 So, what we're going to talk about today is consumer product safety. An old article that was influential on me in looking at this years ago was Mark Thornton's article, What Keeps Us Safe. Maybe you ran across this on the Mises website and there are a lot of other articles on that topic on the website but that's one that stuck out in my mind and I've asked my students to read it over the years and it's a really good article because it points out some of the problems with this assumption that you know without the state we'd have rat poison in our medications and and you know ladders would fall to pieces when we stepped on them and and you know cars would explode when you stepped on the gas and and TVs would blow up and and all of this kind of stuff. So, what I'd like to do is try to quickly address some of these concerns that people have about about product regulation and this assumption that without the state we would be subject to all of these exploding products and products that don't work and and and so forth. What would happen do you think if we did not have an agency of the federal government regulating the quality of movies? Yeah we actually we don't have we don't have an agency regulating movie quality but amazingly these movies get better and better. If you look at the quality of the of the graphics, the resolution, the length of the movies, all of these things have increased. You could argue that the acting is mediocre and so forth but in a lot of ways quality at least is satisfying customers. We see box office receipts reflecting improving attractiveness to customers and and and so forth. What would happen if the government did not have an agency that was set up to require automakers to produce cars that lasted longer than 50,000 miles or so? If we didn't have an agency to regulate the longevity of cars, we would have what we have today. Right, okay so we we have the we have these these improving product characteristics that aren't the subject to regulation. Automobiles are a great example of that kind of thing. Cell phones keep improving but there's no regulatory impetus for that and in fact in in the few cases where we do well not few but in the cases where we see governments regulating say certain characteristics of automobiles it tends to make them worse, not better. So for example we have a regulation on fuel economy for cars, corporate average fuel economy regulation we've had since the 1970s and the result of that is that car makers end up making cars lighter in weight to accomplish the regulatory requirement. Well what happens when you make a car lighter, other things being equal they become less safe and there have been multiple studies looking at how many people have died and been injured on highways because cars are lighter than they would be otherwise. One of the reasons Americans drive so many SUVs and pickup trucks is because they're in a different category. Historically they've been in a different category allowing less stringent MPG requirement and therefore heavier weight and to some extent greater safety and other features that consumers want. All right let's look quickly at some of the types of intervention. This is from Murray Rothbard's Power and Market which in the latest edition of man economy and state is in the back and it's combined. The Mises Institute has published that just in the last few, republished that in the last few years and it's got that that great little section there on on policy issues like this one. So there are three types of intervention. Autistic, binary and triangular. Autistic intervention is intervention by the aggressor for which the aggressor gets nothing in exchange such as homicide. The aggressor gets nothing. You've killed the person and there's nothing for you. That's autistic intervention. Then there is binary intervention which would be like taxes or robbery. No that's overlapping but conscription. I got a jury demand. What do they call it? The form they send you in the mail saying you must show up on a certain day to participate in this jury. Well that's a form of slavery really. Most people don't think of it as being slavery but that's what it is. If I can be compelled to work under penalty of law, if I lose my freedom to choose my own employment, that's slavery. So that's binary intervention. And then we get triangular intervention which is interfering with two other parties and we see this in labor market laws like minimum wage laws where the government says you and you may enter into a contract only under conditions that we specify. Only if the wage paid is X. Only if you work fewer than X number of hours per week. Only if you're working conditions are this and that and the other. That's triangular intervention. Product quality falls under that category. Now I'll spend a little bit of time talking about auto safety here. This is Ralph Nader, a younger Ralph Nader. You may recognize his name if not for his work on the auto industry. He ran for president at a couple of times I think under the Green Party ticket. And so people have some kind of idea who he is but he wrote this book called unsafe at any speed in the 1960s and the book focused on the supposed safety problems that the automobiles of the time had. One of it one of the targets in the book was the Corvair which was a compact car of the time. Had an engine in the rear and he argued that it tended to roll too easily and therefore it was unsafe and the automobile industry needed to be regulated to require it to install these safety features