The Regulatory State Is Failing Us

When assessing the United States government’s response to the coronavirus pandemic, most observers focus on the performances of President Donald Trump, his most prominent advisers, and the governors of large states.

The George Mason economist Tyler Cowen, who has helped raise more than $1 million in prizes for promising efforts to combat the coronavirus, has an additional concern. “Our regulatory state is failing us,” he has repeatedly warned on his blog, Marginal Revolution. In fact, Cowen sees those failures as among the most significant obstacles to successfully combatting the virus. He fleshed out his concerns and desired reforms in an interview conducted over email. This is a lightly edited version of our exchange.

Conor Friedersdorf: What is the “regulatory state”? And what does it have to do with America’s pandemic response?

Tyler Cowen: I define “the regulatory state,” in this context, as the set of laws, rules, and institutions set up to govern, oversee, and indeed define our response to the pandemic. Of course, the regulatory state reports to both the executive and the legislatures, so this is all of a piece, but in the short run, agencies and bureaucracies typically have a great deal of independent influence.

Friedersdorf: What are the most significant failures of America’s regulatory state as it relates to the pandemic?

Cowen: Let me give you a few examples:

1. New York state regulations, until very recently, forced nursing homes to accept COVID-19-positive patients being discharged from hospitals. Nursing homes, especially in the northeast, have been an epicenter for COVID-19 casualties. By law, they were forced to accept more than 4,500 COVID-19-positive patients, often without proper PPE for their staff.
2. The Centers for Disease Control and Prevention developed its own test procedures early on, but those proved to be faulty and based on contaminated materials. At the same time, the CDC legally prevented Americans from pursuing other testing options. That is a major reason America fell behind in the testing race, and with its late start, America was not able to buy up enough testing materials before those items became very scarce.
3. One particular method of COVID-19 testing has been up and running in Washington State, supported by the governor, local officials, and the Gates Foundation. This testing has been saving lives, and it does not endanger anyone. The FDA recently shut down such testing on the basis of a sheer technicality, and scientists find this decision baffling.
4. The World Health Organization, our own CDC, and Dr. [Anthony] Fauci all told Americans that masks were ineffective and not important. It turns out masks can help a great deal in limiting virus transmission, and later the WHO reversed its stance. The American government is still sending mixed signals.
5. One Texas entrepreneur offered to gear up his factory, early on, to make masks in great quantities. The Department of Health and Human Services let his offer lie fallow, as the agency was too slow, uncertain, and tied up in bureaucracy.

Those are just a few examples of many. And they are not small matters; they are major reasons America has confronted this crisis so poorly. Former President Barack Obama recently stated: “More than anything, this pandemic has fully, finally torn back the curtain on the idea that so many of the folks in charge know what they’re doing.”

Friedersdorf: Some observers see public and private hospitals with insufficient stockpiles of personal protective equipment, or workers in crowded meatpacking plants falling ill, and conclude that America’s pandemic response is characterized by insufficient regulation. What do you say to them?

Cowen: They are partly, but by no means fully, right. I would favor better regulations for meatpacking plants, at least once we can figure out how to do them properly (temporary paid sick leave could serve as an interim measure). But as for PPE, regulations have done more to discourage supply than to boost it, and here I would cite required permits for mask factories, procurement failures, trade restrictions, and anti-price-gouging laws, which limit supply. Give hospitals more money and let them bid for masks.

Friedersdorf: Almost every prosperous country has a permanent bureaucracy characterized by lots of rules and regulations. Is there some reason that America’s regulatory state is impeding pandemic response more than the regulatory states of, say, Germany or South Korea?

Cowen: First, it is not yet clear whether America or Germany will, in the final analysis, have done the better job. Germany has been much better on testing and having a disciplined lockdown and risk communication, but when it comes to having a free, competitive biomedical establishment to search for cures, I would put my money on the United States.

As for the South Korean government, once the coronavirus arrived in their country, the government sat down with the private sector, figured out what needed to be done, and started doing it right away, including very aggressive procurement of PPE and testing. I think there are at least three differences that partly account for this difference in response. First, the South Korean state has very recent experience building lots of quality infrastructure. Second, SARS was a very real risk in South Korea, which boosted their readiness and also response capabilities. Third, South Koreans are used to the idea of existential risk, given their history and neighbors, and they do not regard themselves as invulnerable.

Friedersdorf: Which country’s regulatory state comes closest to ideal? Based on which characteristics?

