Word
Gems
What is a
man but the sum of his thoughts?
Economics:
Milton
Friedman's
Free
To Choose
#7: Who Protects The Consumer?
Friedman: The 1960's Corvair, condemned by Ralph Nader as unsafe at any speed.
Since Nader's attack it is being increasingly accepted that we need government protection
in the marketplace. Today there are agencies all over Washington where bureaucrats decide
what's good for us. Agencies to control the prices we pay, the quality of goods we can
buy, the choice of products available. It's already costing us more than $5 billion a
year. Since the attack on the Corvair the government has been spending more and more money
in the name of protecting the consumer. This is hardly what the 3rd president of the
United States, Thomas Jefferson, whose monument this is, had in mind when he defined a
wise and frugal government as, one, which restrains men from injuring each other and
leaves them otherwise free to regulate their own pursuits of industry and improvement.
Ever since the Corvair affair the U.S. government has been increasingly been muscling in
between buyer and seller in the marketplaces of America. By Thomas Jefferson's standards,
what we have today is not a wise and frugal government but a spendthrift and snooping
government.
The federal regulations that govern our lives are available in many place. One set
is here, in the Library of Congress in Washington, D.C. In 1936, the Federal Government
established the Federal Register to record all of the regulations, hearings and other
materials connected with the agencies in Washington. This is volume 1, number 1. In 1936
it took three volumes like this to record all these matters. In 1937 it took four and then
it grew and grew and grew. At first rather slowly and gradually, but even so, year by year
it took a bigger and bigger pile to hold all the regulations and hearings for that year.
Then around 1970 came a veritable explosion so that one pile is no longer enough to hold
the regulations for that year. It takes two and then three piles. Until on one day in
1977, September 28, the Federal Register had no fewer than 1,754 pages and these aren't
exactly what you'd call small pages either.
Many of those regulations come from this building.
Worker: Consumer Protection Safety hotline _ can you hold please?
Friedman: The Consumer Product Safety Commission is one of the newest agencies set
up on our behalf. One of its jobs is to give advice to consumers.
Workers: The clue that gave it away..... What has been done about the flammability
of children's garments?
Friedman: But its main function is to produce rules and regulations. Hundreds and
hundreds of them. Designed to assure safety of products on the market. It's hard to escape
the invisible hand of the Consumer Product Safety Commission except for food and drugs,
ammunition and automobiles that are covered by other agencies. It has power to regulate
just about anything you can imagine. Already it costs $41 million a year to test and
regulate all these products on our behalf and that's just the beginning. The Commission
employees highly trained technicians to carry out tests like this, checking the brakes on
a bike. But the fact is that 80% of bike accidents are caused by human error. These tests
may one day lead to safer brakes, but even that isn't sure. The one thing that is sure is
that the regulations that come out of here will make bikes more expensive and will reduce
the variety available. Yes, they really are testing how matches strike. And the tests are
very precise. The pressure must be exactly one pound, the match exactly at right angles.
No matter how many tests are done, children's swings are never going to be totally
safe. You cannot outlaw accidents. If you try, you end up with ludicrous results. It
hardly seems possible but they really do use highly skilled people to devise regulations
that will prevent toy guns from making to big of a bang.
The Commission, in effect, is deciding what they think is good for us. They are
taking away our freedom to choose.
Consumers don't have to be hemmed in by rules and regulations. They're protected
by the market itself. They want the best possible products at the lowest price. And the
self-interest of the producer leaves him to provide those products in order to keep
customers satisfied. After all, if they bring goods of low quality here, your not going to
keep coming back to buy. If they bring goods that don't serve your needs, you're not going
to buy them. And therefore, they search out all over the world, the products that might
meet your needs and might appeal to you. And they stand in back of them because if they
don't they're going to go out of business. You see the difference between the market and
the political action, the governmental agencies. Here nobody forces you, your free, you do
what you want to. There's no policemen to take money out of your pocket or to make sure
that you do what you're told to. Over a quarter of a century ago, I bought, second hand, a
desk calculator for which I paid $300. One of these little calculators today which I can
buy for $10 or so, will do everything that did and more besides. What produced this
tremendous improvement in technology? It was self-interest or if your prefer, greed. The
greed of producers who wanted it to produce something that they can made a dollar on. The
greed of consumers who wanted to buy things as cheaply as they could. Did government play
a role in this? Very little. Only by keeping the road clear for human greed and
self-interest to promote the welfare of the consumer.
When governments do intervene in business, innovation is stifled. Railroads have
been regulated for nearly a century and they are one of our most backward industries. The
railroad story shows what so often results from the good intentions of consumer protection
groups. In the 1860's railroad rates were lower in the United States than anywhere else in
the world. Yet many customers thought they were too high. They complained bitterly about
the profits of the railroads.
Now the railway men of the time had their problems too. Problems that arose out of
the fierce competitiveness among them. Many railroads all trying to get their share of the
market, all trying to make a name for themselves. If you want to see what their problems
were as they saw them, come and have a look at this.
From inside this private railroad car it may not look as if the people who ran the
railroads had any real problems. Some, like the owner of this private car, had done very
well. This was the equivalent of the private jet of today's business tycoons. But for each
one who succeeded, many didn't survive the cutthroat competition.
What we have here is a railroad map of the United States for the year 1882. It
shows every railroad then in existence. The country was literally crisscrossed with
railroads going to every remote hamlet and covering the nation from coast to coast.
Between points far distant like for example New York and Chicago, there might be a half a
dozen lines that would be running between those two points. Each of the half dozen trying
to get business would cut rates and rates would get very low. The people who benefited
most from this competition were the customers shipping goods on a long trip.
