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.
(car engine roaring, tires squealing)
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 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.
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.
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)
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.
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.
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.
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.
(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.
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.
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
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
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
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.
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.
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
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.
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.
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?
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.
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.
Has the Consumer Federation of America
testified against tariffs?
O'REILLY: We haven't even been asked to!
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.
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
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
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
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.
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.
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
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
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.
CLAYBROOK: But your statement's
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
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
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
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.