First National Forum on Business, Government and the Public Interest - Miller, Evans and Pittle speeches

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James C. Miller, president's council on wage and price stability; Michael K. Evans, president of Chase Econometric Association; and David Pittle, vice chairman of the Consumer Product Safety Commission, discuss government regulation of business at First National Forum on Business, Government and the Public Interest. This is the second program of a three-part series reporting on the First National Forum on Business. Government and the Public Interest.

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Addressing the second session on government regulation of industry or an economist a regulator and a businessman James C Miller of the president's Council on wage and price stability said there is reluctance in certain quarters to reform the regulatory system. a largely Can the outcome another kind of problem is that the benefit per person is small in comparison with the cost of bringing about the change. Also, there's the related free rider problem for each hopes that someone else will take the initiative consequently the major beneficiaries of economic regulatory reform constitute a weak force and the political Arena. On the other hand those that stand to lose from economic regulatory reform Nowell their stake in the outcome. They are relatively small and number they are extremely well organized and they bring their position to bear on decision-makers in an articulate manner. They're also protect. They also participate in a coalition that is very powerful is calling this David Brodeur said a year ago in the Washington Post. There's no strong political economic power in this country in the Triangle formed by the congressional committees that authorize and find a program and agency the bureaucrats who administer it and interest groups who are its beneficiaries? With respect to reform the social regulation one problem is that since the agencies are relatively new there is a general feeling that we should give them more time to work out the difficulties and it menstrating administering there statutes even more importantly people generally are unwilling to place an economic value on human pain and suffering and death the problem arises in park from a confusion over a statistical event at a specific event as Harvard Economist Thomas schelling was quoted in Monday's Washington Post as saying let us 6 year old girl with brown hot hair need thousands of dollars for an operation that will prolong her life until Christmas and the post office will be swamped with nickels and dimes to save her. But let it be reported that without a sales tax the hospital facilities in Massachusetts with a tr8 and cause a barely perceptible increase in preventable deaths not many will drop a tear or reach their checkbooks. As I know from experience those who question regulatory proposals from the health and safety areas are invariably plain painted as ogres who get their jollies out of seeing six year olds go without that last visit with Santa Claus. If the truth be known what the reformers are really saying is that with a given resource expenditure a lot more lives could be saved if only Regulators were willing to approach the issue analytically. Finally most of the public Harbors the illusion that social regulation is a free lunch. That is they believe that if government regulation and poses higher expenses on an industry. These higher calls come out of that well-known ubiquitous funcall business profit. However, since the US economy is reasonably competitive over the long run the consumer pays the full amount of the cost increase. The cat's second key to success in my judgment is that reformers must realize that the array of regulations and Regulatory problems is very diverse and that a mix of approaches is required. Obviously some regulations need to be terminated. This is particularly true of any competitive regulations in the area of there is a transportation and Communications on the other hand some regulations may need to be strengthened. But for all regulations retained and added it is most important that we find ways of reducing the cost of achieving a given regulatory objective or increasing the benefits from a given regulatory cost. And if my years experience to the Council on wage and price stability has taught me anything it is that countless opportunities exist for improving the efficiency of regulatory action. Now a 7-point program for regulatory reform. Any regulatory reform initiative should contain two major elements first. It should attempt to change the enabling legislation under which agencies operate and second. It should incorporate measures designed to improve an agency and prove agency performance within those statutory mandates the 7th Point program outline below contains elements of both and represents a my judgment and appropriate plan for action first. We must be wary of legislation which emphasizes reorganization and procedural reform and instead the man something at the reform of the basic regulatory Authority. Is my considered judgment that pushing boxes around on an allen and organizational chart or speeding up regulatory processes in order to reduce procedural delays will not improve the overall quality of Regulation. As a matter of fact, it could make matters worse as an example. I am convinced that if instead of the ICC there was separate commissions for each of the various modes of transmission service transportation, that would be a great deal more efficiency and surface Transportation combining agency. Simply put some Monopoly on inefficiency. Also sensitive is it is at least arguable that the regulations presently being from all gated create more cost and benefits speeding up the process would merely increase the net cost to society. We should build on the legislative initiatives that were considered at length by the last Congress as you know, so call fair trade was abolished by the consumer goods pricing Act of 1975. Signed into law on December 12th also for the first time in its history ICC regulation was pointed in the direction of more competition by the railroad revitalization and Regulatory Reform Act signed into law on February 5th, extensive hearings have been held in both the house and the Senate on various versions of an aviation regulatory reform proposal. And even the airlines are coming around of you that deregulation