 I would like to, on behalf of the A.U. Economics Club, thank the Ludwig von Mises Institute for having us, having Dr. Thornton come speak to us as well. Dr. Thornton is a senior fellow at the Ludwig von Mises Institute. He's also an adjunct professor at Auburn University and used to teach at Auburn University as a professor, or as an associate professor. He's, I know many of you guys have had his class in at Auburn, probably one of my favorites. We talked about a lot of really interesting things, so I was really excited to get Dr. Thornton to come up and speak to us as a club. All right, thank you, Dr. Thornton. Good evening, welcome to the Mises Institute. The title of my talk, as most of you have seen, is drugs, the good, the bad, and the ugly. What I originally wanted to be was Michael McGahn turning good drugs ugly. And he refused to do that. And I said, no, really, that's what I want the title to be. He's like, eh, get out of here. But the truth is, is that Michael had my class last year and we've had lots of discussions about things. And he said, you know, you really need to write a book about prohibition. And I said, I already have. And he said, you really ought to write another one then. And I said, it's a good idea. And then later in the conversation, he said, you really need to write an article about the FDA. And I said, that's another good idea. And so that's basically what I've done is I'm working on a new book on prohibition. And tonight I'm gonna be giving you the preliminary results of my article about the FDA, the Food and Drug Administration and Prescription Drugs. I wanted to give him the credit, but he just, no, just didn't want it. The good, the bad, and the ugly. There's a lot of stories out there, a lot of bad things, a lot of crazy things happening in the United States in particular that are very troubling. And it's only if you really dig down deep into the stories that you find an unusual commonality. Things like the Batman killings in Aurora, Colorado. And then if you went back 10 years to Columbine, which is only 10 miles away, this student shooting at the high school in Columbine, as well as, for example, the number one cause of overdose deaths in the United States and also what is thought to be an important potential cause for attempted teen suicide. That's prescription drugs approved as safe and effective by the Food and Drug Administration, the FDA. In all those cases, basically what you have is products that have been approved as safe and effective by the FDA. And of course, if you saw the guy who did the Batman killings, a reign for trial, you could easily tell that the man was on some serious prescription drugs. Now, as an Austrian economist, I'm not really saying that the drugs caused all these problems. Okay, we don't, in the Austrian school, we don't attribute actions and causes to otherwise inanimate sort of things. What I am saying is that the FDA is guilty of manipulating information and altering people's choices and thereby contributing to all those negative things. And many, many more, by the way. I've seen stories that show that FDA approved drugs and studies, for example, that make Americans fatter, weaker, dumber, sicker, poorer, and in general, less healthy. I mean, basically what the medical, pharmaceutical industry is saying, you don't really need to correct for the unhealthy conditions in your life, just take this pill every day for the rest of your life. The FDA, the experts at the FDA have approved it and your doctor has advised you to take them. Collectively, this process is unconscionable, even though it is considered by most people as being normal. So as the pharmaceutical and medical industries pile up cash, profits by the billions, the healthcare crisis, in terms of the health of the average American, continues to grow and spread. And this is the irrational world of the FDA. It's a powerful, massive government bureaucracy that couples itself with big pharma, big pharmaceutical companies and monopolies of the American Medical Association, drug patents, the hospitals, government subsidies such as Medicare, Medicaid, and indirect government subsidies such as comprehensive health insurance is tax deductible. This gives America the most expensive medical industry in the world and one of the least healthy populations in the advanced world. Now, basically in taking aim at the FDA, what we have is what Mises said is bureaucracy such as the FDA are entirely rule-driven. They're not profit motivated. They do have incentives within the FDA to avoid problems and to make themselves rich and to have nice offices and so forth. But basically it's all rule-driven behavior. It's a bureaucracy. Recently, you might have noticed that the FDA find the big pharmaceutical company, Glexo Smith Klein, $3 billion for marketing drugs, for uses that were not approved by the FDA. But do they ever really get the job done? Do they ever really control the behavior in this market in a sort of an acceptable way? And the answer is no, the FDA is obitually slow in reacting to problems. And even when they do, fines even a $3 billion fine is considered just the cost of doing business with the FDA. No people have actually been punished. The drug company stock actually went up substantially when the fine was announced. And hardly anyone even noticed the event, okay? And yet this involves marketing dangerous drugs to millions of people. How unlike the world of the free market, most of you weren't even born at this time, but in the early 1980s, there was a case where a few tainted pills of Tylenol got into the marketplace from somebody they don't know who, they never