 Well, good morning ladies and gentlemen and welcome to all you early risers I'm not a morning person myself which which may become all too evident as I attempt to speak to you this morning, but But I was scheduled for this talk and here I am The talk this morning is about quality assurance and and the potential for markets and quality assurance I'm going to discuss this subject with particular focus on quality assurance with regard to drugs and medical devices because in this country we have the Food and Drug Administration which purports to provide such quality assurance and So in a way, this is a talk about how the FDA regulates and goes about its other activities But the principles I will be discussing here are widely applicable and it won't require too much mental effort on your part to Carry these principles over to the consideration of quality assurance in other areas of the economy I think they're quite general actually Before I begin my formal presentation, I want to call to your attention a couple of sources Because one of them this article with the rather long and cumbersome title that you see displayed on the screen right now was published in the in the review of Austrian economics in 1994 and I don't have any Anything much to add to it at this point. I haven't changed my mind about anything I said in the article so it's still good perhaps some of the factual references are a little bit out of date, but even then not much because the Food and Drug Administration changes the details, but never the basics so I Come in this article to you it is a my most my most careful attempt to present this issue from a strict Austrian economics standpoint and And I'm not going to try to go through the way. I laid the argument out in that article this morning. I'm going to Discuss the topic a little more informally, but the ideas are the same It's just that the formalities of that article are a little more Carefully laid out than what I'll do this morning the another source. I want to Make you aware of is a little book that I edited in 1995 called hazardous to our health question mark Subtitled FDA regulation of health care products and this Booklet it was published by and it's still available from the independent Institute and most of it was written by the editor me and a couple of other chapters were provided by by Paul Rubin and by Ronald Hansen and They're nice chapters and so I commend the whole book to you especially My long chapter here about FDA regulation of medical devices. I spent Several years in the 1990s and making this my principal research topic. So so I Learned more than any human being should have to learn about that topic and And if you'd like to see some of the details and believe me the devil is in the details Then you can find them there Okay, let's proceed If you were suffering From a serious disease Would you prefer a? That you and your doctor decide how to treat your ailment selecting from all existing medical goods the ones that offer the best combination of benefit and risk or B That you and your doctor select from all medical goods except those Possibly the most promising ones That a low-level government employee in Rockville, Maryland has decided to withhold from you Tough choice, huh? The answer is obvious Rational people would never consider themselves better off because their range of choice had been arbitrarily limited Yet such restriction of consumer choice Affecting both patients and their physicians fetters consumers at all times in the United States And I might add in in many other countries as well, although probably no other country has the severity of Regulation this area that the United States has the food and drug administration alone Decides whether a newly devised medical good whether a drug or device may be sold Many potentially beneficial goods remain on the shelf for a decade or more while their manufacturers traverse the rigid and Elaborate testing procedures required by the FDA before it will approve marketing While innovative medical goods run the bureau bureaucratic gauntlet people who could have benefited from their use suffer and die unnecessarily Defenders of the government's actions insist that without the FDA's regulations greater harm would occur Consumers would suffer from the toxicity or adverse side effects of unsafe products Or they would squander their money on useless remedies Consumers can avoid these injuries if they are permitted to use only medical goods that have met high standards of safety and efficacy by passing successfully through the FDA's required testing and Testimony before a congressional committee and FDA officials said the following The allegation has been made that the cost to our society To prevent a thalidomide type tragedy far exceeds the benefits of a regulatory system developed to prevent such a tragedy We disagree We believe that benefits which accrue to society because of our regulatory system are worth the cost and Far outweigh any risks in quote This statement which expresses the agency's standard line is remarkable in at least five ways and let me Spell out those ways First it uses the most notorious medical tragedy of modern times To illustrate what presumably the FDA's regulation routinely prevents The presumption is indefensible Except in a freakishly unlikely case one may not reasonably assume that an unrestricted manufacturer would sell a medical good giving rise to a quote the litimide type tragedy Besides their ethics manufacturers have good financial