On the other hand, between some segments of that trip, say for example, Harrisburg
and Pittsburgh, there might be only a single line that was running and that line would
take full advantage of its monopoly position. It would charge all that the traffic would
bear. The result was that the sum of the fares charged for the short haul was typically
larger than the total sum charged for the long haul between the two distant points. Of
course, none of the consumers complained about the low price for the long haul, but the
consumer certainly did complain about the higher prices for the short hauls. And that was
one of the major sources of agitation leading ultimately to the establishment of the
Interstate Commerce Commission.
The cartoonists of the day delighted in pointing out that railroads had tremendous
political instinct. As indeed they did. They used the consumer's complaints to get the
government to establish a commission that would protect the railroad's interest. It took
about a decade to get the commission into full operation. By that time, needless to say,
the consumer advocates had moved on to their next crusade. But the railway men were still
there. They had soon learned how to use the commission to their own advantage. They solved
the long haul/short haul problem, by raising the long haul rates. The customers ended up
paying more, some protection. The first commissioner was Thomas Cooley, a lawyer who had
represented the railroads for many years. The railroads continued to dominate the
Commission.
In the 1920's and 30's when trucks emerged as serious competitors for long
distance hauling, the railroads induced the Commission to extend control over trucking.
Truckers, in their turn, learned how to use the Commission to protect themselves from
competition. This firm carries freight to and from the Dayton, Ohio International Airport.
Its the only one serving some routes and its customers depend on it. But Dayton Airfreight
has real problems. Its ICC license only permits it to carry freight from Dayton to
Detroit. To serve other routes it's had to buy rights from other ICC license holders
including one who doesn't own a single truck. It's paid as much as $100,000 a year for the
privilege.
Secretary: Our company is in the process of trying to get rights to go there now.
Yes, we'll do that and thank you for calling sir.
The owners of the firm have been trying for years to get their license extended to
cover more routes.
Air freight company: Now I don't have any argument with the people who already
have ICC permits except for the fact that this is a big country and since the inception of
the ICC in 1936, there has been very few entrants into the business. They do not allow new
entrants to come in and compete with those who are already in.
Unnamed individual: Of course, Dayton Airfreight suffers but so do the customers
who pay higher freight charges. Quite frankly, I don't know why the ICC is sitting on its
hands doing nothing. This is the third time to my knowledge that we've support the
application of Dayton Airfreight to help us save money, help free enterprise, help the
country save energy, help, help, help. It all comes down to consumers ultimately going to
pay for all of this and they are the blame. The ICC has to be the blame.
Friedman: Dayton Airfreight now has many of its trucks lying idle. Trucks that
could be providing a valuable service. Far from protecting consumers, the ICC has ended up
making them worse off.
As far as I'm concerned, there is no free enterprise in interstate commerce. It no
longer exists in this country. You have to pay the price and you have to pay the price
very dearly and I don't mean we have to pay the price, it means that the consumer is
paying that price.
The price consumers pay when it comes to medicine could be their lives. In the
19th Century pharmacies contained an impressive array of pills and potions. Most were
ineffective and some were deadly. There was an outcry about drugs that maimed or killed.
The Food and Drug Administration in response to consumer pressure succeeded in banning a
whole range of medicines. The tonics and lotions with their excessive claims disappeared
from the market. In 1962 the Kefauver Amendment gave the FDA power to regulate all drugs
for effectiveness as well as for safety. Today, every drug marketed in the United States
must pass the FDA. It's clear that this has protected us from some drugs with horrific
side effects like thalidomide. And we all know of people who have benefited from modern
drugs. What we don't hear much about however, are the beneficial drugs that the FDA has
prohibited.
Well, if you examine the therapeutic benefits of significant drugs that haven't
arrived in the U.S. but are available somewhere in the rest of the world, such as in
Britain, you can come across numerous examples where the patient has suffered. For
example, there are one or two drugs called beta blockers which now can prevent death after
heart attack, we call it secondary prevention of coronary death after myocardial
infarction, which if available here, could be saving about 10,000 lives a year in the
United States. In the ten years after the 1962 amendments no drug was approved for
hypertension. That's for the control the blood pressure in the United States, where as
several were approve in Britain. In the entire cardiovascular area, only one drug was
approved in the five year period from 67 to 72. And this can be correlated with known
organizational problems at FDA.
These carts are taking to an FDA official the documents required to get just one
drug approved.
Worker: Well, hi there, must be the new one they called me about.
Friedman: It took six years work by the drug company to get this drug passed.
Worker: This one right here, all 119 volumes.
Friedman: The implications for the patients are that therapeutic decisions that
used to be the preserve of the doctor and the patient are increasingly becoming made at a
national level by committees of experts. And these committees and the agencies for whom
they are acting, FDA, are highly skewed to avoid risks. So there is a tendency for us to
have drugs that are safer but not to have those that are effective. Now, I've heard some
remarkable statement from these advisory committees in considering drugs. One has seen the
statement, there are not enough patients with the disease of this severity to warrant
marketing this drug for general use. Now that's fine if what you are trying to do is to
minimize drug toxicity for the whole population. But if you happen to be one of these
"not enough patients" and you have a disease that's of high severity or a
disease that's very rare than that's just tough luck on you.
For ten years Mrs. Esther Usdane suffered from severe asthma. The medication she
received had serious side effects. Her condition was getting worse. But the drug her
doctor preferred is prohibited by the FDA. So, twice a year Mrs. Usdane had to set out on
a journey.
Mrs. Usdane: I had been very sick. I had been in and out of the hospital several
times and they couldn't seem to find a way to control the asthma and I had to change my
lifestyle once I was out even for a short time, mainly because the cortisone derivatives
were softening the bones and causing a puffiness of the face and other changes in my body.
The doctors were pretty anxious to get me off the cortisone derivative.
Friedman: The drug her doctor wanted her to have had been available for use for
five years in Canada. Once across the boarder of Niagara Falls, Mrs. Usdane could make use
of the prescription that she obtained from a Canadian doctor. All she had to do was go to
any pharmacy. There she could buy the drug that was totally prohibited in her own country.
