Down with the FDA?

Reader Malignant Bouffant emails the following question:

Heard a guy from the Ayn Rand Institute on the radio this a. m. stating that the FDA is no good, & that liability suits & accountability are really what's needed in a true free market to lessen the possibility of outbreaks of salmonella from tomatoes, for example. Do you agree w/ this, or do you think that a certain amount (certainly more than we have now) of gov't. regulation/inspection is necessary in the food chain?

I know "Send in Your Questions Day" is over, but I wondered about your approach to this when I heard it discussed.

First of all, "Send in Your Questions Day" is never over here at AI; I may not answer all of them, but I welcome requests at any time.

Onto the actual question.

The idea of strict liability is a popular one in libertarian circles--many more hard core libertarians support the stripping of limited liability from corporations.

I am not a fan of this latter idea. Lawsuits are expensive and inefficient; medical malpractice, probably the best model we have for this idea, does a pretty terrible job of allocating awards to people who have been harmed by doctor malfeasance--there's only a very loose relationship between who is harmed and who sues, and who is harmed and who wins. Juries in obstetrics cases are particularly notorious for giving awards to parents of congenitally deformed babies on thin evidence, but the problem is not limited to OB/GYN. On the other side, disliking your doctor is probably a better predictor of whether you will sue than actual malfeasance.

Moreover, the harm is not necessarily proportional to the size of the company. A small farm with a bad salmonella problem could make a lot of people sick, but have few assets to take. Again, there is a flip side to this--lawyers often go after the people with the biggest pockets, rather than the people who have caused the most harm. The current asbestos debacle is a good example of this.

In my opinion, the government has a valuable role in providing transparency. The USDA meat grading system is pretty valuable, for example. I think the food and drug industries tend to be badly regulated, and overregulated, but I do not think we would be better served without an FDA. Rather, I think we would be better served by focusing on a certification model rather than an "everything not compulsory is forbidden" model. I don't think the government has any business telling people they can't drink unpasteurized milk, but I think it can play a valuable role in deciding what constitutes pasteurization, and forcing companies to honestly tell their customers whether or not they meet those standards.

Now, these functions are often ably served by private organizations--FASB, which sets accounting standards, is both private and the best accounting body in the world (IMHO). Similarly, the ASPCA and the Humane Society are doing great work with their Certified Humane program, which sets farming standards and inspects farms that want the coveted certification to ensure that they meet these standards. But where there are gaps in the market for standards and transparency, I think it's desireable for the government to step in.

Update The lawyers in the comments point out that I have used strict liability incorrectly. The correct phrase is probably unlimited liability.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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