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.
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.
As I have said in these comments before:
1) That is not what "strict liability" means. Strict liability is liability for injuries caused even in the absence of negligence. So for instance, if you're engaged in blasting with dynamite (an "ultra-hazardous activity" subject to strict liability) and you hurt me, you pay up even if you can prove that you're the most careful dynamite user in the world, and there is no precaution that could have prevented the injury.
2) Limited liability is only necessary because of the doctrine of respondeat superior which--quite artificially--makes employers liable for the acts of employees even where the employer has no fault whatsoever. That is, if your delivery driver goes on a coke binge and hits me, you're liable even if you had thorough background checks, an excellent safety training program, and frequent drug tests. That is to say, respondeat superior is a form of true strict liability which shifts responsibility in a (somewhat) unjustified way (it made more sense in Leviticus, when they were talking about liability for the acts of slaves).
Corporate limited liability shields the stockholders from the harsh effects of this doctrine; I'm at a loss to imagine why "hard-core libertarians" favor imposing liability on stockholders who not only didn't crash the truck, but didn't even hire the driver or have the power to fire him.
3) There's also the issue of the personal liability of managers and executives for bad things that happen; they are often shielded from lawsuits by agency law, not by corporate limited liability. It's not a good idea to go mucking about in multiple areas of the law at once.
4) Nobody is shielded from personal liability for his own tortious acts; you can sue the coked-up driver personally, or the manager who deliberately bypassed the salmonella screening mechanism.
FASB may be the best in the world, but only by process of elimination.
In my view, FASB was excellent, but now tries too hard to force Net Income to be all things to all people, putting "comparability" ahead of what should really be equally important principals.
Financials should provide analysts with the data they need to build decent models. Instead, recent FASB actions have gone all "Windows Vista" on us. The standards are needlessly complex, require huge processing overhead, are prone to error, and attempt to meet all needs of the user while making it difficult for a user to look at the actual system and make his/her own choices about what he/she wants.
The whole notion of expensing stock options mucks up the Income Statement. (Noble ends, murky means.)
FIN 48 looks like it was written by IRS staff and the tax lawyer's union. (It basically pre-audits a company for the IRS. The tax quarterly tax workload is unimaginable and subjective if you can't freshen legal opinions and data sets in real time... Which is often impossible.)
The Fair Value Option was an invitation for abuse, exacerbating the credit problems by allowing banks to mark up the good stuff and ignore the bad stuff. (To be clear: Fair Value accounting can be a good thing. It was a dumb idea to allow companies the right to cherrypick investments for FV treatment.)
Derivative/hedge accounting and SPV/VIE quirks provide a good living for thousands of accountants, controllers, and lawyers.
The goal of accounting should not be to make stock investing as easy as comparing ratios... It should be to provide timely, accurate, transparent disclosure using consistent rules in an efficient manner to minimize costs to prepare and analyze the data.
In fairness, it is absurd that Wall Street puts to much importance on reported earnings. The focus should be on sustainable cash flow... And that will always include some big assumptions.
I was in a major bank when there was pressure to recognize income under one set of rules before the standards changed and the gains would instead flow to retained earnings... WTF should that matter?
That is to say, respondeat superior is a form of true strict liability which shifts responsibility in a (somewhat) unjustified way (it made more sense in Leviticus, when they were talking about liability for the acts of slaves).
I dunno. I would classify respondeat superior as a species of vicarious liability, not strict liability. Vicarious liability is, as I'm sure you know, liability that is derivatively imposed, meaning that a tortious act committed by one party against a second party may result in a third party being liable to the second party because of the tort committed by the first party. This isn't quite the same as strict liability, at least as I understand it. Tort law isn't really my specialty, though.
That is, if your delivery driver goes on a coke binge and hits me, you're liable even if you had thorough background checks, an excellent safety training program, and frequent drug tests.
Two responses: (1) You might be able to successfully argue that going on a coke binge is a "frolic or detour" that falls outside the scope of employment, thus removing the employer from vicarious liability. (2) If the driver's an independent contractor, you're pretty much home free ;-)
"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."