and such. Now Larry Schweikart pointed out in some of his work that independent tests of the Corvair showed years later that it really was not any worse in regard to safety than other similarly sized cars of the time. But by that time the damage had been done. People figured the automobile industry is killing us all to enjoy greater profits ignoring the fact that cars had actually been increasing in their safety for quite some time. And the automobile industry was penalized with this regulation. Nader's book probably had a great deal to do with the National Traffic Motor Vehicle Safety Act that followed in the 1960s. And that set up a whole new agency to regulate automakers and and a lot of these regulations look good on paper but they have some side effects that create some pretty serious problems. Now one thing I want you to understand is that safety is not a binary variable meaning a car is not either safe or unsafe. There's a spectrum of safety and safety is one of many different characteristics of a car that people want. People want cargo capacity, passenger capacity. They want something that looks nice. They want something that has nice features like electrically powered seats and air conditioning and power door locks and all the rest. Safety is one of these characteristics. It's not the only one. And if you increase the safety variable something else is going to have to give. Either that's going to be the cost. It's going to get higher. Or it's going to consume more gasoline. Or it's going to have lower towing capacity perhaps. A lot of these other variables will adjust if you increase the safety variable. Car manufacturers have an incentive to provide people with cars that satisfy a mixture of those characteristics that customers want. If they don't do that successfully they will fail as entrepreneurs. If they do it successfully they'll make profits. So there is an optimal level of safety and that optimal level is not the same for every customer. So you'll see a wide variety of cars on the market some of which are very safe and others which are not. And the car manufacturers have an incentive to provide that mixture or that combination of variables that satisfies the customers that they would like to satisfy. That they think will pay the money for a vehicle like that. Now on the left hand side of this slide you see a very badly smashed up Ford Pinto which was a economy car produced in the 1970s by the Ford Motor Company. And after a number of accidents involving the Pinto where it was struck from behind and the gasoline caught fire with terrible consequences for the occupants of the car. The Ford Pinto gains this reputation of being unsafe. Again it's not a binary variable. The Pinto had other desirable characteristics that I think most people understood that the Pinto was not the safest car out there because it was very small. And the car manufacturer Ford was taken to task actually was sued for making this Pinto in the way that they did. The Pinto had been designed in such a way that if the gas tank had something like a $10 or $15 modification made to it then it would not have been as susceptible to this kind of terrible accident. And so people looked at the Ford Motor Company and said well you're sacrificing profits for the sake of or sacrificing safety for the sake of profits. So I mean you wanted to save $10 or $15 per car and so you subjected people to these terrible fiery crashes. And of course most people look at that and say well yeah I mean $10 or $15 isn't much. I mean why wouldn't they make that change and improve the safety of the car and then you wouldn't have had all these people die. But Ford Motor Company had made a decision that customers were not likely to agree to pay an extra $10 or $15 for this marginal safety improvement. Now I think Ford made an economic mistake. They did not correctly anticipate what would happen as a result of these accidents. An entrepreneurial error. But it doesn't mean that the fact that they made such a calculation was wrong either morally or in an economic sense. Those calculations are required. That $10 or $15 modification to improve the placement or the design features, the strength perhaps of that gas tank. That modification was not the only $10 or $15 modification they could have made that would have had a positive impact on safety. They could have increased the diameter of the disc brakes. They could have increased the frame thickness by a couple of millimeters. They could have lengthened the distance between the front bumper and the passengers legs. They could have increased the padding in the dashboard. They could have... I mean the list goes on and on of little modifications they could have made. Slight changes they could have introduced into the car. And where do you stop with that? I mean you can always spend a little more money and get a little more safety. Spend a little more money and get a little more whatever the variable is the customers want. If you keep doing this with regard to the safety variable you don't have a Ford Pinto anymore. You have that thing. Which by the way I pulled that off of a newspaper website. That was actually given to the Sheriff's Department of Bangor, Maine. Which brings up a whole another set of issues which we won't get into here. But you can imagine that if you were in that thing that armored personnel carrier there you'd be much safer than in the Ford Pinto. Of course that thing is I don't know how many hundreds of thousands of dollars its armor plated. I mean you