Why we should demand regulatory reform

The idea of eliminating or modifying unnecessary or overly burdensome regulations is often associated with corporate profits and jobs. While this association may not be wrong — because regulations are, of course, costly to businesses — it unfortunately causes many people to dismiss the idea of regulatory reform entirely because it seems like another example of businesses seeking profit at the expense of everyone else. However, if you dig a little deeper, it becomes clear that regulatory reform actually creates opportunities to help low-income households and improve the health, safety and environmental outcomes that our society highly values.

{mosads}Regulations can have regressive effects — that is, they can disproportionately harm low-income households compared to middle- and high-income households. Regulations entail costs, and in the case of many health, safety and environmental regulations, those costs are borne disproportionately by low-income households. For example, many states have regulations that limit the size of childcare groups, which may improve the quality of childcare (although, notably, such regulations have not been shown to have a significant effect on long-term childcare outcomes). On the other hand, these regulations do have the effect of driving up the price of childcare services, an effect which is particularly dire for low-income households.

Consider the effect of a $100 increase in the monthly price of childcare services to two families — one family with a monthly income of $1,500 and the other with a monthly income of $4,500. In percentage terms, a $100 increase in the cost of childcare services represents a loss of 6.6 percent of monthly income to the family that makes $1,500 a month, while the same $100 increase costs the family that makes $4,500 a month only 2.2 percent of their monthly income. Thus regulations are regressive: when regulations cause the prices of goods and services to increase, they increase for all consumers, but the effect in percentage terms is more consequential for low-income households.

Regulations can also hinder the development of lifesaving and health-improving drugs and medical treatments. The healthcare industry is increasingly ripe for innovation resulting from big data. Insurers and medical providers possess massive databases with patient records, including which drugs and treatments were used for various illnesses and issues. It’s easy to imagine how these data could be used to gain new insights into what effects — intended or not — pharmaceutical or medical devices have, and as medical practitioners learn about these effects, we would all hope that their knowledge is widely disseminated and used.

Food and Drug Administration (FDA) guidance, however, complicates this potentially beneficial process. As Diana Carew of the Progressive Policy Institute recently wrote, consider: “a study funded by a pharmaceutical company using real-world ‘big data,’ collected through apps, that documented vital statistics and mobility after patients use a medication developed by the company. Suppose the medication was intended to prevent high cholesterol, but the study also found patients had lower blood pressure after adjusting for exercise. [FDA] draft guidance would not allow this study to be shared with healthcare professionals, because it was not based on a clinical trial, in addition to being funded by the pharmaceutical company — even if it meets the criteria for being truthful and non-misleading.”

The pharmaceutical company could pay for and undergo a clinical trial to demonstrate this finding (again), but clinical trials are notoriously expensive. Unless the company expects sales of the medication to at least offset the costs of the trials, the company likely won’t proceed with clinical trials. This means that the secondary benefit of the medication will not be communicated to doctors, who could have used the drug for that effect had they known. FDA rules and guidance can hinder the development of new drugs or treatments as well as further understanding of the complete set of effects of existing drugs, which is increasingly possible with big data.

Reforming regulations is not just about businesses and jobs. It is about helping low-income households and improving our health. When phrased this way, it is a wonder that there is not more bipartisan support for large-scale regulatory reform efforts. Perhaps we can hope for some in the new year with a new Congress.

McLaughlin is a senior research fellow with the Mercatus Center at George Mason University.