Wednesday, December 18, 2013

An Example of Good Government

Globalization and has exposed us to terrible risks
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I tend to take a pretty cynical view towards government and the policy process in general, so it's important to highlight the occasional example of things going right. The FDA recently declared its intention to raise the cost-benefit bar for antibacterial soaps, forcing manufacturers to prove their health benefits.

Basic economic theory holds that when markets fail, government's role is to step in with a corrective. Classic examples might be antitrust rules (preventing monopolies), the Toxics Release Inventory (reducing information asymmetries between employers and workers), and taxes on alcohol (forcing prices to reflect the true social cost of goods).

Reducing the quantity of antibiotics floating around by making their production and distribution more costly is a perfect case of government action. Individual pharmaceutical firms don't have to bear the full social cost of increasing antibiotic-resistant bacteria, so they produce more antibiotics than is optimal. The FDA is internalizing this externality. Although antibiotic-resistance is a problem in the here-and-now (reducing the efficacy of drugs), its real harm is to increase the tail risk of global pandemics. Such low-probability, high-impact events are often overlooked in public policy, so it's refreshing to see some action on this front.

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