The drug worked immediately.
Mrs. Usdane: This one made such a difference in my life both because of the
shortness of breath being resolved and also because now we don't have to worry so much
about the softening of the bones. Fortunately, once I got that medicine, very quickly,
everything sort of reverted back to a much more the normal lifestyle and I'm very grateful
that I was able to find relief.
Friedman: It was easy for Mrs. Usdane to get around the FDA regulations because
she happens to live near the Canadian boarder. Not everyone is so lucky. It's no accident
that despite the best of intentions, the Food and Drug Administration operates so as to
discourage the development and prevent the marketing of new and potentially useful drugs.
Put yourself in the position of a bureaucrat who works over there. Suppose you approve a
drug that turns out to be dangerous, a thalidomide. Your name is going to be on the front
page of every newspaper. You will be in deep disgrace. On the other hand, what if you make
the mistake of failing to approve a drug that could have saved thousands of lives. Who
will know? The people whose lives might have been saved will not be around. Their
relatives are unlikely to know that there was something that could have saved their lives.
A few doctors, a few research workers, they will be disgruntled, they will know. You or I,
if we were in the position of that bureaucrat, we'd behave exactly the same way. Our own
interests would demand that we take any chance, whatsoever, almost, of refusing to approve
a good drug in order to be sure that we never approve a bad one.
Drug companies can no longer afford to develop new drugs in the United States for
patients with rare diseases. Increasing, they must rely on drugs with high volume sales.
Four drug firms have already gone out of business and the number of new drugs introduced
is going down.
Where will it all lead? We simply haven't learned from experience. Remember
Prohibition? In a burst of moral righteousness at the end of the first world war, when
many young men were oversees, the non-drinkers imposed on all of us prohibition of
alcohol. They did it for our own good. And there is no doubt that alcohol is a dangerous
substance. Unquestionably, more lives are lost each year through alcohol and also the
smoking of cigarettes than through all the dangerous substances the FDA controls. But
where did it lead?
This place is today a legitimate business. It's the oldest bar in Chicago. But
during Prohibition days it was a speakeasy. Al Capone, Buggs Moran, and many of the other
gangsters of the day sat around this very bar planning the exploits that made them so
notorious; murder, extortion, highjacking, bootlegging. Who were the customers who came
here? They were people who regarded themselves as respectable individuals, who would never
had approved of the activities that Al Capone and Moran were engaged in. They wanted a
drink but in order to have a drink they had to break the law. Prohibition didn't stop
drinking, but it did convert a lot of otherwise law obedient citizens into law breakers.
Fortunately, we're a very long way from that today with the Prohibition on cyclamate and
DDT. But make no mistake about it, there is already something of a gray market in drugs
that are prohibited by the FDA. Many a conscientious physicians fees himself in a dilemma
caught between what he regards as the welfare of his patient and strict obedience to the
law. If we continue down this path, there is no doubt where it will end. After all, if it
is appropriate for the government to protect us from using dangerous guns and bicycles for
logic calls for prohibiting still more dangerous activities such as hand gliding,
motorcycling, skiing. If the government is to protect us from ingesting dangerous
substances, the logic calls for prohibiting alcohol and tobacco. Even the people who
administered the regulatory agencies are appalled at this prospect and withdrawal from it.
As for the rest of us, we want no part of it. Let the government give us information but
let us decide for ourselves what chances we want to take with our own lives.
As you can see all sorts of silly things happen when government starts to regulate
our lives. Setting up agencies to tell us what we can buy, what we can't buy, what we can
do.
Remember, we started out this program with a Corvair and on the bill that was
castigated by Ralph Nader as unsafe at any speed. The reaction to his crusade led to the
establishment of a whole series of agencies designed to protect us from ourselves. Well,
some ten years later, one of the agencies that was set up in response to that, now finally
got around to testing the Corvair that started the whole thing off. What do you suppose
they found? They spent a year and a half comparing the performance of the Corvair with the
performance of other comparable vehicles and they concluded and I quote "The 1960_63
Corvair compared favorably with the other contemporary vehicles used in the test."
Nowadays, there are Corvair fan clubs throughout the country. Corvair's have become
collector items. Consumers have given their verdict on Ralph Nader and the government
regulations. As Abraham Lincoln said, you can't fool all of the people all of the time.
It's time all of us stopped being fooled by those well-meaning bureaucrats who claim to
protect us because they say we can't protect ourselves. The men and women who have
fostered this movement have been sincere. They believe that we as consumers are not able
to protect ourselves. That we need the help of a wise and effervescent government. But as
so often happens the results have been very different from the intentions. Not only have
our pockets been picked of billions of dollars, but also we are left less well protected
than we were before.
DISCUSSION
Participants: Robert McKenzie, Moderator; Milton Friedman; Kathleen O'Reilly,
Consumer Federation of America; Richard Landau, Professor of Medicine, University of
Chicago; Joan Claybrook, National Highway Traffic Safety Administration; Robert Crandall,
Brookings Institute
MCKENZIE: Now back at the University of Chicago the consumerists, themselves, get
their chance to argue their case.
O'REILLY: I agree with Mr. Friedman with respect to those agencies which have had
the major purpose of economically propping up a certain industry which is why consumer
advocates like myself advocate the elimination of the ICC, the CAB, the Maritime
Commission. But when you're talking about consumer protection in the marketplace and when
you're talking about government watchdog in competition, consumers need and as every poll
is showing, they're demanding more and more protection. And to give just two examples of
how information is simply not enough to protect the consumer, five years ago I could not
have bought a child's crib in this country that would have had the slats sufficiently
close together that I did not have to worry about the child strangling. Not until the
government and the Consumer Product Safety Commission stepped in did consumers then have
the choice to buy that type of a crib, strangulation's down 50 percent. And in 1975, if I
had wanted to lease a Xerox machine, I could not have done it. And not until the Federal
Trade Commission antitrust stepped in and forced competition into that marketplace did I
have that choice and in one year the price went from 14,000 dollars to 5,000 dollars.
