ROBERT MCKENZIE: Hello, Im Robert McKenzie.Welcome again to the University of Chicago, where a distinguished group of guests have
met together to watch a film and to discuss a film by Milton Friedman in his series, Free
To Choose. In it he examines the consumer movement, the whole development of high-powered
government agencies in recent years recent decades, in this country which have set
out to protect the interests of the consumer. Now does this consumerism really work? Or
are there better ways in protecting the interests of the consumer? Thats the question Milton
Friedman asks in this film. MILTON FRIEDMAN: The 1960s Corvair, condemned
by Ralph Nader as unsafe at any speed.
Since Nader's attack it is being increasingly accepted
that we need government protection in the marketplace. Today there are agencies all
over Washington where bureaucrats decide what's good for us. Agencies to control the prices
we pay, the quality of goods we can buy, the choice of products available. It's already
costing us more than $5 billion a year.
Since the attack on the Corvair the government has
been spending more and more money in the name of protecting the consumer. This is hardly what the 3rd president of the
United States, Thomas Jefferson, whose monument this is, had in mind when he defined a wise
and frugal government as one, which restrains men from injuring each other and leaves them
otherwise free to regulate their own pursuits of industry and improvement. Ever since
the Corvair affair the U.S. Government has been increasingly been muscling in between
buyer and seller in the marketplaces of America.
By Thomas Jefferson's standards, what we have
today is not a wise and frugal government but a spendthrift and snooping government. The federal regulations that govern our lives
are available in many places. One set is here, in the Library of Congress in Washington,
D.C. In 1936, the Federal Government established the Federal Register to record all of the
regulations, hearings and other matters connected with the agencies in Washington.
This is volume
1, number 1. In 1936, it took three volumes like this to record all these matters. In
1937 it took four and then it grew and grew and grew. At first rather slowly and gradually,
but even so, year by year it took a bigger and bigger pile to hold all the regulations
and hearings for that year.
Then around 1970 came a veritable explosion,
so that one pile is no longer enough to hold the regulations for that year. It takes two
and then three piles. Until on one day in 1977, September 28, the Federal Register had
no fewer than 1,754 pages and these aren't exactly what you'd call small pages either. Many of those regulations come from this building.
WORKER: Consumer Protection Safety hotline
can you hold please? Thank you. FRIEDMAN: The Consumer Product Safety Commission
is one of the newest agencies set up on our behalf. One of its jobs is to give advice
to consumers. WORKERS: The clue that gave it away is that
those that are involved....
What has been done about the flammability of children's
garments? FRIEDMAN: But its main function is to produce
rules and regulations, hundreds and hundreds of them, designed to assure safety of products
on the market. It's hard to escape the visible hand of the Consumer Product Safety Commission.
Except for food and drugs, ammunition and automobiles that are covered by other agencies,
it has power to regulate just about anything you can imagine. Already it costs $41 million
a year to test and regulate all these products on our behalf, and that's just the beginning. The Commission employs highly-trained technicians
to carry out tests like this, checking the brakes on a bike.
But the fact is that 80%
of bike accidents are caused by human error. These tests may one day lead to safer brakes,
but even that isn't sure. The one thing that is sure is that the regulations that come
out of here will make bikes more expensive and will reduce the variety available. Yes,
they really are testing how matches strike.
And the tests are very precise. The pressure
must be exactly one pound, the match exactly at right angles. No matter how many tests are done, children's
swings are never going to be totally safe. You cannot outlaw accidents.
If you try you
end up with ludicrous results. It hardly seems possible, but they really do use highly-skilled
people to devise regulations that will prevent toy guns from making too big a bang. The Commission, in effect, is deciding what
they think is good for us. They are taking away our freedom to choose.
Consumers don't have to be hemmed in by rules
and regulations. They're protected by the market itself. They want the best possible
products at the lowest price. And the self-interest of the producer leaves him to provide those
products in order to keep customers satisfied.
After all, if they bring goods of low quality
here youre not going to keep coming back to buy. If they bring goods that don't serve
your needs you're not going to buy them. And therefore they search out all over the world
the products that might meet your needs and might appeal to you. And they stand in back
of them because if they don't they're going to go out of business.
You see the difference between the market
and the political action, the governmental agency. Here nobody forces you, youre free,
you do what you want to. There's no policemen to take money out of your pocket or to make
sure that you do what you're told to. Over a quarter of a century ago I bought, second-hand,
a desk calculator for which I paid $300.
One of these little calculators today, which I
can buy for $10 or so, will do everything that did and more besides. What produced this
tremendous improvement in technology? It was self-interest or, if your prefer, greed. The
greed of producers who wanted it to produce something that they can make a dollar on.
The greed of consumers who wanted to buy things as cheaply as they could. Did government play
a role in this? Very little.
Only by keeping the road clear for human greed and self-interest
to promote the welfare of the consumer. When governments do intervene in business,
innovation is stifled. Railroads have been regulated for nearly a century and they are
one of our most backward industries. The railroad story shows what so often results from the
good intentions of consumer-protection groups.
In the 1860's railroad rates were lower in
the United States than anywhere else in the world, and many customers thought they were
too high. They complained bitterly about the profits of the railroads. Now the railway men of the time had their
problems too, problems that arose out of the fierce competitiveness among them; many railroads
all trying to get their share of the market, all trying to make a name for themselves.
If you want to see what their problems were as they saw them, come and have a look at
this. From inside this private railroad car it may
not look as if the people who ran the railroads had any real problems.
Some, like the owner
of this private car, had done very well. This was the equivalent of the private jets of
today's business tycoons. But for each one who succeeded, many didn't survive the cutthroat
competition. What we have here is a railroad map of the
United States for the year 1882.
It shows every railroad then in existence. The country
was literally crisscrossed with railroads going to every remote hamlet and covering
the nation from coast to coast. Between points far distant, like, for example, New York and
Chicago, there might be a half a dozen lines that would be running between those two points,
each of the half dozen trying to get business would cut rates and rates would get very low.