is inevitable. The only question is when and what form it's going to take proposals to reform the regulation of financial institutions and a trucking are not likely to be enacted as soon but the prospects for eventual success. I think appear good third, we should support legislative proposals that would force regulatory reform proposals out of committee, but they tend to become buried we have on the hill the playing of a strategic game not unlike multilateral disarmament. What wear while there is a general consensus that something must be done about regulation few committees are willing to give take unilateral action to give up the power that flows from overseeing a regulator and it's regulated industry that we are proposal such as the regulatory Reform Act of 1976 sponsored by Senators Percy and bird and the agenda for regulatory reform submitted by President Ford under these initiatives. The Congress would agree collectively that regulatory reform proposals would be reported out of committee by certain date or else the reform proposal submitted by the president would become the order of business before the full Congress to my judgment such an issue as whole great promise for breaking the legislative Log Jam and should be given broad support. For there is a need to appoint and confirm good Regulators while I am not a proponent of the so-called good man theory of Regulation. I do believe that the right person at the right time to have a sizable in fact, but good regulator. I mean a person who is intelligent who has integrity and who possesses good judgment the person may or may not have come from the industry may or may not be an economist or lawyer and may or may not have had similar experience in the past. It must be understood. Of course that regulatory appointees are as much the responsibility of Congress as of the president not only does the senate confirm most senior regulatory policy makers but as anyone familiar with the process can attest regulatory nominations are usually cleared with the relevant committees before the names are submitted. Obviously if we are to have good Regulators then Congress as well as the executive is going to have to set high standards. We need to do something about the kind of bureaucrats. We are recruiting and the incentive structures that mow their behavior. Make no mistake about it low and middle level bureaucrats will in Norma's power. As any agency had can tell you one is almost helpless and dealing with a bureaucracy. As one Old Line Department of bureaucrat told me recently I've seen secretaries come and I've seen them go. Part of the problem. Is that a natural selection for both supply and demand reasons employees at Regulatory Agencies tend to believe and regulation. For example, the ICC is not likely to hire anyone who has strong reservations about the need for regulating surface Transportation North someone about you likely to apply to the ICC for a job dust improve the quality of Regulation. I would respectfully recommend that procedures be established. So as to bring onboard some opponents of Regulation at the ICC. At least the Outlook would be a bit more balanced and this decision-making. I would have ledge more rational. Just as importantly there should be significant changes in the structure of bureaucratic incentives rather than one reward bureaucrats for the number of fines. They impose and how strongly they write regulations reward them for exhibiting wisdom Justice and moderation. And I choose those words well because they appear on the Great Seal of the state of Georgia rather than protect the incompetent to get ahead by getting along make it easier for government Executives to hire and fire and hold such exaggerated is responsible for the performance of their employees. 6 Regulatory Agencies should be required to perform economic analysis, a proposed regulations and prepare periodic reviews of existing programs. Such analysis and review should be placed in the public record from my experience and having a major responsibility for the president's inflation impact statement program. I can tell you that in general agencies near the like doing such analyses nor do they have the confidence to do them? Well, however, I am certain that this kind of activity in perfect though. It is can have a positive impact on the quality of regulatory decision-making understandably agencies. Do not like revealing the ramifications of their own actions to public scrutiny for an occasion that brings upon them ridicule and Scorn nevertheless since bureaucrats seek to avoid adverse publicity such a program can be quite effective in eliminating nonsense and poorly conceived regulatory proposals. Finally On a related note is highly desirable than outside critic be funded and participate in major regulatory proceedings on left on a limited scale the counseling wage and price stability has played this role having intervened before score of agencies in the future that role could be played by the council the agent and agency for Consumer advocacy of that came about and if it was structured correctly or some other governmental or government-sponsored unit. Why we don't allow we have not observed that agencies are inclined to modify regulatory proposals. Just because of our criticism. We do have evidence that bureaucrats wish to avoid having us criticize their work and therefore improving the quality of their initial proposals. I have a couple of concluding remarks this year. We are celebrating not only the bicentennial of our nation's birth, but the bicentennial of the publication of the most influential book in the history of Economics Adam Smith Wealth of Nations one passage Smith noted consumption is the sole Inn and purpose of all production and the interest of the producer ought to be attended to only so far is it may be necessary for promoting that of the consumer the relevance of Smith's point. The problem of economic regulation is obvious and Smith's time. There was little in the way of social regulation. But if there had been I am confident that he would have recommended that decisions be made on proper assessments of benefits and cost what activities and approaches to wage and price stability. Do you anticipate from The Carter Administration or additional or revised price and wage guidelines likely to be imposed or we'll quote holding be the pattern Well, I guess the question is whether it's something new will come about as you know, the council and wage and