could hit anything and you'd be fine. But who wants to pay for that? Who wants to pay for the gas to go into that thing? Except the taxpayers you know who are Bangor, Maine having to shell out for this thing. Which the cops feel really you know really tough driving around in their armored personnel carrier like they're going to battle or something. So somewhere in between a golf cart and an armored personnel carrier there is that place that customers want to be. In the car manufacturer has to hit that place. Again it's not the same for everybody. Some customers want more safety, some less. My neighbor drives a Hummer. I drive a compact Volkswagen. And my gas mileage is much better. His safety is probably better than mine. So each of us have these different places we want to be on that spectrum of product characteristics and the manufacturers try to hit that. Now I want to say a few words about the FDA. You can boo if you want. Okay good. All right so we know we're on the same page. All right so the FDA had its origins with Teddy Roosevelt. So an old article that sort of enlightened me to this was from 1998 I was still in grad school here at Auburn when this came out by a fellow student of mine and Mises fellow Bill Anderson called bully in the pulpit. There's a lot that you can find on Roosevelt and the FDA and so forth but Roosevelt created the FDA Roosevelt in Congress created the FDA largely as a response to what he perceived as being abuses by the meatpacking industry which were largely drummed up in a report that he didn't really want to release to the public but he said that it was awful you know what the meat packing industry was doing. He apparently had some kind of grudge against the industry. If you read Bill's article you can find out more about that. Basically what the FDA does is create barriers to entry and that means that they are delaying the introduction of new beneficial drugs. It can take 10 years for a drug to make it through the FDA approval process. Meanwhile people are suffering and dying perhaps depending on what the disease or condition is that they're trying to treat with a drug but people are suffering while this the FDA is sort of slowly going through the process of testing you know to make sure you're safe but you're not very safe if you've got this condition and the FDA refuses to allow you to use the medication that's been developed for that purpose. That's not safe. So they delay the introduction new beneficial drugs. This is also a very costly process. I read an article some years ago where the Boston Children's Hospital a doctor there wanted to use a nutritional supplement for premature babies that would avoid and perhaps even reverse liver damage which is a common problem for premature children and it had been used in Europe but the manufacturer would not seek FDA approval in the United States. Well they said they had another drug in the pipeline that would be available that would be even better and why would you spend hundreds of millions of dollars going through the FDA approval process if you've got something else that's coming through the pipeline production or research pipeline and you'd rather spend the hundreds of millions of dollars on that instead. So what the FDA effectively had done is keep this beneficial apparently beneficial as what the doctor said beneficial product out of American hospitals except for very limited trial research uses. This is not safe. Furthermore the FDA could be and I think has been captured by their industry the industry they're regulating. When I was first learning economics back in the early 90s I had this idea that regulation was always bad for business and businesses hated to be regulated and the government was just oppressing businesses and so forth. Well that's sometimes does happen but often the business is begging for the regulation because they know that the regulation will impose costs on their rivals or potential rivals. If you're a big pharmaceutical company you might not want a smaller firm to come out with a drug that competes with yours so you can you can through regulation impose such a serious cost that the regulation enhances your profits by limiting your competition. Bob Higgs is best known for his crisis in Leviathan and other similar work on war and the growth of government which you heard about earlier and it's all great work and and yet there's this one piece that he did on the FDA which I would recommend if you can find that I think it's on the independent Institute website and you can or you can just Google the title and find it it's a great piece on FDA regulation. Also Patrick Weiner wrote an article called the dangers of food safety which appeared in the free market some years ago and and this isn't a an issue that I want to spend a couple of minutes on because it's one that has has attracted a lot of attention. It's sort of like if you're going to make an argument about occupational licensure you might want to take on medical licensure because that's the strongest possible case for occupational licensure. You can take that down it just makes total sense that you wouldn't have occupational licenses for say hairdressers or or people that do your nails cosmetologists. So this might be one of the strongest cases that you could make for product regulation and people will say well at least we should have a regulation that requires manufacturers to put a list of ingredients on the product. I mean consumers would be better off with more information and therefore we would be we