The people who benefited most from this competition were the customers shipping goods on a long
trip. On the other hand, between some segments of
that trip, say for example, Harrisburg and Pittsburgh, there might be only a single line
that was running, and that line would take full advantage of its monopoly position.
It
would charge all that the traffic would bear. The result was that the sum of the fares charged
for the short hauls was typically larger than the total sum charged for the long haul between
the two distant points. Of course, none of the consumers complained about the low price
for the long haul, but the consumers certainly did complain about the higher prices for the
short hauls. And that was one of the major sources of agitation leading ultimately to
the establishment of the Interstate Commerce Commission.
The cartoonists of the day delighted in pointing
out that railroads had tremendous political intrigues, as indeed they did. They used the
consumer's complaints to get the government to establish a commission that would protect
the railroad's interest. It took about a decade to get the commission into full operation.
By that time, needless to say, the consumer advocates had moved on to their next crusade.
But the railway men were still there. They had soon learned how to use the commission
to their own advantage.
They solved the long haul/short haul problem by raising the long
haul rates. The customers ended up paying more. Some protection. The first commissioner
was Thomas Cooley, a lawyer who had represented the railroads for many years.
The railroads
continued to dominate the Commission. In the 1920s and 30s, when trucks emerged
as serious competitors for long distance hauling, the railroads induced the Commission to extend
control over trucking. Truckers, in their turn, learned how to use the Commission to
protect themselves from competition. This firm carries freight to and from the Dayton,
Ohio International Airport.
Its the only one serving some routes and its customers
depend on it. But Dayton Airfreight has real problems. Its ICC license only permits it
to carry freight from Dayton to Detroit. To serve other routes it's had to buy rights
from other ICC license holders, including one who doesn't own a single truck.
It's paid
as much as $100,000 a year for the privilege. SECRETARY: Our company is in the process of
trying to get rights to go there now. Yes, we'll do that, and thank you for calling,
sir. FRIEDMAN: The owners of the firm have been
trying for years to get their license extended to cover more routes.
AIR FREIGHT COMPANY EMPLOYEE: Now, I have
no any argument with the people who already have ICC Permits, excepting for the fact that
this is a big country and since the inception of the ICC in 1936, there has been very few
entrants into the business. They do not allow new entrants to come in and compete with those
who are already in. FRIEDMAN: Of course, Dayton Airfreight suffers,
but so do the customers who pay higher freight charges. MALCOLM RICHARDS, BURLINGTON NORTHERN AIR
FREIGHT: Quite frankly, I don't know why the ICC is sitting on its hands doing nothing.
This is the third time to my knowledge that we've supported the application of Dayton
Airfreight to help us save money, help free enterprise, help the country save energy,
help, help, help.
It all comes down to the consumers ultimately going to pay for all
of this and they are the blame. The ICC has to be the blame. FRIEDMAN: Dayton Airfreight now has many of
its trucks lying idle, trucks that could be providing a valuable service. Far from protecting
consumers, the ICC has ended up making them worse off.
As far as I'm concerned there is no free enterprise
in interstate commerce. It no longer exists in this country. You have to pay the price
and you have to pay the price very dearly. That not only means that we have to pay the
price, it means that the consumer is paying that price.
The price consumers pay when it comes to medicine
could be their lives. In the 19th century, pharmacies contained an impressive array of
pills and potions. Most were ineffective and some were deadly. There was an outcry about drugs that maimed
or killed.
The Food and Drug Administration, in response to consumer pressure, succeeded
in banning a whole range of medicines. The tonics and lotions with their excessive claims
disappeared from the market. In 1962 the Kefauver Amendment gave the FDA power to regulate all
drugs for effectiveness as well as for safety. Today, every drug marketed in the United States
must pass the FDA.
It's clear that this has protected us from some drugs with horrific
side effects, like thalidomide, and we all know of people who have benefited from modern
drugs. What we don't hear much about, however, are the beneficial drugs that the FDA has
prohibited. DR. WILLIAM WARDELL, UNIVERSITY OF ROCHESTER:
Well, if you examine the therapeutic significance of drugs that haven't arrived in the U.S.
But are available somewhere in the rest of the world, such as in Britain, you can come
across numerous examples where the patient has suffered.
For example, there are one or
two drugs called beta blockers which, it now appears, can prevent death after heart attack
(we call this secondary prevention of coronary death after myocardial infarction), which,
if available here, could be saving about 10,000 lives a year in the United States. In the ten years after the 1962 amendments
no drug was approved for hypertension, that's for the control the blood pressure, in the
United States, whereas several were approved in Britain. In the entire cardiovascular area,
only one drug was approved in the five-year period from 67 to 72. And this can be
correlated with known organizational problems at FDA.
FRIEDMAN: These carts are taken to an FDA.
Official the documents required to get
just one drug approved. WORKER: Well, hi there, must be the new one
they called me about. FRIEDMAN: It took six years work by the drug
company to get this drug passed. WORKER: This one right here, all 119 volumes.
INDIVIDUAL: The implications for the patients
are that therapeutic decisions that used to be the preserve of the doctor and the patient
are increasingly becoming made at a national level by committees of experts. And these
committees and the agency for whom they are acting, the FDA, are highly skewed towards
avoiding risks. So there is a tendency for us to have drugs that are safer, but not to
have those that are effective. Now, I've heard some remarkable statement from these advisory
committees in considering drugs.
One has seen the statement, There are not enough patients
with the disease of this severity to warrant marketing this drug for general use. Now that's fine if what you are trying to
do is to minimize drug toxicity for the whole population. But if you happen to be one of
these "not enough patients," and you have a disease that's of high severity, or a disease
that's very rare, then that's just tough luck on you.