price to build. It doesn't really have a lot of power. We don't Jawbone and we don't weep Jawbone we do what I call gumming. and I hope I I'll just I'll just bent you a personal thing you and I hope that we don't get any teeth because I think that there be great in temptation to use. I think I would just projecting and I don't have any special expertise in this area. but I think mr. Carter and his advisers will read very closely the rates of inflation. seasonally adjusted inflation rate that will be coming out monthly and if they begin to rise and also if they begin to perceive that concentrated Industries are raising prices. such as the steel example, they may well use the resources of the council and its statutory Authority and more and more broadly and deeper and Asking firms and putting pressure on firms to roll back something that disturbs me. Maybe this is off the track of it. Is that not only is there power vested in the counts and they president with the Council on wage and price stability, but if a present really wanted had it in for an industry, and I'm not predicting this I'm just pontificating I guess if a president really had it in front in industry. President could shut down that industry. in a minute The reason is very simple way you could do that. That is he could send a thousand ocean spector's out and not one firm in this country. I would have ledge fully meets a whole OSHA standards. We're all EPA standards are all EEOC standards. and maybe this says something about our laws. But this kind of Temptation could could prove I guess. Too much for some president and I'm concerned about that happening. I'm concerned too because of a personal observation. I think all this discussion about the social responsibility of business is hogwash not because I don't think some businessmen think that there's socially responsible but that's not right. They're really good at they're really good at making profits and I think Adam Smith's invisible hand is probably much more effective in providing consumers with low prices and responding consumer needs then is some perception of social responsibility translated by businessman. Do you believe that wage and price controls should ever be used again? And if so in what circumstances? You really put me on a spot sensor to say no comment. But oh what the hell? my feeling is that that there may be there may be circumstances in which you can sort of shaken inflationary psychology if you will by telling people you're doing a lot of things. That will slow down the velocity of money. You can't do it very often because it's a kind of a cry wolf operation. And people tend to expect that that might be a solution later on and for that reason not do something else needs to be done. I think also the kind of operation that's being run out of the council today. Is one where you can use information to good effect and certain problem isolated problem areas and Industry their various Tools in quot regulating quot industry and in trying to get the market to work better and I think generally that's that's what we trying to do and I think we generally been successful in doing that. The Highlight opportunities for the market to work better and I hope Focus has been to use the council not as a substitute for the market mechanism, but to make the market mechanism work better if you have that kind of approach. I think you can. You can have you can make a sizable contribution the size of the agent. She shouldn't be a much larger. This is a very anti bureaucratic thing to say, I understand but it shouldn't be very much larger. Perhaps 20% but its power shouldn't be any greater. I don't think but don't make any mistake about it. If the public perceives that these me no businessman are raising prices again on them. There will be a lot of interest in Congress and in the executive branch the clampdown prices. And so I guess the question you read the CPI every month just the same as I do and that's your best key is the what's going to happen? And if it goes up and continues to bloom I think you better think very seriously about the prospects of having some kind of control mechanism in post on you government Economist James C Miller. The next speaker is a business Economist Michael K Evans president of Chase econometric Associates Evans expects a possible 1977 tax cut will temporarily revive the economy. However, he predicts a 1978 recession including a 10% unemployment rate. This might sound like a far-off forecast, but actually in all previous post-war recessions except one. The unemployment rate is risen at least 3% from Peak to trough so my forecast calls for only 2% rise, which given any sort of recession at all would be a fairly moderate increase. This will happen at the same time that inflation is worsening and I'm sure that the net effect of this will be to castigate business. Once again further failures by the private sector the pundits will say in their ability to provide jobs to control inflation. How tall is Messi come about? It's not just the result of the past 2 years. In fact, the deterioration of our economy has really been going on for about a decade. Although much of it was covered up in the late 60s due to the stimulus of the Great Society programs in the Vietnam War. I think once the firestick which puts us in face is the growth and productivity and output per man-hour. For the first twenty years of the post-war. Productivity in the private sector grew at approximately 3% a year. For the last 10 years proclivities Brown of approximately 1.2% a year and other words that less than half the right. I'm just so down come about. Some factors accounting for the slow down or technical in other words. We have had a change in the demographic age sexmex the labor force. We have more younger workers entering. We have more women entering in general. These people were not praying had not had Jaws before and there was some inevitable slowdown in productivity. What does factor maximum accounts for only about 0.5% of the decline of almost 2% so there must be other factors? Another Factor has to do with the decline of importance of research and development in this economy and real terms federally funded research and development is about half what it was 10 years ago. These results are not always immediately obvious, but they have great spin-off effects. And I think this has been another Factor accounting for the slowdown in productivity. But again, this is not the main factor. The