Those are dollars back in our pocketbooks to say nothing of minimized emotional trauma.
MCKENZIE: Well, before we ask Milton Friedman to come back on that, lets establish
the viewpoint of our other participants and experts. Dr. Richard Landau, what's your
reaction?
LANDAU: Well I think the cost is certainly outrageously large and the benefits are
trivial if any. I think that perhaps Milton overstates it slightly to make his point, but
basically I would have to agree with it in the area that I know best, which is the
regulation of new drug development.
MCKENZIE: And Joan Claybrook.
CLAYBROOK: Well in the auto safety field we've saved about 55,000 lives and
millions of injuries because of auto safety regulations since the mid_1960s. I might also
comment that the cost of auto crashes each year, the American public is 48 billion dollars
a year, fairly substantial when you compare it to other things, much less, again, the
human trauma.
MCKENZIE: Bob Crandall.
CRANDALL: Well I think it's impossible to disagree with Milton Friedman on the
effects of economic rate regulation of the sort that the railroads and the trucking
industry have been through. The intent of that legislation was, of course, to protect the
railroad and to protect the trucks, and the same thing is true for maritime regulation.
What sustains regulation is sort of a populist theory that somehow through government we
will redistribute wealth from people who own business firms to consumers. In fact it
doesn't work that way. It doesn't work that way in economic regulation and there's very
little evidence that it works that way in any kind of regulation. As to whether we get any
value from health and safety regulation, I think much of it is too new to know.
MCKENZIE: Well now that's the area I want to start with because remember that was
the first part of his argument. The whole idea of consumer product safety action by the
state. Now, is that so far working? Very close to your interest I know. What's your
reaction, Kathleen O'Reilly?
O'REILLY: Well in product safety in the state of that, the lawnmower industry had
said for twenty years they could not design a safe lawnmower. Only when the Consumer
Product Safety Commission forced them with the new standard suddenly their creative genius
was overnight. They came up with net whips that were made out of plastic and they came up
with very innovative forces. Which is why __ where that government presence actually
triggered innovation that otherwise would have been left uncovered.
FRIEDMAN: It's very easy to see the good results. The bad result it's very much
harder to see. You haven't mentioned the products that aren't there because the extra cost
imposed by Consumer Product Safety Commission have prevented them from existing. You
haven't mentioned the case of the triss (phonetic) problem on the flammable garments. Here
you had a clear case where the __ regulation of the CPSC essentially had the effect of
requiring all manufacturers of children's sleepwear to impregnate them with triss.
O'REILLY: Oh, but that's not true at all.
FRIEDMAN: Three years __ five years later the regulation required that garments to
be nonflammable and as it happened, triss was the most readily available chemical which
could do it.
MCKENZIE: Kathleen O'Reilly.
O'REILLY: It's absolutely not true.
FRIEDMAN: But let me finish the story first. Because the second half of the story
is the important part of it. It turned out that triss was a carcinogen. And five years
later or three years later, I'm not sure the exact time, the same agency had to prohibit
the use of those sleepwear garments forcing them to be disposed of at great cost to
everybody concerned.
O'REILLY: All right, lets look at the real interesting history here. In 1968, when
Congress passed the Flammable Fabric Act, they did not tell the CPSC what chemicals would
comply with that and what would not. And so initially when industry said, "we're
going to use triss," the Consumer Product Safety Commission, from their initial
tests, were disturbed by it and had announced informally to industry that they were not
going to allow triss to be used. Industry balked and said, "we're gonna to take you
to court because the Act only says it has to be flame retardant." You, the
government, cannot tell us how to comply. And it was the industry that forced the hand of
CPSC away. And they don't even deny that now.
FRIEDMAN: I'm not trying to defend the industry. Go slowly. I am not pro-industry.
I am pro-consumer. I'm like you. I'm not pro-industry. and, of course, industry will do a
lot of bad things. The whole question at issue is what mechanism is more effective in
protecting the interests of the consumers, the disbursed, widespread forces of the market.
Take the case of the flammable fabrics, suppose you had not had the requirements.
MCKENZIE: But you believe it was right to test them, don't you? For a government
agency to test it?
FRIEDMAN: No, not at all.
MCKENZIE: No, no.
FRIEDMAN: There are private consumer testing agencies. There's the Consumers
Research. There's Consumers Union. You speak about a widespread demand for more
protection, those agencies have never __ those organizations __
CLAYBROOK: Oh, of course, they have all these publications on cars __
FRIEDMAN: Of course.
CLAYBROOK:__ but what they do is they test the brakes and steering. They never
crash test them and the most important thing to know about a car when you buy it is if the
car crashes are you going to be killed unnecessarily?
FRIEDMAN: The reason they __
CLAYBROOK: You can't even get that information.
FRIEDMAN: But the reason they don't test __
CLAYBROOK: It's too expensive, that's the reason why.
FRIEDMAN: Of course. Anyway it is too expensive for them because the number of
consumers who are willing to buy their service and take it is very, very small.
CLAYBROOK: That is not why. The reason why is because it's enormously expensive.
FRIEDMAN: Of course, but if they had a large enough number of customers, if there
were enough customers, enough consumers who wanted the __
CLAYBROOK: Yes, but that's a chicken and egg situation which is ridiculous.
FRIEDMAN: It's not a chicken and egg situation. The whole situation __
CLAYBROOK: If you believe that technological information is important for consumer
to have, which is that basis ad the thesis of your argument, surely that you would say
that one of the things that society does as it groups together to provide basic services
to the public; police, traffic services, all sorts of basic kinds of things, the mail
service and the fire service and all the rest of it. Why is that they shouldn't even do
testing of technological subjects which the public has no way of knowing?
