Video Transcript: Consumer Product Regulation | Timothy Terrell

Once again, I've got this unenviable position of speaking right after lunch when  everybody's sort of lulled asleep, full stomach, and and yeah, we should go  ahead. We have a speaker coming in right after me, so I don't want to take their  time. I was going to speak today on this afternoon on consumer product  regulation, there's a little bit of overlap here with some things that Bob Higgs  talked about earlier today, but what I'd like to do is show you how Austrians tend  to think about product regulation. I guess I could give you the nutshell version,  which would be there shouldn't be any. That's it. You can go home now. But  there's really a lot that we can say beyond that fundamental libertarian position  on regulation about the consequences of efforts by the state to make consumers safer. Let me begin by mentioning Murray Rothbard's categorization of  intervention by the government in power and market. I think it may be mentioned elsewhere as well. He says there's three types of intervention by the state:  autistic, binary, and triangular. Autistic intervention-you probably heard that word "autistic" in another context, but autistic intervention would be intervention by an  aggressor, for which the aggressor gets nothing in exchange. So a homicide  would be an example of an autistic intervention. Governments, of course, do  this. Binary intervention would be where the state is getting something in  exchange, taxes or robbery or conscription would all be examples of binary  intervention. And then what we're most concerned with this afternoon is  triangular intervention, where the government's interfering with two other parties, who would like to make some sort of exchange, and then the government steps  in and says, "Well, you can't just make the exchange the way you agree. You  have to adopt certain terms set by us. It could be wages. Minimum wage law  would be an example of this kind of thing. Labor conditions, OSHA regulations,  occupational safety and health administration regulations would fall into this  category as well. Product quality regulations, which we'll talk about some today,  all fall into this category of triangular intervention. Rothbard in power and  market. By the way, there's a fairly new version of man, economy, and state,  which has power and market appended to it at the end as it was originally  written, and that's available through the Mises Institute. Last year, I got a copy  for myself to replace my old yellow paperback that some of you might  remember, and Power and Market really is a great treatment of how government intervenes in an economy to the detriment of people, buyers and sellers. But  Rothbard in Power and Market says that one of the favorite arguments for  quality standards is that governments must protect consumers by ensuring that  workers and businesses sell goods and services of the highest quality. The  answer, of course, is that quality is a highly elastic and relative term, and is  decided by the consumers in their free actions in the marketplace. So, quality is it's not as though we have products that are bad quality and products that are  good quality. It's a sliding scale. There are trade-offs between quality and price  and other other characteristics of a good, which are which are taken into 

consideration by a consumer. So when I'm buying a car, I think about not only  the the price and and but I also think about how long it will last and the expected repair bills and the fuel economy and the safety standards and the capacity,  other other aspects of that car. There's a million of these characteristics that I  take into consideration as a consumer, and what the regulators do is typically  pick out one of these characteristics and say, well, consumers could have a  safer car, or they could have a More fuel-efficient car, or they could have a  cheaper car, or they could have whatever the characteristic of the moment might be. Failing to recognize, or at least ignoring the fact that there are trade-offs  between these things, and I mentioned in one of my talks earlier this week that  the corporate average fuel economy regulation, which requires auto  manufacturers to meet an average, certain minimum average miles per gallon  for their cars. There's a separate standard for trucks, and and this causes auto  manufacturers to compromise safety and other characteristics. So we now have  cars that are lighter than they would be otherwise because the corporate  average fuel economy standard induces firms to make cars that get better gas  mileage. So, as I said earlier this week, we might have cars with better gas  mileage, but they're consuming more human beings per mile than they would  otherwise. On the subject of auto safety, we have this character here, Ralph  Nader. This is a much younger Ralph Nader than you would see today, but he  made his name largely through his attack on the American automobile industry  through a 1965 book called "Unsafe at Any Speed. Well, the book focused on  the safety problems of a rear-engined compact car at the time called the Corvair. They said that he said that it tended to roll too easily. It was unsafe. It shouldn't  be allowed on the road, or at least the government should should make safety  regulations on vehicles. Now, with regard to the Corvair, particularly independent tests years later showed that the Corvair didn't behave any worse on the road  than any other similar-sized car. wasn't all that unsafe in comparison with other  cars that were being marketed. But by that time, the auto industry had the  reputation of sacrificing safety in order to make more money. Many of the  accusations that were leveled against the manufacturers of the time were not  well grounded scientifically, but the book did have a lasting impact because it, in  part, was the justification for the National Traffic Motor Vehicle Safety Act and  subsequent changes to regulation of car safety, and this set up a new agency. It  required manufacturers to include things in their cars that they had previously  offered only as options. I think that one of the one of the most common cases  that you would read about in a maybe a business ethics class would be the case of the Ford Pinto. Most of you are too young to remember a lot of Pintos being  on the road, but the Ford Motor Company produced a lot of these things,  compact, very cheap, good gas mileage for the time, and your your typical  business ethics class is going to look at this as an example of how terrible the  automobile industry was by producing cars that weren't as safe as they could 

have been. Of course, again, we understand you can raise safety, you really  can. You could have made a safer car than the Pinto, but of course you're going  to have to sacrifice something else. In the case of the Pinto, the there was a  well-known case involving a rear-end collision. Someone rear-ended a Ford  Pinto on a midwestern highway at night, where the Pinto had been stopped in  the road, apparently, and and three young girls were killed as a result of that  accident, and the attorney general of the state decided to file lawsuit against  Ford Motor Company for failing to include some fuel system improvement that  might have prevented that the fire in the Crash. It was pointed out that the the  improvement would have cost some small amount of money per car, something  like $7 or $10 or something. I don't recall exactly what it was, but it was a small  amount of money, and most of your. Your ethics classes would look at this and  say, "Well, weren't three girls' lives worth spending an extra $12 per car? Ford  Motor Company had decided otherwise. So this is taken as evidence of the the  the unreliability of the market system in providing for consumer safety. Well,  Ford had had to make a choice, a financial choice. Safety is a scarce  commodity. So are the other things that people would like to have in their cars,  and of course, you could have made a marginal improvement of the fuel system, and it might have cost $12 per car. But Ford was thinking, well, if we do this,  we're going to produce however many hundreds of 1000s or millions of these  cars, and X number of dollars per car is going to translate into so many millions  of dollars, and they expected, due to their calculations, that this would this would mean saving X number of lives and and preventing so many injuries as a result  of this improvement. Well, then they looked at what seemed at the time to be a  reasonable estimation of the value of a human life, and they looked at the court  cases where there was a wrongful death lawsuit or a wrongful injury lawsuit, and they looked at what the courts were awarding in payments to families for  wrongful death, and they said, "Well, we expect that if we don't do this  improvement, then we will end up having to pay out X number of dollars in in in  lawsuits, and if we do make the improvement, we're going to have to pay X  number of dollars in making this fuel system improvement. Well, the fuel system  improvement turned out was a larger number than the the lawsuit total that they  expected, and so they decided not to make the improvement. And a lot of  people in in in ethics classes will will say this is horrible. How can you put a  value on a human life, et cetera, et cetera, et cetera? Well, let's think about this  a little more carefully. First, a human life does not have infinite value. Many of  you traveled in a car or airplane to be here. You incurred some risk of the loss of your life in doing so. It might have been a small risk, maybe a one in a million  chance that you would have lost your life in coming to this conference and sitting in these chairs. But it was a risk. Now, if your life had infinite value and you took  a one in a million chance of losing your life, what financial expected cost would  there be attached to your attendance at the conference? What's one over a 