caught them, but it ended up killing several people. This unleashed weeks of cable television news stories about it, billions of product recalls, crashing stock prices for the Tylenol company, and billions spent correcting the product safety issue and assuaging the fears of consumers. When it comes to drugs, what I basically modeled is that good drugs are produced and regulated by the free market, that bad drugs are produced in the black market, and that, but with the FDA, things really turn ugly and messy. With the FDA, there's no social mechanism, no feedback mechanism to protect consumers in a systematic way, only a bureaucracy concerned with protecting itself and its own power. The big pharma FDA Nexus is just one giant conflict of interest against the general public. Drugs have been around for thousands of years. We now consume more products that are called drugs than ever before, and there's no denying the benefit of drugs and the economic value of drugs. However, there is the issue when you come to drugs that pops out and that's harm. Unexpected harm is the result of underappreciated dangers of the consumption of the good. In other words, everybody expects, in all cases, to benefit and to benefit more than the costs that they go through to obtain drugs. Our expectation does include some concerns, some concerns for harm, but for our purposes, harm comes from the unknown risks of consuming a good. And in the case of drugs and drug-like products, we see and can see large systematic errors on the part of consumers who are harmed as a result. This usually doesn't happen. With most goods, there's not systematic, ongoing harm to consumers. So there's very few examples. One example is the American Medical Association doctors as well as the US government helped promote cigarette smoking during the 30s and 40s and 50s. Now, when you say that, most people won't believe you, but it was actually the US government, they would give away free cigarettes to people in the military. So you could smoke an unlimited amount of cigarettes as long as you had matches. And the American Medical Association put advertisements for cigarettes in their academic journals and endorsed certain brands of cigarettes, which was kind of a new way of consuming tobacco where you inhaled all the smoke down into your lungs, which of course we now know can lead to problems like lung cancer and heart disease. But yeah, it was right there with doctors saying like for camel cigarettes, not a cough in a carload, implying that an entire railroad car filled with camel cigarettes wouldn't cause you to even have one cough. So but that's kind of a rare thing. Systematic errors in the case here include choices made about pharmaceutical drugs where the physical and psychological harm are not properly anticipated because of the FDA's seal of approval. By 2008, more than half of the overdose deaths in the United States or 55% were related to prescription drugs. I did my dissertation on drugs and alcohol, economic models of drugs and alcohol markets. And at the time, the number of deaths from illegal drugs far outstripped those of prescription drugs. But now the opposite is the case. Opiate pain reliever such as OxyContin now account for 73% of prescription related deaths. In addition, there's 1.2 million emergency room visits related to prescription drugs where there's only one million emergency room visits related to illegal drugs such as heroin and cocaine. So basically the FDA provides us with a black box of information. It says it gives a seal of approval but it doesn't really give consumers any clear choice, any clear information about what is truly safe and effective. The determination of what drugs are safe and effective in a free marketplace would be much more open with greater oversight and review. The subject and subject to third party approval. We could well imagine it's things like consumer reports or underwriter's laboratories that provide third party unbiased approval of certain products as safe and effective would emerge to help us understand drugs. So basically what I did in the paper was to break down the three different types of drugs, not by chemical nature or not by government classification. You know, the government has different classifications of drugs and when anybody looks at these classifications, whether they're medical, scientific, policy, social workers, it doesn't matter who looks at these categories, they all wanna move drugs from one category to another because the categories don't really make sense. What I've done here is to make economic categories. Or for example, good drugs are those drugs that are produced and regulated in a free market. Examples of this category include things like aspirin, milk of magnesia, preparation H, and laudanum, a form of opium. These drugs are characterized by high benefit, low cost, and low harm. So they don't cost you very much, they provide a lot of benefits and there's not a lot of the secondary harm to your health as a result of using them. It would also include things like marijuana, alcohol, and tobacco, except that these drug categories have been under the influence of significant ongoing government intervention in the form of prohibition. So they're somewhere between good and bad, I suppose. The bad drugs are those drugs that are produced and distributed and regulated by the black market where the free market and all of its institutions have been wiped away. That we depend on every day for our safety and has been replaced by a criminal black market system without the rule of law and without the benefits of competition. Drugs in this category include