reasons including product liability judgments and loss of consumer confidence To be careful about what they place on the market Second the statement stands alone without any attempt to demonstrate that the lives saved in the suffering prevented Exceed the lives lost and the suffering endured as a result of the FDA's regulation It is merely a naked naked declaration Which the audience presumably should accept because it emanates from the self-proclaimed experts? Third the statement speaks of the benefits and costs of regulation as if they were experienced by society at large Rather than by specific individuals who differ enormously in their personal Valuation of the costs and benefits and in their willingness to bear risk It rests upon the unspoken assumption that a single rule should apply in all cases Mocking the actual heterogeneity of people's preferences and medical conditions fourth The statement confidently declares we disagree and we believe While describing the balance of benefits and costs experienced by others But only specific individuals can possibly know whether the benefits to them outweigh the cost to them Neither the benefits nor the costs can be objectively assessed by third parties Nor may the benefits and costs experienced by many individuals be aggregated into total or Social valuations and thereby Made comparable There's no common unit of account in which the aggregation may be made Who knows how to measure the depth of one person's fear the breadth of another's relief? Fifth the statement presumes an answer the wrong answer To the question posed by an AIDS activist and FDA critic Martin Delaney Quote who should decide which risks are acceptable the bureaucracy in Washington or the patient whose life is on the line in quote Let me speak a little bit now about the the regulators incentives The people who make decisions at the FDA respond to incentives just as people do elsewhere The bureaucrats prefer to advance in their careers They do not want their incompetence or blame-worthiness to be exposed In their circumstances FDA examiners may err in two different ways type one error The examiner does not approve a product that is safe and efficacious efficacious Type two error the examiner approves a product that is not safe or efficacious Naturally the examiners want to protect themselves from criticism arising from their commission of errors Their incentives to avoid a mistake however differ greatly for the two types of error A former FDA inspector described the situation this way quote Anytime you approve a new drug You're wide open for attack If the drug turns out to be less effective than the original data showed They can nail you for selling out to a drug company If it turns out to be less safe than anybody expected some congressman or a newspaper writer will get you There's only one way to play it safe turn down the application or at least stall for time and demand more research in quote Because of such demands for more research new drug applications now commonly consists of two or more volumes of summary data and As many as 100 volumes of raw data Sometimes more than 100,000 pages altogether Some of these applications are delivered in trucks to the FDA headquarters in Rockville Although such heavyweight requirements help an FDA examiner to quote play it safe They often result in much avoidable suffering and many deaths among the patient population awaiting access to the good Unfortunately the news media members of Congress and self-described Consumer advocates almost never hold the bureaucrats responsible for these invisible or statistical deaths as they're known Hence the cost of a single bureaucrats career insurance may be and in some cases surely has been Tremendous sacrifice of human health and life. Let's think a little bit about lives saved and lives lost now consider for example that from 1963 to 1973 as One source put it the FDA's doors were essentially closed to cardiovascular drugs Even though cardiovascular disease was the leading cause of death in the United States and rapid advances were occurring during those years in pharmaceutical therapies beta blockers and especially valuable class of drugs awaited FDA approval for a decade After they were first used abroad Dr. William Wardale a professor of pharmacology tax ecology and medicine at the University of Rochester Estimated that in 1979 a single beta blocker all-printalol Which had already been sold for three years in the strictly regulated Swedish market Could have saved more than one more than ten thousand lives a year in the United States Well, if this if this drug took an extra ten years Waiting to be used and meanwhile 10,000 deaths were occurring that might have been prevented by its use You have a number of deaths there greater than the number of Americans who died in the Korean War in the Vietnam War combined And very few people even have heard of this and this is one single drug one single case and there are hundreds thousands even over the years Other examples given by Wardale include quote years of delay in the availability of at least four respiratory drugs Which he names that caused severe disadvantages to many asthma sufferers as well as a six-year lag in the availability of Valpro 8 in particular and the continued absence of Nitrous nitrous a PAM that substantially reduced the treatment options for epileptic patients Lithium carbonate an effective drug for the treatment of manic depressive disorder was used in 40 countries before its