“America’s current shortage of baby formula is a crisis created, in significant part, by the failures of government policy aimed at protecting domestic companies from foreign competition.
But rather than sweep aside the rules and regulations that have contributed to this mess, the Biden administration and Congress are gearing up to address a problem created by industrial policy with…more industrial policy. We’re now weeks into the crisis, but the best response that our political leaders have been able to muster is an attempt to use public resources to duplicate the market response that would have solved (or at least eased) the mess if it had merely been allowed to operate. The entire saga is a sad and infuriating commentary about the entirely predictable failures of central planning.
Take the White House’s latest idea for addressing the shortage as a perfect example. On Wednesday, President Joe Biden announced plans to send military aircraft to Europe—”Operation Fly Formula,” as the White House is calling it—to bring back formula for American parents.”
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“The baby formula shortage isn’t the result of there not being enough planes to transport baby formula from Europe to the U.S.; it’s the result of the federal government making it nearly impossible to transport baby formula from Europe to the U.S.
As Reason’s Elizabeth Nolan Brown explained earlier this week, the Food and Drug Administration’s (FDA) rules that prohibit many baby formulas made in Europe from being imported to the U.S. have nothing to do with health or nutritional safety issues. Often, those brands are banned because they fail to meet the FDA’s labeling requirements.
In addition, the U.S. imposes huge tariffs—technically tariff-rate quotas, which are designed to make it completely unprofitable to import more than a small amount of a certain product—on imported formula. Those tariffs exist for no reason other than to protect domestic formula manufacturers and the American dairy industry that supplies them. As a result, about 98 percent of the formula sold in the United States is produced here as well.”
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“Rather than moving to ease those regulations, however, the House of Representatives approved a bill on Wednesday that throws $28 million at the FDA to “boost the part of the workforce focused on formula, as well as FDA inspection staff,” according to CBS News. As if the FDA deserves to be rewarded for its incompetence and over-regulation of baby formula. This crisis demands less from the FDA, not more.”
“Far from embarking on a new correct path, Deng was trying to turn back the clock. He wasn’t out to create a new economic system; he sought to restore the planned economy that had existed before the Cultural Revolution. The program he tried to implement after 1978 was based on the “Four Modernisations” Zhou Enlai had introduced in 1963 to revive the countryside after Mao’s disastrous Great Leap Forward. During the Cultural Revolution of 1966 to 1976, the party’s radical elements encouraged renewed collectivization campaigns. Deng sought to reverse those extreme policies, not the planned economy itself.
Deng embraced reforms conservatively, after events on the ground had already made state restrictions obsolete. Upon taking control of the party, he endorsed private ownership of small plots but forbade dividing up collective land to individual households. It was only in 1982, four years after he took power, that households were officially allowed to contract production rights on collective land. He raised the price of grain that farmers compulsorily sold to the state by 20 percent—a substantial concession, but hardly evincing the kind of vision that the title “Great Architect” implies. Indeed, the year after the “great turning point” in April 1979, Deng and the party leadership ordered those who had left the communes to rejoin them.
The planned economy was undermined and subverted from below well before the communes were officially dissolved in 1983. Decollectivization occurred not because of Deng’s vision but because ordinary people, under cover of the Cultural Revolution’s chaos, left the communes. Several years before Mao died in 1976, it had become common for people to strike out on their own in search of economic opportunities. The party’s leadership lamented that the countryside had “gone capitalist,” but it couldn’t reverse that trend. By 1980, half of all production teams in Guizhou province and more than half in Gansu were under household contracts. This system gave farmers secure tenures of collective farmland, which significantly increased both their productivity and health. One cadre in Anhui province likened household contracting, as reported by the historian Frank Dikötter in a 2016 article in The China Quarterly, to “an irresistible wave, spontaneously topping the limits we had placed…it could not be suppressed or turned around.””
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“Deng was not changing history; he was swept away by it. As the historian Kate Zhou wrote in her 1996 book How the Farmers Changed China: “When the government lifted restrictions, it did so only in recognition of the fact that the sea of unorganized farmers had already made them irrelevant.” Ordinary people, not Deng Xiaoping, resisted and reformed the planned economy.
To understand how the party’s control of economic activity slipped, one must look to the history of the Cultural Revolution. Mao’s “Great Leap Forward” of 1958–1962 had devolved into a Great Famine, killing tens of millions of people. While they starved, the party ramped up grain exports to fellow socialist countries in order to increase its international prestige.
This forced farmers to circumvent the state’s orders—one had to lie, cheat, steal, smuggle, or trade on the black markets to avoid starvation. Apart from the party’s loyal hacks, only the lucky or enterprising survived. In the early 1960s, even Mao had to acknowledge that the Great Leap Forward had failed. The Central Committee introduced a few paltry safeguards against extreme collectivization. Villagers were thus allowed to cultivate private plots, but only in their free time.
But Mao soon saw this as backsliding, and he launched the Cultural Revolution to secure his hold on the party. Revolutionary committees took control of China. The People’s Liberation Army was ordered onto the streets, and the Soviet-Sino border conflict was used as a pretext to reassert control over the countryside. Private holdings were once more collectivized on a massive scale. But the party tore itself apart in the process; its organization was vitiated by factional infighting.
The Cultural Revolution broke the party’s apparatus of control—it lost much of its capacity to coerce people’s everyday behavior. During the turmoil, people took back some of their lost freedoms. They expanded private lots, left communes, sold produce for private gain, moved to the cities, and even opened underground factories. It is here that we find the true origins of China’s modernization.”