Cowen: Taiwan and South Korea have done excellent work in this area, based on speed of response and taking the problem seriously. Taiwan, like South Korea, is also used to the idea of existential risk and risk coming from China. Singapore mostly did a very good job, but with one big lapse, namely failing to secure the dormitories of migrant workers. New Zealand did a very good job too. Three of those four cases are from non-complacent countries that take existential risk seriously. New Zealand has had ongoing regulatory reform, and mechanisms to improve governance, since its broader reforms of the 1980s and 1990s. They all had a strong civil service and leaders who took the problem seriously. They are also smaller nations, islands, or territories having strong island-like properties (South Korea).

Friedersdorf: Until we improve the U.S. regulatory state, should its shortcomings inform the pandemic strategies we pursue?

Cowen: We should invest as much as possible in biomedical research to try to beat this thing back. That applies to corporate R&D, nonprofits and universities, and also our government. By the way, that is yet another instance of regulatory failure—ever try to repurpose National Institutes of Health funding on the fly? Even during a pandemic, that is very hard to do. Our various apparatuses for funding research have responded far too slowly to this crisis, and I would include the private sector and the foundation sector in that criticism as well.

Friedersdorf: What’s more important in a political leader: someone who’ll push to formally get rid of flawed rules and regulations, or someone who is adept at navigating the regulatory state as it exists when they are elected?

Cowen: I don’t see a general rule; this one is going to depend on context. I certainly would not assume that the former is more effective. For a pandemic, it can be hard to know in advance exactly which rules and regulations to repeal; rather, a speedy and flexible response is at a premium. You do want a leader who understands the detailed workings of government, and the countries with better response performance usually have had that.

Friedersdorf: On the right, at institutions such as the Claremont Institute, there’s a critique of the administrative state that says it is extra-constitutional, unaccountable to the people, and ought to be reined in by elected leaders asserting legitimate authority over unelected bureaucrats who have grown too powerful. On the left, there is widespread concern that Trump is capriciously firing public-health experts and inspectors general, and that allowing him to do so is making the federal bureaucracy more dysfunctional, not less so. Where are your allegiances in that conflict, given your view that the U.S. bears significant downside costs when its regulatory state is not functioning well?

Cowen: It is important not to make this a partisan conflict. I do not view the administrative state as extra-constitutional. That said, it has become far too inflexible, and not sufficiently focused on outcomes. It is time we woke up and realized that we have a system that simply is not working. As for the views you cite on the left, I largely agree with their critique of Trump’s performance in this crisis, though I prefer the less partisan versions of that critique. The performance of the New York state governor and mayor—both Democrats—has been dismal as well … New York State arguably has been the worst performer by far, and Hawaii arguably the best or among the best. Both are strongly Democratic. Some red states, such as Georgia, Florida, and Texas, are proceeding with relatively speedy and liberal reopenings. As I am writing this, it remains to be seen how well that will work out, but I would say a high risk is being run.

Friedersdorf: If you could change one thing about the culture of America’s bureaucracy, what would it be?

Cowen: Regulation should be more goal-oriented, and less prescriptive in terms of the details. It should be easier to exercise judgment to meet particular worthy ends, rather than being hamstrung by restrictions and details. Regulation should recognize that emergency situations will come along when very fast action will be needed. Our current regulatory state is not built around those ideas, and its culture is accordingly complacent, and compliance- and process-oriented rather than success-oriented. These days, the American public sector just isn’t very good at getting things done.

Friedersdorf: To reform the regulatory state, should we be thinking in terms of big versus small? Powerful versus weak? Smart versus dumb? Competent versus incompetent? Flexible versus inflexible? Some other paradigm? What particular steps should be taken to improve the performance of the regulatory state?

Cowen: So much needs to be done. First, we need far more data on the scope of regulation, what it does and doesn’t do, and its costs. Second, the possibility of excess regulation needs to become a political issue once again, as it was right before the time of airline deregulation. Third, America needs to be far more open to learning lessons from other countries. “Smart versus dumb” is the best framing of the ones you list. And we should not be reluctant to admit and indeed emphasize that some areas, such as carbon emissions, require much more regulation. That said, when it comes to green energy, some doses of deregulation could help as well—right now it is very difficult in many communities to build a wind farm, even though that is a very green form of energy.

Friedersdorf: Are you aware of any particular government agency that outperforms most others? If so, what lessons can we take from it?

