An Invisible Graveyard

When risk aversion kills

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The FDA, the government agency tasked with ensuring the safety of food and drugs, could be responsible for tens of thousands of “invisible” deaths every year. Indeed, in the latter half of the 20th Century, the relentless expansion of regulation and bureaucracy was justified by specious claims of curtailing safety and environmental risk. However, progress, as we have seen, necessarily entails some level of risk in the short term to reduce overall risk in the long term. Our attempt to build a perfectly safe world, a world made of pillows, threatens to suffocate us all beneath it.

A Negativity Bias

It’s human nature that which comes suddenly is more likely to grab our attention than that which arises gradually. Indeed, almost by definition, good news comes gradually, while bad news comes suddenly. This ingrained biological attraction to negativity, as we previously discussed, creates a strong bias in the media and distorts our understanding of risk and reality. When a country suddenly descends into civil unrest, the tragedy and destruction make headlines. The moment peace is restored and the gradual process of rebuilding ensues, that same country drops off the radar as if nothing further happened there.

This “reality distortion field” has a tremendous impact. In 2016, Dutch researchers asked 26,492 participants how global poverty had changed in the prior 20 years, and only 1 percent of respondents correctly answered that poverty had plunged by some 50 percent. These results were astounding because the answers were multiple choice; respondents had a 20 percent chance of randomly choosing the correct answer. Most could not imagine that the world had actually gotten better for so many people because the headlines fed to them by the media covered only hunger and layoffs, not harvests and hiring.

We cannot solely blame the media. In an experiment conducted in Canada, participants were told to read a newspaper article while they “waited for the experiment to begin.” Researchers then watched which articles the unknowing test subjects chose to read. Consistently, they sought out negative stories rather than positive or neutral ones. This cognitive bias is likely rooted in our natural tendency for loss aversion. Our brains have evolved to react more strongly to negative vs positive stimuli. Studies have consistently shown that winning $10, for example, produces far less emotion than losing $10, even if the financial impact is the same. Dr. Barbara Fredrickson, a psychology and neuroscience professor at the University of North Carolina-Chapel Hill, explained, “Negativity bias evolved because it helped our human ancestors avoid threats to life, limb, and social reputation.”

Deadly Risk Aversion

While risk aversion may have benefitted our ancestors, in modern complex societies, our cognitive biases can paralyze social institutions through what is known as the “precautionary principle.” As eloquently put by

Max Olson

, “The Precautionary Principle says we shouldn’t pursue any action or policy that might cause significant harm unless we’re nearly certain it’s safe. The principle places the burden of proof on novel ideas to prove they are safe before they are released into the market. This burden is significant because unless and until they are released into the market, quantifying those risks is extremely difficult. It becomes a Catch-22, a convenient excuse to maintain the status quo.

With increasing enthusiasm, policymakers are willing to take regulatory action against new ideas even when the potential risks are unknown or speculative. As illustrated by Cass R. Sunstein, policies flowing from the “precautionary principle” are often logically inconsistent; they prohibit everything from consideration because all progress and new ideas engender some level of risk. Furthermore, they favor current over new risks, even if the latter is a net benefit; stasis is preferred over change. Indeed, the precautions we take to mitigate risk and negative stimuli can be deadly themselves.

The poster child of the precautionary principle is atomic power. Once promised to make energy cheap and largely pollution-free, events like the Three Mile Island disaster in the US (where no one died) led to risk-averse institutions regulating the industry to an early death. In the wake of the Fukushima Daiichi nuclear accident, for instance, the Japanese government rapidly curtailed the country’s use of atomic power. Researchers found that the government’s (over)reaction to the disaster led to an estimated 1,280 unnecessary deaths attributable to higher energy costs in the following winter. They summarized, “This suggests that ceasing nuclear energy production has contributed to more deaths than the accident itself.”

This conclusion is stark, but remember that their analysis was extremely limited in scope. It did not include, for example, the negative impact on the environment when switching from nuclear power back to climate-harming fossil fuels like coal. It also ignored the fact that coal plants produce more radioactive waste than their atomic counterparts or that coal mining is itself a dangerous job that has historically taken tens of thousands of lives. When the medicine is worse than the disease, we should probably stop swallowing the pills. After the creation of the Nuclear Regulatory Commission in the US, it took over 35 years to approve a new nuclear reactor.

The FDA was created to prevent unscrupulous food and drug producers from hawking products that were blatantly unsafe, if downright deadly. However, as these things tend to go, its power gradually expanded to become, arguably, the very thing it intended to prevent. In 1906, Congress passed the Food and Drug Act, creating the precursor to the modern FDA. At that time, the new agency had no power to review or approve new drugs before they went to the market. It merely had police powers to enforce the law after a violation took place, and the law was primarily concerned with truth in advertising/labeling.