million times infinity? Infinity. Now, I'd like to be flattered by your attendance  here, but I really don't think that the value of attending this conference was  infinite. So your own behavior in showing up at this conference indicates that  you didn't value your life at infinity. Otherwise, you wouldn't be here. You  wouldn't have taken the risk, however valuable the conference may have been.  So your own behavior in taking these chances with your life to gain something of finite value indicates that your life, according to your own estimation, has finite  value. Why then do we blame Ford Motor Company for making the same kind of assumption that consumers do every day? Now you don't have to buy a Ford  Pinto if you value safety, if you value your life more highly, then you have the  option to buy more expensive and safer car. But what the automobile  manufacturers had done is they had offered a variety of cars with varying safety  features and varying fuel economy, and varying capacity, and varying cost price, and they offered the Ford Pinto, and lots of people apparently said, "Well, I  would rather have a cheaper, less safe car than have a more expensive, more  safe car. Another way I think I would I would ask you to look at this is is to think  about the many many improvements that you could make to a car to improve  the safety. Certainly, the fuel system integrity was not the only margin on which  the Ford Pinto could have been improved. Could have. Maybe strengthen the  steel in the frame, increase the thickness of the steel by a couple of millimeters  at a cost of maybe $25. Maybe they could have put in slightly stronger, powerful  brakes at a cost of another $18. Maybe they could have put in a crumple zone  or something in the front for another $17. Added a little padding in the  dashboard for another $5. Made the another backup system for the for the  brakes or something else that would improve your safety, beef up the  suspension a little bit, a little bit to make the handling better. Another $14, but  where do you stop with these marginal improvements? I mean, every you can  take any product and marginally improve it for a slight increase in the price. You  keep doing this, and you say, well, they should never stop. They should never.  They should never hesitate to spend another $14 to achieve some improvement in safety. Okay. Well, you keep doing this, and you're going to wind up with an  armored personnel carrier instead of a Pinto. Drive down the road and be  impervious, right? But people don't do this. They don't want to drive around in  armored personnel carriers because they like to have something that gets better than two miles per gallon, so people will make these trade-offs voluntarily  between safety and price and other features to the product. Typically, firms have an interest in getting that balance right. Bad business to kill your customers, it's  bad business to gain a reputation of producing a product that's less safe than  people expected it to be. Now, in retrospect, you can look at the Ford Pinto case and you can say, "Well, if Ford had known that they would have been sued and  they would receive this bad reputation as a result of the Pinto, they probably  would have done something different, but they did the best they could with the 

information they had at the time. Now, I spent some time talking about the FDA  in my talk this morning on healthcare, and I believe also we have a local  resident authority here on the on the FDA in Bob Higgs, and he's done some  excellent work in this area. I can't come close to what he can tell you about the  FDA, but I'll just briefly mention this agency, which is supposed to increase your  safety with regard to consuming food, foods and and drugs. Bill Anderson up at  Frostburg State University has an article that you can find online at the  Mises.org website in the in the February 1998 free market on on Teddy  Roosevelt's creation of the FDA and and Bill points out that after winning the  election in 1904, Roosevelt launched into this progressive regulatory agenda,  trying to target various industries that, in the public's eye, had a reputation of  doing something terrible to consumers. One of his first targets was the  meatpacking industry at the turn of the century. Refrigeration was rare, and the  even though the industry had developed some ice-chilled containers for  transporting meats and ships to allow companies to transport dressed meats  over long distances, you had to keep this stuff on ice, or it would spoil, as we  know. And preservation techniques were not as advanced as they are today.  Well, during the Spanish-American War, where Roosevelt got his reputation,  meat packers would ship these dressed meats to Cuba for distribution to the  troops, and they'd tell the quartermasters in the army, "Well, look, you need to  keep this on ice. You can't just dump it on a wagon and and and haul it inland, or it'll spoil in the way. And of course, the quartermasters did not listen. By the time  the meat reached the troops, it was spoiled. The meat companies were then  accused of profiteering by selling rotten meat to the troops. And then, of course  Roosevelt gets this boost to this agenda in 1906, when Upton Sinclair publishes  *The Jungle* which you might have read in one of your classes. It's a favorite, I  think, even today. One of these muckraking kind of novels where meat  companies were accused of. Of doing all kinds of terrible things for their  employees and customers, and this novel, along with Roosevelt's inclination to  regulate, brought about the Food and Drug Act in 1906, which created the FDA.  If if you refer back to some of the things I said this morning, and and again some of Bob Higgs' work on this, you find that the FDA actually creates barriers to  entry. It is detrimental to consumers. It creates delays and expense in the  process of getting a new drug approved, or even getting an existing drug  approved for a new purpose. And by doing so, it will prevent innovation from  occurring in the pharmaceutical industry. Now, if you're an existing  pharmaceutical firm and you don't want new upstart, innovative competitors,  then the FDA is a great thing. But it's not such a great thing if you have a  disease that could be addressed successfully by some drug that's in the pipeline that might eight or 10 years later make it through the approval process. So the  FDA delays introduction of new beneficial drugs and captures, or has been  captured by the regulated industry to to serve as a competition suppressant. 

Again, you can look at Bob Higgs's book, "Hazardous to Our Health. You can  look at some articles like this one by Patrick Weinert in all the dangers of food  safety. I ran across though an article in the fall 2010 issue of the Independent  

Review by Yasuda and. and this is one of the best treatments of food safety  regulation I've seen. Of course, every so often you'll have a an episode of some  outbreak of E. coli or something, and and you will have various scholars say,  "Well, see, this just proves that the FDA didn't have enough budget money to  fight this stuff, and so we still have these outbreaks, and that that's an indication  that the regulation is not strong enough, or we're not doing inspections with  enough vigor, and so we need to have stronger FDA. Well, Yasuda does some  really good things to try to poke holes in this, and I would recommend that to  you if you have a chance. In fact, I believe that issue of the independent review  is available out here in the bookstore, someplace in the institute for you to pick  up. Unpasteurized milk. This has gotten some attention lately because there are  some people, not very many, but a few people, who would say, "Well, I don't  want to drink pasteurized milk. I want my milk unpasteurized or raw. I don't want  it to be subjected to this treatment. Now, I'm not real familiar with all the reasons  for rejecting pasteurized milk, but there's a handful of people who think that this  is a wise thing to do, that it's better for you or something, and so as it turns out,  the FDA's longstanding ban on non-pasteurized-sorry, not the FDA's, but the  various states' long-standing ban against non-pasteurized milk does not seem to have had a beneficial effect. Now, the the the data on this are somewhat sketchy because we we don't have the ability to measure illegal consumption of raw milk very well. Like a lot of illegal activities, it's difficult to figure out how much people  are engaged in. But if you look at the unpasteurized milk-related cases of food  poisoning. There were 245 cases in the non-prohibition states with about 64% of the population, so approximately two-thirds of the population. 245 cases in  cases in states where you can legally consume the raw milk in states with about  a third of the population, 36 percent of the population. There are 248 cases, so it does not appear that banning unpasteurized milk, at least based on this limited  information, does not appear that this has any decisive impact on food poisoning cases related to raw milk. Now you could say, well, isn't pasteurization going to  remove certain bacteria from the milk and so forth, and make people better off?  And the FDA has, and and the various state regulatory authorities have not  established this beyond doubt. Yasuda also points out that there's no correlation between the budget for food safety going to the FDA and disease statistics. You  give give the FDA a bigger budget, and your disease statistics do not improve.  There, over a number of years, was a dramatic decline in the FDA's border  inspection rate for imported foods, but the food borne disease statistics did not  drop or rise. Rather, did not rise along with that decline in the border inspection  rates. So it doesn't seem that the FDA is is doing anything beneficial if it cannot  affect disease statistics by their border inspections. Also, studies fail to show 