things like crystal meth, crack cocaine, heroin, and maybe even the hand sanitizer martini. I don't know if you've seen that, but alcohol is illegal for people under 21. It's very hard to get it. It's become even harder recently. And so teenagers and young adults, college students have been buying hand sanitizer and having hand sanitizer martini parties where you squirt the stuff into your mouth. Goods in this category generally come at a high cost. They have low benefits and they have a high degree of potential for harm. The ugly category consists of pharmaceutical drugs developed, governed, and approved under the FDA. Now bad drugs are drugs with known inferiorities and hazards. Efforts to suppress such drugs only serve to make them more inferior and more hazardous. For example, with increased prohibition penalties, drugs have fewer attributes that consumers want. They're more potent, have more toxins and are potentially more bad for your health as well as more likely for you to become addicted to them. Therefore, when we look at the black market, we can apply some economic principles in some economic theory so that stricter prohibition always reduces quality, increases potency, and makes drugs more toxic and potentially more addictive as well as more costly. Therefore, for our purposes, bad drugs are controlled by economic laws. In other words, public policy can direct and determine what's actually out there. If we go for more stricter prohibition, things are gonna get more dangerous, you're gonna get more bad results. If you relax or remove prohibition, things are gonna get better, they're gonna be safer, you're gonna have fewer overdoses, fewer emergency room visits and so forth. Ugly drugs are controlled less by economic laws and more the result simply of a bureaucratic process. As I said before, bureaucracies are driven by rules that are politically determined. In other words, what the FDA does is in large part determined by the political process, which of course doesn't know much about anything, apparently, but certainly doesn't know medicine and pharmaceuticals. The results of the bureaucratic process, if you were to actually study the FDA and look what it was doing, they appear to us as both mechanical in terms of its process. Every drug has to basically go through the same testing procedure when in fact the products and the drugs that they're studying are very different on a case-to-case basis, but it's a very mechanical process. And the results seem fairly arbitrary to us so that, for example, all drugs, let's say, have to have laboratory testing, they have to have testing with animals, and then they have to go through three stages of trials on actual human beings. Okay, and yet there can be a drug that's invented and produced in Germany, and the Germans have been using it quite regularly and effectively for years, and yet the FDA still would want the American dealer of this product to go through the same exact process. In other words, especially for economists, things get ugly with the FDA. An economist have established some well-known results of FDA approval testing. It has already been established, for example, that the FDA does not eliminate all unsafe drugs from the marketplace. In other words, it lets plenty of very dangerous drugs into the marketplace. It's also well known that the FDA approval process dramatically increases the cost of pharmaceutical drugs. I don't know what the current process is, but it used to take 10 years and cost hundreds of millions of dollars. I understand now it's billion or billions of dollars to get a drug through. So there's higher price and there's delay. You think, well, delay is safety, right? That's what the FDA is all about. Well, you can say that if you're just sitting there a healthy college student, but if you're really sick with some disease or cancer and the FDA is sitting on a drug that might possibly help you, delay means a painful sitting around waiting, getting sicker and sicker and sicker, or maybe even dying in the process. If it's cancer, the FDA can be a death sentence. Death sentence, excuse me. And in a lot of cases, the FDA completely prevents drugs from coming on the marketplace. That 10 year multi-billion dollar process that I talked about, there's a lot of drugs out there or excuse me, there's a lot of medical problems out there that are so limited in terms of the number of people that are affected that drug companies are unwilling to even research the cure because there's simply not enough people out there to make it economically profitable. So if only a hundred Americans get a particular disease in a year, you're not gonna spend billions of dollars developing and then billions of dollars testing to might be able to bring a drug to marketplace. So there's lots of problems that have already been well established about the FDA. The focus here, however, is that the FDA approval process itself makes drugs more dangerous. The FDA approval process creates a type of moral hazard for drug companies, doctors and consumers. Now, you've probably been introduced to moral hazard in one or more of your classes, but it's one of those things that you can't quite remember. So basically a moral hazard causes increased risky behavior to take place. Insurance is a good example here. Now, if these people were given free insurance on their cell phone, and the people on the other side of the room were prevented from buying insurance for their cell phone, you'd see systematic differences in their behaviors. This group would be bringing their cell phone out to the bar two o'clock in the morning to the beach, who needs a protective