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Legislating Drug PriceTransparency✒ BY THOMAS A. HEMPHILL

The U.S. pharmaceutical industry has once again become atarget of consumers’ and politicians’ ire. In the past few years,public outcry ensued after a new, blockbuster drug was mar-

keted at a seemingly exorbitant price and an older, off-patent genericdrug underwent a progression of price hikes.

The former controversy was over thedrug Harvoni, first released by Gilead Sci-ences in 2014. Harvoni can completely curemany people of the most common typeof hepatitis C (and with few side effects),resulting in its being hailed by the medi-cal community as a major breakthrough.However, the patient cost of this “miracledrug”—$94,500 for a 12-week treatment—elicited a firestorm of condemnation. Bylate 2014, both Democrats and Republi-cans on the U.S. Senate Finance Commit-tee were demanding detailed cost data onHarvoni from Gilead Sciences because thenew drug was already placing an additionalstrain on the budgets of state and federalhealth care assistance programs.

The latter controversy was over TuringPharmaceutical’s marketing of Daraprim,a medication used to treat protozoalinfections in AIDS and cancer patients.Daraprim is on the World Health Organi-zation’s List of Essential Medicines. In thesummer of 2015, Turing announced thatthe drug’s price would rise from $13.50 to$750 per tablet—a 5,500% increase.

Public and employer concern / A recentnational survey shows that the averageAmerican consumer is alarmed at theseskyrocketing prescription and brand-name pharmaceutical prices. Just overthree-fourths of those surveyed believethat brand-name prescription drugprices are unreasonably high today,including 80% of Democrats and 70% of

Republicans. Although media attentionhas focused on a small number of veryhigh-priced medicines to treat debilitat-ing diseases, a majority of survey respon-dents report greater concern for futurerising prices for more routine brand-namedrugs. This concern is fueling support formajor governmental action to negotiate orset future drug prices.

American consumers aren’t alone intheir concern about rising drug prices; soare their employers. Willis Towers Watson,a leading global workforce advisory firm,surveyed employers about their top healthcoverage concerns heading into the 2017open enrollment season. The firm foundthat nearly nine in 10 employers identifiedmanaging prescription drug expenses—especially for specialty drugs—as their toppriority.

State action / According to Aaron Kessel-heim, an associate professor of Medicineat Harvard Medical School, transparencyinitiatives may be more palatable thantackling price caps or patent protection.“Who could be opposed to transparency?”asked Kesselheim rhetorically, speaking ata March 2017 American Medical Associa-tion advocacy conference. “To the extentthat all of them are difficult hills to climb,that one might be easier because we’re notchanging anything, we just want things tobe more open. So that seems more doablein the short term.”

According to the National Conference ofState Legislatures (NCSL), at least 14 statesconsidered legislation involving prescrip-tion drug manufacturer price transparency

in their 2015–2016 legislative sessions. Inessence, such legislation would require drugmakers to report and justify price increasesthat lawmakers consider questionably large.The NCSL also found that eight states con-sidered bills that would place drug pricingtransparency requirements on health insur-ers, with Arkansas, South Dakota, and Texasadopting such legislation. Ten states andPuerto Rico considered legislation requiringpharmacy benefit managers (PBMs)—third-party administrators of prescription drugprograms—to provide price transparency,with Delaware and Maine signing thosebills into law.

The NCSL reports that 15 states havelegislation pending related to drug pricetransparency as of early March of this year.One such state is Maryland, which has twobills, one to require drug manufacturers toexplain price hikes, and a second to allowlegal action for excessive price increases.

Vermont / The first state to implementdrug price transparency legislation wasVermont in June of 2016. “This bill isabout accountability,” explained Gov.Peter Shumlin of the enacting legislation.He continued:

The reality is that we have pharmaceuti-cal companies raising prices on lifesav-ing drugs 5,000%. When asked aboutthose outrageous increases, CEOs areliterally laughing in front of Congress.That needs to change.