that restaurants with low inspection scores cause more food poisoning  complaints. What good is the food? A lot of these inspections may inspect things that don't have a real close connection to food safety. Now, I really would like to  beat up on the FDA some more, but maybe I've done enough of that today. Well, probably not. But in any case, when we're looking at regulatory efforts to reduce  risk, we have to keep in mind that we cannot do just one thing. Everything you  do is going to have an impact, and sometimes as you're backing away from one  perceived problem as a regulator, you're going to back into some other problem  that might be more severe. One example of this would be the methylmercury  regulations. These are regulations primarily to reduce the exposure to mercury,  methylmercury in seafood, the argument is that if pregnant women consume  mercury-laden seafood, then this can cause damage to their to their children.  And yet, when the regulation says we're going to try to reduce mercury, or at  least warn people about mercury in seafood. People, not just pregnant women,  but all kinds of people, reduce their consumption of seafood. Well, turns out  seafood is actually good for you in some quantities, and this means that, in  addition to backing away from the risk of the mercury in the seafood, you're  backing into the risk that you're not getting enough of the nutrients that seafood  provides, which may increase heart attack risk and other things. So yes, maybe  we're we're reducing injury and death in one sense, but we might be increasing  injury and death by backing into this other problem. Regulators are typically not  good at making these kinds of balances. We talked this morning in my other talk  about type one, type two errors, and how regulators just cannot seem to to to  make these even if they were properly motivated to do so, which I don't think  they are, even if they were properly motivated, they don't make these balances  these trade offs very well. If you lower someone's income, you're going to cause  lost life. One approach, according to Kip Biscusi, is is to look at the expense of  government regulation, and they're widely varying estimates of what the price of  the government regulation is. But anytime you decrease income by $10 to $15  million, you're going to lose a life, according to one study by Randall Lutter and  John Morrill. Another approach says, well, it takes $50 million of lost income  before you lose a life somewhere in the economy. There is a very high cost in  some cases with some regulations in terms of the the expense of the regulation  and the lives that are lost as a consequence, according to one study, the high  cost per life saved of the OSHA asbestos regulation leads to the loss of one and a half lives for every life saved by the reduction in the exposure to asbestos.  Okay, I don't know if you you know you caught the math on that, but save a life,  you lost one and a half lives. That's not a net improvement. Formaldehyde  standards by OSHA are even worse. According to this study, they cost 25 lives  for every expected death averted by the regulation. Now, of course, lives lost is  not the only thing that you can measure. There are other things in life that are  valuable besides extending your life. We all make trade-offs between life 

expectancy and other things, as we saw earlier. But according to Biscusi, about  4% of every dollar of production in industry is associated with health and safety  costs. So when you impose a regulation on a consumer product, and this  causes the manufacturer to engage in some additional effort, productive effort.  That's going to by itself increase hazard somewhere in the economy. If you you  have a regulation, for example, on Superfund sites, toxic waste sites, and you  you have people driving around in heavy machinery hauling dirt around to try to  reduce the risk, sometimes a minuscule risk associated with a toxic waste site.  Well, you know, people operating heavy machinery sometimes get hurt and  killed. So you might be reducing some risk by reducing the toxic waste, but by  encouraging this productive activity with the regulation, or requiring the  productive activity with the regulation, you're also incurring other costs in human life and human health. This is called risk-risk analysis. You're trading one risk  against Another. Now, there is a an argument for regulation that is based on the  idea that the consumer of the product does not have the same information about the safety of the product as the manufacturer. Asymmetric information. As the  manufacturer, I might know something about the safety of the product that you  don't know if you're looking to buy it, because I'm a professional at producing  this product, and you're not all right. Well, again, I'll refer you to the Yasuda  article, which treats this in in in passing. Yasuda points out that if you look at fish and shellfish caught by the consumer, like a recreational fisherman. If you if you  look at the the food poisoning rates associated with people catching and eating  their own fish and shell shellfish, those food poisoning rates are greater than the food poisoning rates associated with commercial fishing. You would think, well, if I'm at a restaurant someplace and I'm eating shellfish, I don't necessarily know  where the fish came from, or how much mercury is in it, or what other toxins  might be in the fish, and I, I have no idea who the who the fisherman was or  what waters or what the water conditions were like, where they went fishing, or  how long this stayed out in the open before it was refrigerated, or anything-I  have no idea. There's asymmetric information, but does it actually lead to  human harm? It looks like the market pressures on commercial fishermen are  sufficient that they don't sell spoiled fish to their customers. In handling the  catch, commercial fishers pay greater attention to sanitation than recreational  fishers do. So, if anything, commercial fishers are producing super optimal  levels of safety compared to people who catch and eat their own fish. It's difficult to argue that asymmetric information is leading people to to get less safety than  they would procure for themselves, and this idea of super optimal safety might  bear little explanation. Economists will argue that, and I think rightly, that  perfection in safety is not ideal. You don't want absolute safety because it would  be extremely expensive to get that absolute safety. You would have to give up  too much else to get it. If you look at the federal arsenic standard, marginal cost  per life saved increase dramatically as you increase the safety standard, as you 

effectively reduce the quantity of arsenic allowable, you cut the standard in half.  You're going to increase the marginal cost per life saved by about 10 times. You  cut it to 1/10 of the current standard. You're going to increase the marginal cost  per life by another six or seven times, so the the marginal cost have to be taken  

into consideration, and yet regulators are very bad at this. For example, one  study. This is an older study, but it shows that a a regulation by the FAA, Federal Aviation Administration, could add an extra year of life for for $23,000. An  Occupational Safety and Health Administration regulation could add a year of  life for $88,000. An EPA regulation will cost you approximately, according to the  study, about $7.6 million per year of life saved. So, I'm not arguing for FAA or  OSHA regulation, but I am saying that the the marginal costs of regulation can  quickly get to very high levels, if the if the government's not paying any attention  to the trade-offs that are appropriate, and in fact, as Mises would point out, as  early as 1920, there's no way for governments to know the appropriate trade offs. This is the socialist calculation problem, with the absence of prices, with the absence of voluntary interaction between buyer and seller, we don't know what  the right level of safety might be. According to the Office of Management and  Budget, this again is older data, but it's still illustrative. I think an auto fuel  system integrity standard costs about $400,000 per premature death averted. If  you want to use that as a standard, a trenching and excavating standard, which  requires people who dig trenches to put certain safety equipment in place to  prevent the trench from caving in, sorry, $1.5 million per premature life averted.  The asbestos ban about $111 million per premature life or death averted. A  hazardous waste disposal ban about $4.2 billion per premature death averted,  and I will readily admit my life is not worth $4.2 billion. Atrazine. There's a  standard for atrazine in water. The maximum allowable amount of atrazine in  drinking water is three parts per billion. This is you would say that that number is astronomical, but I think now we have to say this is on the level of federal  finance. Astronomical is now smaller numbers than federal debt deficits. But to  give you an idea of what three parts per billion would be, imagine one of these  16,000 gallon railroad tank cars that you see the big round things on the railroad and stand on top of those one of those cars with an aspirin, break it in half,  crumble it up, and drop it in that water, and that's three parts per billion of  aspirin. All right. Now, imagine the cost of reducing atrazine in water when you're having to achieve that level of of purity. The cost per premature death averted  for atrazine, the atrazine standard is $92 billion. This is a lot of money. To the  extent that we're taking money from some other purpose and devoting it to  reducing the level of atrazine in water, or reducing formaldehyde, or asbestos, or some other toxin, we are reducing human well-being. If those funds could have  been used for some other. Purpose that would make people better off.  Regulators have little incentive to consider these things, and in fact, they don't  have enough information to make these decisions in the first place. There are 

