WorldSys: Austrian Home Study Course, week 21

READINGS: Chapter 9 of Robert Higgs’s Against Leviathan, ‘Private Law’ chapter of Bob Murphy’s Chaos Theory

1 Is it reasonable to require that a medical product be completely safe?

No, all any certifying agency can hope to do is ensure that medical products are as safe as possible and that the manufacturer is not making bold, erroneous claims about its efficacy.

2 Describe the history of the FDA.

The FDA was established by the Food, Drug, and Cosmetic act of 1938 for the purpose of certifying that food and drugs weren’t dangerous, a mandate which was extended in 1962 to include requirements for proving a drug’s efficacy. In 1976 the agency gained regulatory powers over medical devices in addition to drugs.

3 What are some of the typical activities of the FDA

They approve or deny the performance of clinical trials for new drugs and devices, regulate product information, monitor manufacturing practices, and enforce requirements that companies monitor and report on products after their introduction to the marketplace.

4 Describe the incentives of the FDA when it comes to approving a new drug.

Suppose a new drug is either safe and effective (SE) or isn’t (NSE) and that an FDA reviewer can either approve (A) a drug or not (NA). The only two scenarios in which a problem will arise is NSE/A, in which an unsafe drug is sent to market, or SE/NA, in which a safe drug is restricted from the market.

As far as incentives go the reviewer is much more likely to be nailed to the wall for NSE/A than for SE/NA, because in the former case there will actually be a drug on the market which people can recognize and point to. In the latter case the drug simply never appeared, and it’s much less likely that someone will pore over FDA data and notice that a good product failed review and the public was therefore deprived of its use.

The official, therefore, is better off being very, very cautious about handing out approvals. Rather than using common sense and his best judgement he will instead refuse to approve a product unless there is damn-near no chance at all he can later be blamed for its failure.

5 How does Higgs evaluate the success of the FDA in providing safety?

Very poorly. While no one is sure how many lives have been lost because the FDA held up development of life-saving drugs there is reason to believe it’s a solid order of magnitude greater than the number of lives saved by preventing dangerous drugs entering the market.

An unsafe drug would almost certainly be pulled from the market as soon as it became widely known that it was unsafe. But no one ever knows about the absence of a drug held up in the FDA’s Byzantine regulatory proceedings. Every year that the safe drug is not allowed to come to market the death toll rises and goes on rising.

And this doesn’t account for the fact that human beings are wildly divergent in their appetite for risk. Many people would be fine taking an experimental drug with little or no knowledge of its likely side effects, while others will be reticent until a comprehensive decade-long study on the matter has been published. Every bit of this heterogeneity is simply ground under by the FDA’s blanket protocols.

6 Why does Higgs say that “more than health is at stake” on this issue?

Because the existence of the FDA and the scope its breathtaking powers is tantamount to declaring American consumers to be children not capable of weighing risks and making their own decisions. The moral arrogance of this stance can scarcely be exaggerated.

7 How does name brand recognition allow for safer products?

There will be serious consequences to a company’s reputation if it allows one of its products to kill people. Even if it winds up somehow not being the company’s fault it might never again recover its standing among consumers.

8 Describe the function of intermediaries in providing consumer protection.

Over and above the FDA there are now a number of entities intervening betwixt consumer and drug company, including “…prescribing doctors, health-maintenance organizations, and hospital formularies…” which add extra layers of protection to the consumer.

9 In the present system, how do unions and government licensing restrict service and raise prices? In a free society, how might trade associations offer consumer protection?

Unions are notorious for subdividing tasks in ridiculous spread-work schemes, such as those cases in which plumbers aren’t allowed to remove the tiles around a toilet because that is the province of tile layers. It probably doesn’t take much to see how these redundancies and inefficiencies raise prices. Licensing requirements, while perhaps sensible at first glance, wind up involving vastly more schooling and training than is often necessary.

10 Describe the role of insurance in medical malpractice in the current system.

Insurance in the current system is badly distorted by decades of government meddling and mandating. Insurance companies have to pay for things like routine check ups which would otherwise be more sensibly paid for out-of-pocket after services are rendered, and it is often difficult to get an accurate itemized list breaking down the costs. This means both that people are more careless in their consumption of medical services (because they aren’t paying for them) and also unable to shop around for the best deal (because the prices aren’t easily attainable).

Contrast this with auto body work. If you want an oil change, you walk into an establishment and ask for an oil change, which will usually run something like $40. If you ask the price, you’ll be told, and if it isn’t to your satisfaction you can go elsewhere. This puts a cap on how expensive an oil change can be.

If auto repair were treated like medical care then oil changes would be routed through insurance companies and cost $400 dollars because there’s neither incentive nor mechanism for cost control.

11 Describe the possible role of insurance in air travel in a hypothetical libertarian society.

Passengers, wanting some hedge against the possibility of their plane crashing or malfunctioning in some way, will require their airlines to sign a contract to the effect that if there is a problem the airline will pay some pre-determined amount of money to the claimant.

12 Wouldn’t private safety inspectors be susceptible to bribes by big corporations.

That’s not inconceivable, but the damage to reputation that would ensue should anyone get wise to these maneuvers should suffice to dis-incentivize bribery. It wouldn’t take long for contractors to realize that the inspectors of x agency are being bribed by Big Cement before they’d refuse to use inspectors of that agency.

Worse: bribes are a constant fact of life in the prevailing public-sector system, so this can hardly count as points against the hypothetical system being described.

13 If the entire world became a bastion of private property and free enterprise, would consumer protection standards necessarily be uniform in every area?

No, they would likely vary by region.

14 In the interview, Murphy erroneously referred to “Underwriters Association” and their symbol, “UA”. Which certification organization did he actually have in mind?

Underwriter’s Laboratory.

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