Under the legislation, the Green Moun-tain Care Board—a Vermont health careregulator—works in conjunction with theDepartment of Vermont Health Accessto develop an annual list of either (1) the15 drugs for which “significant healthcare dollars are spent and where list (i.e.,‘wholesale acquisition cost’) prices rose by50 percent or more over the previous five-year period,” or (2) 15 medicines whose listprices rose 15% or more over a 12-monthperiod for the state’s Medicaid program.Also, the 15 drugs identified by these agen-cies must represent different drug classes.The Green Mountain Care Board thenprovides the state attorney general the

THOMAS A. HEMPHILL is professor of strategy, inno-vation, and public policy in the School of Managementat the University of Michigan, Flint.

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compiled list, including the percentageof the wholesale acquisition cost increasefor each drug. The drug cost informationis made publicly available on the GreenMountain Care Board’s website.

Under the law, pharmaceutical manu-facturers need to disclose “all the factorsthat have contributed to a price increase,”including detailed cost breakdowns, andjustify the increases to the attorney generalin a format that is “understandable andappropriate.” The attorney general canseek injunctive relief, costs, and attorneyfees if these companies decline to providethe requested information, where each civilviolation carries a $10,000 civil penalty.

Congress Acts? / On September 14, 2016,a bipartisan bill, the Fair Accountabilityand Innovative Research (FAIR)Drug Pricing Act, was introducedin Congress by cosponsors Sen.John McCain (R-Ariz.) and Sen.Tammy Baldwin (D-Wisc.) in theSenate, and by Rep. Jan Scha-kowsky (D-Ill.) in the House. Thislegislation was not enacted in the114th Congress, and has yet tobe re-introduced in the 115thCongress.

Under the legislation, drugmanufacturers would have beenrequired to report in advance tothe U.S. Department of Healthand Human Services (HHS) aprice increase of more than 10%over a 12-month period for certaindrugs. As part of their reports, themanufacturers would have hadto provide a justification for eachprice increase, manufacturing andresearch and development costsfor the qualifying drug, net profitsattributable to the drug, marketingand advertising spending on thequalifying drug, and other infor-mation as deemed appropriate.

The bill would not have prohib-ited manufacturers from increas-ing prices, but it would have giventaxpayers notice of price increasesand would have brought a basicT

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level of transparency to the market forprescription drugs. The HHS would havemade the information from these reports(excluding any proprietary and confiden-tial information) publicly available in anunderstandable online format within 30days. Moreover, the HHS would have beenrequired to submit an annual report to Con-gress summarizing the information andreports submitted by drug manufacturers.

In a June 15, 2016 Stat News article, anunnamed spokeswoman for the Pharma-ceutical Research & Manufacturers Associ-ation, the drug industry’s trade association,said that the FAIR Drug Pricing Act “willnot benefit patients” or provide informa-tion that they could use. “Instead it focuseson isolating research and developmentcosts for the few medicines that make it to

patients in a thinly veiled attempt to builda case for government price setting,” thespokeswoman argued. Moreover, she main-tained that drug manufacturers alreadydisclose “extensive information” aboutR&D costs, “a wealth of information abouteffectiveness and safety” before clinicalresearch that is published on public web-sites, and “aggregated information aboutnegotiated and required rebates is includedin company financial filings.”

Will greater transparency work? /Return-ing to Vermont, the state has been a bell-wether for legislation addressing alleged“excesses” of the pharmaceutical indus-try. The recent legislation continues thattrend. It will most likely capture popu-lar generic drugs (and increase compli-

ance costs for those companies)among the state’s list of the top15 drugs, because it focuses onpercentage price increases wherethis category of pharmaceuticalhas a low list price. Conversely,because the legislation focuseson price increases, Vermont’slegislation will not capture newlyintroduced drugs initially offeredto the public at seemingly exorbi-tant prices. Yet, the new legisla-tion will provide information forthe state’s Medicaid program andthe Green Mountain Care Boardwill have to decide whether thestate will pay for certain drugs.