approval by the FDA a 1980 study by the US General Accounting Office Examined 14 therapeutically important drugs introduced in the United States between 1975 and 1978 and the analysts found that only one of the 14 had become available first in the United States For the others the lag in availability ranged from two months to 13 years Back when I was doing research on this topic I encountered a book which consisted entirely of Annotated list of drugs available elsewhere in the world, but not in the United States a book a whole book with the one or two pages required to describe each of the drugs that discussed Astonishingly the FDA has given little or no weight to foreign evidence of product safety and efficacy Nearly all new drugs and devices have been forced to pass through the same rigid Expensive and time-consuming testing procedures in the United States Even though a product might already have been used successfully for years elsewhere Economist Henry Grubowski and John Vernon of Duke University made many studies of the pharmaceutical industry Considering the results of their own research along with the findings of other studies comparing the experience of various countries They concluded that quote US citizens have experienced sizable foregone health benefits from regulatory induced delays in Obtaining beneficial new drugs while obtaining relatively modest benefits in the form of less exposure to drug toxicity Perhaps the most damaging consequence of the FDA's regulation since 1962 when the law was changed and made much more severe When the testing requirements were made more elaborate and time-consuming is the slowdown in the rate of innovation In view of the high costs of securing FDA approval to market new products many Manufacturers conclude that otherwise promising R&D projects will not be profitable As a result beneficial new drugs and devices are never created Suffering and death that might have been prevented continue unabated Of course since the innovations never come into existence hardly anyone appreciates that They have sacrificed themselves on the altar of regulation. It's worthwhile considering how the activity of the FDA is violently inconsistent with the rule of law The rule of law means much more than the requirements that the legislature Authorize an exercise of power by the executive branch of government Classical liberals understand the rule of law as requiring that the law be clear and understandable That penalties for violation be predictable and that the law be applied equally to everyone including members of the government The FDA's actions though broadly sanctioned by legislation failed to satisfy these criteria In stark violation of a genuine rule of law the FDA's actions are frequently arbitrary and capricious sometimes even blatantly Unconstitutional as when they restrict freedom of speech and the press by their restrictions on advertising of products in The medical device industry where the FDA conducted a jihad during the early 1990s manufacturers Remonstrated that their cited violations of the agency's good manufacturing practice as they're called GMP Regulations often arise because the regulations are vague One source says even companies that genuinely try to comply fully with US GMPs can find themselves cited for violations Companies whose products are esteemed by customers have been forced to stop production Because their paperwork did not satisfy the regulators and in fact GMP regulations are almost entirely In relation to paperwork There's a mass of reports that the FDA requires and and any tiny Deviation from compliance may result in in actual closure of a production line The health industry manufacturers Association complained that the FDA quote has not made clear the type of data it wants to see Therefore companies Must make a series of information submissions hoping that something will satisfy the regulators Sometimes the FDA requests one type of study then changes its requirement and requests another type after the company has completed the first one health industry manufacturers association director Alan magazine Described the device approval process as quote a giant guessing game Supplicants can expect no reliable guidance by asking the FDA what is required In fact, I know many cases where the FDA will refuse to speak to companies calling on the phone to ask questions The agency does not respond to inquiries Expeditiously when it does respond the response often lacks substance More over after years of countermanding the informal advice given to regulated parties It announced in 1992 that it would no longer be bound by its own formal advice Indeed the head of FDA drug surveillance stated quote We used to say that if a company made certain changes then we would probably not take any action Now we won't Now even if they make the changes they might end up in court We want to say to these companies that you don't know when or how we'll strike We want to eliminate Predictability ponder that statement Land of the free We want to eliminate predictability in punishing new citizens That a civil servant so-called would make such a statement is stunning Recourse to the courts which is costly time-consuming and full of uncertainty Holds little promise of protection in view of what Wardell has called the extreme vulnerability of the industrial firm that argues with the FDA Without a search warrant the FDA may inspect a company's plant and records at any time Because the regulations are so numerous and so