MCKENZIE: Before you reply, I want one or two others in on this, Bob Crandall.
CRANDALL: It seems to me that Professor Friedman could give a little bit on this
ground. Certainly in the dissemination of information there's a free rider problem. And
one of the problems is that while you and I might value the results from a Consumer Union
rather highly, we don't have to pay for it. We can look over the shoulder of someone else,
borrow the magazine from the library and so forth. I wouldn't go so far as to say that the
government should not at all be in the business of generating information though I am
concerned about exactly the same forces, this evil industry that Miss O'Reilly talks
about, having its influence on how this information is prepared. I don't see how we guard
ourselves against that.
FRIEDMAN: We don't
CRANDALL: But it seems to me that there is a case to be made that the market does
not supply enough information.
FRIEDMAN: It may not. But the market supplies a great deal and there is also a
free rider problem in the negative sense on government provision of information because
people who have no use for that information are required to pay for it.
MCKENZIE: Milton, I don't quite understand your position on this. Are you saying,
though, that there's no place for government to test consumer product safety at all?
FRIEDMAN: I am saying, lets separate issues. I am saying there is no place for
government to prohibit consumers from buying products, the effect of which will be to harm
themselves. There is, of course, a place __
MCKENZIE: But how do they know that effect?
FRIEDMAN: Well, for a moment I'm trying to separate the issues. There is a place
for government to protect third parties. If we go to your automobile case __
CLAYBROOK: Well, how about children? Children don't __ aren't choosers.
FRIEDMAN: No, no.
CLAYBROOK: They don't make choices because they ride in the cars.
FRIEDMAN: The parents make their choices. But let's go __
O'REILLY: But if the industry has it there's no choice.
FRIEDMAN: We can only take one issue at a time. We're a little difficult to take
them all at once. Let's take one at a time. I say there is no place for government to
require me to do something to protect myself.
(Applause)
FRIEDMAN: Now if government has information __
MCKENZIE: Has of obtains?
FRIEDMAN: __ for a moment, suppose it has information, then it should make that
public and available. The next question is: are there circumstances under which it's
appropriate for government to collect information? There may be some such circumstances.
They have to be considered one at a time. Sometimes there is and sometimes there isn't.
But you see, I want to get back. Take your area Miss Claybrook, you are now involved on
the airbag problem.
CLAYBROOK: That's right.
FRIEDMAN: If I understand the situation, I don't know anything about the technical
aspects of it, but the airbag, in a car, is there to protect me as a driver. It doesn't
prevent me from having an accident, hurting somebody else because it's only activated by
an accident. All right then, why shouldn't I make that decision? Who are you to tell me
that I have to spend whatever it is, two hundred, three hundred, four hundred dollars on
that airbag.
CLAYBROOK: Well we don't tell you that. What we say is that when a car crashes
into a brick wall at 30 miles an hour, the front seat occupants have to have automatic
protection built into that car.
FRIEDMAN: Have to, why have to?
CLAYBROOK: And it's a very __ it's a very minimal __
FRIEDMAN: Why have to? I don't care whether it's an airbag or a seatbelt.
CLAYBROOK: The reason why __ well, there are two reasons why. One is that the
sanctity of life is a fairly precious entity in this country.
FRIEDMAN: It's more precious to me than it is to you. My life is more precious to
me than to you.
MCKENZIE: Well, you know.
CLAYBROOK: Do you wear you seatbelt?
FRIEDMAN: Sometimes I do and sometimes I don't.
CLAYBROOK: I see. Well then it couldn't be too precious to you because if it were
you'd wear it all the time.
FRIEDMAN: I beg you pardon.
CLAYBROOK: Yes.
FRIEDMAN: Other things are precious too.
CLAYBROOK: Yes. Okay, but wearing your seatbelt is a relatively simple thing to go
into.
FRIEDMAN: But now my question is __ but I want an answer, a direct answer.
CLAYBROOK: But there is a very __ there's a very basic reason why.
FRIEDMAN: Yes.
CLAYBROOK: And it's because a person does not know when they buy a car what that
car is gonna do when it performs in various and sundry different ways. That's number one.
Number two, there's a basic minimum standard, it's performance standard. It's not a
requirement that you have certain pieces of products in your cars, but it's a basic
performance standard built into your car that when you buy it no one's going to have less
than that. So that you don't have people needlessly injured on the highway, the cost to
society, the cost to the individuals, the trauma to their families and so on. You're
suggesting theoretically that it's much better to let people go out and kill themselves
even though they really don't know that that's what's gonna happen to them when they have
that crash.
FRIEDMAN: Excuse me. You're evading the fundamental issue. If you have the
information, give it to them. The question is not a question of giving them the
information. The question is what is your right to force somebody to spend money to
protect his own life, not anybody else, but only himself and the next question I'm gonna
ask you: do you doubt for a moment that prohibiting alcohol would save far more lives on
the highways than an airbag, seatbelts and everything else, and on what grounds are you
opposed to prohibition on grounds of principle or only because you don't think you can get
it by the legislature?
CLAYBROOK: I'm opposed to prohibition because I don't think it's gonna work.
That's the reason I'm opposed to it.
FRIEDMAN: But suppose it would work? I want to get to the __ I want to get to the
principle.
CLAYBROOK: Can I answer you __ sure.
FRIEDMAN: I want to __ suppose you could believe it would work. Suppose you could
believe__
MCKENZIE: Prohibition?
FRIEDMAN: Prohibition could work. Would you be in favor of it?
CLAYBROOK: No. What I am in favor of is building products __ I am in favor of
building products so that at least they service the public.
