Let Market Forces Regulate – Buckyballs

The Wall Street Journal’s weekend interview for yesterday and today, “What Happens When a Man Takes on the Feds,” by Sohrab Ahmari, illustrates two of the reasons why market forces regulate public health and safety better than government does, pretty much all the time. (I explore this in Part II of Free Our Markets.)

The interview is with Craig Zucker, the entrepreneur behind Buckyballs, the “hottest office game on the market” in 2011, when sales reached $10 million per year. Buckyballs are—er, were—“small, powerful rare-earth magnets [that] can be stacked like Legos, stretched and used to make [an] infinite [number of] shapes.”

On July 10, 2012, the Consumer Product Safety Commission instructed Maxfield & Oberton [Zucker’s company] to file a “corrective-action plan” within two weeks or face an administrative suit related to Buckyballs’ alleged safety defects.

The concern was that children might by harmed by swallowing the Buckyballs. It’s a legitimate concern; the article identifies two cases where children have been harmed, though fortunately not killed, thereby. Maxfield & Oberton had  been careful to market the product only to adults, however. They refused to distribute the product through stores such as Toys ‘R’ Us that sell toys primarily for children. They used “warnings and safety programs [that] were developed in collaboration with [Consumer Product Safety] commission staff.”

The company did submit a

corrective-action plan … at 4 p.m. on the July 24 deadline. Yet the very next morning the commission filed an administrative lawsuit against Maxfield & Oberton, suggesting the company’s plan was never seriously considered.

Zucker fought back.

Maxfield & Oberton resolved to take to the public square. On July 27, just two days after the commission filed suit, the company launched a publicity campaign to rally customers and spotlight the commission’s nanny-state excesses. The campaign’s tagline? “Save Our Balls.”

Online ads pointed out how, under the commission’s reasoning, everything from coconuts (“tasty fruit or deadly sky ballistic?”) to stairways (“are they really worth the risk?”) to hot dogs (“delicious but deadly”) could be banned. Commission staff were challenged to debate Mr. Zucker, and consumers were invited to call Commissioner Inez Tenenbaum’s “psychic hotline” to find out how it was that “the vote to sue our company was presented to the Commissioners on July 23rd, a day before our Corrective Action Plan was to be submitted.”

“It was a very successful campaign,” says Mr. Zucker, “just not successful enough to keep us in business.” Maxfield & Oberton gave in, took the product off the market, and closed down their company.

“The inventory was sold and the business ended,” says Mr. Zucker. He thought it was an “honest and graceful exit” to a broken entrepreneurial dream.

But in February the Buckyballs saga took a chilling turn: The commission filed a motion requesting that Mr. Zucker be held personally liable for the costs of the recall, which it estimated at $57 million, if the product was ultimately determined to be defective.

This was an astounding departure from the principle of limited liability at the heart of U.S. corporate law.

The author of the article, and Zucker, and we, may understandably suspect retaliation here.

Nowadays Mr. Zucker spends most of his waking hours fighting off a vindictive U.S. Consumer Product Safety Commission that has set out to punish him for having challenged its regulatory overreach.

With respect to Mr. (Ms.?) Ahmari, who has written us a splendid article, this is not a matter of “overreach.” It’s a matter of reach that’s ethically illegitimate and economically imprudent from the git-go.

The story illustrates problems with using governmental force to regulate health and safety at all, beyond punishing negligence and fraud. (And that should be done by courts.) As Part II of Free Our Markets tries to establish, “regulation by market forces outperforms government regulation.” We should get rid of the Consumer Product Safety Commission altogether and let market forces, backed up by judicial protection against negligence and fraud, regulate product safety.

There are various reasons for eliminating government regulation of peaceful commercial activity. The most important, and to me sufficient, reason is the ethical one that human beings have a fundamental right to exchange with one another as they see fit, as long as they do so in a way that respects everyone’s rights. Nobody has a right to interfere with the peaceful exchanges others choose to make. This goes for products much more dangerous than Buckyballs, such as rat poison and hydrochloric acid and bread knives.

But the story also illustrates practical economic reasons why health and safety regulation should be carried out by market forces rather than by government bureaucracies.

One of these is that when a government-monopoly regulator “overreaches” or otherwise botches a judgment, there is no check on them, there is no alternative for us in the public who fault the decision, no competing safety certifier to whom manufacturers can turn for a second opinion, no freedom for willing buyers and sellers to decline the “services” of the agency altogether and take their chances on an unapproved product. Unlike, say, Underwriters’ Laboratory or Angie’s List, the CPSC doesn’t have to please the public with sound evaluations in order to stay in business; they are funded by taxes. Hence they have weaker incentives than private-sector certifiers and evaluators would have to avoid bad judgments such as this.

A second reason illustrated by this episode I never thought of in writing my book. That is, the power to dictate to entrepreneurs such as Craig Zucker and his would-be customers—like all power—corrupts. The Consumer Product Safety Commission seems to be going after Zucker to retaliate for his calling attention to their foolishness. They should not have that power. Human beings don’t handle that kind of power well.

The CPSC is the guilty party here; they have harmed the public. Their action has denied the public a delightful product that many would like to buy, and denied Zucker and his associates a livelihood. If the product is recalled, the costs of that unjustified recall, “which [the CPSC] estimated at $57 million,” should, by rights, be born by the Consumer Product Safety Commissioners themselves. They are the source of the burden. Nobody else asked for a product recall.

As long as health and safety regulation is carried out by government bureaucracies, rather than by impersonal market forces as it should be, oh! how I wish we the people could hold those bureaucrats accountable for their screw-ups, could make them pay for the harm they cause!

As for how and why market forces in a free market would give us better health and safety regulation than government agencies can, this post is long enough; I’ll take up that question in another soon.

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One Response to Let Market Forces Regulate – Buckyballs

  1. Ian O'Brien says:

    I find the concept of this very interesting, as a person who is relatively new to learning about economics and the way the government functions I find it odd how we have a free market yet the government can interfere when they so choose. It was stated in the article about how we should allow the market to dictate what stays and goes and not the government, and I can completely agree with this. It confuses me on how this particular product was chosen I mean with that logic the government should just step in a ban every product that could potentially cause a child to choke (which includes practically every product in existence). I believe there are times that the government and court systems should intervene but this is a complete abuse of the governments power and is ridiculous in my opinion.

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