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“Villagers established private firms and factories throughout the country. For example, the rate of industrialization in the countryside of Jiangsu province in the early 1970s far exceeded the rate of industrialization there under Deng. And it was these rural industries that fuelled China’s GDP growth. Prosperity came not from the cities or from the state-owned enterprises, but from the countryside. The people who worked in these factories had often left the communes on their own initiative, not on party orders. When Deng became paramount leader in 1978, the silent revolution was already well underway.
Not only were factories established, but markets linked rich and poor provinces. And in the coastal province of Guangdong, traders revived overseas trading links, especially once restrictions were eased in 1972. Deng is said to have begun the process of opening up China, but as early as 1974, the amount of money reaching people in Guangdong from overseas was twice what it had been in 1965. Black markets existed everywhere, and although the state maintained rigid monopolies on several key products, almost everything was sold openly on the markets.”
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“Deng recognized that certain changes were inevitable, but his reforms were little more than legalizations of already occurring practices that he was shrewd enough to claim credit for.”
“I document a large and mounting body of empirical research that shows that key market-based policies in health care have failed. Even if well intended, these policies have often not helped people make meaningful choices of medical care or insurance plans. And neither have they controlled spending, as experts promised.
In fact, they are doing exactly the opposite. They are setting people up to make poor choices and are scaffolding a massive, ineffective market bureaucracy.
One-third of people said they would rather file their taxes than read the terms of a health plan. And reams of studies summarized in my article affirm that people do not choose well among health insurance plan options, and these errors are hard to remedy with anything short of a strong default plan—in which case, one must ask whether “choice” even matters.
Likewise, even when people have to pay a large share of their own medical care and have easy access to price information, they still do not compare prices or choose the lowest-price options, even for services with little variation in quality. One partial explanation is that health care patients look to doctors—not price lists—to steer their care. Patients lack the desire, time, knowledge, and skills to navigate medical decisions as “consumers.”
The focus of the last several decades of health regulation has been to try to fix broken markets and flawed consumers through constant regulatory, technocratic tinkering—either to spur competition or to nudge consumers toward better choices. This tinkering has fallen short, and it has produced a massive market-based bureaucracy.
Thick layers of government regulations and regulators attempt to scaffold failing market-based policies. Plus, this scaffolding has deeply embedded private health care enterprises—with high profits and salaries—into the bureaucracy. As one example, the 2018 salary for the CEO of Blue Cross and Blue Shield of Michigan was recently reported to be $19 million, which is not an unusual sum among health care executives.
Because markets do not meaningfully enhance choice, do not avoid bureaucracy, and have certainly not solved cost problems, it is time to stop tinkering and to seek a better foundation for the next era of health policy and regulation.”
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“It is time to give up the false hope that health care markets and individual purchase decisions will produce a health care system that Americans want and, in the process, drive down spending. Policymakers have spent a half-century avoiding the hard questions about what values, objectives, and tradeoffs should guide health policy, by hoping that markets would magically answer these questions.
The reality is that the only way to build effective health policy—and, in turn, health regulation—is by engaging deeply in these hard questions and the challenging political battles they necessarily provoke.”
High-Deductible Health Plans Reduce Health Care Cost And Utilization, Including Use Of Needed Preventive Services Rajender Agarwal et al. 10 2017. HealthAffairs. https://www.healthaffairs.org/doi/10.1377/hlthaff.2017.0610 Does High Cost-Sharing Slow the Long-term Growth Rate of Health Spending? Evidence from the States Molly Frean and Mark
“What’s irritating, though, is that many of the best free market ideas for helping working families have not been tried.
What would happen if we actually stopped providing tax incentives for employer-sponsored health insurance? Or if we allowed people to pick less expensive insurance plans that didn’t cover chiropractic bills and dermatology visits but did provide the kind of coverage they were most likely to use and would most likely cause them financial strain if they didn’t have? The annual savings for the average family from this type of policy change would likely surpass any child allowance.
What if we had occupational licensing reforms and allowed people to run small businesses out of their home without fear that the local health department will shut them down? These would give families another path to upward mobility.
What if we stopped making childcare more expensive through government regulations, such as demanding that daycare workers have unnecessary masters degrees and mandating child-to- staff ratios instead of just allowing parents to decide whom they trust with their children?
What if we changed zoning rules so that families could rent out extra rooms in their homes or allowed extended families to more easily live together? What if zoning rules didn’t keep residential properties so far away from commercial properties, in turn requiring that children be driven everywhere?
What if—and here is an idea whose resonance has become even more apparent in recent months—we had real school choice? What if parents didn’t have to worry about buying a more expensive home in order to get their children access to a better school district? Or what if we allowed them to choose a charter school or private school when the public schools in their neighborhood didn’t perform (or even open in person)?
What if instead of continuing to subsidize the bloated higher education industry, we simply offered flexible vouchers to low-income students, letting them spend the money in a way that would allow them to quickly and efficiently gain the job skills they wanted?”
“Last week, a restaurant owner in Seymour, Indiana, told her local paper that the city should restrict access to food trucks as a way to bolster business at her brick-and-mortar restaurant. She’s taken issue with a particular food truck owned by a national chicken chain.
“The days they were in town, we did have a considerable loss, and they had a line all day,” Lori Keithley, owner of Brewskie’s Downtown in Seymour, told local newspaper The Tribune. She claims Brewskie’s “can’t compete with Chick-fil-A.” So she wants the city to force food trucks operating in the city—including the Chick-fil-A truck, which went through the same licensing, permitting, and inspection process as other food trucks operating in the city—out of the downtown area.”
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“some who can’t or won’t compete throw up their hands and ask the government to limit choice by stifling competition. That’s protectionism.”