cover on their cell phones because it's insured. This side very careful, leave their cell phone in the car, believe it at home, buy a protective case for it. But the insurance in this case has created a moral hazard where these people are taking more risks and fewer precautions. With the FDA approved drugs, consumers take on increased risks. However, they are not insured against these risks. They are assured, they are assured that the drugs are safe and effective. But if something goes wrong, there's no insurance there. These FDA fines might sound impressive, but the FDA doesn't back you guys up basically. They keep that money for themselves. So the FDA has approved it. Your doctors prescribed it for you. So what are consumers supposed to make of that? They're, you're supposed to take those drugs. But FDA approved drugs are not really safe and effective. They have side effects. These side effects can be dangerous. And some of them, you know, you're kind of aware of, you know, you hear them on TV, if you take this drug in small numbers of cases, it induces uncontrolled diarrhea, massive vomiting, bleeding from the eyes and gums and so forth. Many drugs approved by the FDA have dangerous side effects. And of course, many people in America take more than one drug so that there's dangerous drug interactions that can come from these things. Many drugs are not effective, especially for subgroups within the population. And many of these high profile drugs that are supposed to be so great have not passed any kind of cost benefit analysis. Particularly disturbing for me is that FDA approval helps shield pharmaceutical companies from liability resulting from damages. After all, the FDA, the experts in the area have approved the drugs as safe and effective and have approved their labeling of the products. What I consider the most dangerous thing about FDA approval is that people simply rely on FDA approved drugs rather than applying more straightforward means of addressing health issues such as lifestyle changes. And I think this is really at the heart of the matter. Why is America spending more money than anybody else on the planet, on healthcare and yet our healthcare, our health is not like in the top 10. We're kind of low and falling in a lot of important categories. For example, many health concerns such as high blood pressure, high cholesterol, heart disease, type two diabetes can often be addressed with changes in nutrition, diet and exercise, changes in your environment. There are many diseases out there, many of the leading diseases in the United States where those lifestyle changes can make a big difference. Obviously not in every case. And that is where FDA approved drugs, prescription drugs should have a role to play. The tremendous advantages of changes in lifestyle is that if you change your lifestyle to prevent the initial health problems, you can also prevent future health problems. So for example, if you lose weight to control your blood pressure, you may prevent high cholesterol, you may reduce your risk of heart disease and so forth. But rather than being responsible for your healthcare, Americans have become passive consumers and absorbers of healthcare particularly in the case of prescription drugs. And of course, if you have comprehensive health insurance, that only makes things worse because you're more or less immune to price. The result is just a tremendous over-consumption of what I consider dangerous products. The high cost of healthcare is one of the most significant problems in the US. We have produced what is considered a high quality system. We have the best gadgets, the best monitors, the best of everything. And yet health in America continues to decline and the cost continues to skyrocket. In 2010, there were almost four billion prescriptions written in the United States, four billion. It's actually three billion and 999 million prescriptions. That's 12 and a half prescriptions for every person in the United States. And of course, there's a lot of people who aren't taking any prescriptions at all. So I'm not sure what that means for the average medicine cabinet, but I think that's the business you guys should be looking at is the medicine cabinet building industry. I know it's a problem. I mean, you go to people's houses and the prescriptions are in the kitchen, on the countertop, if you open them up, they start falling out. They're everywhere. That's a lot of prescriptions. I had to go back like four times to check that figure. I could not believe it. The moral hazard of FDA approval, of course, is exacerbated by insurance. Only 7% of prescriptions are paid for with cash in the United States. And the average copay on prescriptions that are insured is only $10, while the average cost of a prescription is about 100. So consumers are not really paying the cost of a prescription. So when it comes to things like, oh, your cholesterol is a little high, you can either take this pill or go to the gym five days a week. Well, when you start weighing things like that, Americans have chosen the pill way. They've made drugs a cheap substitute for lifestyle changes, basically. Not only the most medicated population, but one of the most obese population and one of the least healthy populations in the world. The poor, excuse me, the Pure Food and Drug Act of 1906 was supposed to make our food pure and to eliminate those so-called poisonous, patented medicines. The FDA was established to accomplish those two goals. What they have achieved is a population that eats poisonous food and gobbles down tons, literally tons of those patented medicines. Thank you for your attention.