often vague If you go look for example in the code of federal regulations, you'll find that well the last time I looked at least There were eight volumes in the code of federal regulations Listing the federal law that at that time was Enforced with regard to FDA regulation Give given the large volume of legal and regulatory stipulations in the law inspectors can always find violations if they want to in Short the agency possesses the power to destroy a company at will to retaliate for past Resistance or to make an example by closing down the firm's operations or seizing its property So much for the genuine rule of law Let me say a little bit about paternalism There is a place for paternalism it is in the family Where young children are Incapable of making wise decisions for themselves and where a parent linked to the children by bonds of love and Responsibility may normally be relied upon to decide what is best for them But when paternalism becomes a form of government with the individual freedom and responsibility of competent adult citizens are suppressed in Favor of exclusive decision-making by a central planning board No one should expect a healthy outcome For more than a century Americans have been forbidden to make important decisions regarding their own health Decisions on which each individual's life and health depend Of course, we've been assured by those who wield the power that they act only in our best interest But anyone who makes even a superficial study of the FDA its regulations and Congressional overseers quickly discovers that the official line is far from the truth This government agency like all of the others is a political Institution swayed by the ceaseless quest of its leaders for position publicity power privilege and Perquisites all associated with a big budget and a far-reaching agenda It is a mistake to suppose that the FDA FDA acts or even attempts to act so that all things considered suffering and loss of life are minimized instead Responding to the asymmetrical incentives created by the reactions of the news media certain members of Congress and so-called consumer advocates the FDA officials Systematically strive to avoid type 2 errors while disregarding type 1 errors Not relishing the negative publicity sure to follow their approval of medical goods that later cause harm even slight harm They adopt the rule of obstructionists requiring ever more stringent expensive and time-consuming testing before allowing goods to reach the market That avoidable suffering and death routinely occur while they drag their feet and protect their careers does not sway them Because hardly anyone holds them accountable for the harm caused by their type 1 errors And I might say this whole business of the relative magnitude of type 1 and type 2 errors at the FDA has been studied by Scores of economists and I know not a single study that concluded anything different from mine About the balance of type 1 and type 2 errors at the FDA. It's obvious which way the balance goes Now I want to switch gears a little bit and come at these Matters from a slightly different angle Let's think about risk Risk attends the use of medical goods drugs and devices what whether used for diagnostic or therapeutic purposes The consumer may suffer directly because of adverse side effects or indirectly by using a particular good instead of a more beneficial alternative Mainstream economists commonly attribute the quote excessive harm to imperfect consumer information and They characterize the conditions giving rise to such harm as market failures These economists conclude that government provision of information and government regulation of the terms on which medical goods may be sold or used Can remedy the failure and produce a more efficient allocation of resources This way of thinking about the issue is incomplete and seriously misleading In fact two kinds of risk Exists there is to be sure a risk of harm from using the good But there is also a risk that denied access to the good Consumers will be harmed because alternative medical goods are less effective in curing or migrating their condition I'll call the first kind of risk use risk and the second kind of risk prohibition risk Obviously the two vary in reciprocal relation the more the government diminishes people's exposure to use risk By limiting a goods availability The more it exposes them to prohibition risk and vice versa Notwithstanding the common characterization of the problem as one of imperfect consumer information The underlying risks cannot be banished by decree They are inherent in the state of scientific knowledge and technical skill The vital issue is how to optimize exposure to the two kinds of risks balancing Them to maximize the welfare of consumers my concern now in the discussion is to analyze how the Allocation takes place under government regulation of the kind carried out by the FDA and to contrast the system with the Allocation under an unimpeded market process My general conclusion is that the market brings forth a superior outcome Especially in the long run it's instructive to consider the issue along the lines pioneered by Mises and Hayek and Develop further by their Austrian school followers in the analysis of central planning From this analysis we know that socialism cannot succeed if by success One means the attainment of maximum feasible satisfaction of consumers wants Information about resource endowments technical constraints and consumer preferences is dispersed among