FRIEDMAN: I was fascinated by some of the initial comments. Everybody agrees that
the old agencies are bad, but the new agencies that we haven't had a chance ___
MCKENZIE: No. You're trying to sweep them into your net. They didn't agree to
that. But anyway __ hole on to your point.
O'REILLY: When you talk about __ the basic principle is: give me the information.
Let me choose for myself. If that's the ultimate goal, why is it that in any hearings that
you've every gone to and I beg anyone to find me an exception, whether it's airbags or
DES, saccharine, whatever, you never; you never have the victims of the injury who lost
their arm because of a lawnmower, standing up and saying "thank God that you gave me
the right to become incapacitated." Never do you hear a victim thanking the
government for backing off. Never do you hear the victim of an anti-competitive action
thanking the Justice Department for not bring a suit.
MCKENZIE: Dr. Landau, I promised you could make an observation on that without
going into great detail.
LANDAU: Now, when DES was used to preserve pregnancies in women 25 and 30 years
ago, there was absolutely zero evidence that it would cause cancer in anybody, certainly
not in the children of the women who were pregnant and for you to say that it is __
O'REILLY: Then you're ignoring the 1941 studies that show just that.
LANDAU: There is no 1941 study. This happens to be my area of expertise, I'm an
endocrinologist. There was nothing.
O'REILLY: Well, there are a lot __
MCKENZIE: Now let's not go any further down that road.
CRANDALL: Let me ask you __ yeah, let me ask Miss O'Reilly a question. I don't see
__ if the problem in drugs is that there is a lack of competition, there are a number of
drug companies in the United States __
O'REILLY: That's one of them.
CRANDALL: __ and around the world; and a lack of innovation, how regulation, which
is designed to keep products off the market, that is further restrict the supply of drugs
is going to enhance either competition or innovation; as a matter of fact, everything that
I have learned in economics would tell me that that is likely to reduce innovation and
reduce competition. And one of the great benefits of drug regulation is that if I'm a
pharmaceutical company with an old tried and true drug on the market, I really want the
FDA to keep new drugs off the market. It will enhance the market value of that drug. I
think that's the lesson that you learn from government regulation, whether it's National
Highway Traffic Safety Administration regulation of fuel economy standards, be it drugs,
be it pollution controls, their effect is anti-competitive, it's not pro-competitve at
all.
FRIEDMAN: It I go on with Bob's point for just a moment. He and I, I'm sure, and
all economists would agree that the most effective way to stimulate competition would be
to have complete free trade and eliminate tariffs. The most anti-consumer measures on our
statute books are restrictions on foreign trade.
MCKENZIE: Milton __
FRIEDMAN: Has the Consumer Federation of America testified against tariffs?
O'REILLY: We haven't even been asked to.
(Laughter)
MCKENZIE: Now the Food and Drug Administration, and here, Doctor, I know you're
keenly interested in this __ what was your reaction to Milton's analysis of where it's
fallen down?
LANDAU: Well, I think it's even worse than Milton's analysis or Dr. Wordell's
(phonics) analysis of it. If one could look at the past 25 or 30 years of new drug
innovation, one could see that most of the drugs that you all would regard as miracle
drugs were developed before the Kefauver Amendments.
MCKENZIE: That's the 1962 amendments __
LANDAU: The 1962 amendments.
MCKENZIE: Which ruled what now again, just a rundown.
LANDAU: Well, the 1962 amendments as Milton said, added efficacy to the regulation
of safety. Actually it's what the regulators did with this law that went haywire. I don't
see how one can object to the law in itself. What the regulators did was go mad with
respect to safety. When the only thing that was added to the law was the point of
efficacy.
MCKENZIE: Yeah.
LANDAU: After all the two are intertwined inextricably fir a very hazardous
disease like cancer you will tolerate a very dangerous drug and for a headache it's got to
be very, very safe. Now this we've know all the time, but the regulators have gone to the
point of utilizing some hysteria over thalidomide and new legislation which I think was
originally designed by Kefauver to get himself to be president by lowering the cost of
drugs, to make regulations which are absolutely obstructive. Now instead of 75 percent of
the new drugs used in this country being developed in this country, less than 25 percent
of them are. They're being developed elsewhere.
MCKENZIE: Yeah, now could we just clarify this point, though. Are you saying there
should not be government intervention in the food and drug field of that kind, or is it
simply the policy adopted by the FDA or imposed on it by the Kefauver Amendment is where
it went wrong?
LANDAU: I believe that certain guidelines are necessary and it's possible to
construct guidelines based upon the Kefauver Amendment taking the responsibility for
decision making away from the bureaucrats in the Food and Drug Administration. You say,
how? I would say by giving it to panels of impartial experts to make this decision.
MCKENZIE: Now, Milton, do you take that? Do you buy that?
FRIEDMAN: Nope. I'm not gonna buy that.
O'REILLY: Can I comment?
MCKENZIE: Why not?
FRIEDMAN: Because I have never seen __ have you ever seen a cat that barked?
MCKENZIE: Not especially, no.
FRIEDMAN: Well, governmental agencies and governmental laws follow their own laws
just as the physical laws say that cats don't bark. These laws of social science say that
when you start and set up a regulatory agency with power, those powers are going to be
used.
MCKENZIE: I want to move on, though, to the third area that Milton chose, the
Interstate Commerce Commission as an illustration. Now this is closer to you line, Robert.
What is your reaction, first to his analysis and what do you think needs doing about it?
CRANDALL: Well, you're not going to get much dispute from, I don't think anybody's
sitting around here as to what the benefits of __ or costs of rate regulation in
transportation are. The only group that you will find now supporting continued regulation
would be the American Trucking Association and they can't even make a very persuasive case
or one that is consistent from one day to the next. There simply is no good reason for
continuing this type of regulation. If might continue longer then, say, airline regulation
did because the number of people whose wealth has been enhanced by this regulation, that
is people who drive trucks, people who won licenses to operate, to haul only hardbound
books between Peoria and Springfield, Illinois or something of that sort. Those people are
very numerous. And it's going to very hard to o something about it.