FRIEDMAN: For ten years Mrs. Esther Usdane suffered from severe asthma.
The medication
she received had serious side effects. Her condition was getting worse. But the drug
her doctor preferred is prohibited by the FDA. So, twice a year Mrs.
Usdane had to set
out on a journey. MRS. USDANE: I had been very sick. I had been
in and out of the hospital several times and they couldn't seem to find a way to control
the asthma, and I had to change my lifestyle once I was out even for a short time, mainly
because the cortisone derivatives were softening the bones and causing a puffiness of the face
and other changes in my body.
The doctors were pretty anxious to get me off the cortisone
derivative. FRIEDMAN: The drug her doctor wanted her to
have had been available for use for five years in Canada. Once across the boarder of Niagara
Falls, Mrs. Usdane could make use of the prescription that shed obtained from a Canadian doctor.
All she had to do was go to any pharmacy.
There she could buy the drug that was totally
prohibited in her own country. The drug worked immediately. USDANE: This one made such a difference in
my life, both because of the shortness of breath being resolved and also because now
we don't have to worry so much about the softening of the bones. Fortunately, once I got that
medicine, very quickly everything sort of reverted back to a much more the normal lifestyle,
and I'm very grateful that I was able to find relief.
FRIEDMAN: It was easy for Mrs. Usdane to get
around the FDA regulations because she happens to live near the Canadian boarder. Not everyone
is so lucky. It's no accident that despite the best of intentions, the Food and Drug
Administration operates so as to discourage the development and prevent the marketing
of new and potentially useful drugs.
Put yourself in the position of a bureaucrat who works
over there. Suppose you approve a drug that turns out to be dangerous, thalidomide. Your
name is going to be on the front page of every newspaper. You will be in deep disgrace.
On the other hand, suppose you make the mistake
of failing to approve a drug that could have saved thousands of lives. Who will know? The
people whose lives might have been saved will not be around. Their relatives are unlikely
to know that there was something that could have saved their lives. A few doctors, a few
research workers, they will be disgruntled, they will know.
You or I, if we were in the
position of that bureaucrat, would behave exactly the same way. Our own interests would demand that we take
any chance whatsoever, almost, of refusing to approve a good drug in order to be sure
that we never approve a bad one. Drug companies can no longer afford to develop
new drugs in the United States for patients with rare diseases. Increasingly, they must
rely on drugs with high-volume sales.
Four drug firms have already gone out of business
and the number of new drugs introduced is going down. Where will it all lead? We simply haven't
learned from experience. Remember Prohibition? In a burst of moral righteousness at the end
of the First World War, when many young men were overseas, the non-drinkers imposed on
all of us prohibition of alcohol. They did it for our own good.
And there is no doubt
that alcohol is a dangerous substance. Unquestionably, more lives are lost each year through alcohol
and also the smoking of cigarettes than through all the dangerous substances that the FDA
controls. But where did it lead? This place is today a legitimate business.
It's the oldest bar in Chicago. But during Prohibition days it was a speakeasy.
Al Capone,
Bugs Moran, many of the other gangsters of the day sat around this very bar planning
the exploits that made them so notorious: murder, extortion, hijacking, bootlegging.
Who were the customers who came here? They were people who regarded themselves as respectable
individuals, who would never had approved of the activities that Al Capone and Moran
were engaged in. They wanted a drink, but in order to have a drink they had to break
the law. Prohibition didn't stop drinking, but it did convert a lot of otherwise law
obedient citizens into lawbreakers. Fortunately, we're a very long way from that
today with the Prohibition on cyclamate and DDT.
But make no mistake about it; there is
already something of a gray market in drugs that are prohibited by the FDA. Many a conscientious
physicians feels himself in a dilemma, caught between what he regards as the welfare of
his patient and strict obedience to the law. If we continue down this path, there is no
doubt where it will end. After all, if it is appropriate for the government to protect
us from using dangerous cap guns and bicycles, the logic calls for prohibiting still more
dangerous activities such as hand gliding, motorcycling, skiing.
If the government is to protect us from ingesting
dangerous substances, the logic calls for prohibiting alcohol and tobacco. Even the
people who administer the regulatory agencies are appalled at this prospect and withdraw
from it. As for the rest of us, we want no part of it. Let the government give us information,
but let us decide for ourselves what chances we want to take with our own lives.
As you can see all sorts of silly things happen
when government starts to regulate our lives, setting up agencies to tell us what we can
buy, what we can't buy, what we can do. Remember, we started out this program with
the Corvair, an automobile that was castigated by Ralph Nader as unsafe at any speed. The
reaction to his crusade led to the establishment of a whole series of agencies designed to
protect us from ourselves. Well, some ten years later, one of the agencies that was
set up in response to that move finally got around to testing the Corvair that started
the whole thing off.
What do you suppose they found? They spent a year and a half comparing
the performance of the Corvair with the performance of other comparable vehicles and they concluded,
and I quote, "The 1960-63 Corvair compared favorably with the other contemporary vehicles
used in the tests." Nowadays, there are Corvair fan clubs throughout
the country. Corvairs have become collector items. Consumers have given their verdict
on Ralph Nader and the government regulations. As Abraham Lincoln said, You can't fool
all of the people all of the time.
It's time all of us stopped being fooled by those
well-meaning bureaucrats who claim to protect us because they say we can't protect ourselves.
The men and women who have fostered this movement have been sincere. They believe that we as
consumers are not able to protect ourselves; that we need the help of a wise and beneficent
government. But as so often happens the results have been very different from the intentions.
Not only have our pockets been picked of billions of dollars, but also we are left less well-protected
than we were before. DISCUSSION: Volume Seven Who Protects
the Consumer? PARTICIPANTS:
Robert McKenzie (Moderator); Milton Friedman; Kathleen O'Reilly (Consumer Federation of America); Richard Landau (Professor of Medicine, University of Chicago); Joan Claybrook (National
Highway Traffic Safety Administration); Robert Candall (Brookings Institute) ROBERT MCKENZIE: Now back at the University of Chicago the consumerists, themselves, get their chance to argue their case.
