With the FDA’s power to prevent drugs from coming to market, who speaks for those who’ve died because of the conservatism of the FDA regulators. Praising the FDA’s response to thalidomide encourages the FDA to err on the side of prohibition, causing unnecessary deaths.

These are the unseen consequences of the conservative approach you seem to be advocating.

Regards,
Ken

John Dewey August 2, 2011 at 11:44 am

Ken,

I’m not claiming that the FDA has been beneficial overall. I’m just asking those who advocate an alternative to the FDA to explain why such an alternative does not exist.

Professor Boudreaux seemed to be arguing in a reply above that private agencies would emerge which would perform the function now performed by the FDA. My question is simple: where were such private agencies in the late 1950s and early 1960s? before the FDA was given those powers in 1962?

Ken August 2, 2011 at 12:05 pm

JD,

Thanks for the clarification.

As to answering your question as to where were the private agencies who would perform quality control, I would argue that the FDA crowded it out. As to where they were before the late 1950′s, I can only give you a hypothesis, which is completely untested: Only in the last 100 years have Americans been wealthy enough to even demand more medicines, much less high quality ones. Previously, Americans were concerned with getting enough to eat, having a clean place to live, and getting clean water. Finally, most Americans had all this by around 1900. With the these basic necessities met, as Americans became wealthier, they started demanding more medicines. About the time Americans were wealthy enough to start demanding high quality medicines, the gov stepped in before privately run markets could figure out how to make money off guaranteeing quality medicines.

I believe Don is correct that private agencies would have emerged had the government not crowded them out. Of course, Don has a much better reply to you than I do and explains it much better than I do.

Regards,
Ken

John Dewey August 2, 2011 at 12:43 pm

Not so sure I accept the crowding out argument for the mid-1950s. The FDA had very limited powers in those years.

Perhaps the private solutions took more time to emerge than Americans were willing to allow. Miracle drugs did not arrive until after the end of WWII. Thalidomide may have been the first tragedy of such a scale that would have generated the requirement for oversight – either public or private. Pharmaceutical companies apparently did not realize the need for private action to ward off the expansion of government.

Ken August 2, 2011 at 6:41 pm

JD,

I’m not sure what “limited powers” you mean. All ready by the early 1950′s, the FDA had prohibition powers for any food or drug it didn’t like.

The agency was formed in 1906 and true to the maxim of “never letting a good crisis go to waste” it immediately started to increase its power with every large, but mostly small, crises that inevitably came up. It seems that even then, the first response to anything was to look to the government. With the first response for food and drugs being to look to the gov, how can the markets find ways to perform the functions? From the very first, the gov takes those powers as its prerogative.

Regards,
Ken

Don Boudreaux August 2, 2011 at 11:41 am

Good question.

I don’t know what the regulatory regime was in Europe during Thalidomide’s distribution and use in the late 1950s.

The economic case for the market, of course, is not that it’s perfect; rather, it’s that the market is, overall, better than are alternative institutions at using dispersed knowledge to satisfy as many consumer desires as possible. Nor is the case for the market grounded on the supposition that government never does anything worthwhile.

(You know all of this, of course.)

I don’t know what private institutions would have existed in the U.S. in the late 1950s were there no F.D.A. (which got authorization to monitor drug safety in 1938). But I do know that it’s wrong to assume that no private alternative(s) to the F.D.A. would have existed, and it’s wrong to assume that any such private alternative(s) would necessarily not have performed at least as well as did the F.D.A. Finally, I’m downright certain that any such private alternative(s) would not have overreacted to Thalidomide as did the U.S. government in granting the F.D.A. expansive powers not only to police against ‘dangerous’ drugs but also against inefficacious drugs.

But even assuming that private institutions would have had no way to warn people of the dangers of Thalidomide, fatalities and defects from that drug would still no more constitute a case against relying exclusively on private institutions to govern drug use than do, say, the 40,000-plus annual deaths in automobiles constitute a case against the automobile.

John Dewey August 2, 2011 at 12:37 pm

Thanks for the answer, Don.

Perhaps the environment 50 years ago was very different. Americans for the most part had faith in government solutions to such problems. The failures of big government were not so obvious.

vikingvista August 2, 2011 at 3:08 pm

The way the FDA protected Americans from thalidomide, was simply by delaying approval until it had been widely used by the rest of the world. Dr. Kelsey’s decision was not the result of testing that revealed the teratogenicity. Only his decision to delay did that. The available government-mandated testing did not, and it wasn’t until the search for the cause of the problem that such tests were found. If the FDA were to adopt Kelsey’s policy for every drug, the US would always be years behind the rest of the world in drug availability. If most of the rest of the world also applied this policy, we’d almost never get any new drugs. Such delays would have hidden costs arguably far greater than thalidomide birth defects.

In countries that did have sufficient use to identify the problem, the governments did take action. But as with all such publicly-apparent problems, the government was hardly needed to get people to stop using it. Once a problem is known, the market works. But the market doesn’t prevent all adverse outcomes. Neither does the government.

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