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The basics

I'm not someone who thinks the government is all bad, nor am I one of the sheep that think that the government is all good either. Controlling something through government is just a political process that increases bureaucracy. And bureaucracy is not all bad either; just a series of rules, processes, hierarchies that slow down progress (red-tape), but increase potential accountability and order. This too is good or bad, depending on degrees, balance and the needs of the problem.

Every action has an opposite reaction; but in politics (unlike physics and conservation of motion) they are not always equal. To understand the costs of our actions, we need to look at all the reactions, and especially the hidden costs. An example of all this, is the FDA (Federal Drug Administration).

Look, we all know the good the FDA does. It helped reduce quackery, medicine men and snake oil salesmen from selling false cures. But is the cure of a out-of-control clueless government bureaucracy micromanaging our health and sky-rocketing our costs, and delaying cures really a benefit? To know the answer to that, we need to know both sides; and what are the costs. This is about those costs. Things like:

  • On average, it now takes $802 million, including the cost of capital, to come up with a new pharmaceutical product.[1]

With the cost of drugs going up, people turn to alternatives (other nations where they're cheaper) or alternatives which may not be effective, but are affordable.

  • "From 1990 to 1997, the use of herbal remedies increased 380 percent," reports Carol L. Norred, C.R.N.A., in a study published in the February 2000 Journal of the American Association of Nurse Anesthetists . She adds that data from 1998 indicate that about 37 percent of Americans used herbs during the previous year, spending more than $3.87 billion for these food supplements.


Here's the FDA's budget over time. Doesn't look like huge cuts are driving the problems -- I see 2,500 million dollars (likely not counting all the user fees) with most of it going to waste on something that could be better done with private competition, like the UL.

There is a common fallacy. "If we don't continue this disastrous failing program, why then you want NOTHING? Anarchy? Dog's and Cat's living together? Oh the humanity".

Of course that's stupid. (No offense).

  • (a) even if it was true, it wouldn't make this failing system any better
  • (b) it's not true, there's lots of ways to solve a problem, we picked the worst way (a socialist/centralized/politicized boondoggle).
  • (c) even if I wanted to eliminate it, you need to look at what would happen -- companies would figure out ways to secure their own quality to the public. Have you ever heard of the Insurance Institute for Highway Safety that does you car ratings? Oh yeah, they're a private / not-for-profit organization.

The false choice is: (a) the government does it (b) nobody does it

The real world choice is: (a) the government does it poorly for more costs, wastes and bureaucracy and based on politics (b) the private sector would do it (if the public demanded it), only it would do it better, for less costs and more value, and improve over time more than the politically driven government solution.

BTW -- I looked it up. It appears to be less than 1 recall per day. And some of those recalls look pretty unnecessary, "process might lead to potential contamination that could result in X". Or "May contain egg", "Undeclared peanut and tree nuts", or birdfeed that may contain "Excessive sodium", or the label may not have listed nuts, etc. And if you dive deeper, you find the gross majority are the COMPANY doing the recall. (It didn't sound like the FDA caught anything). And when you read the Press Releases, they say "no reported cases of reaction".

That and a $2.5B budget, that means a cost of about $6.8M/recall (with the majority of them being completely unnecessary).=

Skim Milk: Government Regulations are when the government tells you what to do, then charges you for doing it. Certainly not all of it is bad... but we must also recognize that it's not all good or helpful either. There have to be things that keep balance and from bureaucracies which run amok. Like the following video where a farmer must mislabel his Skim Milk products as artificial, because he didn't add the artificial ingredients (vitamins and nutrients) that the government demands): https://youtu.be/t5NJH0OQyCE


Let's start from the top. Think about the economics of it. By the time drugs get to phase II and phase III clinical trials, they've already passed a few other screenings. Only about 25% fail at this point (1), but they are delayed many years still.

So if you want to calculate the net benefit of the FDA, you have to compare only delta captures versus delta costs. e.g. how many EXTRA drugs does the FDA's far more bureaucratic process catch, over how many false positives they prevent from getting to market, and how many drugs that are in the pipe they delay getting to market (thus all people dying from lack of these drugs, can be attribute to).

Even if all the 25% were valid and only caught through the FDA process, we'd be losing at least 3x as many people as we're saving. And the truth is, probably 95% of that 25% would be caught through far simpler and far quicker systems (and a few are blocked on false positives that would have helped many). That means about 98.75% of the drugs are falsely blocked/delayed (by about 4 years), for a 1.25% capture rate. Now figure out how many people are dying suffering because of those drugs, for the very few (1.25%) that are protected by the capture rate. And remember the false positive rate (estimated to be about 10%) prevents 8x as many good drugs from coming on market, than it prevents bad drugs from coming on market. Some people see a win, but only by ignoring all the costs.

Instead of creating a slow government bureaucracy that hides the cost/benefits and offers no real value to companies (just a burden), and no consequences for false positives -- in the freer electronic market, we setup the UL (privately run underwriters laboratory) to offer quicker and more efficient testing, without a government bureaucracy -- and to add value of giving companies liability protection, since it can be shown they went through proper and reasonable testing. Tada.

But instead of that, we created a federal bureaucracy under a false premise, to promote crony capitalism. Seriously, trace back when the FDA was created and why. It was using Upton Sinclair's "The Jungle" which was full of known falsehoods about the meat packing industry, and multiple investigations showed it was a work of fiction. So Roosevelt exploited that fraud to get new laws passed, so that he could regulate food and drugs, and by controlling who got passed or not, he could pick winners and losers (and control the power, influence, and bribes). And that was expanded upon over the years.

The results are that there's few benefits for the FDA to be efficient, and a lot of risks. They don't get held accountable for blocking or delaying drugs, only for drugs that might have some extremely rare tertiary consequences in a small fraction of the people taking them (with some bizarre interaction with something else). So they'll cause the 99% to suffer (or possibly die), to protect the 1% from something unlikley, because that's what's politically expedient.

Thus, the system is a net loss. Like I said, it's the TSA of Food and Drug protection. I only developed medical instruments for 6 years full time (about 9 or so with later small consulting gigs). And I was more in the instrumentation side than the drug side. (I keep one of the instruments I developed in my office: one they used to save my wife's life). But the point is just the math/logic/ratios.

The FDA saves a few lives, but for each one it saves, it costs hundreds. That's before looking at the opportunity costs of capital. Figure it's 10x more expensive to develop a drug in the U.S. because of the FDA (that's probably conservative). Now figure out how many more drugs/treatments/services would be developed, how much more competition we'd have (and thus lower margins), and all the life savings procedures because of those things keeping us safe. (Not to mention all the corruption, abuse, and false senses of security that didn't materialize), because of the FDA.

It's been a boondoggle, but I know mere math, logic, economics, history, will ever convince anyone that wants to believe otherwise. The same way some people think the TSA keeps them safe.


I'm not someone who thinks the government is all bad or is all good. Controlling something through government is just a political process that increases bureaucracy: a series of rules, processes, hierarchies that slow down progress (red-tape), but increase potential accountability and order. This too is good or bad, depending on degrees, balance and the needs of the problem. And that's key, it is all about the balances, and whether you get the implementations right.


Here's some articles if you want to learn about the topic:

Written: 2003.08.07 Edited 2017.04.15