KATHLEEN O'REILLY: I agree with Mr. Friedman
with respect to those agencies which have had the major purpose of economically propping
up a certain industry, which is why consumer advocates like myself advocate the elimination
of the ICC, the CAB, the Maritime Commission. But when you're talking about consumer protection
in the marketplace and when you're talking about government watchdog in competition,
consumers need and, as every poll is showing, they're demanding more and more protection. And to give just two examples of how information
is simply not enough to protect the consumer, five years ago I could not have bought a child's
crib in this country that would have had the slats sufficiently close together that I did
not have to worry about the child strangling.
Not until the government and the Consumer
Product Safety Commission stepped in did consumers then have the choice to buy that type of a
crib, strangulation's down 50 percent. And in 1975, if I had wanted to lease a Xerox
machine, I could not have done it. And not until the Federal Trade Commission antitrust
stepped in and forced competition into that marketplace did I have that choice, and in
one year the price went from 14,000 dollars to 5,000 dollars. Those are dollars back in
our pocketbooks to say nothing of minimized emotional trauma.
MCKENZIE: Well, before we ask Milton Friedman
to come back on that, lets establish the viewpoint of our other participants and experts.
Dr. Richard Landau, what's your reaction? RICHARD LANDAU: Well I think the cost is certainly
outrageously large and the benefits are trivial if any. I think that perhaps Milton overstates
it slightly to make his point, but basically I would have to agree with it in the area
that I know best, which is the regulation of new drug development. MCKENZIE: And Joan Claybrook.
JOAN CLAYBROOK: Well in the auto safety field
we've saved about 55,000 lives and millions of injuries because of auto safety regulations
since the mid-1960s. I might also comment that the cost of auto crashes each year to
the American public is 48 billion dollars a year, fairly substantial when you compare
it to other things, much less, again, the human trauma. MCKENZIE: Bob Crandall. ROBERT CRANDALL: Well, I think it's impossible
to disagree with Milton Friedman on the effects of economic rate regulation of the sort that
the railroads and the trucking industry have been through.
The intent of that legislation
was, of course, to protect the railroads and to protect the trucks, and the same thing
is true for maritime regulation. What sustains regulation is sort of a populist theory that
somehow through government we will redistribute wealth from people who own business firms
to consumers. In fact it doesn't work that way. It doesn't work that way in economic
regulation and there's very little evidence that it works that way in any kind of regulation.
As to whether we get any value from health and safety regulation, I think much of it
is too new to know.
MCKENZIE: Well now, that's the area I want
to start with because, remember, that was the first part of his argument, the whole
idea of consumer product safety action by the state. Now, is that so far working? Very
close to your interest, I know. What's your reaction, Kathleen O'Reilly? O'REILLY: Well, in product safety in the state
of that, the lawnmower industry had said for twenty years they could not design a safe
lawnmower. Only when the Consumer Product Safety Commission forced them with the new
standard, suddenly their creative genius was overnight.
They came up with net whips that
were made out of plastic and they came up with very innovative forces. Which is why
where that government presence actually triggered innovation that otherwise would
have been left uncovered. MILTON FRIEDMAN: It's very easy to see the
good results. The bad result it's very much harder to see.
You haven't mentioned the products
that aren't there because the extra costs imposed by Consumer Product Safety Commission
have prevented them from existing. You haven't mentioned the case of the Tris problem on
the flammable garments. Here you had a clear case where the regulation of the CPSC essentially
had the effect of requiring all manufacturers of children's sleepwear to impregnate them
with Tris. O'REILLY: Oh, but that's not true at all.
FRIEDMAN: Three years five years later
the regulation required that garments to be nonflammable and, as it happened, Tris was
the most readily available chemical which could do it. MCKENZIE: Kathleen O'Reilly. O'REILLY: It's absolutely not true. FRIEDMAN: But let me finish the story first,
because the second half of the story is the important part of it.
It turned out that Tris
was a carcinogen. And five years later or three years later, I'm not sure the exact
time, the same agency had to prohibit the use of those sleepwear garments, forced them
to be disposed of at great cost to everybody concerned. O'REILLY: All right, lets look at the real
interesting history here. In 1968, when Congress passed the Flammable Fabric Act, they did
not tell the CPSC what chemicals would comply with that and what would not.
And so initially
when industry said, "we're going to use Tris," the Consumer Product Safety Commission, from
their initial tests, were disturbed by it and had announced informally to industry that
they were not going to allow Tris to be used. Industry balked and said, "We're gonna to
take you to court because the Act only says it has to be flame retardant. You, the government,
cannot tell us how to comply. And it was the industry that forced the hand of CPSC
away.
And they don't even deny that now. FRIEDMAN: I'm not trying to defend the industry.
Go slowly. I am not pro-industry. I am pro-consumer.
I'm like you. I'm not pro-industry and, of
course, industry will do a lot of bad things. The whole question at issue is what mechanism
is more effective in protecting the interests of the consumers, the dispersed, widespread
forces of the market. Take the case of the flammable fabrics, suppose you had not had
the requirements.
MCKENZIE: But you believe it was right to
test them, don't you? For a government agency to test it? FRIEDMAN: No, not at all. MCKENZIE: No, no. FRIEDMAN: There are private consumer testing
agencies. There's the Consumers Research.
There's Consumers Union. You speak about a
widespread demand for more protection, those agencies have never -- those organizations
CLAYBROOK: Oh, of course, they have all these
publications on cars FRIEDMAN: Of course. CLAYBROOK: ...But what they do is they test
the brakes and steering. They never crash test them and the most important thing to
know about a car when you buy it is, if the car crashes, are you going to be killed unnecessarily? FRIEDMAN: The reason they CLAYBROOK: You can't even get that information.