the population Moreover this information is always in flux Central planners have no effective means of collecting the relevant information Even if somehow they could collect the information it would be obsolete by the time they implemented plans based on it Ever-changing consumer preferences cannot conceivably be known by central planners The consumers themselves do not know exactly what their preferences are Until the moment they act on them They have demonstrated preferences Not withstanding the usual assumption of neoclassical economics. They do not have a stable all-encompassing indifference map in their minds It would be pointless for a government to conduct a survey to discover people's preferences Opinions are one thing and demonstrated preferences, which the consumers Necessarily bear real opportunity costs known only to them are something else And they are the only preferences that count in the maximization of consumer welfare This kind of analysis can also be applied in considering the allocation of risks with medical goods Only individual consumers Who are free to seek whatever professional advice or other information? They consider worthwhile can evaluate the risk of using a medical good and the risk of not using it and Can determine the point at which way the two kinds of risks in their own judgment? They find the use of one the use risk to be acceptable Consumers alone are in a position to compare the prospective pains and pleasures inherent in the decision and to Determine when the risk of not using a good outweighs the risk of using it Others have no way to intuit or simulate judgments of this kind. Let me repeat others have no way You cannot get into another person's mind and only that mind can make these judgments Only risk-bearers themselves know the scale of values on which the opposing risks are weighed the units in which the prospective Disutilities of risk-bearing are measured if outsiders presume to make the decision for those who actually bear the risk the intervention represents nothing more than The pretense of knowledge for which Hayek indicted the central planners macroeconomists and neoclassical welfare economists The intervention compounds ignorance of consumers true preferences with government coercion To believe that such heavy-handedness can improve the welfare of consumers is sheer paternalism and bad economics Let's look at how the regulation actually works Apart from the fundamental incapacity of government regulators to solve the relevant allocation problem It is folly to think that they would do so even if they could Public choice theory and careful observation alike Teach us that regulators tend to seek their own interests rather than the public interests To preserve their budgets and their prerogatives. They respond to the dictates of their political overseers elected politicians who seek reelection and self-aggrandizement and Do not shrink from twisting the truth and burdening the public in that quest Knowing that the polity responds disproportionately to crises politicians and bureaucrats exploit notorious events such as the elixir sulfonylamide tragedy of 1937 and the thalidomide affair of 1962 to justify great extensions of their authority as A rule they employ their powers with heavy emphasis on the short term readily sacrificing longer run and widely dispersed benefits for immediate Concentrated and often specious Benefits for which political credit can be claimed and making decisions that allocate risk and prohibition risk regulators systematically disregard the use risk and Excuse me regard the use risk and disregard the prohibition risk This imbalance makes good sense to them regardless of its unfortunate consequence for the consumers If adverse side effects cause serious or widespread harm when consumers use the government approved good Those who approved it will be held to account by the news media in the congressional overseers with consequent jeopardy to their bureaucratic careers regulators therefore loathe to Approve any good until is undergone extremely exacting tests which typically require for drugs more than 10 years to complete Other countries often allow the marketing of new drugs long before the FDA approves their sale in the United States in contrast if people Suffer preventable harm Even if the suffering is extensive and lethal while a medical good undergoes an extended period of mandatory testing The regulators are unlikely to be identified by the media as Responsible for the suffering and many people will be unaware that a potentially beneficial Good is being kept from the market It follows that the number Stringency and expense of the required tests all of which are correlated with the duration of the test period Exceed the levels preferred by many consumers who consider the prohibition risk as well as the use risk And notice that consumers who prefer more information than the government requires are not affected by this They can voluntarily wait until enough additional information has it been induced to satisfy them No one forces them to use a product just because the FDA has approved it However Making the good available to those already willing and to risk its use hastens the day when sufficient information Will become available to allay the doubts of those currently unwilling to bear the risk Because the most important experience in assessing safety and efficacy of a drug is its widespread use In some the regulators systematically imposed requirements for marketing approval