main factor has indeed been the decline in the ratio of productive Investments of GNP. Who's Rachel has to be analyzed a little more closely because of someone opens a survey for a business or economic report of the president. The figure for fighting equipment spending pulls out the figure for GMP and Pops ratio. The ratio has a lot of Wiggles in it, but it appears to have no downward Trend over the past decade. However, I think the two adjustments have to be made. First we have to convert this ratio to constant dollars. Capital goods prices have risen much more rapidly in the past decade that have other prices in the economy. As a result if we convert this ratio to constant dollars, we find that Capital spending growth of the GNP has declined somewhat. Another factor which we have to take into account. Is there a fair amount of the incremental investment has gone for federally mandated standards Pollution Control environmental safety standards in the light. We don't have precise figures on these but let's just use the Department of Commerce figures which many in Private Industry Bolivar an understatement even so when we make these to refine with the ratio of fixed business Investments of GNP, but usually fluctuated between 10:11 % and reach Peaks as high as 12% Is it down about 8% for this year and will be only slightly higher next year? I think that the problem of lower productivity is responsible for both higher inflation and high unemployment while it's true. There is some trade-off between the two the root cause of both of them as lower productivity. When we had a situation where productivity increased 3% a year this math in general that hire labor cost and other cost not we're not necessarily passed out on the floor Empire prices because we had a buffer protiviti if we just went to 3% and proactivity went to 3% then we had no increase in prices at all. And in fact, that's what happened in the. 1959 to 1964 and 1964. The wholesale price index was actually lower than it was in 1959. Wagers were happy with this agreement. Because every time they got a raise they could buy more with it. The games were not wiped out by inflation. Now we have a situation where wages go up 7% as they did this year and if they will next year and productivity gains are only a little more than 1% This means the prices must go up 6% but even that's not the end of the story because we have a tax structure which is Progressive. That means that every time someone gets a wage increase he moves into a higher tax bracket. And so the net effect of this Arrangement where wages go up 7% and prices go up 6% Is it by the time you take higher taxes out of it, but consumers paycheck actually buys less and that's exactly what's been happening. That's why this real wage figure keeps declining. So we can get back to a higher level of productivity. We could unwind the wage-price spiral because consumers and workers would find their paycheck bought more rather than less. This means that they would decrease their demands for higher wage increases and of course, this would eventually lead to lesser increases in unit labor cost in less than five ocean. as far as the unemployment argument goes even the 1973 we had indications that. There was not enough physical capital to support for employment. We had severe shortages and bottlenecks in 1973 in many key Industries and yet the unemployment rate was close to 5% This indicated there was not enough Capital to go around for jobs. And this is more closely tied to lack of investment spending. So what's your business do about this? What should the business role be in this kind of an economic scenario? 1 answer? Of course. Why not spend more that would solve our problems are not very likely to do that. In fact their argument and one which I agree is that the incentive for investment has been substantially reduced through inflation. This shows are particularly and depreciation allowances. Now depreciation allowance is of always been evaluated in historical Rosen replacement cost. This is nothing new and we certainly had inflation over the post-war. But up until 1972. The average rate of inflation was between 2 and 3% depreciation laws are structured. The tax lives is actually somewhat shorter than the economic life. So unbalanced the advantages in the passcode pretty much offset the moderate rate of inflation. And by the time the equipment wore out from should accumulated enough cash Reserve to purchase its replacement. With the rate of inflation the permanently moved up to a rate which at a minimum will be 5 to 6% and could be even higher than that. They depreciation allowances are no longer satisfactory as a result many businessmen have readjusted upward their idea about internal rate of return for project needed to earn 15% In order to be economically viable has not been raised to 20% The rate of return was 20% of 25% And this is sliced a large number of investment projects off the boards. In my opinion, this is the main reason why investment was so sluggish in the aperture and it was sluggish make no question about it. In mid 1976 fine equipment spending Houston prices was actually lower than it was during the trough of the recession and early 1975. This is never happened before and all their postwar recovery equipment spending has reached new highs a year-and-a-half after the trough. So there's been a definite. Reluctance on the part of business to invest and I think this is the major reason. Perhaps business is doing themselves a disservice. Why not investing? I don't think so. I think that they'll be doing their stock or was it just serviced by investing in the face if we can demand. A lot of talk has been focused on the fact that the electric and the public needs to be better educated. Here's the argument and I'm sure you've all heard it public opinion polls show that profits are perceived to be about 30% of sales for the oil companies their perceived to be about sixty percent of sales. When as I'm sure you all know. They're about 5% of sales. Well, it's easy enough to show that province's return on Equity is return on invested Capital portion of sales are well below the rates of 10 and 20 years ago. And in fact, if a county were put in with the depreciation replacement cost the decline would be even more severe. Businesses tend to hide the good news about profits as a result. They serve assume the role the Japanese wrestlers enormous, but flabby, they said they're their target for anyone