FRIEDMAN: But the reason they don't test CLAYBROOK: It's too expensive, that's the
reason why. FRIEDMAN: Of course. Anyway it is too expensive
for them because the number of consumers who are willing to buy their service and take
it is very, very small. CLAYBROOK: That is not why.
The reason why
is because it's enormously expensive. FRIEDMAN: Of course, but if they had a large
enough number of customers, if there were enough customers, enough consumers who wanted
the CLAYBROOK: Yes, but that's a chicken and egg
situation which is ridiculous. FRIEDMAN: It's not a chicken and egg situation.
The whole situation CLAYBROOK: If you believe that technological
information is important for consumer to have, which is that basis and the thesis of your
argument, surely that you would say that one of the things that society does as it groups
together to provide basic services to the public; police, traffic services, all sorts
of basic kinds of things, the mail service and the fire service and all the rest of it.
Why is that they shouldn't even do testing of technological subjects which the public
has no way of knowing? MCKENZIE: Before you reply, I want one or
two others in on this, Bob Crandall. CRANDALL: It seems to me that Professor Friedman
could give a little bit on this ground.
Certainly in the dissemination of information there's
a free rider problem. And one of the problems is that while you and I might value the results
from a Consumer Union rather highly, we don't have to pay for it. We can look over the shoulder
of someone else, borrow the magazine from the library and so forth. I wouldn't go so far as to say that the government
should not at all be in the business of generating information, though I am concerned about exactly
the same forces, this evil industry that Miss O'Reilly talks about, having its influence
on how this information is prepared.
I don't see how we guard ourselves against that. FRIEDMAN: We don't. CRANDALL: But it seems to me that there is
a case to be made that the market does not supply enough information. FRIEDMAN: It may not.
But the market supplies
a great deal and there is also a free rider problem in the negative sense on government
provision of information, because people who have no use for that information are required
to pay for it. MCKENZIE: Milton, I don't quite understand
your position on this. Are you saying, though, that there's no place for government to test
consumer product safety at all? FRIEDMAN: I am saying, lets separate issues.
I am saying there is no place for government to prohibit consumers from buying products,
the effect of which will be to harm themselves. There is, of course, a place MCKENZIE: But how do they know that effect? FRIEDMAN: Well, for a moment I'm trying to
separate the issues.
There is a place for government to protect third parties. If we
go to your automobile case CLAYBROOK: Well, how about children? Children
don't aren't choosers. FRIEDMAN: No, no. CLAYBROOK: They don't make choices because
they ride in the cars.
FRIEDMAN: The parents make their choices.
But let's go O'REILLY: But if the industry has it there's
no choice. FRIEDMAN: We can only take one issue at a
time. We're a little difficult to take them all at once. Let's take one at a time.
I say
there is no place for government to require me to do something to protect myself. (Applause) FRIEDMAN: Now if government has information
MCKENZIE: Has or obtains? FRIEDMAN: ...For a moment, suppose it has
information, then it should make that public and available. The next question is: Are there
circumstances under which it's appropriate for government to collect information? There
may be some such circumstances. They have to be considered one at a time.
Sometimes
there is and sometimes there isn't. But you see, I want to get back. Take your area, Miss
Claybrook. You are now involved on the airbag problem.
CLAYBROOK: That's right. FRIEDMAN: If I understand the situation, I
don't know anything about the technical aspects of it, but the airbag, in a car, is there
to protect me as a driver. It doesn't prevent me from having an accident, hurting somebody
else because it's only activated by an accident. All right then, why shouldn't I make that
decision? Who are you to tell me that I have to spend whatever it is, two hundred, three
hundred, four hundred dollars on that airbag.
CLAYBROOK: Well, we don't tell you that. What
we say is that when a car crashes into a brick wall at 30 miles an hour, the front seat occupants
have to have automatic protection built into that car. FRIEDMAN: Have to, why have to? CLAYBROOK: And it's a very it's a very
minimal - FRIEDMAN: Why have to? I don't care whether
it's an airbag or a seatbelt. CLAYBROOK: The reason why well, there
are two reasons why.
One is that the sanctity of life is a fairly precious entity in this
country. FRIEDMAN: It's more precious to me than it
is to you. My life is more precious to me than to you. MCKENZIE: Well, you dont know.
CLAYBROOK: Do you wear your seatbelt? FRIEDMAN: Sometimes I do and sometimes I don't. CLAYBROOK: I see. Well then it couldn't be
too precious to you because if it were, you'd wear it all the time. FRIEDMAN: I beg you pardon.
CLAYBROOK: Yes. FRIEDMAN: Other things are precious too. CLAYBROOK: Yes. Okay, but wearing your seatbelt
is a relatively simple thing to go into.
FRIEDMAN: But now my question is but I
want an answer, a direct answer. CLAYBROOK: But there is a very there's
a very basic reason why. FRIEDMAN: Yes. CLAYBROOK: And it's because a person does
not know when they buy a car what that car is gonna do when it performs in various and
sundry different ways.
That's number one. Number two, there's a basic minimum standard,
it's performance standard. It's not a requirement that you have certain pieces of products in
your cars, but it's a basic performance standard built into your car that when you buy it no
one's going to have less than that. So that you don't have people needlessly injured on
the highway, the cost to society, the cost to the individuals, the trauma to their families
and so on.
You're suggesting theoretically that it's much better to let people go out
and kill themselves even though they really don't know that that's what's gonna happen
to them when they have that crash. FRIEDMAN: Excuse me. You're evading the fundamental
issue. If you have the information, give it to them.