would of course we would want to have a regulation that requires nutrition facts on the back of a container of food. Well maybe not not necessarily safety enhancing and not necessarily beneficial overall. Now a few years ago there was this kind of flap about unpasteurized milk and you still see some of this discussion going on but the government tried to prohibit people from consuming raw milk which Americans consumed for most of this country's history and and so one of the one of the studies on this found that in the states that had prohibited the sale of unpasteurized milk that those states require are contained 36% of the population and there were 248 reported cases of illness from unpasteurized milk. In the non-prohibition states which had about 64% of the population there were only 245 cases. So what exactly is this protecting us from? Exactly. What is this food safety regulation that's supposed to prevent us from consuming something that's harmful to us? What is this really accomplishing? Furthermore there's no correlation between FDA food safety budgets and disease statistics. You pay the bureaucrats more to regulate us more or enforce the existing regulation more and you don't get any measurable benefit. Who's the regulation really benefiting? Maybe the bureaucrats themselves. Furthermore when we saw a dramatic decline in the FDA's border inspection rate for food coming into the country foodborne disease statistics didn't change. What was this really accomplishing? And you can spend all of this money making sure that food coming into the country is inspected faithfully by the bureaucrats of the border and increase the FDA's budget and you just get no effect. Studies failed to show further that restaurants with low inspection scores cause more food poisoning complaints. And what's going to keep a restaurant from serving you food that makes you sick? What happened to Taco Bell a few years ago? When Taco Bell a few of their and there's some ginormous franchise and there were a few of their franchises that sold tacos or something that made some customers sick. Food poisoning. Their stock dropped. They lost money. Just in the interest of profit. They don't want to make people sick. They will be penalized tremendously by the loss of their reputation. Let's talk further about the about risk tradeoffs. The main point I want to make here is that you can't just do one thing. For example, regulations might require a cleanup of a toxic waste site. This is not consumer product regulation in particular but it'll make the point. So what is involved in cleaning up a toxic waste site? Well, you're going to have to dig up a lot of dirt and move it to another location. When you dig up dirt and you move it that means you've got a lot of people working with big yellow machinery and driving heavy dump trucks down the road. This is increasing traffic. It's increasing the number of people working around heavy machinery which involves certain hazards. Certain number of people are going to get killed on the roads while hauling dirt or getting struck by truck hauling dirt. So you back away from one risk into another. Let's suppose you have a law that says everybody that's got a working fireplace must have an annual inspection by a chimney sweep to prevent chimney fires. Oh, well, yeah, we want safety. We want to prevent chimney fires. But a certain number of those chimney sweeps are going to fall off the buildings and get hurt or killed. You're backing away from one risk into another. This is not going to necessarily improve safety. In fact, particularly if you're going after a very small risk, an increase in some other risk could counteract any improvement that you get in one area. Furthermore, regulation is expensive. It costs us something. It may not be in the form of a tax bill, but our product costs rise because of regulation. So as people see a lower income, that's going to translate into a lost lost life. Some economists Randall Lutter and John Morrill have found that a statistical life may be lost for an income decrease in the order of $10 to $15 million. Another approach they say leads to a value of $50 million in government expenditures that will lead to the loss of a statistical life. If you also take into account adverse health effects of higher income on consumption patterns, there may be a loss of one statistical life for every $17 million drop in income. So the numbers are really, they're all over the place, but there is definitely a decline in safety and health and life expectancy when you do something that reduces people's incomes. So you have to take that into consideration as well. These regulations cost something and because they make our incomes lower, they might make us worse off just by reducing our ability to spend money on other things that improve our standards of living. People might not have as much money to spend on things like fresher food that's not as susceptible to salmonella poisoning or smoke detectors in their houses or something else that they might otherwise have purchased. I've done a little work myself on methylmercury regulations. I testified before a subcommittee of Congress several years ago on this. The EPA was considering a rule which they've since passed that is that regulates coal-fired power plants because they emit mercury into the atmosphere and the argument is the mercury winds up in the fish and people who eat the wild caught freshwater fish accumulate mercury in their bodies and if they're female and pregnant then that can end up