that lengthened the test period beyond that at which At least some consumers prefer When the government has the power to approve or disapprove of marketing a medical good political jockeying Comes into play to resolve people's differences of belief and risk evaluation Those who prefer to use a good Immediately they cannot express their preferences by means of market bidding they have to resort to politics hence afflicted citizens testified before congressional committees in very heart-rending ways and Disease victims sometimes demonstrated in the streets as many AIDS sufferers did in the 1990s When the FDA was withholding Possibly beneficial drugs from their use while political action committees and executives of drug and medical Device companies make huge campaign contributions to office seekers None of this would occur if the benefits costs and risks of medical goods were allocated in a market process Under the current regulatory regime heavy fixed costs must be borne By producers to gain FDA approval for marketing their products The effect is to penalize disproportionately both small companies and projects to develop Products with the relatively small market so-called orphan drugs for example Abandoned by developers because their expected revenues are too small to justify the costs and delays the FDA requires This is especially unfortunate because small companies are often the most innovative companies Many medical goods Return attractive profits only because of their patent protection When longer delays Separate the granting of the patent from the FDA's marketing approval the present value the real in Net income expected from the investment in research and development is diminished and the F and R&D effort Correspondingly discouraged when R&D is just reduced as it has been especially by the 1962 amendments to the Federal drug laws consumers are denied the benefits of improved and in many cases safer products the longer the elapsed time before producers receive Before products receive widespread use the more delay occurs The the more reliable estimates of potential risk are delayed which can be established only with high confidence in large samples Ironically the FDA's regulation may increase not only the prohibition risk in the short term, but also The use risk in the longer term Now let's look at how a market process would operate in Contrast to everything I've been describing here Much of the public's approval of government regulation of medical goods springs from a failure to understand how private institutions would operate in The absence of such regulation Many people fear that without the government's watch dogs The consumers would be deluged with the harmful goods and unable to identify fake procedures and quack medicines This unsavory vision of the unregulated market process owes more to progressive ideology than it does to sound theory or history Even in today's heavily regulated context private sources of research products information and advice Do vastly more than the government to remedy the public's ills? Absent the regulation these sources would flourish even more and I want to emphasize this because very often when Libertarians try to convince somebody that a market process would would would work better to provide some desirable service such as quality assurance Then the government does People say all you're just you're just dreaming of some utopia that that can't exist You imagine that this would happen in a market, but but it's all it's all in your mind But what actually happens in this case and in great many others is whenever people do value Quality assurance, they're willing to pay for it and not withstanding the existence or nonexistence of regulation They go out and buy it and suppliers appear and in the case of drugs and medical devices many suppliers of Information and quality assurance have come forth over the years because people who use these products want that They value that and they're willing to pay for it So the FDA exists, but it's really not the not the source of the quality assurance That people are getting before they purchase these the products and use them the source lies elsewhere almost completely The whole FDA myth of they're protecting the public is nothing but a myth and a vicious myth There is no need for government to assure the safety or efficacy of medical goods People who are concerned about such matters can look to any number of private sources And they will readily pay for the sorts of information. They actually value as Opposed to the kind of information used only to justify depriving people of the right to make their own decisions about their own health Medical and pharmacy associations for example might re-institute certification schemes for drugs and devices like the seal of approval acceptance program operated by the American Medical Association from 1929 to 1955 notice this is a typical case of Crowdy now the government comes in and purports to do something and so private suppliers are Subject to a loss of demand for their services and they may go out of business as a result So what is really valuable disappears and what is entirely specious replaces it private information services such as the medical letter on drugs and and therapeutics drug device alerts Clinica Which is called the world medical device and diagnostic news journal of emergency medical services MD byline their countless Publications of this sort already circulate widely and and would be greatly expanded Could