The question is not a question of
giving them the information. The question is what is your right to force somebody to
spend money to protect his own life, not anybody else, but only himself and the next question
I'm gonna ask you: do you doubt for a moment that prohibiting alcohol would save far more
lives on the highways than an airbag, seatbelts and everything else, and on what grounds are
you opposed to prohibition, on grounds of principle or only because you don't think
you can get it by the legislature? CLAYBROOK: I'm opposed to prohibition because
I don't think it's gonna work. That's the reason I'm opposed to it. FRIEDMAN: But suppose it would work? I want
to get to the I want to get to the principle.
CLAYBROOK: Can I answer you sure. FRIEDMAN: I want to suppose you could
believe it would work. Suppose you could believe FRIEDMAN: Prohibition could work. Would you
be in favor of it? CLAYBROOK: No.
What I am in favor of is building
products I am in favor of building products so that at least they service the public. FRIEDMAN: I was fascinated by some of the
initial comments. Everybody agrees that the old agencies are bad, but the new agencies
that we haven't had a chance MCKENZIE: No. You're trying to sweep them
into your net.
They didn't agree to that. But anyway hold on to your point. O'REILLY: When you talk about the basic
principle is: give me the information. Let me choose for myself.
If that's the ultimate
goal, why is it that in any hearing that you've ever gone to, and I beg anyone to find me
an exception, whether it's airbags or on DES, saccharine, whatever, you never; you never
have the victims of the injury who lost their arm because of a lawnmower, standing up and
saying, "Thank God that you gave me the right to become incapacitated." Never do you hear
a victim thanking the government for backing off. Never do you hear the victim of an anticompetitive
action thanking the Justice Department for not bring a suit. MCKENZIE: Dr. Landau, I promised you could
make an observation on that without going into great detail.
LANDAU: Now, when DES was used to preserve
pregnancies in women 25 and 30 years ago, there was absolutely zero evidence that it
would cause cancer in anybody, certainly not in the children of the women who were pregnant
and for you to say that it is O'REILLY: Then you're ignoring the 1941 studies
that show just that. LANDAU: There is no 1941 study. This happens
to be my area of expertise, I'm an endocrinologist. There was nothing.
O'REILLY: Well, there are a lot MCKENZIE: Now, let's not go any further down
that road. CRANDALL: Let me ask you yeah, let me
ask Miss O'Reilly a question. I don't see if the problem in drugs is that there
is a lack of competition, there are a number of drug companies in the United States O'REILLY: That's one of them. CRANDALL: ...And around the world; and a lack
of innovation, how regulation, which is designed to keep products off the market, that is,
further restrict the supply of drugs is going to enhance either competition or innovation;
as a matter of fact, everything that I have learned in economics would tell me that that
is likely to reduce innovation and reduce competition.
And one of the great benefits
of drug regulation is that if I'm a pharmaceutical company with an old tried and true drug on
the market, I really want the FDA to keep new drugs off the market. It will enhance
the market value of that drug. I think that's the lesson that you learn from
government regulation, whether it's National Highway Traffic Safety Administration regulation
of fuel economy standards, be it drugs, be it pollution controls, their effect is anticompetitive,
it's not procompetitive at all. FRIEDMAN: It I go on with Bob's point for
just a moment.
He and I, I'm sure, and all economists would agree that the most effective
way to stimulate competition would be to have complete free trade and eliminate tariffs.
The most anticonsumer measures on our statute books are restrictions on foreign trade. MCKENZIE: Milton FRIEDMAN: Has the Consumer Federation of America
testified against tariffs? O'REILLY: We haven't even been asked to. (Laughter) MCKENZIE: Now, the Food and Drug Administration,
and here, Doctor, I know you're keenly interested in this what was your reaction to Milton's
analysis of where it's fallen down? LANDAU: Well, I think it's even worse than
Milton's analysis or Dr. Wardell's analysis of it.
If one could look at the past 25 or
30 years of new drug innovation, one could see that most of the drugs that you all would
regard as miracle drugs were developed before the Kefauver Amendments. MCKENZIE: That's the 1962 amendments LANDAU: The 1962 amendments. MCKENZIE: Which ruled what now again, just
a rundown. LANDAU: Well, the 1962 amendments as Milton
said, added efficacy to the regulation of safety.
Actually it's what the regulators
did with this law that went haywire. I don't see how one can object to the law in itself.
But what the regulators did was go mad with respect to safety. When the only thing that
was added to the law was the point of efficacy. MCKENZIE: Yeah.
LANDAU: After all the two are intertwined
inextricably for a very hazardous disease like cancer you will tolerate a very dangerous
drug and for a headache it's got to be very, very safe. Now this we've know all the time,
but the regulators have gone to the point of utilizing some hysteria over thalidomide
and new legislation which I think was originally designed by Kefauver to get himself to be
president by lowering the cost of drugs, to make regulations which are absolutely obstructive.
Now instead of 75 percent of the new drugs used in this country being developed in this
country, less than 25 percent of them are. They're being developed elsewhere. MCKENZIE: Yeah, now could we just clarify
this point, though.
Are you saying there should not be government intervention in the food
and drug field of that kind, or is it simply the policy adopted by the FDA or imposed on
it by the Kefauver Amendment is where it went wrong? LANDAU: I believe that certain guidelines
are necessary and it's possible to construct guidelines based upon the Kefauver Amendment
taking the responsibility for decision-making away from the bureaucrats in the Food and
Drug Administration. You say, how? I would say by giving it to panels of impartial experts
to make this decision. MCKENZIE: Now, Milton, do you take that? Do
you buy that? FRIEDMAN: Nope. I'm not gonna buy that.
O'REILLY: Can I comment? MCKENZIE: Why not? FRIEDMAN: Because I have never seen have
you ever seen a cat that barked? MCKENZIE: Not especially, no. FRIEDMAN: Well, governmental agencies and
governmental laws follow their own laws. Just as the physical laws say that cats don't bark,
these laws of social science say that when you start and set up a regulatory agency with
power, those powers are going to be used. MCKENZIE: I want to move on, though, to the
third area that Milton chose, the Interstate Commerce Commission as an illustration.