who wants to come to punch out them because they refuse to defend their own position. But my point is that business is got to stand up and be counted not so much with the public. Although that won't hurt. It was Congress business has to present their case more forcefully, I'll give you one example of a tax cut which is going to be passed. That was a matter of fact a 10 billion dollar rebate really won't do very much harm. It will stimulate the economy a 20 billion dollar tax on personal income tax cuts. When do very much harm either Find the Christmas would be remiss in approving this tax cut unless it were a balance tax cut the 1975 tax goes in classic example of something that's not balanced 20 billion dollars for consumers to billion dollars for business. And the way it was done was even worse. I went down I testify in favor of that text. Or one like it except the one I had in mind was Bells but what happened is everybody was there from the Ways and Means Committee and their whole bunch of people testifying and the whole day was spent on whether the tax that should be 15 billion or 20 billion for consumers and whether it should be cut off limit should be in this one out all day in about 5:30 there about three of us left in the room on Congressman says she want to think we all do about business taxes. So they agree well with Roma increase the investment tax credit Which is far as I can tell didn't accomplish anything at all. So does that attitude is the one that has to be changed and it can be changed. We don't have to go back in the ancient history. We can go back to 1964 when we had a balanced tax cut. That was a 14 billion dollar tax 9 billion was for personal income and five being was for corporate income. The five being came in a number of different shapes and sizes as you probably recall. The marginal statutory rape was reduce 52 to 48% We also have the origination of the investment tax credit and we had a 20% decline in taxable eyes. It's a sort of package which I think should be included in any tax cut and businessman who simply go and say we don't know what to do about it, or we're not sure I don't take a vigorous stance not doing themselves any good. So I think the business role in the National economy. Should be to push more incentives to investment not to apologize about prophets realize the profit share of GMP realized investment share of GNP have declined markedly in the last decade and realize that because of inflation and because of the fiscal policies which have been filed for the past decade the tax code in the tax laws of toes against investment, which I don't really think what's the design of Congress, but it's happened over the West. If this Rose Falls, I don't predict Miracles. I don't predict changes overnight. In fact, I think we'll have a 1978 recession no matter what tax legislation comes out of Congress investment plans are not made instantaneously. Even if a tax package favorable to business such as the one I have outlined where to pass it would be probably until 8 78 or 79 is this would be going to have much effect on the economy. But then if the groundwork we're late, we could have a sustained expansion one in which both consumption and investment one in which both demand and Supply grew steadily. We would not have an abortive recovery like we do now where the 75 tax cut provided for increases till consumption, but no increases to investment as a result. We have a comeback of higher inflation and virtually no improvement in capital spending. Funny parrots businesses role in the National economy business isn't used to being the heavy and defending its profits and fighting for bigger tax breaks. But if it is now, I think the time has come to do exactly that like as you can see, we're not going to let you get off to the spot here. We got some questions for you you stated reduction investment in productive equipment plays a key role in the sluggishness of the economy. Would you discuss the impact of Osha and EPA requirements upon Capital formation and ability to invest in new plants and machinery. I think that the ocean EPA requirements sir. I've had a major role in this we've done some work for the EPA on this and I don't mean to criticize single them out. They provide good day to wear is OSHA provides no data, so I don't have any estimates but this was using the epa's own figures. These figures have been published in the survey current business and Department Commerce releases and so forth. But anyway the capital spending for a 1976 was about seven billion dollars and the operation and maintenance costs were approximately the same amount. This is the entire private sector not just manufacturing equipment spending as measured on the parcc survive a hundred and twenty thing and so we're talking about 6% Capital spending was devoted to Pollution Control by the epa's own estimates. No, this appears to raise prices because of higher cost approximately 1% over the rate of inflation which would otherwise occur. We have also estimated that for every dollar spent on Pollution Control about a half a dollars and spend on other investments. In other words. If There's 7 billion dollars for pollution control that suggest about three and a half billion dollars not spend another investment that may not seem like a very large mouth but we're not talking about the toy. We're talking about incremental investment. The total increase in incremental investment in constant prices since 1970 hasn't been very large. It's been of the order money to his 15 billion dollars. And so when you say that while there was three and a half billion this year in about 2 billion last year and so forth and go back and keep me awake all the stuff. We find that the incremental investment. Which was cut back by EPA has been about 50% In other words. The increase in investment could have been productive Investments what it was we have two ways to look at know some people look at the other way. They say alright 7 billion proportion of all but I say the correct way to look at it as a rental investment in here Lucian control make out for as much as 50% as far as we just don't have any figures that's so it's not possible to make the same server analysis. I feel that they are terbang to might be half as much yourself, but I don't have any clear figures. They don't publish them chase econometric Associates President Michael K Evans former Carnegie Mellon engineering Professor. David pedal is Vice President of the