in the child and adversely affect brain function. So I looked at some of this and bureaucrats are very interested in promoting this kind of regulation because there are a lot of people who will support larger budgets for the EPA and greater power for the EPA when they impose these regulations but there's no clear positive impact from the regulation. In fact it may be quite negative if you consider that when people have cheaper energy they have longer better lives on the whole and increasing the cost of energy can have that negative effect. So you're backing away from the mercury risk and into another risk that's caused by people not having access to cheap energy. One 2009 EPA funded study that analyzed 40 species of freshwater fish in the western United States found that while 56% of the fish had quantities of mercury above what has been considered a safe threshold and that's where the bureaucrat stops. 97.5% of the fish had had enough selenium to counteract the effects of the mercury. All but one of the fish in the sample that didn't have enough selenium were the kind of fish that people throw back and they don't eat. Furthermore and talking about backing away from one risk into another if you somehow persuade people by perhaps promulgating this regulation that if they eat freshwater wild caught fish and they're accumulating mercury and therefore they could adversely affect their health what are people going to do instead? If they don't eat fish they're going to eat something else that might actually be worse. Fish consumption we know has positive effects on health. Desuading people perhaps by scaring them with a regulation that they think is founded in good science. Persuading people that eating fish could be bad for you and your baby might cause them to go eat something else that's worse. People don't have clear understandings of the science behind the regulation and they've been persuaded over many years to think that regulation must be based on some kind of interest in our health. There's also a lulling effect with product regulation and this has given us things like the medicine safety caps that have been around for a long, long time now that you have to push down and turn and that kind of container also gun safe storage laws which Dale Steinrich wrote a great article that's on the Mises.org website I think on the adverse impact of gun safe storage laws. So I'll give you just a bit on this. Kip the scoozie whom I quoted earlier is an economist who looks at regulation. He's not an Austrian to my knowledge but he's got some good data on this kind of thing. He said that after the regulation appeared that required medicine manufacturers to put their medicine in these childproof safety bottles poisoning rates for analgesic products like Tylenol increased. Okay, so this is very puzzling. It's counterintuitive. You'd think that if you install a childproof safety cap on something you'd have fewer children getting poisoned by over consuming Tylenol and not more. So the rate went up from 1.1 per thousand in 1971 to 1.5 per thousand in 1980 and if you take into account the fact that over that period of time Tylenol sales were going up overall. So you have more Tylenol bottles in people's homes anyway. If you take that into account only about half of that increase in poisoning rates is accounted for by that increase in the prevalence of consumption of that good. So the overall implication he says was that there were 3,000 additional poisonings every year of children under the age of 5 because of this regulation. Why would that be? Exactly. Or you might have a little more confidence in that childproof safety cap than you should and whereas before you might have kept the medication in a locked medicine cabinet or high out of reach. Now you think well it's got a childproof safety cap on it. I'll stick it under the sink where the toddler gets to it. It happens. And so if people make these compensating changes in their behavior just like you might follow other cars in traffic more closely when you have anti-lock brakes than when you don't. If people make these compensating changes in their behavior that can eliminate and eliminate any positive effect of the regulation and quite possibly move us in the opposite direction. Dale Steinrich as I said had a had a it was actually a review of John Lott's book called the bias against guns. I think Steinrich's review occurred in 2004 in the quarterly journal of Austrian economics. You can take a look at that. But basically John Lott found that safe storage laws that required people who had firearms to keep them locked and so forth actually had no effect on accidental gun deaths or aggregate suicide rates. He said the only consistent effect of the laws was to increase rapes, robberies and burglaries and he's got numbers on this like 3700 rapes 21,000 robberies and so on in the states that enacted those laws. There was a rise in murders. There was a rise in aggravated assaults. Why? Well guns are not only used to commit crimes are also used to deter crimes and if you make them less available to homeowners to deter a crime then you could end up with more of the kinds of crimes that they had previously deterred. This is product safety in a sense that is not safe. Alright so what about this argument that you'll see from time to time that consumers just don't know as much about the product as the seller and so we need to make sure that the seller is regulated to either make the product safer or provide information to the to the consumer. Well