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Centralized Cost-Benefit Analysis Fails the Cost-Benefit Test

Responding to this EconLog blog post by Alberto Mingardi (which itself is on my colleague Dan Klein’s recent op-ed on the U.S. Food and Drug Administration), EconLog commenter Thaomas writes:

These all sound like what one would get if FDA followed cost benefit principles in its operation. THAT is what we ought to seek, not “motion[ing] consistently in the liberalization direction.”

I, in turn, responded in the comments section to Thaomas:

I agree with you that cost-benefit analyses are desirable.

In this light, the benefit of moving consistently in the libertarian direction is that, to the extent that this movement is successful, one result is that both the number and the reliability of cost-benefit analyses increases. In the absence of the FDA and its prohibitions, each individual – with or without the consultation of his or her physician (as he or she chooses) – would make a series of personal cost-benefit analysis, throughout time, regarding various medical options.

This decentralized process of cost-benefit analyses would be on-going. Every hour of every day, each of many individuals would be doing his or her own cost-benefit analysis. And because each of these cost-benefit analysts would, unlike those who conduct cost-benefit analysis on government programs, (1) have more of his or her own money on the line, and, more significantly, (2) have his or her own health at stake, the results of these countless cost-benefit analyses would be much more reliable than are the results of unavoidably only occasional and information-thin cost-benefit analyses conducted on the overall effects of FDA policies and other government actions.

So, yes, by all means let’s have more – and more trustworthy – cost-benefit analysis. One of best means of achieving this happy result in matters of Americans’ health care is to abolish the FDA. To support the retention of the FDA – to support the retention of this agency’s current ability to prevent Americans from using whichever medical products they individually choose – is to oppose maximum possible cost-benefit analyses.

David Henderson then weighed in, responding to another commenter (AlanG), with his own EconLog blog post.

Not surprisingly, I agree with all that Dan Klein and David Henderson here say.

It is also well to remember this relevant point about expertise made recently, about health-care markets generally, by Steve Landsburg.  Here’s a slice from Steve’s post (original emphasis):

The whole problem is to combine the specialized knowledge of the providers (what works, what doesn’t work, what works with various probabilities, what the alternatives are, what’s potentially life-threatening, what’s potentially painful, and how much so, etc. etc.) with the specialized knowledge of the customer (what risks and what pain levels are tolerable, whether a little pain relief matters more than a new washing machine, etc. etc.) and bring all of that information to bear on the problem.