private sector alternatives. There's private certification. You will find if you go to  the grocery store, you'll see things on food items that say gluten free or peanut  free, or they'll they'll tell you if it was you know manufactured in a manufacturing  process that included some allergen, peanuts or something. Not all of these are  required by regulation. Some of these bits of information, and especially if you  consider the information that is incorporated into a brand or incorporated into  some sort of proprietary symbol on the product that tells you this is certified by  some organization to be free of this particular ingredient. That information that's  privately provided is serving a useful purpose in the marketplace. So we have  recourse other than federal agencies trying to tell us how much information  should be provided and what ingredients can be included and so forth. There's  underwriters laboratories. Mark Thornton has an article. It's some years old now, but you can take a look on Mises.org, and I think the name of the article is "What Keeps Us Safe”. Take a look at that. Underwriters Laboratories is a private  organization. You produce a product, you take it to Underwriters Laboratories,  and they'll investigate it for you, do some various lab tests to it, and find out  whether it's going to be safe or not, and put their little stamp of approval on it.  Look at the back of an electronic device, and it's likely to have a variety of these  stamps and certifications and so forth to tell you whether it's going to set your  house on fire or something. I was writing up some years ago and had occasion  to look at this certification issue, and turns out that in the the old Soviet Union,  there was some small number of people who were killed by their television sets  exploding. We don't even think about that in the United States about what's the  risk that my TV is going to now? Of course, flat screens, different technology. I  can't imagine one of those things exploding. But the old, you know, cathode ray  tube, giant things that were this thick, and those things. In if you lived in the  Soviet Union, you're sitting there watching TV, and it might blow up on you. Now, this is a, of course, a very heavily regulated production process in the Soviet  Union, the government is supposed to ensure the safety of consumers, and of  course, they they cannot and they don't. Good housekeeping seals of approval,  brand names that I've mentioned before. Brand names are a more important  form of certification of safety than I think people recognize. What happened  when years and years ago Jack in the Box was sued because of I think four  children dying of food poisoning after consuming some of their hamburgers had  E. coli I think in them. What happened after that? Jack in the Box was  disciplined by the market, and when you have a a standalone restaurant with no  significant brand name, a mom and pop type restaurant, people, especially  people who are who are from out of town, may not know too much about the  quality of that restaurant. But if you have a brand name for a franchise that may  cover 1000s of restaurants over a wide geographical area. What that's telling  you is you can retaliate. You and everybody else can retaliate against the entire  corporate enterprise if they do you wrong. So if you visit some particular town 

and you go into a Taco Bell or a McDonald's or a Burger King or something, and  and you get food poisoning because of your experience there, it doesn't matter if you don't go back to that one particular restaurant anymore. As soon as the  word gets out that this particular restaurant was associated with this food  poisoning case, the entire chain will suffer. This is a form of market discipline. It's giving the customer the chance to to essentially retaliate against someone who  produced a product that was less safe than they had anticipated. You might  have read about the well-known lulling effect. This is a misperception on the part of consumers of the efficacy of some safety device, which leads people to then  reduce their own personal safety precautions. One of the best examples of this  was the requirement that medical medicine bottles have a child safety cap on  them. Well, if you look at the poisoning rates from analgesic products like  Tylenol or or other other such products, the poisoning rate went up after the  regulation appeared requiring child safety caps. It went from 1.1 per 1000 in  1971 to 1.5 per 1000 in 1980. If you take into account the increase in the sales  of Tylenol over that period of time and the increase in the sales of related  products, that only accounts for about half of that increase from 1.1 to 1.5. So  the overall implication of the analysis was that there was about 3,500 additional  poisonings every year of children under five resulting from the adoption of safety caps. Now you don't. This is to indicate you don't do away with the asymmetric  information problem. Just because you required some safety feature, you still  don't know how safe this device is, and as a result, you may you're like likely to  assume that the safety is greater than than in fact is afforded by this Device.  Empirical evidence also suggests that the the safety mechanism required on  these butane cigarette lighters also produce produces similar results. That that  parents don't take as much care about where they keep these lighters. Same  thing was happening apparently with the Tylenol bottles, the you know, if I have  no no safety cap on the bottle of medicine, I'll keep it in a medicine cabinet out  of reach, maybe a locked medicine cabinet. I'll take more care to watch where  my children are and make sure that they don't get into the medicine. But if I  think, well, there's a safety cap on it; they can't get into it anyway. I'm just going  to put it wherever I want, and it might be down below the sink or something  where they can get into it. I may not put on the little child safety latch on the  cabinets. There's other things that I may not do in the assumption that the child  safety cap is sufficient to to accomplish the safety degree of safety that I want,  so we can again we can we can inadvertently back into a safety problem as a  result of the regulation. Gun safe storage laws. There's a review from 2004 in  the Quarterly Journal of Austrian Economics of John Lott's book called *The  Bias Against Guns: Why Almost Everything You've Heard About Gun Control Is  Wrong* Review by Dale Steinrich, and apparently, according to a General  Accounting Office study, gun locks, which were required some years ago, were  only reliable in thwarting children under the age of seven, George Bush, W. 

Bush supported a program in Texas while he was governor there that made  these made some requirement that these be provided at no additional cost to  gun owners. But Lot was arguing in his book that they were dangerous because  they can limit your quick access to guns when they're needed for self-defense,  especially locks that prevent the gun from being stored loaded. There's trigger  locks and there's other kind of locks, and I'm not familiar with all of them. But  basically, Lot's reasoning is that that not only did the locks restrict access to the  firearm, but they carried a stigma with them that you're communicating to the  buyer of the gun that this is an incredibly dangerous thing, and of course they  they can be dangerous, and yet it may have increased the perception. Of the  danger higher than it would have been otherwise, so that there may have been  a reduction in firearms ownership, and then that reduction in ownership makes  people more vulnerable to predation. So empirically, Lot found that you know,  and a lot of the regulation is based on empirics, so I would argue that the  regulation is invalid on other grounds. But you know, if you're going to base the  regulation on empirics, I have no trouble fighting fire with fire on this. If if you  look at the empirics on this, Lot finds that the safe storage laws had no effect on  accidental gun deaths, or aggregate suicide rates, there was a slight slight  evidence of a reduction in juvenile suicides. But the only consistent effect of the  laws, according to Lot, was to increase rapes, robberies, and burglaries. The 15  states that enacted these safe storage laws had an increase of a total of about  3,700 rapes, 21,000 robberies, and about almost 50,000 burglaries. During the  five years after passage of those laws, those 15 states saw a yearly average  rise of 309 murders and over 25,000 aggravated assaults, and that makes those safe storage laws pretty dangerous. So, when you're looking at regulation and  consumer product safety regulation, I'd like for you to think about several things,  just to kind of sum up here. Think about the inadvertent effects of that regulation. Think about what's going to happen as you incur costs, because that money  could have been used elsewhere. Think about what other things you're doing  that could create risk as a result of the regulation. I ask students sometimes on  their tests in my regulation class, I say, well, let's suppose we had some sort of  fireplace safety act, which requires people to get an inspection of their chimneys for soot buildup and to prevent chimney fires, and we require people to do this  every year. So, would this be a good idea. I mean, considering that there are a  certain number of chimney fires every year, and people are sometimes killed in  fires resulting from chimney chimney fires, would would this help? Well, it's you  may in fact, reduce deaths resulting from chimney fires, but the regulation is  going to have another effect, which would be you're going to now have a whole  lot of chimney sweeps climbing up on ladders, trying to get on your roof to  sweep out your chimney. People climbing on ladders occasionally fall, and they  fall, they usually injure themselves or even die, so you could be trading off a  small reduction in the number of chimney fire deaths for a larger number of 

deaths of chimney sweeps. In in saying all of this, I don't want you to lose one of lose sight of one of the most important arguments against against regulation,  which is that when two people want to trade, I think you can make a strong  ethical case for saying that they ought to be left alone to trade under whatever  conditions they prefer, which means that regulation per se would be out of  bounds for a consistent libertarian. And I've not concentrated on that argument  here today. I've been looking mostly at the the actual effects of regulation, which I've argued have been bad, but there's an ethical argument too, which I think is  important and perhaps definitive on this issue. With that said, I'm almost out of  time. I've got about five minutes for questions. If you have any, I can take one or  two, and and then we'll be done. Yes. 