A December 2016 report issuedby the Vermont attorney general’soffice identified 10 drugs of con-cern. While manufacturers wereasked to submit explanations ofall factors that contributed toprice increases and estimate per-centages attributable to each fac-tor, none of those specific answersare explained in the report. Ratherit merely summarizes some of thereasons given, including the indus-try’s need to invest in research anddevelopment. As required in thestate’s legislation, the law has aconfidentiality provision that does

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Populism and Protectionism✒ BY PIERRE LEMIEUX

The recent French election illustrated what may look to manylike an intriguing fact: the rejection of free trade by bothextreme-left and extreme-right populism. The extreme-right

candidate, Marine Le Pen, presented herself as an opponent of glo-balization, promising a “smart protectionism” and vowing to “rejectfree-trade agreements,” to establish a“reindustrialization plan,” and to hire6,000 new customs agents. “We need pro-tectionism,” claimed a press release bythe vice-president of the National Front,Le Pen’s party. Jean-Luc Mélenchon, theextreme-left candidate, criticized “dein-dustrialization” and promised “solidaryprotectionism,” “industrial sovereignty,”and French exit from the World TradeOrganization.

Both programs would underminefree trade and freedom to work withinthe European Union. In practice, there is

not allow for companies’ written responsesto be made publicly available. Thus, theefficacy of this transparency legislation isbeing called into question by many of thelegislation’s original critics.

An issue with many of the proposedstate bills is that they offer percentagethresholds in annual (or multi-year) priceincreases that must be exceeded before adrug manufacturer is required to justify itscost to a state government’s satisfaction.These percentage thresholds will offer visi-ble targets for pharmaceutical manufactur-ers to consider when making their pricingdecisions. While providing an annual priceincrease ceiling for some pharmaceuticalmanufacturers who do not want to makea state’s list, these laws could perverselyentice other drug manufacturers to raiseprices yearly rather than risk one large (andreportable) increase in the future. Also, ifother states pass legislation similar to Ver-mont, the lowest percentage price increasewill likely establish a national threshold forpharmacy manufacturers concerned withsuch transparency legislation—unless theFAIR Drug Pricing Act is re-introducedand enacted in the 115th Congress, whichwould result in a 10% annual ceiling. Thenet result could conceivably be an overallincrease in the price of prescription drugs.

Another legitimate criticism of theselaws concerns the use of “list price” termi-nology. These wholesale prices are simplystarting points for negotiations with PBMsand health care insurers. For example,according to data compiled in 2015 bythe Drug Channels Institute, a pharmaceu-ticals consultancy, the combined top threePBMs (Express Scripts, CVS/Caremark,and United Health Group/OptimumRx/Catamarin) controlled 75% of market shareby total equivalent prescriptions in 2014,worth an estimated $263 billion annu-ally. These large buyers will negotiate afinal price for a pharmaceutical, and thatprice often includes substantial rebates.Depending on competition in the marketfor a drug, a pharmacy manufacturer mayprovide steep rebates, i.e., discounts, ontheir product to the increasingly concen-trated PBM industry. For insulin, which

little difference between Le Pen’s “smartprotectionism” and Mélenchon’s “solidaryprotectionism.”

Today’s populists oppose free trade evenwhen they don’t stand at the extremes ofthe political spectrum. In the United States,both Donald Trump and Bernie Sanderscampaigned for protectionism. Many otherexamples could be given, including mostif not all populist third parties in Europe.

Authority and “the people” / The Encyclo-pedia Britannica defines “populism” asa “political program or movement thatchampions the common person,” notingthat it “usually combines elements of theleft and the right.” Authoritarian popu-lism is “typically critical of political rep-

is a highly competitive market, Eli Lilyreportedly offered rebates off its list pricein 2014 averaging 56% to PBMs and healthinsurers. As a result, the net price of insu-lin increased by only 3% over the previousfive years.

Another area of concern to the phar-maceutical industry is the public releaseof trade secrets. In a May 30, 2016 letterto the editor in the Pittsburgh Post-Gazette,Robyn Boerstling, a vice president for theNational Association of Manufacturers,noted the industry’s concerns about therecently enacted Vermont legislation:

Manufacturers understand the need toreduce health care costs, but we haveserious concerns related to the long-term implications of pharmaceuticalpricing transparency proposals. Protec-tion of trade secrets and intellectual

property is a necessity for manufactur-ers to succeed in today’s intensely com-petitive global marketplace. No industryshould be forced to turn over highlysensitive, proprietary information toany government—state or federal.

