Hello, I’m 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 it; 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? That’s the question Milton Friedman asks in this film. (opening music) (car engine roaring, tires squealing) MILTON FRIEDMAN: The 1960s Corvair, condemned by Ralph Nader as unsafe at any speed. (tires squealing) Since Nader's attack it is being increasingly accepted that we need government protection in the marketplace. (water splashing) 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 third 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 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. (telephone ringing) Consumer Product Safety hotline - can you hold please? Thank you. The Consumer Product Safety Commission is one of the newest agencies set up on our behalf. (phones ringing, workers talking) One of its jobs is to give advice to consumers. The cue 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. (typing sounds) It's hard to escape the visible hand of the Consumer Product Safety Commission. Except for food and drugs, ammunition and automobiles- which 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. (bicycle brake sounds) 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. (match being struck) 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. (match being struck) (telephone ringing) Consumer Product Safety Commission. (swing slamming into metal) No matter how many tests are done, children's swings are never going to be totally safe. You cannot outlaw accidents. (cap gun popping) 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. (various toy gun noises) Consumer Product Safety... FRIEDMAN: The Commission, in effect, is deciding what they think is good for us. They are taking away our freedom to choose. (bicycle clattering) 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- you’re 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, you’re 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 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. FRIEDMAN: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. (train whistle) In the 1860s, 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. (classical music playing) 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. (trainyard sounds) The people who benefited most from this competition were the customers shipping goods on a long trip. (locomotive starting to move) 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 consumers' 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! (train moving on tracks) The first Commissioner was Thomas Cooley, a lawyer who had represented the railroads for many years. The railroads continued to dominate the Commission. (truck engine) 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. It’s the only one serving some routes- and its customers depend on it. But Dayton Air Freight 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. 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. The owners of the firm have been trying for years to get their license extended to cover more routes. Now, I have no 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 Air Freight suffers, but so do the customers, who pay higher freight charges. 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 Air Freight to help us save money, help free enterprise, help the country save energy, help, help, help! It all comes down to the consumer’s ultimately going to pay for all of this... and they are the blame. The ICC has to be the blame. FRIEDMAN: Dayton Air Freight 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. (harpsicord playing) FRIEDMAN: 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. 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, where as 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. DR. WARDELL: 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 drugs that are effective. Now, I've heard some remarkable statements from some of 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 is 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 was prohibited by the FDA. (car engine starting) 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. (roaring waterfall) Once across the border at Niagara Falls, Mrs. Usdane could make use of a prescription that she’d obtained from a Canadian doctor. All she had 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 of a 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 border. 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, a 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. (loud machinery) 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? (jazz music) 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 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 physician 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 hang 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. 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, let’s 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, let’s 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 disbursed, 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: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. And why is it 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, let’s 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: 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: If government has information - MCKENZIE: Has or obtains? 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 the car. FRIEDMAN: Have to...why have to? And it's a very -- it's a very minimal FRIEDMAN: Why have to? FRIEDMAN: 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. (Laughter) Well, you know! CLAYBROOK: Do you wear you seatbelt? 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. I beg your pardon? CLAYBROOK: Yes. FRIEDMAN: Other things are precious, too! CLAYBROOK: Yes. Okay, but wearing your seatbelt is a relatively simple thing to go into. 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? 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...
McKENZIE: Prohibition? ...prohibition could work. Would you be in favor of it? 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. 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 McKENZIE: 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-- if 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 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 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. There is no 1941 study. This happens to be my area of expertise, I'm an endocrinologist. There was nothing. 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 procompetitve at all. FRIEDMAN: If I can 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- 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- The 1962 amendments. McKENZIE: Which ruled what now again? Just a rundown... 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. 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 don't buy that. 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 your line, Robert. What is your reaction, first to his analysis and what do you think needs doing about it? 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 than, 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. McKENZIE: Does this prove anything about the nature of government intervention and regulation, 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 Congess come from the Southwest and from 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? 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 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 use 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. 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 a 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. 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 FRIEDMAN: doing the regulating.
CLAYBROOK: No, no, no. CLAYBROOK: 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. 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.
MCKENZIE: Would you explain what you mean exactly? 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 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- 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? 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. There have been 55,000 deaths that you have estimated to have been saved by it. CLAYBROOK: Not me, the General Accounting Office. FRIEDMAN: Excuse me. Other estimates 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. (Laughter) O'REILLY: But if you're somewhere in between. If you look at -- consumers have have done well 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 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.