wo other parties, who would like to make some sort of exchange, and then the g overnment steps in and says, "Well, you can't just make the exchange the way you a ree. You have to adopt certain terms set by us. It could be wages. Minimum wage  law would be an example of this kind of thing. Labor conditions, OSHA regulatio ns, occupational safety and health administration regulations would fall into  this category as well. Product quality regulations, which we'll talk about so me today, all fall into this category of triangular intervention. Rothbard in  power and market. By the way, there's a fairly new version of man, economy, and sta te, which has power and market appended to it at the end as it was originally wr itten, and that's available through the Mises Institute. Last year, I got a  copy for myself to replace my old yellow paperback that some of you might re member, and Power and Market really is a great treatment of how government in tervenes in an economy to the detriment of people, buyers and sellers. But Ro thbard in Power and Market says that one of the favorite arguments for qual ity standards is that governments must protect consumers by ensuring that workers and  usinesses sell goods and services of the highest quality. The answer, of course, is that  quality is a highly elastic and relative term, and is decided by the consumer  in their free actions in the marketplace. So, quality is-it's not as though  we have products that are bad quality and products that are good quality. It's a  sliding scale. There are trade-offs between quality and price and other other  characteristics of a good, which are which are taken into consideration by a  consumer. So when I'm buying a car, I think about not only the the price and and but I also think about how long it will last and the expected repair bills and the  fuel economy and the safety standards and the capacity, other other aspects of  that car. There's a million of these characteristics that I take into consideration  as a consumer, and what the regulators do is typically pick out one of these  characteristics and say, well, consumers could have a safer car, or they could  have a More fuel-efficient car, or they could have a cheaper car, or they could  have whatever the characteristic of the moment might be. Failing to recognize,  or at least ignoring the fact that there are trade-offs between these things, and I  mentioned in one of my talks earlier this week that the corporate average fuel  economy regulation, which requires auto manufacturers to meet an average,  certain minimum average miles per gallon for their cars. There's a separate  standard for trucks, and and this causes auto manufacturers to compromise  safety and other characteristics. So we now have cars that are lighter than they  would be otherwise because the corporate average fuel economy standard  induces firms to make cars that get better gas mileage. So, as I said earlier this  week, we might have cars with better gas mileage, but they're consuming more  human beings per mile than they would otherwise. On the subject of auto safety, we have this character here, Ralph Nader. This is a much younger Ralph Nader  than you would see today, but he made his name largely through his attack on  the American automobile industry through a 1965 book called "Unsafe at Any 

Speed. Well, the book focused on the safety problems of a rear-engined  compact car at the time called the Corvair. They said that he said that it tended  to roll too easily. It was unsafe. It shouldn't be allowed on the road, or at least  the government should should make safety regulations on vehicles. Now, with  regard to the Corvair, particularly independent tests years later showed that the  Corvair didn't behave any worse on the road than any other similar-sized car.  wasn't all that unsafe in comparison with other cars that were being marketed.  But by that time, the auto industry had the reputation of sacrificing safety in  order to make more money. Many of the accusations that were leveled against  the manufacturers of the time were not well grounded scientifically, but the book  did have a lasting impact because it, in part, was the justification for the National Traffic Motor Vehicle Safety Act and subsequent changes to regulation of car  safety, and this set up a new agency. It required manufacturers to include things  in their cars that they had previously offered only as options. I think that one of  the one of the most common cases that you would read about in a maybe a  business ethics class would be the case of the Ford Pinto. Most of you are too  young to remember a lot of Pintos being on the road, but the Ford Motor  Company produced a lot of these things, compact, very cheap, good gas  mileage for the time, and your your typical business ethics class is going to look  at this as an example of how terrible the automobile industry was by producing  cars that weren't as safe as they could have been. Of course, again, we  understand you can raise safety, you really can. You could have made a safer  car than the Pinto, but of course you're going to have to sacrifice something  else. In the case of the Pinto, the there was a well-known case involving a rear end collision. Someone rear-ended a Ford Pinto on a midwestern highway at  night, where the Pinto had been stopped in the road, apparently, and and three  young girls were killed as a result of that accident, and the attorney general of  the state decided to file lawsuit against Ford Motor Company for failing to  include some fuel system improvement that might have prevented that the fire in the Crash. It was pointed out that the the improvement would have cost some  small amount of money per car, something like $7 or $10 or something. I don't  recall exactly what it was, but it was a small amount of money, and most of your. Your ethics classes would look at this and say, "Well, weren't three girls' lives  worth spending an extra $12 per car? Ford Motor Company had decided  otherwise. So this is taken as evidence of the the the unreliability of the market  system in providing for consumer safety. Well, Ford had had to make a choice, a financial choice. Safety is a scarce commodity. So are the other things that  people would like to have in their cars, and of course, you could have made a  marginal improvement of the fuel system, and it might have cost $12 per car.  But Ford was thinking, well, if we do this, we're going to produce however many  hundreds of 1000s or millions of these cars, and X number of dollars per car is  going to translate into so many millions of dollars, and they expected, due to 

their calculations, that this would this would mean saving X number of lives and  and preventing so many injuries as a result of this improvement. Well, then they  looked at what seemed at the time to be a reasonable estimation of the value of  a human life, and they looked at the court cases where there was a wrongful  

death lawsuit or a wrongful injury lawsuit, and they looked at what the courts  were awarding in payments to families for wrongful death, and they said, "Well,  we expect that if we don't do this improvement, then we will end up having to  pay out X number of dollars in in in lawsuits, and if we do make the  improvement, we're going to have to pay X number of dollars in making this fuel  system improvement. Well, the fuel system improvement turned out was a larger number than the the lawsuit total that they expected, and so they decided not to  make the improvement. And a lot of people in in in ethics classes will will say  this is horrible. How can you put a value on a human life, et cetera, et cetera, et  cetera? Well, let's think about this a little more carefully. First, a human life does  not have infinite value. Many of you traveled in a car or airplane to be here. You  incurred some risk of the loss of your life in doing so. It might have been a small  risk, maybe a one in a million chance that you would have lost your life in  coming to this conference and sitting in these chairs. But it was a risk. Now, if  your life had infinite value and you took a one in a million chance of losing your  life, what financial expected cost would there be attached to your attendance at  the conference? What's one over a million times infinity? Infinity. Now, I'd like to  be flattered by your attendance here, but I really don't think that the value of  attending this conference was infinite. So your own behavior in showing up at  this conference indicates that you didn't value your life at infinity. Otherwise, you  wouldn't be here. You wouldn't have taken the risk, however valuable the  conference may have been. So your own behavior in taking these chances with  your life to gain something of finite value indicates that your life, according to  your own estimation, has finite value. Why then do we blame Ford Motor  Company for making the same kind of assumption that consumers do every  day? Now you don't have to buy a Ford Pinto if you value safety, if you value  your life more highly, then you have the option to buy more expensive and safer  car. But what the automobile manufacturers had done is they had offered a  variety of cars with varying safety features and varying fuel economy, and  varying capacity, and varying cost price, and they offered the Ford Pinto, and  lots of people apparently said, "Well, I would rather have a cheaper, less safe  car than have a more expensive, more safe car. Another way I think I would I  would ask you to look at this is is to think about the many many improvements  that you could make to a car to improve the safety. Certainly, the fuel system  integrity was not the only margin on which the Ford Pinto could have been  improved. Could have. Maybe strengthen the steel in the frame, increase the  thickness of the steel by a couple of millimeters at a cost of maybe $25. Maybe  they could have put in slightly stronger, powerful brakes at a cost of another 

$18. Maybe they could have put in a crumple zone or something in the front for  another $17. Added a little padding in the dashboard for another $5. Made the  another backup system for the for the brakes or something else that would  improve your safety, beef up the suspension a little bit, a little bit to make the  handling better. Another $14, but where do you stop with these marginal  improvements? I mean, every you can take any product and marginally improve  it for a slight increase in the price. You keep doing this, and you say, well, they  should never stop. They should never. They should never hesitate to spend  another $14 to achieve some improvement in safety. Okay. Well, you keep doing this, and you're going to wind up with an armored personnel carrier instead of a  Pinto. Drive down the road and be impervious, right? But people don't do this.  They don't want to drive around in armored personnel carriers because they like  to have something that gets better than two miles per gallon, so people will  make these trade-offs voluntarily between safety and price and other features to  the product. Typically, firms have an interest in getting that balance right. Bad  business to kill your customers, it's bad business to gain a reputation of  producing a product that's less safe than people expected it to be. Now, in  retrospect, you can look at the Ford Pinto case and you can say, "Well, if Ford  had known that they would have been sued and they would receive this bad  reputation as a result of the Pinto, they probably would have done something  different, but they did the best they could with the information they had at the  time. Now, I spent some time talking about the FDA in my talk this morning on  healthcare, and I believe also we have a local resident authority here on the on  the FDA in Bob Higgs, and he's done some excellent work in this area. I can't  come close to what he can tell you about the FDA, but I'll just briefly mention this agency, which is supposed to increase your safety with regard to consuming  food, foods and and drugs. Bill Anderson up at Frostburg State University has  an article that you can find online at the Mises.org website in the in the February 1998 free market on on Teddy Roosevelt's creation of the FDA and and Bill  points out that after winning the election in 1904, Roosevelt launched into this  progressive regulatory agenda, trying to target various industries that, in the  public's eye, had a reputation of doing something terrible to consumers. One of  his first targets was the meatpacking industry at the turn of the century.  Refrigeration was rare, and the even though the industry had developed some  ice-chilled containers for transporting meats and ships to allow companies to  transport dressed meats over long distances, you had to keep this stuff on ice,  or it would spoil, as we know. And preservation techniques were not as  advanced as they are today. Well, during the Spanish-American War, where  Roosevelt got his reputation, meat packers would ship these dressed meats to  Cuba for distribution to the troops, and they'd tell the quartermasters in the army, "Well, look, you need to keep this on ice. You can't just dump it on a wagon and  and and haul it inland, or it'll spoil in the way. And of course, the quartermasters 