This changed in the late 1930s when a company called S. E. Massengill began marketing one of the first antibiotics, “Elixir Sulfanilamide.” In its liquid form, the drug was prepared with a solution of diethylene glycol, a toxic chemical akin to antifreeze. Many died, not from the drug itself, but from the preparation solution. In response, Congress passed the 1938 Food, Drug, and Cosmetic Act, which catapulted the FDA into a regulator with the power to review and approve drugs before they could be sold. Crucially, however, the law gave the FDA just 60 days to vet new drugs. If the FDA could not complete its review in that timeframe, the drug would be automatically approved. Additionally, the law required that the FDA verify only the safety, not the efficacy, of pharmaceuticals.

Then, in the late 1950s, came a disaster on another continent: Thalidomide. The drug, marketed as a sleep and morning sickness aid, was deemed safe by regulators in Europe despite not having been tested on pregnant women. The drug turned out to be very toxic to unborn babies, leading to tens of thousands of birth defects and deaths. Thalidomide had not been approved in the US, but the disaster compelled Congress to increase the power of the FDA further. In 1962, Congress passed the 1962 Kefauver–Harris Amendment, which required the FDA to verify that drugs were safe and effective. It also lengthened the drug review period to 180 days and eliminated the automatic approval provision.

When you stop and think about it, this was an odd response. Thalidomide’s issue was safety, not efficacy. The FDA had prudently blocked the drug on the grounds of insufficient safety data. Why was Congress compelled to take additional action? Undoubtedly, this was motivated by the need to create the illusion of safety to satisfy the precautionary principle. Such illustrates the problem with bureaucracies; they slowly and often irrationally expand the scope of their authority over time. Since then, FDA reviews have only grown more difficult and lengthy, with delays that now suppress and stifle many life-saving drugs and medical devices, killing tens of thousands in the process and/or subjecting them to needless suffering. The FDA approval process has become so arduous that many drug formulations and devices are never funded.

Indeed, the FDA is one culprit behind “Eroom’s Law”, which states that the cost of developing new drugs doubles every nine years on average. It is also one factor explaining why drugs and healthcare are so much more expensive in the US than in other countries. Some may ask, don’t we need the FDA to verify drug safety and efficacy? Not necessarily. Foreign regulators routinely approve drugs far more quickly than the FDA does, and even in the US, FDA-approved drugs are often prescribed by doctors for uses that they were not tested for. This so-called “off-label” usage is 100 percent legal and common for people with severe illnesses.

Other industries function quite well without comparable regulatory authority. In electronics, for example, manufacturers can voluntarily submit their products to Underwriters’ Laboratories and obtain their “UL” mark. This is not a legal requirement, but many retailers require this certification for sale. The tort system and insurers who must insure product risks also naturally hold producers to account. When someone is harmed by a drug or medical device, the company’s reputation is tarnished, they are dragged through court, and often must pay significant damages to victims. The combination of private certification, courts, insurers, and doctors ensures that products are largely safe. The risk is low but will never be zero.

Even with today’s expansive FDA approval process, thousands die every year from FDA-approved products. While this is tragic, it misses the other side of the equation. As the FDA approval process became more involved over time, economists Sam Peltzman and Dale Gieringer argue, far more people have needlessly died and/or suffered because the drugs or medical devices that they needed to live were either too expensive or not available when they needed them. For example, by 1988, it was well known that taking aspirin reduces the risk of myocardial occlusion. For many years, however, the FDA prohibited aspirin manufacturers from advertising this. How many people died as a consequence?

The Spread of Risk Aversion

Risk aversion has spread upstream to research itself. Institutional review boards (IRBs), for example, are tasked with reviewing proposed research methods to ensure the safety of participants. IRBs worked well until 1998, when, during an asthma study, a patient unfortunately died. Again, an overreaction ensued. The consequence is that IRBs now exemplify risk aversion gone haywire. In one study that sought to test the transfer of bacteria on the skin, the IRB consent form warned participants of AIDS risk, even though one cannot possibly contract AIDS through the skin. It also warned of a risk of contracting smallpox, a disease that was eradicated in the 1970s. While the death of a participant is truly tragic, overprotection is more so. Tightening oversight may save one life, but it also makes life-saving research immensely more difficult, indirectly causing many more deaths.

The same phenomenon has played out with NEPA, the National Environmental Policy Act. The purpose of NEPA was to protect the environment by giving a voice to environmentalists. NEPA requires federal agencies to assess the environmental impact of their actions and gives environmentalists the power to sue and hold agencies accountable. The law requires federal agencies to produce a “detailed statement” of the environmental effects of any “major action.” In the 1970s, those assessments typically ran under ten pages in length. However, because NEPA created an avenue for lawsuits, each new lawsuit set a precedent for the next, expanding the scope of NEPA far beyond its original intent.

Today, NEPA reviews are typically hundreds of pages in length. The mean preparation time for an Environmental Impact Statement was a staggering 4.8 years in 2020. What began as an effort to curtail risks to the environment has evolved into a tool that blocks and delays projects that reduce human impact on the environment, like wind farms, solar power stations, and clean natural gas facilities. NEPA now protects the status quo, the polluting coal and oil energy infrastructure, by making it difficult and expensive to build anything else.