MCKENZIE: Does this prove anything about the nature of government intervention and
regulation or is it simply an example of where the thing was done extremely badly and not
in the interest of the public.
CRANDALL: It proves _ _ I think it proves a great deal about government regulation
and it is no different. I don't think in the area of health and safety regulations. Let me
give you one piece of information about one area of very important health and safety
regulation which I think eve Milton Friedman would be in favor of in some form and that is
the regulation of pollution control or at least the establishment of property rights, so
as to somehow reduce pollutant levels from what they would be if we allowed unlimited
pollution. In the case of environmental policy, the strongest proponents in the Congress
for environmental policy come from the northeastern part of the United States and the
weakest proponents, those with the worst voting records in the Congress come from the
Southwest and Alaska. You might ask yourself why is that. And one possible answer I guess
is that well the air's dirty in New York City, but I don't think you find many people
really worried about the quality of the air in New York City. What they're worried about
is their future employment and the value of their assets in New York City. What would
happen in the absence of environmental policy in this country is that more business would
move to the southwest and the western part of the United States. As a result, eastern
Congressmen are very much in favor of a policy which prohibits through pollution control
regulations, prohibits a gravitation.
MCKENZIE: Do you favor that too?
CRANDALL: I don't prohibit the form it takes, but they use this as an excuse, just
as they will use various excuses, let's say, before the __ Miss Claybrook's agency, for a
very tight standards in order to promote the value of their product.
MCKENZIE: Well before we go back to ICC and I want to do that; Milton, what's your
reaction to his pollution point because I know he's very keenly interested in it.
FRIEDMAN: Well he and I would __ I would agree with his general position that
there is a role for government in pollution. I would agree secondly that the present
techniques of controlling pollution are terrible and they are terrible and they are what
they are for precisely the reasons he specifies because they are an effective way in which
you could use the excuse of pollution to serve some very different objectives. That's part
of the way in which governments meow, if I may go back to my cat. We've discussed this at
greater lengths in a book that we've written to go along with this program on Free to
Choose. The program itself was too short for us to be able to get much in about pollution,
indeed, we really had to skip it because it's such a complicated and difficult subject.
But there is a real role for government because that is a case in which you're protecting
third parties. And every one of the valid cases, in my opinion, for government entering in
has to do with third parties. There's a case for requiring brakes because that's to
protect the person you might hit. That's wholly different. There's no case for requiring
an airbag in my opinion, but there is a case for requiring good brakes.
MCKENZIE: Do you accept that distinction, by the way?
O'REILLY: No because when you're injured because of a failure to us a passive
restraint, I am in a sense going to have to help pick up part of your medical bills, part
of your insurance rates __
FRIEDMAN: Absolutely.
O'REILLY: __ because they're spread across.
FRIEDMAN: Absolutely.
O'REILLY: And so only on Gilligan's Island, when you have six or nine people not
interacting such that all of society is affected, does your distinction have any validity?
FRIEDMAN: Go slowly.
CRANDALL: The same thing is true in alcohol. When you're sick from alcoholism, who
pays for it?
O'REILLY: On the alcohol, the studies have only shown excessive amounts of alcohol
to be injurious.
CRANDALL: I'm not speaking of accidents. What about cirrhosis of the liver, my
dear, it's a very common disease.
O'REILLY: All of the reasons why we need a stronger __
LANDAU: Because it's a long and expensive disease.
MCKENZIE: Could we pause on __ Milton's made a very interesting distinction here,
that you can damage yourself, you've been saying. Or it's up to you if you want to run the
risk of damaging yourself, but if __ but can you make the distinction.
FRIEDMAN: But let me go back to her question because she says, "no, we
mustn't do that because the fellow who hurts himself is going to go to a government
subsidized hospital."
O'REILLY: Not just government, no, no.
CRANDALL: Oh, but it's more than that. It's all the parties and liability as well,
answer that issue with it. Because my __
FRIEDMAN: Go slowly. Let me separate the two issues because I really want to get
to this because you're answer is a very favorite one and there is an element of validity
to it. Of course. Well, it's only because we've made two mistakes.
O'REILLY: But you don't have to be in a government hospital for it to be valid
because when you're in traction __
FRIEDMAN: Excuse me. Hold on for a moment. Hold on for a moment. The problem with
your answer is that you're saying one wrong justifies another. I believe that we ought to
have much less government intervention into those areas as well. And I don't __ am not
willing to follow a policy which implies saying, you __ that every person goes around with
a sign on his back saying, "Property of the U.S. Government do not mutilate, spindle
or bend."
O'REILLY: Do you favor the government intervention in those areas where, for
example, the bar associations and the eyeglass industry were not allowing their members to
advertise and then the Federal Trade Commission stepped in and now consumers have the
ability to make those kinds of comparisons?
FRIEDMAN: You're getting into another area, but the answer, a brief answer because
we oughtn't to discuss this here. I am against those governmental measures which have
enabled the organizations to have the power to prevent advertising.
O'REILLY: But they were no government __
MCKENZIE: Now, now look, Bob Crandall said __ Bob Crandall said that in an area
like the Interstate Commerce Commission there is nothing really to be said in defense at
all. Does anybody dissent from that or have we knocked them down flat?
FRIEDMAN: That happens to be the one area on which, so far as I know, you cannot
find any dissent anywhere, even __ one of the most effective presentations of what was
wrong with ICC was done by one of Ralph Nader's groups, maybe you were associated with
that group. That's the thing that really baffles me. Fundamentally, here are people, like
Ralph Nader and his groups who look at ICC and what is their solution to the problem? More
of the same, a different kind of regulation __
CLAYBROOK: No.