Strict liability, as another commentator pointed out, looks to be used in error in your language here.
Your commentator is correct, "strict liability" is liability without negligence. It is a sensitive issue because it strikes the consciousness as "unfair." If you did nothing that a "reasonable person" would have found to be a problem, why should you be penalized?
There are good arguments for strict liability, but its application has such an appeal for anti-corporate, populist demagoguery it has been badly twisted in practice.
When does strict liability make sense?
In short, when conducting "ultra hazardous" activities. Start with the premise that we would prefer to impose the costs of harm (both ex ante and ex post) on the party who is the "least cost avoider." That is to say, the party most able to prevent the harm efficiently in the first place or the party most able to redress it after the fact.
The concept is that when activities are so prone to harming third parties, rather than a central planning dicta that the activity is "prohibited," we permit it where the actor is able to economically rationalize the potential cost. This, it is reasoned, will only happen in a strict liability regime where the actor can work to avoid harm to third parties. Otherwise, on balance, the activity is not economically feasible and will, of its own accord, be abandoned. This, proponents point out, is the ideal. In the end it reduces the economic harm most effectively, and allows ultra hazardous activities to be undertaken where the actors can do so economically (read: net gain to society).
The negligence standard gives people a pass where they "did their best," effectively. This should apply where the activity itself is so routine or regular that imposing strict liability would curtail it unusually.
This is, of course, the exact effect that absurd OB/GYN awards are having in some states. Many OB/GYNs have refused entirely to practice in states where liability is so severe either moving to other states or quitting the practice entirely. ($300,000 per year for liability insurance is enough to make anyone bail, even when their private OB/GYN practice pulls down $450,000 per year in, e.g., Illinois).
See the problem? Since when is OB/GYN as a practice (as opposed to explosive demolition, for instance) "ultra hazardous"? Of course, the people most harmed by the populist dolts who push this sort of thing are the very people they propose to protect, the poor, high-risk pregnancy mothers who haven't likely had decent pre-natal care. Genius.
Thanks for the quick (& reasonable) response. The Ayn Rander on the radio seemed firmly convinced that the mere threat of lawsuits would make all suppliers, supermarkets, etc., instantly perform the functions of the FDA at once, & better, though I didn't know there's apparently no way to sue any entity now, & we need to fix the system to allow for such.
Of course, often "accountability" doesn't mean much more than accounting, & the offending entity will chalk up a few lawsuits to "cost of doing business" if they think it's less expensive to deal w/ the symptoms than the cause.
Mr. Rand also mentioned several times that it was only a few hundred people out of 300 million who were sick (After a month or so the source is still unknown, & we don't really know when it'll be over or what the eventual toll will be, or if there will be deaths as will as illness.) & that there'll never be a perfect system. We'll probably never eliminate murder from human society either, so should we strike all the murder laws from the books?
I would classify respondeat superior as a species of vicarious liability, not strict liability.
Hey, why not both?
I didn't know there's apparently no way to sue any entity now
That would surprise me a great deal, but I'm no expert on food law.
"Of course, often "accountability" doesn't mean much more than accounting, & the offending entity will chalk up a few lawsuits to "cost of doing business" if they think it's less expensive to deal w/ the symptoms than the cause."
But this is the point!
It is all fine and good to insist that we must cease to do something "if it saves the life of just one child," but about one child a week drowns in a 5 gallon bucket. Should we forbid the production of them because paying off lawsuits for these incidents is "just the cost of doing business"?
I daresay no one would manufacture anything under your rather idealistic standards.
When does strict liability make sense?
In short, when conducting "ultra hazardous" activities.
Good news: Currently, strict liability (at least, in tort law) is limited to pretty much just that. My dusty tort law books tell me that strict liability also extends to owners of wild and dangerous animals (e.g., lions, bears, tigers, and, oh, my) who injure other persons. I think most of us can agree that strict liability is a reasonable standard in such cases.