consumer product safety commission fiddle spoke out for health and safety regulation. by our fellow citizens for protection from the murders and the mugging we want government to police our streets likewise. I think most consumers are reluctant to depend solely on voluntary action from let's say or drug companies or Industries with poisonous waste products the voluntary action. I think they're become reluctant depend on in order when their health is it fake? I wonder how many of you in the audience would be willing to depend on your own personal knowledge to go into a the grocery store and on your own determine whether or not the product inside the can is going to be safe for free from botulism or any other kind of contamination. And are you willing to risk your own health and the health of your family based on whether or not you make a mistake? I daresay most of you would not maybe I'm wrong. I don't want to imply either from these remarks that if that if deregulation what's a a meat again where the result that there would be a huge influx of Tainted or unwholesome meet them American markets. I feel sure that most and again is by the example most meat producers would continue to adhere to high standards of Purity and wholesomeness even without regulation. But there are some and unfortunately enough. That would not and it is that group who creates the sufficient degree of uncertainty in the mind of the consumer so that they would not have complements no matter where they bought. By the same token government regulation is needed to assure that consumer confidence in consumer products as far as safety is concerned. Is also not misplaced in this connection. I like to refer briefly to something that some research that I conducted about 5 years ago, and I was at Carnegie Mellon. I headed up a research project. That was before the consumer product safety commission was into was into being and which it was my promise that people who know more will act better. That's not necessarily true, and I'm not sure now that I was able to prove it, but I started out thinking of people who know more at better. And I got together and marketing Economist and educational psychologist and social psychologists to get a hold of about 2,000 consumers and try to test whether or not we can inject some information special technical safety information and see if we can improve their purchase behavior and their product Behavior. I won't go through the project except that there were some of the findings that came out that I think her appropriate to wear were talking about In order to decide what it is the consumers need to know. We had to determine in advance what they already knew and what they cared about. What are their aptitudes and attitudes about product safety quite frankly. It's a fairly dull subject. We interview 2000 person's stratified and every kind of way that you wanted not as an engineering point of view. I would pick the first two thousand I saw but the social psychologist from different parts of the county and the state and so that's what we did. We pre and post-test of them but in the process of the first test to leave the first survey instrument ask a question when you buy a consumer product list for Miss blank sheet of paper. What are the most important things that you think of? Are we tabulate them all out if one of the top was price color and what my neighbor thinks about? That's a very important piece of information. I consider what my friend who's had a personal experience what they think about I think that's one of the reasons why they like Consumer Reports sort of a friend will tell you the straight poop. A few questions later. We listed a bunch of factors price color what my neighbor thinks about its safety fashion durability and so on warranty and whatever else we can think of and ask them to rank them as to how important they are to the consumer. And virtually all of those two thousand surveys came back individual interviews at safety was extremely important. In the beginning that really cause a quite a contradiction for me. I said now people don't if people really care about safety is very important, but they don't think about it when they go to buy a product. We're going to have to try to find out why so we stuck some questions yet later on in the survey try to pull out the answer. And now that if we put what I think the answer out is it was fairly obvious the two most frequent answers that came back work safety. I don't have to think about safety the government already taken care of that. I hope I'm the second most common answer was. Sears Wards pennies Toro they would make a product to hurt me. I trust the name. I've learned to trust that image that identification. And so for either one of those reasons and probably some other scatter ones that we didn't pick up consumers have developed an attitude that the marketplace is. Somewhat safe in the area of consumer products and I only dealt with consumer products. I didn't deal with food or drugs or anything else. And that's a very important factor because consumers have not. Developed on their own a sense of responsibility that they have to apply some sort of an extra decision and dimension to measure when I buy a product and as far as behavior is concerned for a bunch of reasons, which I don't fully understand. They don't exercise a safety orientation when they use a product but I think that sort of Reliance on safety in the marketplace that they both product wouldn't be there on the Shelf unless it was completely safe. I think the statistics show that that's a very naive you the national Commission on product safety data collection assignment that is at least true the 20 million injuries occur each year that are associated with consumer products found around the home and I'm not talking about cars or boats are guns. I'm talkin about simple toys ladders blenders posters stairs bicycles that are found around the home. A company that 20 million injuries have been 30,000 deaths 110,000 permanent disfigurement or disabilities and an annual cost of 5.5 billion dollars. And for the most part these things have relied on and have counted those things which you can readily observe a lost finger or broken arm. What they have not been able to include. And I think it's probably of substantial number that's going to come out as soon as as data collection techniques are improved. Are The Chronic illnesses the birth defects the Cancers and other health problems