GHEI: Shutting down the engines of innovation

Hubris drives regulators to expand their domain

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The unfolding drama between the Food and Drug Administration (FDA) and upstart genetic testing 23andMe is simply the latest in the long string of troubling overreach by regulators that will continue to stifle innovation and growth.

For far too long, Congress has delegated excessive power to unelected bureaucrats in Washington. The result is an alphabet soup of agencies, often acting at cross-purposes, issuing regulations based on less-than-adequate economic analysis despite being required to weigh benefits against costs, and blithely assuming engineering and technological standards that do not exist.

Caught between a rock and a hard place, businesses close, or decline to open in the first place, and the jobs are lost or never created. Nonetheless, the agencies continue issuing regulations unchecked, and regulators remain serenely unconcerned about their hubris, convinced they know better than the rest of us what is good for us.

23andMe offers a genetic-testing kit, which is essentially a tube into which the customer spits and returns to the company. The actual test is conducted at a lab that is regulated by yet another federal agency. As Cato Institute senior fellow Walter Olson points out, there are sound legal reasons for the FDA to have refrained from acting in this case. Instead, the agency chose to go after 23andMe aggressively for marketing a “medical device,” even though the only device involved is a plastic tube, and the client cannot undertake further action on the test results without consulting a health care provider. This kind of device is part of the new economy, with a strong push toward the free flow of information. It is at odds with the old, paternalistic model, in which regulators and the medical establishment control what patients learn.

The FDA’s claim of jurisdiction is questionable, but challenging a regulator is fraught with risk, as former Buckyballs CEO Craig Zucker discovered. Buckyballs are rare-earth magnets that were marketed as desk toys for adults, and came with warnings to keep them away from children. The Consumer Product Safety Commission nonetheless decided the magnets were dangerous and wanted them banned. When the company challenged the decision, the commission eventually chose to do something quite unprecedented: sue the CEO personally, after the company was forced to shut down.

Buckyballs are gone. 23andMe will probably either shut down or move offshore. In either case, regulators effectively clamp down on jobs and innovation. It doesn’t stop here.

The messy rollout of Obamacare serves as an illustration of a different kind of regulator hubris. The sustainability of the Obamacare model depends on having young, healthy people enroll in the exchanges. When policy cancellations started rolling in and Healthcare.gov didn’t work, President Obama announced that states could let people keep their old policies for a year. The problem is that it was not technically feasible for insurers to turn on a dime to make that happen within the short time window available while putting aside all the other problems.

The Renewable Fuel Standards, requiring the use of 35 billion gallons of alternative fuels by 2017, however, remain the epitome of wishful thinking by regulators. The Environmental Protection Agency enacted the standards back in 2007 with the admittedly laudable goal of promoting clean energy. Unfortunately, the goals failed to take into account the difficulty in converting that much corn into fuel, as well as the fact that the technology did not exist for producing some kinds of biofuels in commercial quantities. In addition, there were scientific studies that found that engines in older cars, which are likely to be driven disproportionately by poorer people, could be damaged by the new fuels being pushed by the agency, with increased risk of injury and death. The mandate required a significant increase in acreage planted with corn rather than soy, which is damaging to the soil and environment. The EPA has lowered this year’s goal, making virtue out of necessity but not abandoned the standards.

The latest entry in the hubris foray is the Occupational Safety and Health Administration (OSHA), which has proposed a rule to control silica exposure with little regard to current enforcement and feasibility. There is wide variation in silica exposure, and how well industries manage it. While there are many problems with the proposed regulation, Mercatus Center senior scholar Michael Marlow points out, OSHA is also contemplating a requirement that employers cut silica exposure to a level not technologically feasible. If an inspection reveals a level above this level, the facility would be subject to regular OSHA inspections.

Each regulatory excess stifles industry growth. When regulators try to fit round pegs into square holes, as is the case with 23andMe, we see innovative companies disappear. The United States has carefully cultivated a legal regime that encourages innovation over much of its existence. It would be a great pity if regulatory overreach destroyed that advantage.

Nita Ghei is policy-research editor at the Mercatus Center at George Mason University.

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