Rob:
I'll second that "strict liability" and "vicarious liability" seem pretty much synonymous in many circumstances. I was just remembering a question on the multistate bar exam that tested the (very technical) difference between the two. That's the sort of thing a recent law graduate doesn't forget easily.
"Good news: Currently, strict liability (at least, in tort law) is limited to pretty much just that."
Like, say, ALL of product liability law?
And, when juries return verdicts for plaintiffs in cases with the thinnest of evidence for negligence, are we not looking at de facto strict liability? (I am speaking of OB/GYN cases here, but many "high emotion" cases have similar results).
Like, say, ALL of product liability law?
As I see it, the only major problem for the application of strict liability in a products liability case occurs when liability attaches to an "innocent" supplier of a defective product (i.e., a restaurant serving tomatoes infected with salmonella) that had no opportunity to inspect the manufacturer's product before selling it.
And, when juries return verdicts for plaintiffs in cases with the thinnest of evidence for negligence, are we not looking at de facto strict liability?
I think your problem here is with juries (and, by extension, the Constitution), not the law.
Not that I don't sympathize. My father was a doctor. He never was sued, but he knew a couple OB/GYNs who felt compelled to settle meritless cases when faced with the prospect of arguing before juries prone to emotional arguments by very, very clever plaintiffs' attorneys.
Er, make that "juries susceptible to emotional arguments."
Taking a step back from this, it's always struck me as strange that libertarians would consider two branches of government inherently bad (Legislative and Executive) but somehow the third branch (Judicial) is safe, cuddly and an ideal substitute for the functions of the first two branches.
Especially when most observers consider the judicial branch to be the most arbitrary, undemocratic and inefficient branch.
Surely if you don't like government, you would include court actions, torts, and similar to be an undesirable part of that government?
Taking a step back from this, it's always struck me as strange that libertarians would consider two branches of government inherently bad (Legislative and Executive) but somehow the third branch (Judicial) is safe, cuddly and an ideal substitute for the functions of the first two branches.
I wasn't aware that they did. Of course, I'm not a libertarian. Never will be. In fact, if it's anarchy that happens, libertarians are the first I'll go after.
Well, doctorpat, many libertarians like their government inefficient and undemocratic: inefficient governments tend to do less overall, and libertarianism is precisely undemocratic to the extent that it forbids the demos to do this, that and the other as a political body.
As for the third adjective, are you really suggesting that the courts are more arbitrary than Congress?
Why not privatize the FDA and open its functions to competition? Let the farmers submit to an independant third party (of their choice) for inspection. Health lawsuits could then be brought against inspection companies, not farmers, though farmers would still be free to sell directly to the consumer and risk a direct lawsuit themselves.
I can imagine going to the supermarket and looking at three different tomatoes- one shipped directly from a grower to me, and two with stickers of inspection from professional, private health organizations. Of the two with stickers, one might be a company that has an establshed reputation of protecting consumers from harm, and the other might be some fly-by-night inspection company I never heard of. Now- which tomato would I choose? I'd choose the one inspected by a company with a good reputation.
Now- it is possible I might choose one of the other two if they are priced less- then it becomes a question of acceptable risk. Or- I may trust an individual grower more than other growers.
It would be in the financial self-interest of the grower to insure the quality of his own product and develop a good reputation for quality independent of any inspection agency. He could in such case undersell his competitors by selling directly to the consumer (sticker-less and so at a lower price) on the basis of his reputation.
Grocery stores could also choose to only purchase produce inspected by the most reputable inspecting companies. They could advertise this fact and use it as a way to gain more customers.
The choice is not between No Ispection and Government Inspection- the choice is between Private and State-controlled industry.
There is absolutely no point in giving these functions to the government. We need competition in the food inspection business- which is yet another proper, helpful American industry that has been Nationalized by our meddling statist rulers.
" don't think the government has any business telling people they can't drink unpasteurized milk"
And they don't. People, to their detriment, drink it all the time. There was a piece on this subject last week on NPR.
"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."
Right, or how about just making standards and fining companies that don't meet it. Isn't that what we do now? Is there a problem with milk pasturization I don't know about? I don't know I don't drink milk.