that are that may be associated with the many chemical substances that may have become a familiar part of our daily life. Am I giving these awesome statistics the question that is what technique will work most effectively to reduce deaths and injuries associated with these common products like bicycles and ladders and televisions. I think I believed that the basic answer must lie in the setting of a by a disinterested third party. That's the government if we can stay that way. And I don't mean uninterested. I mean disinterested. third-party the government of minimum health and safety standards that are both effective and enforceable. Of course, there are other answers as well. and we will make you stir them and we must make you somewhere we believe they are effective through consumer education we can attempt to make Both the consumers both more aware of safety as to their sacred behavior and also teach them some obvious characteristics to look for in purchasing a product. But many safety problems with products are associated with design or quality control defects that are not subject to check by the average consumer. Few consumers can assess for example, what are manufacturer has chosen to correct wire size to put in the toaster. Another possible answer to the product safety problem area is self-regulation by industry for the use of voluntary standards. I believe the voluntary standards are an extremely useful supplement to mandatory regulation. But again, I must point out that I think they are only a supplement. The problems with voluntary standards are obvious the primary one, of course is that they are voluntary. Any manufacturer may choose not to comply and will face. No, thanks and this puts his competitors at a very extreme disadvantage competitively. but even when all manufacturers do comply nothing prevents a new producer from entering the market and selling non-complying products that nobody knows about another problem with many mandatory matters is that they fail to take into account all reasonably foreseeable uses of a product including Miss You by consumers I don't. Know how that would separate most of you, but I think that the predictable foreseeable misuse by a consumer on a consumer product is a very relevant factor to take into account when the product was designed. Far too often. I'm told we didn't make the product to be used that way. They have missed the fact that the Jews are the way it's told me they've abused my product. When in fact the consumer has been somehow injured the product of the argument has been abused but getting off the semantics of it if the product is predictably misused and in my opinion that's as much a failure of the design not to try to get around. That is if the thing were to fall apart. because after all do you make products I guess the philosophy is the philosophy has been too long. I wish I make a product. List out how to use it and then tell the consumer to change their behavior to match my product. I believe that it should be the other way around. Whatever, they predictable Behavior the consumer is then manufacture the product as closely as possible to match that behavior match the product to the consumer not the consumer to the product. another problem with Manda story standards Is the too often that man doth I'm sorry, the voluntary standards is that they rely on warnings to Consumers to guard against hazards that could have been designed out of the product in the first place. I believe that the product liability system and the prescription by government of minimum safety standards are complementary forms of Regulation necessary risks of injury in first place while the other insurers that when the injuries do occur. Their costs are borne by all persons who benefit from the use of the product and not simply just the unwary consumer whose Misfortune. It was to be injured. Many people are now coming forward with ideas on how to reform products liability law. Some of these ideas may have Merit but I would caution against the Hasty adoption of any of them and most particularly against the change that would make compliance with a governmentally mandated standard and absolutely an absolute defense to a product liability lawsuit. After all the government is equipped to set and no more to set minimum safety standards, especially in terms of performance. But it cannot ensure that all preventable accidents will take place consumers who are injured in such accidents need a remedy and the law of product liability is designed to provide them with one. I believe that the way the Congress drafted the consumer product safety act. Provides an excellent method of governing the relationship between governmental standards and product liability litigation. Pacifico say those two things. It gives consumers injured by a product that fails to comply with a standard or right to sue for damages above and beyond the normal litigation damages another word for normal liability damages. They can press for attorneys fees and expert witness fees in federal court. Secondly at the same time it provides the compliance with a standard shall not relieve a manufacturer from liability that he or she would otherwise have for manufacturing a defective product of the latter provision does not mean that the court will not take into account the fact that the product complied with a standard. As in the case with voluntary standards, the fact of compliance will be admitted in evidence by most courts and I suspect that the argument that a product in compliance with the standard and was not defectively designed will be very compelling but the law leaves the consumer free as it should to attempt to prove that a product could and should have been designed even more safely or that the risk of injury address by the standard is not the same risk that result in the consumers injury. If the government were to set standards that would eliminate all hazards wouldn't have any product and that's what nobody wants far as I know so weird address. The minimum level of safety that there's will reduce and eliminate would be called unreasonable risk of injury, but that does not mean get rid of all risk. And to take away the remedy for the risks that are less than unreasonable. I think is unreasonable that makes any sense and I believe that as well as we assess the relative costs and benefits from the regulation. We must keep firmly in mind that the purpose of a regulation is to avoid injury not to seek to make