Boerstling goes on to note, “Trade secrets,which include pricing information, areprotected by both federal and state laws.”

Whether the Vermont legislationimproperly asks for proprietary infor-mation that is part of the overall drugdevelopment process, and whether thisrequest would cause competitive harm toa pharmaceutical manufacturer, is yet tobe decided by the Vermont judiciary. Atthis time, the pharmaceutical industryhas not challenged the lawfulness of theVermont law—but that situation couldchange quickly.

PIERRE LEMIEUX is an economist affiliated with theDepartment of Management Sciences of the Universitédu Québec en Outaouais. His latest book is Who NeedsJobs? Spreading Poverty or Increasing Welfare (PalgraveMacmillan, 2014).

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resentation and anything that mediatesthe relation between the people and theirleader or government.”

A number of reasons account for themarriage between populism and protec-tionism.

First, the common person does notunderstand how free trade benefits thevast majority of people. This ignorance isnot surprising if only because the typicalvoter remains “rationally ignorant” of suchmatters. At least on this topic, ignorance ismore prevalent among the less educated.There is evidence, including in a recentWSJ/NBC opinion poll, that individualswithout a college degree are more likelyto think free trade is detrimental (WallStreet Journal, February 26, 2017). But evenamong the educated, only a small minorityunderstand the economic theory of trade.

A second reason why populists natu-rally favor protectionism is that the com-mon person is more likely to fear foreign-ers, if only because he travels less and meetsfewer strangers. As the word says, strangersare strange.

The third reason is that populism needsmuch state power, which free trade under-mines. A populist leader may say he is work-

ing on behalf of “the people,” but at besthe can only impose the preferences of themajority (or a large plurality) on the rest ofthe citizenry. “The people” do not have iden-tical preferences and unanimous opinions.However much the populist leader wants tobe loved, he will only be able to satisfy thepreferences of some people. He will onlysatisfy his supporters—and then only someof their preferences. Power is required tosteamroll minority preferences. Given thereal or fictitious crises that typically sparkand fuel populism, additional power will beneeded. You don’t satisfy a mob by throwingroses to minorities.

When Trump said in a campaign adver-tisement, “We will be unified, we will beone, we will be happy again,” he was dream-ing or uttering balderdash. No more unitywould have been generated under Sanders;it would have been just another majority(or plurality) denying the preferences ofanother minority.

Free trade is an obstacle to any sort ofgovernment authoritarianism, includingpopulist authoritarianism. Under free trade,domestic policies that would increase thecost of goods and services (say, by main-taining inefficient manufacturing) will be

circumvented by imports. The free move-ment of capital, which is part of free trade,is also a powerful restraint on authoritariangovernments. If your savings are threatened,you can transfer them to another country.If worse comes to worse, you can leave andbring your money with you—or, today, tele-commute from a foreign abode and receivepayments from your customers over theborder. Needing more power, populist lead-ers will favor protectionism.

Dual (or multiple) citizenship is aninteresting case study. Populist or authori-tarian governments don’t like dual citi-zenship because it allows their citizens toescape more easily. The more authoritarianthe state is, the more captive a citizenryit wants. It is significant that Le Pen hasvoiced her opposition to dual citizenship.

These reasons are reinforced by a fourthone: the establishment—the populists’ bêtenoire—has come to side with institutionsthat appear to favor free trade—that is, with“globalization.” Established internationalorganizationssuchastheWorldTradeOrga-nization, the World Bank, the InternationalMonetary Fund, and the Organisation forEconomic Co-Operation and Developmenthave acquired a bias against protectionism.The fact that many economists work forthese organizations has reinforced their freetrade orientation.

This is the result of seven decades oftrade liberalization. Members of the politi-cal and economic establishment are typi-cally more cosmopolitan than others: theytravel more, are more likely to have dualcitizenships, and so forth.

Yet, we are still very far from havingtruly free trade. Not only has the liberal-ization movement been stalled for twodecades, but much of what passes forfree trade is partially managed trade andis viewed as a concession from nationalstates. The establishment’s free-trade biasis only a matter of degree. But it is appar-ently sufficient to provoke the populist ire.