be private organizations such as the consumers union the publisher of consumer reports and the consumer Federation of America Could do much to inform the public regarding medical goods the American Association of Retired Persons might Might redirect some of its activities from lobbying to advising the elderly about medical goods Manufacturers themselves if legally free to do so would have a strong incentive to provide information about potentially harmful or ineffective goods offered by rivals There's competition every other aspect of products there could be Competition among firms with regard to quality assurance and there certainly would be if they could Undertake that kind of competition course. They're not permitted to do that by by current law Trade associations could establish in police standards quality could be certified by an organization such as underwriters Laboratory which is a private organization that has for a long time tested electrical appliances To ensure they meet strict standards insurance companies with policies covering manufacturers for product liability judgments could play a much stronger role in the absence of the FDA I'd like to suggest something to you. You all have computers. I'm sure and at some time when you have a few minutes search The following acronym ECRI ECRI This is an acronym for an organization that's Located north of Philadelphia. It was previously called emergency care research Institute No longer uses that title and just goes by the acronym, but ECRI is an amazing organization It's totally separate from government in any way and it's totally separate from industry in any way That is say it doesn't receive industry support for any of its activities It does charge for some of its information when it sells information to clients but ECRI is an organization that if you are Involved in any Hospital or clinic or anything where medical devices are used and you're considering Purchasing a new one or you have a problem with an existing one and you need to find out how to fix it or what's wrong with it People go to ECR ECRI right away because they have an enormous laboratory with all kinds of Technicians and scientists and they're neutral all all they're there to do is is give you Information that will help you make these products work properly and for that reason people rely on on this organization and If you're not in this business chances are very slender that you've ever heard of ECRI But such organizations are quite common throughout the economy There's people value information. They're willing to pay for it And so suppliers can maintain themselves as a result of serving such clients we don't need the government to provide any information and To rely on it to provide information is to place your very life at risk in Any event? manufacturers have a strong incentive to maintain high quality in order to avoid the large penalties assessed by the courts and tort cases at Present many such private activities Although by no means all have an effect been crowded out by the operations of government agencies the activities of government agencies necessarily reflect the wishes of the political masters and The FDA is no exception Whereas the activities of private firms reflect evaluations of consumers and only the consumer knows what risks are worth taking No one knows better than the manufacturer the nature of the goods offered for sale Private third third party providers of information or advice Must supply worthwhile services if there's survive in competition in an open market Disgruntled consumers lacking an appeal to Congress or or a federal bureau will simply resort to competing sellers Specialized providers of information as well as the suppliers of medical goods themselves will engage in rivalry for consumers business In a market process feedback from consumers drives the outcome in a political process The actions of organized special-interest groups and wealthy politically connected individuals Determine the course of events It's ironic that the same people who appreciate that the government does a poor job of Maintaining the streets or delivering the mail Nonetheless support placing powers of life and death in the hands of the same politicians and bureaucrats who bungle far less important tasks So to conclude The two most important questions in any economic analysis are one what is the alternative and to What happens then and then and then unless one is carefully considered the free market alternative One is not justified in concluding as most mainstream economists have that government regulation of medical goods Including Marketing conditions and marketing certification only after rigidly structured very expensive and time-consuming tests Improves consumer welfare Of course such regulation does diminish use risk Indeed by prohibiting all medical goods entirely Use risk at least legal use risk could be wholly eliminated Okay We'll save your life. We won't let you get any of these goods that might hurt you and let's extend that while we're at it to automobiles We'll wipe out all automobile accidents by outlawing automobiles and so forth No more use risk my lady a Moments of reflection on that absurd extreme makes plain what is wrong with emphasizing use risk and ignoring prohibition risk Whatever means once finds finds preferable for allocating the risk the analysis is incomplete until one Inquires into the ensuing consequences Not only the immediate ones, but the increasingly remote ones likely to flow