Cowen: The response of our Federal Reserve System has been excellent. They prevented a global financial crisis by prompt action in mid-March, and in general, Fed monetary policy has helped stabilize the economy. The Fed has an excellent staff, reasonable governance, and first-rate leadership at the top. You will note that the Fed is largely autonomous; outside of normal civil-service regulations, they pay staff more than does the federal government. Perhaps our public-health bureaucracy should move in a similar direction, as my colleague Garett Jones [a GMU economics professor] has been suggesting.

Friedersdorf: If political leaders and bureaucrats took your critique to heart and started making changes, what would we look for as markers of success, and what would signal that they were going too far and overcorrecting?

Cowen: An obsession with data and with learning from other countries do not themselves constitute success. Still, they are very good starting points to look for. Another simple sign is when American institutions dealing with COVID-19 testing and PPE supply report that the government is a greater aid than hindrance. We are not there yet. As for a sign that we have gone too far, one would be if we distribute a doubtful vaccine for reasons of political expediency without sufficient testing and study.

Friedersdorf: As you look ahead to pandemic challenges we’re likely to face in the future, what prospective regulatory-state failures worry you most? What preemptive correctives can be taken to avoid them?

Cowen: Eventually, we will indeed get PPE and COVID-19 testing problems worked out, even though many lives will have been lost in the meantime, and many jobs destroyed. Over the medium term, looking forward, I am more worried that biomedical research doesn’t get funded quickly enough, risk communication from our executive branch is abysmal, and our plans for reopening are not very coherent or well understood, by either citizens or even policy makers themselves. As for recommendations, I would repeat the various points suggested above.

Friedersdorf: How could the press improve its coverage of the regulatory state?

Cowen: Statnews.com is a very good source for covering the regulatory state during COVID-19. They are an offshoot of The Boston Globe, and my belief in what they are doing does not stem from any particular ideological affinity. They simply have very well-informed expert journalists, and they focus on reaching a sophisticated audience (disclaimer: My nonprofit program, Emergent Ventures, has made a grant to them).

The New York Times and The Washington Post and, yes, also The Atlantic have published some excellent articles outlining failures of the regulatory state during COVID-19. I do not see, however, that the opinion pages of the first two institutions have done a sufficient job in putting the pieces together and helping their readers see the bigger picture. The media have already done some great work to date, and I am not in general a media-basher. But can you imagine the major, mostly left-leaning NYT columnists and op-ed writers making regulatory reform a major crusade? I can’t quite see it, but let’s hope.

Friedersdorf: Libertarians and small-government conservatives are highly skeptical of the regulatory state. What do they get wrong?

Cowen: Very often, the alternative to regulation is ex post facto reliance on the courts and juries to redress wrongs. Of course, the judiciary and its components are further instruments of governments, and they have their own flaws. There is no particular reason, from, say, a libertarian point of view, to expect such miracles from the courts. Very often, I would rather take my chances with the regulators.

Also, let’s not forget the cases where the regulators are flat-out right. Take herbal medicines, penis enlargers, or vaccines. In those cases, the regulators are essentially correct, and there is a substantial segment of the population that is flat-out wrong on those issues, and sometimes they are wrong in dangerous ways.

Friedersdorf: Are there critiques of the FDA in particular or the pandemic-era regulatory state more generally that deserve wider attention?

Cowen: There are legitimate questions as to whether the FDA is too risk-averse in normal times, raising the costs of drug approval and pursuing safety at the expense of innovation. I don’t think we should be trying to settle those debates right now. Conditions have changed, and we do in fact need faster responses during COVID-19 times. That means greater attention to clearing and approving testing procedures, securing and enabling the supply of masks (by no means the province of the FDA only, to be clear), and yes, accelerated scrutiny for candidate treatments and vaccines. The FDA has been failing on testing and masks; we don’t yet know how they are doing in terms of accelerated treatment, but their overall record in very recent times has not been positive.

Friedersdorf: Is there any figure in the regulatory state to whom you’d like to pose a question here?

Cowen: To the heads and senior staff of the FDA, CDC, OIRA (Office of Information and Regulatory Affairs), and other agencies: What changes do you need from Congress, the president, and the courts to treat matters such as pandemics more urgently? To heads of the NSF (National Science Foundation) and NIH: Why can’t you spend more money more quickly on COVID-19-relevant research? What changes do you need made? And in which ways are you yourselves obstacles to a speedy reallocation of funds and priorities?