These observations are not meant todepreciate common people, but to empha-size why they easily fall for populist rulersfrom whom, to borrow from H.L. Mencken,they will “get it good and hard.” RIS

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old woman, but then transform into agasoline pump if Fosdick appeared to beon his trail. Anyface was determined tounleash mayhem on the unnamed metrop-olis Fosdick protected—in today’s words,he was a terrorist.

In one episode, Anyface let it be knownthat he had poisoned a can of Old FaithfulPork-n-Beans, which happened to be thecommunity’s favorite delicacy. Hardly ameal was enjoyed without a serving of thebeans, and Anyface knew that.

Wrestling with the problem and whatto do about it, Fosdick’s boss,The Chief, gathered together hisinner circle to form a strategy. Abunker mentality prevailed. Itwas law and order against ter-rorism, good against evil, rightagainst wrong.

After some deliberation, TheChief had a revelation: he sim-ply instructed trusty Fosdick tomake certain no one would diefrom eating Old Faithful beans.Fosdick took his orders seri-ously. To avoid a Type II error,he immediately went to the OldFaithful factory, shut it down,and impounded all the beansin the warehouse. He likewiseimpounded all the beans in gro-cery stores and at wholesalers.

But then he realized: whatif someone had already pur-chased the poisoned can and

the beans were simmering on the stoveor in bowls ready to serve? Heaven forbid,what if people in some restaurant were lift-ing a forkful of the lethal beans to their lipsat that very moment? Remembering hischarge from The Chief—don’t let anyonedie from eating poisoned beans—Fosdickknew what to do.

Rushing from house to house and fromcafé to restaurant, when Fosdick saw peo-ple about to heat up a can of beans, he shotthem. If people appeared to be ready to eatsome of the beans, he shot them, too.

When the episode ended, no one haddied from Anyface’s can of poisoned beans,but many had died from Fosdick’s gun.

Trump and his staffers claim this scrutinyis insufficient and must be “paused” sothat “extreme vetting” mechanisms canbe drawn up and implemented.

The Trump White House considers riskreduction of terrorism to be of paramountimportance and no counterweighing con-cern—including the harm that could befallrefugees attempting to flee to the UnitedStates, or the negative effects of such aban on the United States’ reputation, orthe loss to American society and the econ-omy from losing these immigrants—areadjudged important enough to offset thevalue of that risk reduction.

But removing risk is itself risky busi-ness. Through the travel ban and ensuing“extreme vetting,” President Trump hopesto avoid a false negative or “Type II” error—mistakenly considering “safe” a travelerwith lethal intentions. However, strongsensitivity to Type II errors increases thelikelihood of Type I errors, which in thiscase would be the turning away (whethertemporarily or permanently) of benigntravelers at a cost to both those travelersand the United States. Showing disregardfor holders of travel visas (and in the ban’soriginal form, U.S. green cards) generatescostly uncertainty for a large category ofpeople who contribute to the nation’s well-being. When these and other costs areimposed on tens of thousands of innocentpeople, the cost becomes quite large.

This point was made memorably yearsago by Al Capp, the creator of the legend-ary comic strip Li’l Abner. Though the stripprimarily dealt with the exploits of Li’lAbner, Daisy Mae, and the other denizensof Dogpatch, Capp would sometimes takea break from that storyline to tell tales (orin some cases, just a panel or two) of L’ilAbner’s favorite comic book character,police detective Fearless Fosdick.

Fosdick was a parody of Dick Tracy, acombination of Barney Fife and Roscoe P.Coltrane (without the corruption), withTracy’s square jaw. One of Fosdick’s nem-eses was Anyface, a master of disguise whocould appear at first as, say, an innocent

Fearless Fosdick and Trump’sImmigration ‘Pause’✒ BY BRUCE YANDLE

The Trump administration’s efforts to bar entry into the UnitedStates of people from several Muslim-majority countrieshave been justified as necessary to reduce Americans’ risk

of death from terrorism. Though these travelers—especially refu-gees—already are scrutinized before receiving entry visas, President

BRUCE YANDLE is a distinguished adjunct professorof economics with the Mercatus Center at GeorgeMason University and dean emeritus of the ClemsonUniversity College of Business and Behavioral Science.The essay expands on a Feb. 22nd op-ed Yandle pub-lished on the website InsideSources.com. T

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Still, with the terrorist Anyface held at bay,Fosdick smiled. He had made the classicType I/Type II tradeoff. He had made surethat no one would fall ill or die from poi-soned beans. Problem is, he had wiped outpart of the population in doing so.