whole or to compensate persons who have already been injured. The latter situation Demands a dollars-and-cents solution the courts have developed a traditional torque remedies of compensating consumers for their out-of-pocket expenses and their foregone earnings. With something out of her pain and suffering. The value to Consumers and Society of preventing injuries is clearly much greater and does not readily lend itself to quantification. Simply and grabbing the torch system of compensation on to the benefit side of the equation will I believe greatly under calculate the societal benefits of safety regulation. I would rather proposed. Although I can't I don't have the final details on that. I'd rather propose on the approach that deals with a risk trade-off or a willingness to pay kind of a concept and I'll give you a good example. Many of you are familiar with maybe on Happily. So the regulation that requires that there be child-resistant caps on aspirin oral prescription drugs drain cleaners and certain other rather dangerous chemicals. I understand that they're real pain for parents to get off. I'm glad. Because they are regardless of whether you tell me some kid down the street and get them off. They are on the average and very consistently more difficult for children to get off. I won't even try to get into the numbers counting game and how many lives have been saved or how many stomach pumping is that there weren't within the last two years because of drain cleaners are aspirin or oral prescription drugs that were not swelled. Accidentally or even on purpose by kids who don't know any better, but I'd ask you to consider the following thought. Is dark onimus back and when we vote in these things one of the one of the people that I talked to her, I'll be right back, Canales if they ask is what are going to be the cost from this and we don't we don't ignore that. How many cups are going to end and I asked him a general question how many caps are produced every year that are with the call child-resistant closures that go on various kinds of products that we require. and he said Billiards, that's all I can tell you billions. billions of these caps Turn on the various products. And I asked him what is the average cost increase to the consumer from having a child resist enclosure or cap as opposed to a regular screw on cap. He said less than a penny. on each product at retail level so I just think about this for a second. We got billions of pennies which comes down to millions of dollars and I don't even question whether it's hundreds of millions or not, cuz I don't think it's relevant. Society is paying billions of pennies or millions of dollars that have these caps on their and we're only saving maybe hundreds or maybe a thousand kids lives. And I don't know how many fouls in stomach pumping and eating out. The esophagus isn't everything else from Drano. But whatever it is. It may come out to be that we're costed. We are if it's costing us a million bucks to save a life. And I think they're probably allowed him to comment to say that's not a very efficient way to run a society. But let's put the question the other way. I want to find at least five consumers that will tell me when I don't even try to go over the numbers. How many consumers are going to say? I refuse to pay a penny for that bottle of aspirin to reduce. The probability of my kid will eat it by accident by 80 or 90% I don't think anybody's going to reject that cost increase they would make that trade-off. Now the question comes up well suppose. I don't have any kids in my house. Do I still have to pay the penny and I save a few people know it but the fact is that all aspirin companies and everyone else is required to put those caps on is also permitted to sell one size of the product but the regular caps on it. So when you go in the store and you want to buy aspirin that has a regular cap on it look for if you'll find it and it has a label on it. It says this product is intended for homes without small children to the regulation does provide that option but the point I want to make is that there are ways to look at it and which you put the option. Ask a question. Is it worth a penny to reduce that risk by that much of a percent rather than to try to calculate how many lies I say versus how many dollars is going to cost? That's a very insensitive evaluating human life. That's okay when you're talkin about dollars into a system and dollars out of the system. finish up one of the most important Hedges against Bad regulation it's for us to adopt and Implement an attitude. That says I have a question. How safe is safe enough and at what cost? And that should be a question that I shouldn't have sent determined for the public but rather with the public. This of course means that the public must be able to determine what's going on. And have access to relevant and factual information. The commission's open meetings policy which we all put together when the agency first started I sure is that there will be no clothes meetings. By the Commissioners or any of the agency staff with anyone outside the agency. on matters of substantial interest Except under very nice, except on the very narrow circumstances before holding these meetings. They meeting goes on a public calendar the announcement of it the counters mailed out to some four or five thousand people and anyone in the room who wants one simply call us and we'll send it to you for free every week and you will know who is talking to us about what And if you want to attend the meeting you may attend the meeting or your Washington representative can attend the meeting? And this way I think that's the purest form of sunshine that could have ever come out of any of Sunshine Law because when I start to make a decision, I look at stacks of information that are sinus and our engineers in our economies have put together and they have taken all the information. They've gotten from all over the Every place that they would get it. I think it's important that we know where that information came from and people who have competing information have an opportunity to get in and give us another view if they have to that was David pindell that the consumer product safety commission. It'll concludes the second hour of excerpts from the first national Forum on business government and the public interest held recently in Washington DC. I'm Neal st. Anthony

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