did not listen. By the time the meat reached the troops, it was spoiled. The meat  companies were then accused of profiteering by selling rotten meat to the  troops. And then, of course Roosevelt gets this boost to this agenda in 1906,  when Upton Sinclair publishes *The Jungle* which you might have read in one  of your classes. It's a favorite, I think, even today. One of these muckraking kind  of novels where meat companies were accused of. Of doing all kinds of terrible  things for their employees and customers, and this novel, along with Roosevelt's inclination to regulate, brought about the Food and Drug Act in 1906, which  created the FDA. If if you refer back to some of the things I said this morning,  and and again some of Bob Higgs' work on this, you find that the FDA actually  creates barriers to entry. It is detrimental to consumers. It creates delays and  expense in the process of getting a new drug approved, or even getting an  existing drug approved for a new purpose. And by doing so, it will prevent  innovation from occurring in the pharmaceutical industry. Now, if you're an  existing pharmaceutical firm and you don't want new upstart, innovative  competitors, then the FDA is a great thing. But it's not such a great thing if you  have a disease that could be addressed successfully by some drug that's in the  pipeline that might eight or 10 years later make it through the approval process.  So the FDA delays introduction of new beneficial drugs and captures, or has  been captured by the regulated industry to to serve as a competition  suppressant. Again, you can look at Bob Higgs's book, "Hazardous to Our  Health. You can look at some articles like this one by Patrick Weinert in all the  dangers of food safety. I ran across though an article in the fall 2010 issue of the Independent Review by Yasuda and. and this is one of the best treatments of  food safety regulation I've seen. Of course, every so often you'll have a an  episode of some outbreak of E. coli or something, and and you will have various scholars say, "Well, see, this just proves that the FDA didn't have enough budget money to fight this stuff, and so we still have these outbreaks, and that that's an  indication that the regulation is not strong enough, or we're not doing inspections with enough vigor, and so we need to have stronger FDA. Well, Yasuda does  some really good things to try to poke holes in this, and I would recommend that to you if you have a chance. In fact, I believe that issue of the independent  review is available out here in the bookstore, someplace in the institute for you  to pick up. Unpasteurized milk. This has gotten some attention lately because  there are some people, not very many, but a few people, who would say, "Well, I don't want to drink pasteurized milk. I want my milk unpasteurized or raw. I don't  want it to be subjected to this treatment. Now, I'm not real familiar with all the  reasons for rejecting pasteurized milk, but there's a handful of people who think  that this is a wise thing to do, that it's better for you or something, and so as it  turns out, the FDA's longstanding ban on non-pasteurized-sorry, not the FDA's,  but the various states' long-standing ban against non-pasteurized milk does not  seem to have had a beneficial effect. Now, the the the data on this are 

somewhat sketchy because we we don't have the ability to measure illegal  consumption of raw milk very well. Like a lot of illegal activities, it's difficult to  figure out how much people are engaged in. But if you look at the unpasteurized milk-related cases of food poisoning. There were 245 cases in the non prohibition states with about 64% of the population, so approximately two-thirds  of the population. 245 cases in cases in states where you can legally consume  the raw milk in states with about a third of the population, 36 percent of the  population. There are 248 cases, so it does not appear that banning  unpasteurized milk, at least based on this limited information, does not appear  that this has any decisive impact on food poisoning cases related to raw milk.  Now you could say, well, isn't pasteurization going to remove certain bacteria  from the milk and so forth, and make people better off? And the FDA has, and  and the various state regulatory authorities have not established this beyond  doubt. Yasuda also points out that there's no correlation between the budget for  food safety going to the FDA and disease statistics. You give give the FDA a  bigger budget, and your disease statistics do not improve. There, over a number of years, was a dramatic decline in the FDA's border inspection rate for imported foods, but the food borne disease statistics did not drop or rise. Rather, did not  rise along with that decline in the border inspection rates. So it doesn't seem  that the FDA is is doing anything beneficial if it cannot affect disease statistics by their border inspections. Also, studies fail to show that restaurants with low  inspection scores cause more food poisoning complaints. What good is the  food? A lot of these inspections may inspect things that don't have a real close  connection to food safety. Now, I really would like to beat up on the FDA some  more, but maybe I've done enough of that today. Well, probably not. But in any  case, when we're looking at regulatory efforts to reduce risk, we have to keep in  mind that we cannot do just one thing. Everything you do is going to have an  impact, and sometimes as you're backing away from one perceived problem as  a regulator, you're going to back into some other problem that might be more  severe. One example of this would be the methylmercury regulations. These are regulations primarily to reduce the exposure to mercury, methylmercury in  seafood, the argument is that if pregnant women consume mercury-laden  seafood, then this can cause damage to their to their children. And yet, when the regulation says we're going to try to reduce mercury, or at least warn people  about mercury in seafood. People, not just pregnant women, but all kinds of  people, reduce their consumption of seafood. Well, turns out seafood is actually  good for you in some quantities, and this means that, in addition to backing  away from the risk of the mercury in the seafood, you're backing into the risk  that you're not getting enough of the nutrients that seafood provides, which may  increase heart attack risk and other things. So yes, maybe we're we're reducing  injury and death in one sense, but we might be increasing injury and death by  backing into this other problem. Regulators are typically not good at making 

these kinds of balances. We talked this morning in my other talk about type one, type two errors, and how regulators just cannot seem to to to make these even if they were properly motivated to do so, which I don't think they are, even if they  were properly motivated, they don't make these balances these trade offs very  well. If you lower someone's income, you're going to cause lost life. One  approach, according to Kip Biscusi, is is to look at the expense of government  regulation, and they're widely varying estimates of what the price of the  government regulation is. But anytime you decrease income by $10 to $15  million, you're going to lose a life, according to one study by Randall Lutter and  John Morrill. Another approach says, well, it takes $50 million of lost income  before you lose a life somewhere in the economy. There is a very high cost in  some cases with some regulations in terms of the the expense of the regulation  and the lives that are lost as a consequence, according to one study, the high  cost per life saved of the OSHA asbestos regulation leads to the loss of one and a half lives for every life saved by the reduction in the exposure to asbestos.  Okay, I don't know if you you know you caught the math on that, but save a life,  you lost one and a half lives. That's not a net improvement. Formaldehyde  standards by OSHA are even worse. According to this study, they cost 25 lives  for every expected death averted by the regulation. Now, of course, lives lost is  not the only thing that you can measure. There are other things in life that are  valuable besides extending your life. We all make trade-offs between life  expectancy and other things, as we saw earlier. But according to Biscusi, about  4% of every dollar of production in industry is associated with health and safety  costs. So when you impose a regulation on a consumer product, and this  causes the manufacturer to engage in some additional effort, productive effort.  That's going to by itself increase hazard somewhere in the economy. If you you  have a regulation, for example, on Superfund sites, toxic waste sites, and you  you have people driving around in heavy machinery hauling dirt around to try to  reduce the risk, sometimes a minuscule risk associated with a toxic waste site.  Well, you know, people operating heavy machinery sometimes get hurt and  killed. So you might be reducing some risk by reducing the toxic waste, but by  encouraging this productive activity with the regulation, or requiring the  productive activity with the regulation, you're also incurring other costs in human life and human health. This is called risk-risk analysis. You're trading one risk  against Another. Now, there is a an argument for regulation that is based on the  idea that the consumer of the product does not have the same information about the safety of the product as the manufacturer. Asymmetric information. As the  manufacturer, I might know something about the safety of the product that you  don't know if you're looking to buy it, because I'm a professional at producing  this product, and you're not all right. Well, again, I'll refer you to the Yasuda  article, which treats this in in in passing. Yasuda points out that if you look at fish and shellfish caught by the consumer, like a recreational fisherman. If you if you 