there are many ways of resolving this kind of thing. There are private certification firms like underwriters laboratories and firms will voluntarily send their products to this private organization and have the product evaluated to tell if the product is going to explode when they plug it into the wall or something else and underwriters laboratories subjects the product to a battery of tests and then they send off their they're either certifying the product or they're not certifying the product and the firm pays underwriters laboratories for this service and you might notice on the back of some electronic products you'll see a little circle with a UL in it that's the stamp of UL's approval. So you could have certification that people might look at if the regulation diminished or went away then you might have more attention paid to these kinds of certification certifications. Brand names are another way of resolving this kind of this kind of problem. The seller wants to maintain a reputation because it's by that reputation that the seller is able to sell more in the future. So as long as there is that shadow of the future looming over the seller the seller is going to tend to pursue that optimal mix that I talked about earlier of safety and other characteristics. I put this up here the screenshot of Uber and you may have if you don't know about Uber there's been a lot of controversy about it because taxicab companies don't like the new upstart competition and so there have been articles saying that Uber is not safe that if you ride in the car with an Uber driver you don't know who this person is people are not happy that the prices go up when the demand goes up like when it's raining outside and you don't really want to walk then low and behold prices go up which is basically accommodating that change in supply and demand that would occur under different conditions. So the taxis are very unhappy with this kind of thing. Well Uber is really taking advantage of an innovation made many years, not many years ago but some years ago by eBay. What eBay did is utilize the ratings or the evaluations of customers to incentivize the sellers to satisfy future customers. So if you were very happy with a product you bought on eBay you'd put a rating in for that seller and the seller that had his rating if his rating dropped he would have a lot of trouble selling any more products and the threshold was pretty high. I mean if I buy something on eBay and I see that the seller has got a satisfaction rating of say 95% that's a little lower than I like to deal with. I might not buy a product and in fact I have paid more for a product to buy it from a seller that has a higher rating than to buy an supposedly identical product from a seller with a lower rating. I pay attention to this. Uber is using the same kind of technique to incentivize drivers to satisfy their customers. If you're not happy with the driver, the driver was insulting or you took you on a longer than necessary route to drive up your fare or something like that then you can sort of tattle on the driver to the rating system and that's what the Uber company is basically facilitating is that reputation building of the drivers. Other firms have done the same kind of thing and you have a lot of similar companies. Lyft of course in the same industry that Uber's in. Car rental you have relay rides and get around. Boat rental you have boat bound. House rental home away. Hotel like services from Airbnb. Power tools from Xiloc. Dog sitting from dog vacay and Rover and you can even go to people's homes for dinner parties using an app called Feastly. You can rate them on how the cooking is. So at first I looked at Airbnb and I thought I wouldn't want somebody staying in my house I've never seen before but the rating system gives people a certain degree of comfort with making those kinds of transactions. What do you think the hotel industry thinks about Airbnb or the bed and breakfast industry? I I'd predict that they'd have the same attitude the taxi drivers would about Uber. So the thing is that the customers because of this great innovation from some years ago are able to establish a reputation and that keeps the drivers of Uber cars on their toes. Taxi drivers enjoy state protection from competition or at least had until Uber came along and they're trying desperately to maintain it. Now market incentives don't lead to a perfect world where there are never any safety problems where nothing ever goes wrong. Remember the nirvana fallacy that Tom DiLorenzo talked about earlier in the week. We're not saying that free markets yield a world in which ladders never collapse and cars never catch fire but they're far more likely I would say to generate beneficial outcomes than a government regulation. I'll add one little thing here before I'm out of time. I've got one minute left. What happens when the FBI or a state law enforcement division in South Carolina it's called SLED State Law Enforcement Division. What happens when they get a background check wrong? See we keep people keep falling through the cracks on our background checks because we don't have enough money to do this properly. What happens if Uber doesn't maintain quality and they get some kind of sociopath driver that abuses customers? Is there stock now for Uber? I haven't paid attention. The value of the firm drops. So I'll stop here and I'm afraid I don't have time for questions but I do appreciate you being here and I'll be in my office in the board library at 12.30. Thanks.