As the federal government grows, it creates incredible drag in the economy. Federal agencies were initially enacted to protect the consumer from bad actors but has expanded its reach to protect the consumer from the consumer. Each time some undesirable event occurs, it creates an imperative to create yet another federal agency. Once created, these agencies are rarely dissolved, if ever.
Once federal control is exerted, the industry’s growth and productivity are neutered. After the Civil War, railroads spread across the US like wildfire. Entrepreneurs set up hundreds of short line routes that allowed goods to be transferred by rail from coast to coast.
As Cornelius Vanderbilt began to consolidate many of the independent railroads, some people cried foul and the government created an agency to oversee the railroad industry, crippling its further growth.
Today, the consolidated rail corporation, “Conrail” controls much of the rail freight industry and “Amtrack” controls much of the passenger service. Both are poorly managed and unprofitable, requiring taxes to keep them operating.
In the shadow of the languishing railroad industry, an interstate trucking industry emerged. Since the railroad industry was under the thumb of the federal government and the trucking industry posed a treat to the already struggling railroad, the government saw a need to control the trucking industry too. They created the Interstate Commerce Commission ISS, which became the gatekeeper and policing organization for the trucking industry.
Similarly, the Food and Drug Administration (FDA) was organized in response to the outrage incurred after a book was written about the unsanitary conditions of meat packers. Additionally, alcohol was often prescribed by the doctors of the day and there was a group that wanted all alcohol to be banned even when prescribed medicinally. The Food and Drug Administration was created to protect consumers. Once created, the administration set its sights on con-artists that peddled elixirs, a.k.a. snake oil. In response, their scope changed, requiring the agency to approve all drugs. Initially, they agreed to only take 90 days to approve a new drug. Today, it takes 10-15 years and $100 million dollars to get a new drug to market.
The unintended consequence is that pharmaceutical companies will not invest in drugs that do not have wide appeal. Justin, my eldest son pictured here, suffers from a relatively rare disease called Tuberous Sclerosis (TS) and because of the FDA’s onerous regulations, no pharmaceutical company will ever make the investment to develop a drug treatment of TS. The market is just not big enough to recapture the cost of FDA testing and approval.
Do we really need the oversight of a federal agency to approve new drugs? No pharmaceutical company would release a drug that it did not thoroughly test in the private sector for fear of being sued. Moreover, consider the motive if you are a drug approval agency. If you approve a drug that is later discovered to have negative side effects, you will be the center of a huge investigation and the agency will suffer a huge loss in credibility. However, if you choose to disapprove it, nobody will ever know. Further, most government agencies are not profit driven. For example, NASA routinely delivers satellites into space for less than the actual cost to keep its monopoly and maintain the agencies employment. Once a government foothold is established, it is almost never relinquished. Once an oversight agency is established to regulate an industry, the industry ceases to advance as it would if it was regulated by the free market.
What can you do to keep the federal government out of your industry?