look at the the food poisoning rates associated with people catching and eating  their own fish and shell shellfish, those food poisoning rates are greater than the food poisoning rates associated with commercial fishing. You would think, well, if I'm at a restaurant someplace and I'm eating shellfish, I don't necessarily know  

where the fish came from, or how much mercury is in it, or what other toxins  might be in the fish, and I, I have no idea who the who the fisherman was or  what waters or what the water conditions were like, where they went fishing, or  how long this stayed out in the open before it was refrigerated, or anything-I  have no idea. There's asymmetric information, but does it actually lead to  human harm? It looks like the market pressures on commercial fishermen are  sufficient that they don't sell spoiled fish to their customers. In handling the  catch, commercial fishers pay greater attention to sanitation than recreational  fishers do. So, if anything, commercial fishers are producing super optimal  levels of safety compared to people who catch and eat their own fish. It's difficult to argue that asymmetric information is leading people to to get less safety than  they would procure for themselves, and this idea of super optimal safety might  bear little explanation. Economists will argue that, and I think rightly, that  perfection in safety is not ideal. You don't want absolute safety because it would  be extremely expensive to get that absolute safety. You would have to give up  too much else to get it. If you look at the federal arsenic standard, marginal cost  per life saved increase dramatically as you increase the safety standard, as you  effectively reduce the quantity of arsenic allowable, you cut the standard in half.  You're going to increase the marginal cost per life saved by about 10 times. You  cut it to 1/10 of the current standard. You're going to increase the marginal cost  per life by another six or seven times, so the the marginal cost have to be taken  into consideration, and yet regulators are very bad at this. For example, one  study. This is an older study, but it shows that a a regulation by the FAA, Federal Aviation Administration, could add an extra year of life for for $23,000. An  Occupational Safety and Health Administration regulation could add a year of  life for $88,000. An EPA regulation will cost you approximately, according to the  study, about $7.6 million per year of life saved. So, I'm not arguing for FAA or  OSHA regulation, but I am saying that the the marginal costs of regulation can  quickly get to very high levels, if the if the government's not paying any attention  to the trade-offs that are appropriate, and in fact, as Mises would point out, as  early as 1920, there's no way for governments to know the appropriate trade offs. This is the socialist calculation problem, with the absence of prices, with the absence of voluntary interaction between buyer and seller, we don't know what  the right level of safety might be. According to the Office of Management and  Budget, this again is older data, but it's still illustrative. I think an auto fuel  system integrity standard costs about $400,000 per premature death averted. If  you want to use that as a standard, a trenching and excavating standard, which  requires people who dig trenches to put certain safety equipment in place to 

prevent the trench from caving in, sorry, $1.5 million per premature life averted.  The asbestos ban about $111 million per premature life or death averted. A  hazardous waste disposal ban about $4.2 billion per premature death averted,  and I will readily admit my life is not worth $4.2 billion. Atrazine. There's a  standard for atrazine in water. The maximum allowable amount of atrazine in  drinking water is three parts per billion. This is you would say that that number is astronomical, but I think now we have to say this is on the level of federal  finance. Astronomical is now smaller numbers than federal debt deficits. But to  give you an idea of what three parts per billion would be, imagine one of these  16,000 gallon railroad tank cars that you see the big round things on the railroad and stand on top of those one of those cars with an aspirin, break it in half,  crumble it up, and drop it in that water, and that's three parts per billion of  aspirin. All right. Now, imagine the cost of reducing atrazine in water when you're having to achieve that level of of purity. The cost per premature death averted  for atrazine, the atrazine standard is $92 billion. This is a lot of money. To the  extent that we're taking money from some other purpose and devoting it to  reducing the level of atrazine in water, or reducing formaldehyde, or asbestos, or some other toxin, we are reducing human well-being. If those funds could have  been used for some other. Purpose that would make people better off.  Regulators have little incentive to consider these things, and in fact, they don't  have enough information to make these decisions in the first place. There are  private sector alternatives. There's private certification. You will find if you go to  the grocery store, you'll see things on food items that say gluten free or peanut  free, or they'll they'll tell you if it was you know manufactured in a manufacturing  process that included some allergen, peanuts or something. Not all of these are  required by regulation. Some of these bits of information, and especially if you  consider the information that is incorporated into a brand or incorporated into  some sort of proprietary symbol on the product that tells you this is certified by  some organization to be free of this particular ingredient. That information that's  privately provided is serving a useful purpose in the marketplace. So we have  recourse other than federal agencies trying to tell us how much information  should be provided and what ingredients can be included and so forth. There's  underwriters laboratories. Mark Thornton has an article. It's some years old now, but you can take a look on Mises.org, and I think the name of the article is "What Keeps Us Safe”. Take a look at that. Underwriters Laboratories is a private  organization. You produce a product, you take it to Underwriters Laboratories,  and they'll investigate it for you, do some various lab tests to it, and find out  whether it's going to be safe or not, and put their little stamp of approval on it.  Look at the back of an electronic device, and it's likely to have a variety of these  stamps and certifications and so forth to tell you whether it's going to set your  house on fire or something. I was writing up some years ago and had occasion  to look at this certification issue, and turns out that in the the old Soviet Union, 

there was some small number of people who were killed by their television sets  exploding. We don't even think about that in the United States about what's the  risk that my TV is going to now? Of course, flat screens, different technology. I  can't imagine one of those things exploding. But the old, you know, cathode ray  

tube, giant things that were this thick, and those things. In if you lived in the  Soviet Union, you're sitting there watching TV, and it might blow up on you. Now, this is a, of course, a very heavily regulated production process in the Soviet  Union, the government is supposed to ensure the safety of consumers, and of  course, they they cannot and they don't. Good housekeeping seals of approval,  brand names that I've mentioned before. Brand names are a more important  form of certification of safety than I think people recognize. What happened  when years and years ago Jack in the Box was sued because of I think four  children dying of food poisoning after consuming some of their hamburgers had  E. coli I think in them. What happened after that? Jack in the Box was  disciplined by the market, and when you have a a standalone restaurant with no  significant brand name, a mom and pop type restaurant, people, especially  people who are who are from out of town, may not know too much about the  quality of that restaurant. But if you have a brand name for a franchise that may  cover 1000s of restaurants over a wide geographical area. What that's telling  you is you can retaliate. You and everybody else can retaliate against the entire  corporate enterprise if they do you wrong. So if you visit some particular town  and you go into a Taco Bell or a McDonald's or a Burger King or something, and  and you get food poisoning because of your experience there, it doesn't matter if you don't go back to that one particular restaurant anymore. As soon as the  word gets out that this particular restaurant was associated with this food  poisoning case, the entire chain will suffer. This is a form of market discipline. It's giving the customer the chance to to essentially retaliate against someone who  produced a product that was less safe than they had anticipated. You might  have read about the well-known lulling effect. This is a misperception on the part of consumers of the efficacy of some safety device, which leads people to then  reduce their own personal safety precautions. One of the best examples of this  was the requirement that medical medicine bottles have a child safety cap on  them. Well, if you look at the poisoning rates from analgesic products like  Tylenol or or other other such products, the poisoning rate went up after the  regulation appeared requiring child safety caps. It went from 1.1 per 1000 in  1971 to 1.5 per 1000 in 1980. If you take into account the increase in the sales  of Tylenol over that period of time and the increase in the sales of related  products, that only accounts for about half of that increase from 1.1 to 1.5. So  the overall implication of the analysis was that there was about 3,500 additional  poisonings every year of children under five resulting from the adoption of safety caps. Now you don't. This is to indicate you don't do away with the asymmetric  information problem. Just because you required some safety feature, you still 