Our nation is exposed to terrorismrisk. Because our president is sworn toprotect us, extreme vetting and even morecostly actions may be imposed on inno-cent people. While none will be shot in aneffort to avoid allowing terrorists to enterthe country, an abrupt slamming of thedoor on foreign travelers imposes a coston each innocent traveler denied at thethreshold. There is also a cost imposedon the rest of us when chastened, foreign

HENRY I. MILLER , a physician and molecular biologist,is the Robert Wesson Fellow in Scientific Philosophyand Public Policy at Stanford University’s Hoover Insti-tution. He was founding director of the U.S. Food andDrug Administration’s Office of Biotechnology.

opportunity-seekers decide to seek theirfortunes elsewhere.

President Trump, like Fosdick, maybe successful in preventing death in thiscountry from the hands of terrorists. Butdepending on how he does this, he canerode the wealth-creating process as wellas bruise some precious ideas that definethis nation.

Sadly, there is no such thing as freeprotection from terrorist harm. Knowingthat, we should move cautiously whentightening the screen that, while guard-ing us from harm, limits the entry of theultimate resource: creative and productivehuman beings who wish to pursue theAmerican dream.

SorryMr. Ruckelshaus, ButYourOld Agency Is a Shambles✒ BY HENRY I. MILLER

William Ruckelshaus, who served twice as head of the U.S.Environmental Protection Agency, recently took to theopinion pages of the New York Times to defend his old

agency (“A Lesson Trump and the E.P.A. Should Heed,” March 7, 2017).He claimed the EPA has achieved cleaner air and water for the nationand posited that it “represents one of theclearest examples of our political systemlistening and responding to the Americanpeople.”

Ruckelshaus, who is now in his mid-80s, has been away from the EPA for 32years and the rosy picture he paints ofexpert, efficient bureaucracy is very dif-ferent from the reality of recent decades. Iknow first-hand that it was different evenduring his second, short stint there from1983 to 1985.

Blocking innovation / When I joined the U.S.Food and Drug Administration in 1979, Iwas essentially apolitical and knew next tonothing about federal regulation. A science

nerd, I had spent the previous 16 years incollege, graduate school, medical school,and post-doctoral training. It didn’t takelong until I learned about the jungle ofgovernment bureaucracies. And one of thedarkest and most dangerous parts of thatjungle was the perfidious and incompetentEPA, one of the FDA’s siblings.

I found the EPA, several of whose majorprograms I interacted with, to be relent-lessly anti-science, anti-technology, andanti-industry. The only thing it seemed tobe for was the Europeans’ innovation-bust-ing “precautionary principle,” the view thatuntil a product or activity has been provensafe definitively, it should be banned or atleast smothered with regulation. (See “TheParalyzing Principle,” Winter 2002–2003.)In fact, during international discussionsand negotiations over the harmonizationof biotechnology regulations in which I

participated, the EPA often seemed alliedwith the European Union and commit-ted to working against U.S. interests. Athome, its officials seemed to be taking theirmarching orders from the most radicalelements of the environmental movement.

The EPA has unilaterally killed off entire,once-promising sectors of U.S. research anddevelopment. The use of genetically engi-neered microorganisms for bioremedia-tion—that is, the biological cleanup of toxicwastes, including oil—is one.

Accidents that result in oil spills areinevitable as long as they can be caused byhuman or mechanical failures or the vaga-ries of weather. During the 1980s, microor-ganisms genetically engineered to degradespilled oil were developed in laboratories.But draconian EPA regulations discour-aged their testing and commercialization,ensuring that the techniques availablefor responding to these disasters remainlow-tech and marginally effective. Thosemeasures include such archaic methodsas deploying booms to contain the oil,burning or spraying chemicals to disperseit, and spreading absorbent mats.