There was a good book on the subject of the FDA called the economics of public policy.
"We need competition in the food inspection business- which is yet another proper, helpful American industry that has been Nationalized by our meddling statist rulers."
Yes, because 100 years ago our food supply was so safe that nobody ever got sick from it. My suggestion is to go read The Jungle and then let me know the government shouldn't be poking its nose around making sure the food is safe to eat.
Second, I really hate leaving the litigation up to lawyers and courts. Generally, the only people who win in class-action lawsuits are the lawyers themselves.
"We need competition in the food inspection business- which is yet another proper, helpful American industry that has been Nationalized by our meddling statist rulers."
I was under the impression that companies are free to start their own food inspection business. I was also under the impression that no one does this because there is no money in it. Could you clarify on how this is to be profitable?
Recommending that someone read The Jungle to learn about food safety is about as credible as suggesting that someone read the Protocols of the Elders of Zion to learn about Israel. Both have about the same basis in reality, which is to say practically none.
The problem with your approach is that it ignores the point that without regulation there will always be the opportunity for some "fly-by-night" firm to profitably supply an unsafe product.
As a general rule unsafe products are cheaper.
Firms are always worried about competition undercutting them in the market. Regulation prevents this and makes it to the individual
firms self interest to provide a generally more expensive but safe product because they do have to worry about competition from cheaper, but unsafe products. The libertarian argument is that firms will ignore this economic opportunity. In essence they assume that "fly-by-night" firms do not exist.
The problem is not merely fly-by-night certification companies, but fly-by-night sticker companies putting out counterfeit stickers.
The private inspection regime would be a wonderful boon to people who litigate trademarks. Like me, for instance. So hey, bring on the privately-inspected tomatoes!
The solution to the fly-by-night certification company problem is obvious. Certification-company certification companies! And then companies to certify the companies that certify the certification companies.
Or, we could have a government agency. With adequate resources. And insulation from political pressure. But that would be statist.
I'm not a lawyer, so this may be a really dumb question, but since nobody mentioned any: are there no limits to conditions under which strict liability arises? E.g., if involved in dynamiting, and you have posted warnings and cordoned off a given area, and someone sneaks over the fence, are you still liable?
Interestingly, Kosher certifications seem to work reasonably well, with no more government sanction than trademark on the symbols used.
Roac: A government agency with "adequate" resources, insulation from political pressure, and no regulatory capture? Yeah, and I want a unicorn that farts rainbows.
Rob: Can't a "fly-by-night" company also put a fake FDA certification stamp on meat, or lie about being inspected? I don't see a lot of difference in the fraud problem.
Spencer: As a rule, people will pay more for something they believe is safe than something they believe is dangerous (if they think safety matters in the context at hand).
All the "fly-by-night" companies in the world won't change that a respected name can command a premium if it earns it (by being trustworthy).
The idea that removing the FDA from the inspection market will lead to a race to the bottom where we all end up poisoned and sick is... dubious at best.
Can't a "fly-by-night" company also put a fake FDA certification stamp on meat, or lie about being inspected? I don't see a lot of difference in the fraud problem.
The main difference is that it's a lot scarier to mess with the federal government than it is to mess with a private company. For one, the feds can send in people with guns to shut down your factory and destroy your contaminated produce. They could also potentially throw you in jail.
The private certifier can, at most, get a court to tell you to stop using the fake stickers and order money damages. And that's after years of expensive litigation.
So I'd say the fraud problem is different in the two cases.
Kosher certifications do work pretty well, but that must, in part, be due to the fact that it's a small market with an excellent grapevine, so fraud is more easily punishable by the market that it would be for all food inspection.
If you eat non-Kosher food, falsely but reasonably believing that it is Kosher, and never find out your mistake, the consequences are purely theological (I will let the theologians discuss what they might be).
If you eat food contaminated with Salmonella, believing it to be safe, you will get sick.