don't know how safe this device is, and as a result, you may you're like likely to  assume that the safety is greater than than in fact is afforded by this Device.  Empirical evidence also suggests that the the safety mechanism required on  these butane cigarette lighters also produce produces similar results. That that  parents don't take as much care about where they keep these lighters. Same  thing was happening apparently with the Tylenol bottles, the you know, if I have  no no safety cap on the bottle of medicine, I'll keep it in a medicine cabinet out  of reach, maybe a locked medicine cabinet. I'll take more care to watch where  my children are and make sure that they don't get into the medicine. But if I  think, well, there's a safety cap on it; they can't get into it anyway. I'm just going  to put it wherever I want, and it might be down below the sink or something  where they can get into it. I may not put on the little child safety latch on the  cabinets. There's other things that I may not do in the assumption that the child  safety cap is sufficient to to accomplish the safety degree of safety that I want,  so we can again we can we can inadvertently back into a safety problem as a  result of the regulation. Gun safe storage laws. There's a review from 2004 in  the Quarterly Journal of Austrian Economics of John Lott's book called *The  Bias Against Guns: Why Almost Everything You've Heard About Gun Control Is  Wrong* Review by Dale Steinrich, and apparently, according to a General  Accounting Office study, gun locks, which were required some years ago, were  only reliable in thwarting children under the age of seven, George Bush, W.  Bush supported a program in Texas while he was governor there that made  these made some requirement that these be provided at no additional cost to  gun owners. But Lot was arguing in his book that they were dangerous because  they can limit your quick access to guns when they're needed for self-defense,  especially locks that prevent the gun from being stored loaded. There's trigger  locks and there's other kind of locks, and I'm not familiar with all of them. But  basically, Lot's reasoning is that that not only did the locks restrict access to the  firearm, but they carried a stigma with them that you're communicating to the  buyer of the gun that this is an incredibly dangerous thing, and of course they  they can be dangerous, and yet it may have increased the perception. Of the  danger higher than it would have been otherwise, so that there may have been  a reduction in firearms ownership, and then that reduction in ownership makes  people more vulnerable to predation. So empirically, Lot found that you know,  and a lot of the regulation is based on empirics, so I would argue that the  regulation is invalid on other grounds. But you know, if you're going to base the  regulation on empirics, I have no trouble fighting fire with fire on this. If if you  look at the empirics on this, Lot finds that the safe storage laws had no effect on  accidental gun deaths, or aggregate suicide rates, there was a slight slight  evidence of a reduction in juvenile suicides. But the only consistent effect of the  laws, according to Lot, was to increase rapes, robberies, and burglaries. The 15  states that enacted these safe storage laws had an increase of a total of about 

3,700 rapes, 21,000 robberies, and about almost 50,000 burglaries. During the  five years after passage of those laws, those 15 states saw a yearly average  rise of 309 murders and over 25,000 aggravated assaults, and that makes those safe storage laws pretty dangerous. So, when you're looking at regulation and  consumer product safety regulation, I'd like for you to think about several things,  just to kind of sum up here. Think about the inadvertent effects of that regulation. Think about what's going to happen as you incur costs, because that money  could have been used elsewhere. Think about what other things you're doing  that could create risk as a result of the regulation. I ask students sometimes on  their tests in my regulation class, I say, well, let's suppose we had some sort of  fireplace safety act, which requires people to get an inspection of their chimneys for soot buildup and to prevent chimney fires, and we require people to do this  every year. So, would this be a good idea. I mean, considering that there are a  certain number of chimney fires every year, and people are sometimes killed in  fires resulting from chimney chimney fires, would would this help? Well, it's you  may in fact, reduce deaths resulting from chimney fires, but the regulation is  going to have another effect, which would be you're going to now have a whole  lot of chimney sweeps climbing up on ladders, trying to get on your roof to  sweep out your chimney. People climbing on ladders occasionally fall, and they  fall, they usually injure themselves or even die, so you could be trading off a  small reduction in the number of chimney fire deaths for a larger number of  deaths of chimney sweeps. In in saying all of this, I don't want you to lose one of lose sight of one of the most important arguments against against regulation,  which is that when two people want to trade, I think you can make a strong  ethical case for saying that they ought to be left alone to trade under whatever  conditions they prefer, which means that regulation per se would be out of  bounds for a consistent libertarian. And I've not concentrated on that argument  here today. I've been looking mostly at the the actual effects of regulation, which I've argued have been bad, but there's an ethical argument too, which I think is  important and perhaps definitive on this issue. With that said, I'm almost out of  time. I've got about five minutes for questions. If you have any, I can take one or  two, and and then we'll be done. Yes.  

Speaker 1 - In the case of in the case of the rating agencies in the U.S. when  many people are saying now, the cities are saying there are private companies  which were rating, you know, all the securities and everything, and they rated  them in the wrong way. So the market failed now. Even some of the private  companies don't work well for these, and now the government. It was everything free. 

Timothy Terrell - I would recommend that you look, and it's in the first two or  three chapters of Tom Woods' book, Meltdown. He deals with that little issue of 

the rating agencies, and he says, "Look, rating agencies were basically being  pressured, strongly pressured." By the by, the government to rate mortgage  loans favorably. These securitized loans they would rate them AAA when they  really shouldn't have been. We understand that now in retrospect, but what  people lose sight of is the fact that they were under intense pressure to go along with the political tide, and favor this kind of broad home ownership agenda that  that the government had been pushing for at least 15 or 20 years, and probably  much longer than that. So I don't think you can take the rating agencies and say, "Well, this is an example of the private sector failing because it wasn't truly  private, there was already that intervention there that was that was influencing  those decisions. In the back, yes. Right, wrong. I think it's. I see your point. It's,  and yet people do assign some weight to a government's decisions on things,  and they don't pay very close attention. Gathering information is costly. This is  why we economists say that voters are rationally ignorant, and when it comes to regulation, people are rationally ignorant. All they may see is a headline: FDA or  EPA makes a regulation to reduce mercury in fish, and they may not think, "Well, this only applies really to this group, and the cost to me would be less than the  benefits of eating more seafood. Another example of this kind of thing would be  regulations to try to reduce chemicals to to kill fungus and disease and insects  and so forth on vegetables, fruits and vegetables. And and and people look at  this and say, "Well, I don't want to eat fruits and vegetables that have pesticides  and so forth on them. But if they back away from that, they're going to incur the  other disadvantages that come from not eating enough fruits and vegetables. I  do think that people tend to make better decisions for themselves than a  regulator would make for them, but the regulators that that little bit of information that that people assign to the regulation itself can skew the market by causing  people to think differently about the risk, the relative risk than than otherwise.  There's a there's a chapter in Harold Winter's little book called Trade-offs, which  I sometimes use, where he says that people may actually not smoke enough  cigarettes because all of this propaganda that you get about how terrible  cigarettes are. Now we've got the new regulation about the you know the  pictures like they've had in Europe for some time. In England, you fold out the  little thing on the pack of cigarettes and got somebody's lung on there, and you  you look at this and oh this is horrible! Cigarettes should be banned completely,  and and yet there is a cost benefit assessment that goes along with smoking.  Apparently, smoking I don't smoke, but apparently smoking does create some  benefits. Otherwise, people wouldn't do it. But if governments increase the the  apparent cost and do and we so we perceive those more readily than we  perceive the benefits, then we may not actually engage in the activity enough.  Kind of like if people think that flying in an aircraft is more dangerous than it  really is, they'll end up in their cars, and they'll end up dying in their cars on the  highways because highway deaths per mile are much higher than air travel 

deaths per mile. That's a long answer to a short question, but I think I'm out of  time. I can take any other questions over here after the day.