Now
this is closer to you line, Robert. What is your reaction, first to his analysis and what
do you think needs doing about it? CRANDALL: Well, you're not going to get much
dispute from, I don't think anybody's sitting around here as to what the benefits of or
costs of rate regulation in transportation are. The only group that you will find now
supporting continued regulation would be the American Trucking Association, and they can't
even make a very persuasive case or one that is consistent from one day to the next. There simply is no good reason for continuing
this type of regulation.
It might continue longer then, say, airline regulation did because
the number of people whose wealth has been enhanced by this regulation, that is people
who drive trucks, people who own licenses to operate, to haul only hardbound books between
Peoria and Springfield, Illinois or something of that sort, those people are very numerous.
And it's going to very hard to do something about it. Or is it simply an example of where the thing
was done extremely badly and not in the interest of the public? CRANDALL: It proves I think it proves
a great deal about government regulation and it is no different, I don't think, in the
area of health and safety regulations. Let me give you one piece of information about
one area of very important health and safety regulation which I think even Milton Friedman
would be in favor of in some form, and that is the regulation of pollution control or
at least the establishment of property rights, so as to somehow reduce pollutant levels from
what they would be if we allowed unlimited pollution. In the case of environmental policy, the strongest
proponents in the Congress for environmental policy come from the northeastern part of
the United States, and the weakest proponents, those with the worst voting records in the
Congress come from the Southwest and Alaska.
You might ask yourself, Why is that?
And one possible answer I guess is that, well, the air's dirty in New York City, but I don't
think you find many people really worried about the quality of the air in New York City.
What they're worried about is their future employment and the value of their assets in
New York City. What would happen in the absence of environmental
policy in this country is that more business would move to the Southwest and to the Western
part of the United States. As a result, Eastern Congressmen are very much in favor of a policy
which prohibits through pollution control regulations, prohibits a gravitation. MCKENZIE: Do you favor that, too? CRANDALL: I don't prohibit the form it takes,
but they use this as an excuse, just as they will use various excuses, let's say, before
the Miss Claybrook's agency, to plump for a very tight standards in order to promote
the value of their product.
MCKENZIE: Well before we go back to ICC, and
I want to do that, Milton, what's your reaction to his pollution point, because I know he's
very keenly interested in it? FRIEDMAN: Well he and I would I would
agree with his general position that there is a role for government in pollution. I would
agree, second, that the present techniques of controlling pollution are terrible. And
they are terrible and they are what they are for precisely the reasons he specifies because
they are an effective way in which you could use the excuse of pollution to serve some
very different objectives. That's part of the way in which governments meow, if I may
go back to my cat.
We've discussed this at greater length in a book that we've written
to go along with this program on Free to Choose. The program itself was too short for us to
be able to get much in about pollution. Indeed, we really had to skip it, because it's such
a complicated and difficult subject. But there is a real role for government because
that is a case in which you're protecting third parties.
And every one of the valid
cases, in my opinion, for government entering in has to do with third parties. There's a
case for requiring brakes because that's to protect the person you might hit. That's wholly
different. There's no case for requiring an airbag in my opinion, but there is a case
for requiring good brakes.
MCKENZIE: Do you accept that distinction,
by the way? O'REILLY: No, because when you're injured
because of a failure to us a passive restraint, I am in a sense going to have to help pick
up part of your medical bills, part of your insurance rates FRIEDMAN: Absolutely. O'REILLY: ...Because they're spread across. FRIEDMAN: Absolutely. O'REILLY: And so only on Gilligan's Island,
when you have six or nine people not interacting such that all of society is affected, does
your distinction have any validity? FRIEDMAN: Go slowly.
CRANDALL: The same thing is true in alcohol.
When you're sick from alcoholism, who pays for it? O'REILLY: On the alcohol, the studies have
only shown excessive amounts of alcohol to be injurious. CRANDALL: I'm not speaking of accidents. What
about cirrhosis of the liver, my dear? It's a very common disease. O'REILLY: All of the reasons why we need a
stronger LANDAU: Because it's a long and expensive
disease.
MCKENZIE: Could we pause on Milton's made
a very interesting distinction here, that you can damage yourself, you've been saying.
Or it's up to you if you want to run the risk of damaging yourself, but if -- but can you
make the distinction. FRIEDMAN: But let me go back to her question
because she says, "No, we mustn't do that because the fellow who hurts himself is going
to go to a government-subsidized hospital." O'REILLY: Not just government, no, no. CRANDALL: Oh, but it's more than that. It's
all the parties and liability as well, answer that issue with it.
Because my FRIEDMAN: Go slowly. Let me separate the two
issues because I really want to get to this because your answer is a very favorite one
and there is an element of validity to it. Of course. Well, it's only because we've made
two mistakes.
O'REILLY: But you don't have to be in a government
hospital for it to be valid because when you're in traction FRIEDMAN: Excuse me. Hold on for a moment.
Hold on for a moment. The problem with your answer is that you're saying one wrong justifies
another. I believe that we ought to have much less government intervention into those areas
as well.
And I don't am not willing to follow a policy which implies saying, you
that every person goes around with a sign on his back saying, "Property of the U.S.
Government do not mutilate, spindle or bend." O'REILLY: Do you favor the government intervention
in those areas where, for example, the bar associations and the eyeglass industry were
not allowing their members to advertise and then the Federal Trade Commission stepped
in and now consumers have the ability to make those kinds of comparisons? FRIEDMAN: You're getting into another area,
but the answer, a brief answer because we oughtn't to discuss this here; I am against
those governmental measures which have enabled the organizations to have the power to prevent
advertising. O'REILLY: But they were no government MCKENZIE: Now, now look, Bob Crandall said
Bob Crandall said that in an area like the Interstate Commerce Commission there is
nothing really to be said in defense at all. Does anybody dissent from that or have we
knocked them down flat? FRIEDMAN: That happens to be the one area
on which, so far as I know, you cannot find any dissent anywhere, even one of the
most effective presentations of what was wrong with ICC was done by one of Ralph Nader's
groups, maybe you were associated with that group. That's the thing that really baffles
me.