FRIEDMAN: __ the only problem is that the wrong people were in there regulating.
CLAYBROOK: No, no, no. That's not true. No, that's a complete misrepresentation.
MCKENZIE: You work with Nader now, that's __
CLAYBROOK: Yes.
FRIEDMAN: That's Dr. Landau's solution for the medical problem. Let's have the
right people doing the regulating.
CLAYBROOK: No, no, no. That's a complete misnomer about the difference between ICC
and Health and Safety regulation. There are a number of differences. One is, one involves
the economic and the benefits of profits to industry and the other involves the sanctity
of life in __ among people.
FRIEDMAN: Excuse me.
MCKENZIE: Now let her finish this point, Milton.
FRIEDMAN: Okay.
MCKENZIE: Yes.
CLAYBROOK: The second one and it deals with your third party relationship is that
__ what you're talking about there is brakes because they're gonna affect somebody else,
but there are also other third-party effects. For example, if you don't have a helmet used
by someone and you hit them with your motorcycle, you're gonna have huge damage payments
to make because they didn't properly take proper precautions on the public highways. And
the question is: Should the public highways be used so that they're gonna harm somebody
else, potentially?
FRIEDMAN: There is nothing that two people do in a world. No man is an island to
himself, everything has third-party issues; but you've got to have a sense of proportion
and the important thing is that government intervention has third-party issues. When
government intervenes into these affairs that harms third parties. It picks my pocket. It
reduces my freedom. It restricts many activities around the world.
CLAYBROOK: That's what you question is: what are the benefits? And if the benefits
in the auto field, for example, are 55,000 deaths saved, it means __
FRIEDMAN: That's a very dubious statistic because once again every study has
looked at the benefits and not looked at the costs.
CLAYBROOK: Oh no, that's not true at all. Absolutely not that they haven't looked
at the costs.
FRIEDMAN: I mean the costs in life. You haven't looked at the fact, for example __
MCKENZIE: Let me clarify this, Milton. I don't quite follow you.
FRIEDMAN: Sure.
MCKENZIE: Would you explain what you mean exactly?
FRIEDMAN: Of course.
MCKENZIE: Yeah.
FRIEDMAN: Look, take the automobile, by making automobiles more expensive it makes
it more profitable to keep older automobiles on the road. The increased age of the
automobile is an anti-safety factor by making automobiles safer so people are __ can drive
them, people drive them faster or more recklessly then they otherwise would. There are
more pedestrian deaths.
CLAYBROOK: That's a totally unproven and indeed fully rebutted theory. And, in
fact, all the savings in lives could __
MCKENZIE: By whom? You or __
CLAYBROOK: Well, no, there are numerous studies, including from__
MCKENZIE: Yeah, I see.
CLAYBROOK: __ Yale and Cooper from Yale and so on, but the key issue has been
shown by the regulation that's been in in the last ten years, you've had a huge saving in
lives, a decrease in the __ the vehicle deaths that have occurred, the rate of vehicle
deaths occurred and so on.
FRIEDMAN: Let me go back again for a moment.
CLAYBROOK: Yes.
FRIEDMAN: You see, the major effect on the saving of life has been from
55_mile_an_hour speed limits.
CLAYBROOK: Oh no, that's not true.
FRIEDMAN: Which is not after all in there __
CLAYBROOK: Well that is also a regulation.
FRIEDMAN: __ as a safety regulation. That primarily is a fuel regulation.
CLAYBROOK: Yeah, that's right. It's a regulation.
MCKENZIE: Yeah.
CLAYBROOK: But your statement's not accurate.
FRIEDMAN: All right.
CLAYBROOK: That the savings in life have not been primarily __ they've been,
they're important from 55. But there have been 55,000 deaths saved by vehicle crash safety
regulations.
FRIEDMAN: Excuse me.
CLAYBROOK: Uh_huh.
FRIEDMAN: There have been 55,000 deaths that you have estimated to have been saved
by it. Other estimates __
CLAYBROOK: Not me, the General Accounting Office.
FRIEDMAN: Excuse me. Other estimates as well, the estimate by Professor Sam
Peltzman (phonetic) of this university, a very, very serious study estimated that there
were no lives saved in you took into account all of the indirect effects. Now maybe his
study isn't exactly right.
CLAYBROOK: I don't think it is.
FRIEDMAN: I'm not going to try to __ but maybe the other study isn't exactly right
either.
CLAYBROOK: Yes, okay, right.
(Laughter)
O'REILLY: But if you're somewhere in between. If you look at __ consumers have
done well if it's even in between.
FRIEDMAN: No, no. I beg your pardon. If people voluntarily want to risk their
lives. Are you saying again you really would not be in favor of prohibiting hand gliding.
CLAYBROOK: We asked the auto __ we asked the auto industry if __
FRIEDMAN: That's far more dangerous. Did you prohibit the 500_mile speedway?
CLAYBROOK: I think the __ let me answer this. We asked the auto industry if they
would remove all the safety standards that have been in effect since 1968 and what would
be the savings to the public if they did that. And the answer, sir, that they came back
with was, "We couldn't remove those, they expect them now." The laminated
windshields that don't crack their head open and the collapsible steering assemblies and
the padded dashboards. That __ why the public __ that is now the societal norm. Regulation
has changed the thinking of the public and the understanding of what's possible and so
the, you know , what you're suggesting is that government regulation is willy-nilly and it
produces things the public doesn't want, but you don't have any__
FRIEDMAN: Excuse me for a moment. You can't take credit for everything that's
happened in this area. Four-wheel brakes were introduced before there were safety
regulations. Many of these developments would have __
MCKENZIE: Well, we leave the matter now for this week and we hope you'll join us
again for the next episode in a week's time.
|