Friday, January 14, 2011

Regulating toys and guns

In his latest column Nick Kristof poses the following question:
To protect the public, we regulate cars and toys, medicines and mutual funds. So, simply as a public health matter, shouldn’t we take steps to reduce the toll from our domestic arms industry?
But is Kristof's implied premise -- that regulation of these other areas has proven beneficial -- correct? Let's review our experience with regulation in these sectors:

Cars: The first instance of federal safety regulation of the auto industry occurred in 1940, when automobile design legislation was passed concerning sealed beam headlamps. After that nothing much occurred until the mid-1960s as pressure began to mount for more regulation (with Ralph Nader figuring prominently), culminating in the Highway Safety Act of 1970 which established the National Highway Traffic Safety Administration.

Did highway safety improve after such regulation was implemented? Yes. But as this chart reveals, safety had been improving long before such regulations were put in place:

Meanwhile, as this paper from a University of Nebraska economist notes:
In a column for Automotive News in May 2000, Murray Weidenbaum stated that safety and emission requirements added $2,500 [over $3,000 in 2009 dollars] to an average new automobile’s price. The higher price forcing motorists to drive their old cars longer before they replace them largely cancels out intended environmental and safety benefits, Weidenbaum observes (2000, p. 14).
Thus, an argument can be made that regulations have actually been counterproductive by raising the cost of cars and keeping people in less safe vehicles than would otherwise be the case. Does this augur in favor of regulation? Suffice to say that is less than clear.

Toys: In the statist mindset if there is one product that deserves to be regulated it is toys. After all, if government won't look after the children who will (other than, ahem, the parents)? In reality, however, toy regulation is best understood as a means for big business to crack down on its competitors as Tim Carney explains:
Under the Consumer Product Safety Improvement Act (CPSIA), every manufacturer of children's products whether a toy truck, a pacifier, a picture book, or a kid-sized stool must submit their products to independent tests for lead and other chemicals before selling them. Well, all manufacturers except for Mattel, the largest toymaker in America.

Recently, the Consumer Product Safety Commission (CPSC) voted unanimously to grant Mattel an exemption from the CPSIA's third-party testing requirement. The law provided for such exemptions if a company can demonstrate it has its own testing facilities that meet a certain standard.

Mattel in 2007 and 2008 lobbied for this provision, and lobbied for the overall bill, prompting the usual cries of "wow, even industry is on board!" Of course, Mattel was already completing its own in-house testing operation as a reaction to the bad publicity and litigation resulting from a handful of recalls of its toys containing unsafe levels of lead.

In light of the company's poor practices, the market and the courts forced Mattel to ramp up testing of its products. Then Mattel lobbied to force the same burdens on every competitor, even the man hand-carving toddler-sized chairs in his backyard workshop.

...Remember, Mattel lobbied for this bill, and the Toy Industry Association said "we were early proponents of adopting mandatory laws to require toy testing." Hasbro, the second-biggest toy-maker behind Mattel, hired lobbyists for the first time in its history in order to back the CPSIA.

The regulation--even without the exemption for Mattel--imposes crushing burdens on smaller manufacturers and moderate burdens on the biggest manufacturers. If you have to test a sample from each "product line," but your "product line" is about 50 hand-sewn baby dolls, you might just close up shop. For Mattel, it's just a new expense.
More on the CPSIA's impact on small toy makers here, here and here. Is this really a model worth following?

Medicine: The downside of federal regulation of medicine is quite obvious, as John Stossel points out:
[Bruce] Tower has prostate cancer. He wanted to take a drug that showed promise against his cancer, but the Food and Drug Administration would not allow it. One bureaucrat told him the government was protecting him from dangerous side effects. Tower's outraged response was: "Side effects — who cares? Every treatment I've had I've suffered from side effects. If I'm terminal, it should be my option to endure any side effects."

Of course it should be his option. Why, in our "free" country, do Americans meekly stand aside and let the state limit our choices, even when we are dying?

Dr. Alan Chow invented a retinal implant that helps some blind people see ( Demonstrating that took seven years and cost $50 million dollars of FDA-approved tests. But now the FDA wants still more tests. That third stage will take another three years and cost $100 million. But Chow doesn't have $100 million. He can't raise the money from investors because the implant only helps some blind people. Potential investors fear there are too few customers to justify their $100 million risk.

So Stephen Lonegan, who has a degenerative eye disease that might be helped by the implant, can't have it. Instead, he will go blind. The bureaucrats say their restrictions are for his own safety. "There's nothing safe about going blind," he says. "I don't want to be made safe by the FDA. I want it to be up to me to go to Dr. Chow to make the decision myself."
In other words, federal regulation is keeping potentially helpful remedies out of the hands of people who most desperately need them. How does that serve the interest of anyone? Why is this a regulatory model worth embracing?

Mutual funds: This is a more difficult subject to comment upon, as mutual funds first appeared in the mid-1920s, suffered along with the rest of the stock market in the crash of 1929, and then was regulated shortly thereafter via the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940. Thus, comparing mutual funds before and after regulation is difficult. However, it's worth noting that finance is arguably the most regulated sector of the US economy and yet has still been plagued with problems, helping to precipitate the most recent recession.

Why Kristof believes that our experience with regulation in these areas should lead us to embrace the increased regulation of firearms is far from clear.

1 comment:

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