More broadly, as discussed by

Maxwell Tabarrok

, our efforts to preserve the environment through regulation are often hypocritical and unscientific. The US Fish and Wildlife Service, for example, is planning to kill 470,000 barred owls to protect the Northern and California spotted owls, who are unable to compete with the “invasive” species. If the goal is to minimize human environmental impact, however, our conservation actions run precisely contrary! Every species we try to protect was once an “invasive” species itself, such is the nature of the natural world. The fittest replace the fragile. In the abstract, we are deepening our environmental impact when we pick and choose certain species to protect.

Even from the perspective of preserving biodiversity, our efforts may be, at best, futile. Human activities, including the clearing of land, domestication, and hunting, are certainly exacerbating the natural extinction rate. Yet, what isn’t clear is to what extent do our activities also increase the speciation rate. Some research suggests relative balance; for every species that goes extinct due to human activity, one new species, better fit for the human industrial world, emerges. Thus, there may not be a net loss in terms of biodiversity. More research needs to be done, of course, but it seems probable that our fears of destroying biodiversity on Earth are mostly overblown.

Occupational Licensing

Overregulation has also spread into occupations themselves. According to The Hamilton Project, in 1950, just 5% of jobs in America required a license to perform them. Today, that figure is as high as 30%. This is due, in part, to shifts in the American labor force toward high-skilled services and away from manufacturing. It is also due, however, to overzealous state regulators and lobbying by professional groups under the specious guise of “safety and health,” guided by the precautionary principle.

Yet, studies examining the effects of occupational licensing have not found any discernible positive outcomes for public health and safety. For example, Kleiner and Kudrle found no correlation between the difficulty of passing a dental license exam and the quality of dentistry. Similarly, more stringent licensing of mortgage brokers does not result in fewer foreclosures. Licensing requirements often have little connection to the occupation they are allegedly regulating. For example, 16 states require a cosmetology license to perform hair braiding. The main component of a cosmetology license is the proper use of chemicals, a skillset that is not needed for braiding hair.

Many licensing requirements are illogical, unscientific, and unverifiable. In Michigan, it takes 1,460 days to become an athletic trainer, but only 26 to become an emergency medical technician. In some jurisdictions, fortune tellers even require a license. How could one even judge the quality of a fortune-teller for licensure? Additionally, licensing has spread beyond those occupations that might pose a genuine risk to health and safety. For example, there is no reason that interior designers, auctioneers, travel guides, or scrap metal recyclers need a license to work, yet many states require them anyway.

The narrative that licensing is necessary to protect public health and safety is, for the most part, false. If you still don’t believe it, consider this: licensing rules usually grandfather existing practitioners into the new regime. This means practitioners established before the licensing rules often do not have to meet their own industry standards. In other words, the rules only apply to newcomers, not to themselves. Reading between the lines, more often than not, licensing is a rent-seeking mechanism used to restrict competition. It’s not for you, it’s for them.

When competition is restricted, prices are forced upward. One study found no difference between the quality of floral arrangements made by florists in Louisiana (who must be licensed) and those in Texas (where they do not). Yet, consumers paid more for floral arrangements in Louisiana. Licensing restricts economic mobility, the brunt of which lands on the poor who have greater difficulty jumping through the legal hoops required to obtain a licensed job. The poor frequently lack the luxury of time and money to pay licensing fees and take courses, forcing them to rely on lower-paying jobs to meet short-term needs. Licensure, in effect, helps trap many in a continuing cycle of poverty. Indeed, estimates suggest that occupational licensing results in 2.8 million fewer jobs in America and costs consumers $203 billion annually.

Regulatory Thicket

The expansion of the regulatory industrial complex is relentless. The Code of Federal Regulations, the repository where all Federal rules are codified, grew from roughly 10,000 to 190,000 pages from 1950 to 2022. And these are only Federal regulations. Each of the fifty states piles on its own unique rules. Each new rule imparts an accumulating cost on innovation and progress. One study in the Journal of Economic Growth estimated that since 1949, the growing regulatory thicket in the United States slowed economic growth by two percent annually through 2005. This doesn’t sound like much, but remember that growth is cumulative; had the regulatory levels stayed frozen in their 1949 state, the US economy would have been roughly three times larger in 2005.

To be clear, this does not mean we ought to abolish all regulators and regulations or act with wanton disregard for safety or the environment. Some regulation is beneficial, and where the risks are systemic and existential, it may make sense to follow the “precautionary principle.” Too often, however, overzealous regulation is an unnecessary barrier to human potential, enabled by the relentless expansion of the regulatory industrial complex and our distorted views of risk. We’ve tried to build a safe world by lining it with soft pillows, but now we’re suffocating beneath them. It’s time to come up for some air.

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