Fundamentally, here are people, like Ralph Nader and his groups who look at an ICC and
what is their solution to the problem? More of the same, a different kind of regulation
CLAYBROOK: No. FRIEDMAN: ...The only problem is that the
wrong people were in there regulating. CLAYBROOK: No, no, no. That's not true.
No,
that's a complete misrepresentation. MCKENZIE: You work with Nader now, that's
CLAYBROOK: Yes. FRIEDMAN: That's Dr. Landau's solution for
the medical problem.
Let's have the right people doing the regulating. CLAYBROOK: No, no, no. That's a complete misnomer
about the difference between ICC and Health and Safety regulation. There are a number
of differences.
One is, one involves the economics and the benefits of profits to industry and
the other involves the sanctity of life in among people. FRIEDMAN: Excuse me. MCKENZIE: Now let her finish this point, Milton. FRIEDMAN: Okay.
MCKENZIE: Yes. CLAYBROOK: The second one, and it deals with
your third-party relationship, is that what you're talking about there is brakes because
they're gonna affect somebody else, but there are also other third-party effects. For example,
if you don't have a helmet used by someone and you hit them with your motorcycle, you're
gonna have huge damage payments to make because they didn't properly take proper precautions
on the public highways. And the question is: Should the public highways be used so that
they're gonna harm somebody else, potentially? FRIEDMAN: There is nothing that two people
do in a world.
No man is an island to himself, everything has third-party issues. But you've
got to have a sense of proportion. And the important thing is that government intervention
has third-party issues. When government intervenes into these affairs, that harms third parties.
It picks my pocket.
It reduces my freedom. It restricts many activities around the world. CLAYBROOK: That's what you question is: what
are the benefits? And if the benefits in the auto field, for example, are 55,000 deaths
saved, it means FRIEDMAN: That's a very dubious statistic
because once again every study has looked at the benefits and not looked at the costs. CLAYBROOK: Oh no, that's not true at all.
Absolutely not that they haven't looked at the costs.
FRIEDMAN: I mean the costs in life. You haven't
looked at the fact, for example MCKENZIE: Let me clarify this, Milton. I don't
quite follow you. FRIEDMAN: Sure.
FRIEDMAN: Of course. MCKENZIE: Yeah. FRIEDMAN: Look, take the automobile. By making
automobiles much more expensive it makes it more profitable to keep older automobiles
on the road.
The increased age of the automobile is an antisafety factor. By making automobiles safer so people are
can drive them, people drive them faster or more recklessly then they otherwise would.
There are more pedestrian deaths. CLAYBROOK: That's a totally unproven and indeed
fully rebutted theory. And, in fact, all the savings in lives could MCKENZIE: By whom? You or CLAYBROOK: Well, no, there are numerous studies,
including from- MCKENZIE: Yeah, I see.
CLAYBROOK: ...Yale and Cooper from Yale and
so on, but the key issue has been shown by the regulation that's been in in the last
ten years, you've had a huge saving in lives, a decrease in the the vehicle deaths that
have occurred, the rate of vehicle deaths occurred and so on. FRIEDMAN: Let me go back again for a moment. CLAYBROOK: Yes. FRIEDMAN: You see, the major effect on the
saving of life has been from 55-mile-an-hour speed limits.
CLAYBROOK: Oh no, that's not true. FRIEDMAN: Which is not after all in there
CLAYBROOK: Well that is also a regulation. FRIEDMAN: ...As a safety regulation. That
primarily is a fuel regulation.
CLAYBROOK: Yeah, that's right. It's a regulation. MCKENZIE: Yeah. CLAYBROOK: But your statement's not accurate.
FRIEDMAN: All right. CLAYBROOK: That the savings in life have not
been primarily they've been, they're important from 55. But there have been 55,000 deaths
saved by vehicle crash safety regulations. FRIEDMAN: Excuse me.
CLAYBROOK: Uh-huh. FRIEDMAN: There have been 55,000 deaths that
you have estimated to have been saved by it. Other estimates CLAYBROOK: Not me, the General Accounting
Office. FRIEDMAN: Excuse me.
Other estimates as well,
the estimate by Professor Sam Peltzman of this university, a very, very serious study
estimated that there were no lives saved if you took into account all of the indirect
effects. Now maybe his study isn't exactly right. CLAYBROOK: I don't think it is. FRIEDMAN: I'm not going to try to but
maybe the other study isn't exactly right either.
If it's even in between. FRIEDMAN: No, no. I beg your pardon. If people
voluntarily want to risk their lives.
Are you saying again you really would not be in
favor of prohibiting hang-gliding? CLAYBROOK: We asked the auto we asked
the auto industry if FRIEDMAN: That's far more dangerous. Did you
prohibit the 500-mile speedway? CLAYBROOK: I think the let me answer this.
We asked the auto industry if they would remove all the safety standards that have been in
effect since 1968 and what would be the savings to the public if they did that. And the answer,
sir, that they came back with was, "We couldn't remove those, they expect them now." The laminated
windshields that don't crack their head open and the collapsible steering assemblies and
the padded dashboards. That why the public that is now the societal norm.
Regulation
has changed the thinking of the public and the understanding of what's possible and so
the, you know, what you're suggesting is that government regulation is willy-nilly and it
produces things the public doesn't want, but you don't have any FRIEDMAN: Excuse me for a moment. You can't
take credit for everything that's happened in this area. Four-wheel brakes were introduced
before there were safety regulations. Many of these developments would have MCKENZIE: Well, we leave the matter now for
this week and we hope you'll join us again for the next episode in a week's time..
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