from the chosen institutional arrangements government regulation inevitably leads to politicization and Its evolution reflects the shifting distribution of political power Market processes permit consumer preferences to drive the allocation of inputs outputs and risks Overtime one can expect government regulation to feed on itself and ratchet upward with each notorious medical tragedy and Overtime one can expect the market process to respond to consumer feedback via the price system and to encourage the types of product innovation information transmission Actually valued by consumers Of course the market process will not produce nirvana. Don't get me wrong There's real risk Associated with many aspects of life virtually all aspects of life in fact and is particularly with the kinds of products I've been discussing this morning. There is real risk. It cannot be wished away So the market process will not produce nirvana Whether market agencies certified products or the FDA certifies products some approved products will turn out to cause harm It's in their very nature Risk cannot be banished Inescapably within the limits set by technical Institutional and human constraints these risks must be borne Even in a free market regrettable choices will sometimes be made and tragic events will sometimes occur But apart from the more promising long-term developments one may realistically expect from a market process One must ultimately face up to the moral dimensions of the issue as the health scientist Samuel Broder has said It's not good for people to be put in a situation where they're begging for their lives From a central government authority. Yeah, I want to show you one little schema that I Used in in the book. I mentioned earlier This is a quick way to summarize how this this tragic situation I've been describing came to be Well, I won't try to master the machine instantly here. I hope you can see a little bit of this if you look at the The the the lines that are sort of made up of three individual lines what we have there is the kind of Regulatory setup that occurs during normal periods. There's nothing special going on There's no big Scandal or tragedy in the news and what have you and what we've got there is the iron triangles Which we always find when we discuss regulatory matters that the combination of the congressional committees with oversight Responsibility the FDA and the interest groups That have a stake in what's going on here. And of course they play back and forth with the news media everybody tries to put his spin on on matters and the the combination of what's going on in the news and and the operation of the Somebody knows the machine good. Thank you Walter these all put These all put pressure on the FDA and and generally the direction of the pressure put on is is for an expansion and Increasing the detail of FDA regulations So we get that outcome and the upshot at the bottom. There is a diminished scope of individual action for patients and and doctors and other providers of medical goods and services So this is normally how the system is operating to say to say today. This is what's going on right now Now occasionally Something happens. Hey, there's a there's a big news item like the sulfonylamide deaths back in the 1930s or or the discovery that thalidomide is giving rise to to a lot of deformed Babies being born without arms or legs or other other terrible deformities. So so some something happens and and of course that the the news media love these things they they thrive on things of this sort so they As if they weren't bad enough in their own right They blow them up even more and they discuss them for weeks on end and That shocking revelation you know gets a lot of people aware of something and and gives them a storyline about why something happened as it did and of course You know how the media tends to explain things and so There's always public clamor as a result and that public clamor is It certainly felt by the people at the FDA You know because the first thing they worry about is that you know, are we going to be blamed? That's their number one concern always and the second is how can we exploit this crisis to our benefit? It's what every government official or agency thinks in the face of any crisis real or or imaginary How can we exploit this to seize more power privilege and money? So the FDA is a master at playing this game And so they will use this clamor to make major Increases to push out the envelope that contains the the regulation they're now carrying out and again the result is a kind of leap a ratchet if you like I've talked about ratchets in relation to wars and Overall power of government. Here's one. It doesn't involve war at all But it operates similarly normal growth of government, you know the outside lines the normal process and then shock crisis upward abrupt increase in the power of the government retained Crisis passes new powers retained in this case almost no power ever surrendered. So that's how we get to this Situation with with many volumes Federal law required just to contain the part that applies to The powers of the food and drug administration So I hope this has given you some new thoughts about this area of economic and governmental life And and I hope to that That you're you're stirred by it. This is this is a horrible situation People are dying every day As a result of this and not a few many So if you ever have an opportunity to speak against it, I hope you will. Thank you very much