At the time of the catastrophic 1989Exxon Valdez spill in Alaska, there weregreat expectations for modern biotechnol-ogy applied to bioremediation. WilliamReilly, then head of the EPA, later recalled,“When I saw the full scale of the disasterin Prince William Sound in Alaska … myfirst thought was: Where are the exotic newtechnologies, the products of genetic engi-neering, that can help us clean this up?”

He of all people should have known.Innovation had been stymied by Reilly’sown agency’s hostile policies toward themost precise new genetic engineering tech-niques.

Another biotech sector that the EPArelegated to oblivion was protection ofcrops from frost damage. Peaches, plums,citrus, and other crops are regularly threat-ened by frost in the Southeast, resulting inlosses that can total in the billions of dol-lars. California is also susceptible: A Janu-ary 2007 freeze there cost farmers morethan $1 billion in losses of citrus, avocados,and strawberries, and a 1990 freeze caused

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about $800 million in damage to agri-culture, resulting in the layoff of 12,000citrus-industry workers, including pickers,packers, harvesters, and salespeople.

Farmers fight freeze damage withpathetically low-tech methods. Theseinclude burning smudge pots, which pro-duce warm smoke; running wind machinesto move the frigid air; and spraying water onthe plants to form an insulating coat of ice.

In the early 1980s, scientists at the Uni-versity of California, Berkeley and in indus-try devised a more ingenious approach.They knew that a harmless bacterium,Pseudomonas syringae, which normally liveson many plants, contains an “ice-nucle-ation” protein that promotes frost damage.They produced a variant of the bacteriumthat lacked the ice-nucleation protein,reasoning that spraying this variant bac-terium (dubbed “ice-minus”) on plantsmight prevent frost damage by displacingthe common, damage-promoting kind.Using precise genetic engineering tech-niques, the researchers deleted the genefor the ice-nucleation protein and plannedfield tests with ice-minus bacteria.

Then the EPA stepped in and that wasthe beginning of the end. Regulators clas-sified as a pesticide the innocuous ice-minusbacterium, which was to be tested in North-ern California on small, fenced-off plots ofpotatoes and strawberries. How could it bea pesticide? Because the regulators consid-ered the naturally occurring, ubiquitous“ice-plus” bacterium a pest because itsice-nucleation protein promotes ice crystalformation that damages plants. Therefore,they reasoned, other bacteria intended todisplace it would be a pesticide. This is thekind of absurd, sophistic reasoning thatcould lead the EPA to regulate trash-canlids as pesticides because they deter ormitigate a pest, namely raccoons.

At the time, scientists inside and out-side the EPA were unanimous that the testposed negligible risk. (I wrote the FDA’sopinion.) No new genetic material had beenadded; only a single gene, whose functionwas well-known, had been removed, and theorganism was obviously harmless. None-theless, the field trial was subjected to an

extraordinary long and burdensome reviewonly because the organism was created withmodern genetic engineering techniques.

It is noteworthy that experimentsusing bacteria with identical traits butconstructed with older, cruder techniquesrequire no governmental review of anykind. When tested on less than 10 acres,nongenetically engineered bacteria andchemical pesticides are exempt fromregulation. Moreover, there is no govern-ment regulation of the use of vast quanti-

ties of the ice-plus organisms, which arecommonly blown into the air during snow-making at ski resorts.

Although the ice-minus bacteria provedsafe and effective at preventing frost dam-age in field trials, further research wasdiscouraged by the combination of oner-ous government regulation, the inflatedexpense of doing the experiments, andthe prospect of huge downstream costs ofpesticide registration. As a result, the prod-uct was never commercialized and plantscultivated for food and fiber throughoutmuch of the nation remain vulnerable tofrost damage. We have the EPA to thank forputting farmers’ livelihoods in jeopardy,jobs lost, and inflated produce prices forconsumers.

Flawed decisions / During the two decadessince I left government service, I’ve con-tinued to watch the EPA’s missteps andexcesses with a mixture of awe and vexa-tion. Policy by policy and decision by deci-sion, the EPA has damaged the nation’scompetitiveness, ability to innovate, andcapacity to create wealth.

