End the FAD!

The United States has two regulatory agencies that set standards for the entire world: the Food and Drug Administration, which regulates pharmaceuticals and medical devices, and the Federal Aviation Administration, which regulates—you guessed it—airplanes. If you want to make a drug and sell it to the enormous American market, your factory, whether in Pittsburgh or Pune, will be inspected by actual FDA inspectors. If you book a flight from Santiago de Chile to Bogotá, the plane probably carries an airworthiness certificate from the FAA, even if it has never touched down on American soil or been touched by a US mechanic.

Though these agencies are globally dominant, that does not mean that they are efficient or good at their jobs. The Boeing 737 MAX had all the requisite FAA approvals—up to the two crashes that killed 346 people. The FDA, economists estimate, has killed about as many people (perhaps more) by delaying new drugs as it has saved by keeping unsafe ones off the market, and the two or three billion dollars it costs to comply with the FDA approval process ensure that many promising treatments for rare or unusual conditions are never brought to market at all. American lifespans are getting shorter even as the FDA extends its tentacles to more and more of our lives.

In fact, neither regulatory job is really needed in its present form at all. The FAA, the FDA, and a whole host of federal agencies regulate products and activities by imposing prior restraint—and do so poorly. The tort system, through the courts, regulates products and activities after the fact, and so only intervenes when somebody can make a plausible case that something has gone wrong. And when something has gone wrong, those who did it, whether through negligence, malfeasance or greed, are punished in such a fashion as to deter others from offering similar unsafe products or services.

We can’t simply substitute after-the-fact regulation for prior regulation, though, because we have to keep fly-by-night operations from selling bad drugs or bad airplanes and then declaring bankruptcy when their negligence is shown up in the headlines or in the courts. But we can substitute for the expensive and ineffective federal licensing rules a simple requirement that anybody who wants to market a drug or an airplane can do so if they put up an appropriate surety bond from a suitably well-capitalized (and regulated) insurer.

If you want to sell a new pill to prevent heart disease or a cream to prevent eyelash loss, feel free to do so as long as you put up a three-billion-dollar bond from a suitably gilt-edged insurer. If you have an innovation that will save fuel by giving commercial passenger planes the dynamic instability of stealth fighter jets, persuade General Re to write you the bond and go ahead.

For pure profit motives, insurers will take efficient steps to inspect and police the products and services that the insured are offering, just like they collaborated to create Underwriters’ Laboratories (now UL Solutions), which puts its logo on smoke alarms and electric toothbrush chargers.

In the last 50 or so years, growth and innovation have slowed while the regulatory state has grown more encompassing. If we want to ensure that our children and grandchildren are healthier, live longer, and can fly more safely and more cheaply into their ever-extended golden years, we need to end the FDA and the FAA as we know them and replace these bureaucratic Goliaths with regulatory schemes that exploit competition and the corporate greed of entrepreneurs and insurers to foster safety and innovation.