The proposed regime of competing food inspectors imposes on all consumers a non-trivial cost, i.e., assesing the reliablility of the competitors. The comeptitors, as far as I can see, will all have substantial advertising budgets, the cost of which will be reflected in higher food costs. The winner of the competition might well be the firm that spends the most on advertising and the least on actually inspecting food.
I'll still take the government agency, thank you.
Interestingly, Kosher certifications seem to work reasonably well, with no more government sanction than trademark on the symbols used.
Yes, but the certifiers have to answer to someone scarier and more powerful than the US Government. Have you read the Old Testament?
All the "fly-by-night" companies in the world won't change that a respected name can command a premium if it earns it (by being trustworthy).
How will people really know how trustworthy they are? Especially if there's competition, the risk is that they will pay your competitor for the sticker instead. The inspectors have a conflict of interest to approve a company.
The idea that removing the FDA from the inspection market will lead to a race to the bottom where we all end up poisoned and sick is... dubious at best.
We saw what happened in real estate markets when private companies were in charge of assigning a correct price to homes. If as an appraiser you didn't appraise the house for the value of the loan then you wouldn't be used again and they'd just find somebody who would. This is the problem of having a third party inspector, who's paid by party being inspected.
The idea that removing the FDA from the inspection market will lead to a race to the bottom where we all end up poisoned and sick is... dubious at best.
Obviously, we won't all end up poisoned and sick, as it is never a good idea to kill off your primary market, but a good many of us might -- look at the present state of safety in Chinese food exports, for example. And that's just what they've shipped over here; there are spookier stories coming from the country's internal markets.
Meanwhile, those of us who do end up poisoned and sick will be the collateral damage to prove which parts of the market are safe. A monetary damages verdict is a rather small recompense for being, say, blind or dead. Not my idea of an optimal outcome -- I would rather pay taxes and let a regulator step in before it ever gets to that state.
For those who believe that the market and the courts can be an even substitute to limit broadly destructive avarice among those who are well situated in life, I submit Andrew Fastow and 22,000 unfortunate Enron employees for your consideration.
For an example of a highly successful private certification program, look at UL and it's competitors.
Ryan W. - We saw what happened in real estate markets when private companies were in charge of assigning a correct price to homes.
Very true, however I'm not sure that those purchasing mortgage backed securities had the same capacity to discriminate based on appraiser that a food buyer would. I'm not disagreeing with your conclusion, but could you make the point using some commodity good instead?
My previous post was replying to Jordan, sorry.
The Ayn Rand Institute is correct in their condemnation of the FDA.
In response to the earlier post on the individual who enters the blasting area despite the warnings. That person's own contributory negligence would prevent them from recovering. Most blasting cases involve damage to adjacent property.
I believe the ob/gyn lawsuit fear is fairly overstated. These days it is very expensive to bring any medical malpractice case and in order to be succesful it will require some fairly gross negligence on the part of the doctor or hospital.
CN is not a defense to strict liability. Assumption of the risk is: if you knew of the risk and went ahead anyway, you lose. Thus, a quarry employee can't recover in tort.
Most of the discussion here seems to be about "unsafe" stuff and whether the FDA is needed to protect people from it.
But according to the serious criticisms I've seen of the FDA from economists who've studied it, the real question about it concerns the safe life-saving and life-bettering drugs that it keeps off the market for years and years undergoing trials and certification processes -- while people who could have been treated by the drugs die or or suffer harm from which they can never recover.
That is, the FDA has asymmetrical incentives: If one Thalidomide gets past it, it gets hammered and its people get fired. But if 20 life-saving drugs are stalled/stymied by it, nobody in the public knows until much later, nobody associates the FDA with the people who died and suffered from the lack of those 20 drugs, and the FDA pays no penalty.
So the FDA has strong incentives to cost more lives than it saves.
Just a quick note regarding the Certified Humane (Certified Humane Raised & Handled) program: It's operated by Humane Farm Animal Care (HFAC), an independent 501c3 nonprofit organization. It's not a program of either the Humane Society of the U.S. or the ASPCA. Both those organizations provide limited financial support to HFAC, but they do not have any kind of control or oversight over either the CHRH program or HFAC itself.