The EPA’s ever-expanding regulationimposes huge costs on American busi-nesses and ultimately on consumers. Ananalysis by the Competitive Enterprise

Institute estimates that the annual cost ofcompliance with EPA regulations is morethan a third of a trillion dollars.

The EPA is the prototype of agenciesthat spend more and more to addresssmaller and smaller risks. In one analysisby the Office of Management and Budgetof the 30 least cost-effective regulationsthroughout the government, the EPA hadimposed no fewer than 17.

One of the EPA’s most controversialrecent actions was to redefine “navigable

waters” for the purposeof regulating them underthe Clean Water Act.Under the new definitionthese include virtuallyevery body of water in thenation right down to thesmallest of streams, farmponds, and ditches. (Pur-

suant to an order from President Trump,this travesty is now being reversed.)

Another example of flawed EPA deci-sionmaking was the imposition of overlystringent ambient air standards under theClean Air Act. Clean air is desirable, ofcourse, but an EPA rule finalized in Febru-ary 2012 that created new emissions stan-dards for coal- and oil-fired electric utilitieswas ill-conceived. According to an analysis(“Government Regulators Were Too Busyin 2012,” Dec. 28, 2012) by Diane Katz andJames Gattuso of the Heritage Foundation:

The benefits are highly questionable,with the vast majority being unrelatedto the emissions targeted by the regula-tion. The costs, however, are certain:an estimated $9.6 billion annually. Theregulations will produce a significantloss of electricity generating capacity,which [will] undermine energy reli-ability and raise energy costs across theentire economy.

Transgressions / Regulatory excesses areone thing; dishonesty and mendacity aresomething else. An EPA subterfuge thathas received attention from the U.S. Sen-ate’s Environment and Public WorksCommittee is the “sue-and-settle” maneu-ver the EPA uses frequently to advance

Policy by policy and decision by decision,the EPA has damaged the nation’scompetitiveness, ability to innovate,and capacity to create wealth.

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its agenda in a way that substitutes a judi-cial mechanism for the customary, pre-scribed interface between legislation andagency rulemaking.

The way this works is that environmen-tal groups (some of which receive govern-ment grants) sue the federal governmenton the grounds that agencies are failingto meet their regulatory obligations, andthen—behind closed doors—the activ-ists and regulators concoct a settlementagreement that furthers activists’ (andregulators’) extra-statutory goals. Thus,sue-and-settle is a strategy that circum-vents both congressional intent and therulemaking process.

Last year, investigators found two fla-grant transgressions of federal law by theEPA: engaging in “covert propaganda” and“grassroots lobbying.” The GovernmentAccountability Office discovered that theEPA illegally used Thunderclap, a socialmedia site, “to correct what [the EPA]viewed as misinformation.” Government

use of social media is not unlawful per seand many agencies use it to communicatetheir actions and policies to the public.But the EPA crossed the line when it askedmembers of the public to share EPA-com-posed propaganda on Facebook or Twitterwithout attributing it to the government.Neglecting to reveal the source was thebasis of the “covert propaganda” violationbecause the law says that citizens mustknow when messages presented to themwere created by their government.

Federal agencies are supposed to beapolitical and federal law prohibits lob-bying for or against proposed legislation.But an EPA blog post contained links towebsites that encouraged the public to,for example, “urge your senators to defendClean Water Act safeguards for criticalstreams and wetlands.” This “grassrootslobbying” was a violation of federal lawbecause, at the time, Congress was con-sidering a number of pieces of legislationto derail the EPA’s “waters of the United

States” regulation. Not surprisingly, theEPA wanted those bills to be defeated.

The above examples are by no means anexhaustive list. For at least the past threedecades, the EPA has been a rogue agency—ideological, poorly managed, dishonest,and out of touch with sound science andcommon sense. It is emblematic of whatWall Street Journal columnist Bill McGurnhas condemned as the “soft despotism” ofthe “unelected and increasingly assertiveclass that populates our federal bureaucra-cies and substitutes rule by regulation forthe rule of law.”

The new head of the EPA, Scott Pruitt,made clear in a recent interview that thingsare about to change. According to Pruitt:

This past administration didn’t botherwith statutes…. They displaced Con-gress, disregarded the law, and ingeneral said they would act in their ownway. That now ends.

About time. R