The preamble to the Constitution states:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

This statement is essentially the mission of the US government. If an agency does not support this mission, then it is arguably not required or even detracts from the mission by diverting resources or even working against the mission. While an agency may start out supporting the general welfare or common defense, through regulatory capture, it may morph into something quite different that does not support the mission.

Part 3 of the Military Bureaucratization series brought up the regulatory capture phenomenon and how it can inhibit regulation and compliance enforcement when the regulatory and governmental agencies act in the best interests of the regulated industry. This post also draws on two previous posts on the bureaucracy: Creating the Monster: The American Bureaucracy and The Rise of the American Bureaucracy.

While regulatory capture focuses on companies subverting the bureaucracy for their economic gain, I would like to proffer two other versions of regulatory capture:

• Academic Capture. Agencies co-opt the academic institution to favor their actions and activities regardless of whether they support the preamble.
• Political Capture. Political parties capture the regulatory agency and bend its regulations and enforcement to meet their political agenda.
• Criminal Capture. Criminal organizations capture the regulatory bureaucracy through bribes to shape policy and enforcement, so they favor the criminal organizations’ activities.

Agrell and Gautier comment on the information imbalance and ways to offset it, and the effects of regulatory capture.

Conventional capture models rely on the idea that regulator is induced to lenient behavior by the regulated firm through offers of monetary transfers, the bribery model, or future employment, the revolving doors model. To avoid socially costly capture, the political principal should then either implement collusion-proof mechanisms through the delegation of welfare gains, or severely restrict the career paths of regulatory staff. The paradox of capture is that neither the two modes of capture, nor the remedy are commonly found in practice. This paper proposes to rethink capture based on the widespread use of industry-commissioned consultants, experts and lobbyists that produce information for regulatory and policy use. A small model (Agrell and Gautier, 2010) introduces a ‘soft capture’ concept based on a self-enforced collusion between the firm and regulator, linked to the role of the regulator as information-processing intermediate for the political principal. The firm puts processed but biased information at the free disposal of the regulator, ‘no strings attached’, who can then either use the submitted information or produce a more accurate information by a costly process. Under a set of mild conditions, the equilibrium involves soft capture and the regulator uses the submitted information, leading to some distortions in welfare. (Agrell, Per J. and Gautier, Axel, Rethinking Regulatory Practice, 2011).

The “welfare” discussed is about not about Great Society welfare programs, but the commonwealth’s general welfare in the preamble to the Constitution. Economics Online states:

A net welfare gain refers to the impact of a government policy, or a decision by firms, on total economic welfare, taking into account the gains, less any losses.

While the concept of ‘welfare’ can have several meanings in economics, it corresponds closely to the idea of well-being. Economists have attempted to quantify it in various ways, including using the idea of ‘utility’ and ‘surplus’ to represent welfare.

The idea that welfare can be assessed by considering the ‘surplus’ that can be gained by consumers and producers from a transaction is attributed to English economist Alfred Marshall. From the consumer’s perspective, ‘surplus’ occurs when the price a consumer would be prepared to pay for a good or service is greater than the market price, and producer surplus is gained by a producer when the price they would be prepared to supply at is less than the actual price.

Academics created the regulatory capture theory, and they keep questioning and updating it. But are academics immune from the effects of regulatory capture? Does industry co-opt academics and social justice warriors that want to see a more expansive and powerful also engage in a version of regulatory capture?

Argel and Gautier hint the key is information and its quality, completeness, and veracity. This echoes discussions by other academics on bureaucracy—the bureaucrats have an information edge on others that they exploit for their own power, positions, and careers. See work from McCubbins, Noll, and Weingast and Wood and Waterman cited in The Rise of the American Bureaucracy.

This issue goes well beyond regulatory capture and is at the heart of virtually every competitive information. Those with information husband it and parcel it out to their gain. The other core problems are a lack of virtue (see Virtue, Leadership, and Power, Virtue: Honor and Integrity, and Virtue and Courtesy) and an educational system that does not prepare students for life. But for the moment, let us focus on the regulatory capture issue and its implications for society with some examples.

To do this, this post looks at several federal agencies in the bureaucracy and their effects in the bureaucratic overview later in the piece.

What can we do?

James Madison, in Federalist 51, stated:

But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.

As the opening figure shows, and Madison confirms, we need to balance regulation and government control.

A pure laissez-faire approach provides no government regulation and allows corporations and other economic actors to do as they please. This cures the regulatory problem, but without an intensely virtuous society, the cure may be worse than the disease. This extreme, without virtue, can lead to anarchy and potential government weakness. It is one reason the US moved from the Articles of Confederation to the Constitution.

On the other side of the normal curve in the figure, too much regulation may enhance capture and inhibit economic growth. It will also promote corruption, as bureaucrats and politicians seek power and control. Lord Action was spot on when he wrote “Power tends to corrupt, and absolute power corrupts absolutely” or as William Pitt the Elder said, “Unlimited power is apt to corrupt the minds of those who possess it”. This extreme could also lead to fascism.

We need to find the optimal point, but that is not as easy as it sounds. The shape of the curve may change and even be skewed, depending on circumstances. For example, the demands of war may skew the curve toward more regulation and control.

To effectively manage this balancing act, we need to consider the following:

• As the bureaucratic overview shows, government is too far to the fascist end of the scale. Regulatory and other forms of capture, harm citizens and destroy value in the commonwealth. We need to cut the bureaucracy and potentially eliminate some cabinet departments.
• Government needs power to operate, but power corrupts. We need to:
• Instill virtue in society through education and upbringing to create a culture of virtue and civic integrity.
• Develop effective controls over the bureaucracy. Agrell and Gautier suggest some controls, but we need to be careful. Too many restrictions could inhibit personnel recruitment and organizational effectiveness. A balance budget amendment and potentially the repeal of the 16^th and 17^th Amendments to the Constitution may help. These two amendments drastically changed the federal government and shifted power away from the states and to a central government.
• Enact term limits and constrain politicians’ pay and emoluments. Politicians need to be subject to the laws they pass and use the same health care and other programs they mandate for citizens. They should not be able to vote for their own pay raises.

A New Contract with America discusses these ideas.

Bureaucratic Overview

Food and Drug Administration (FDA)

The Food and Drug Administration protects the public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices; and by ensuring the safety of our nation’s food supply, cosmetics, and products that emit radiation. https://www.fda.gov/about-fda/what-we-do

FDA’s responsibilities are ever growing and more complex due to advances in food and medical product technology, global supply chains, and artificial intelligence. The FY 2023 budget provides an $8.4 billion total program level for FDA. This includes $356 million in budget authority above the FY 2022 funding level to enhance food safety and nutrition, advance medical product safety, improve core operations, and modernize FDA’s infrastructure, buildings, and facilities. The budget proposes $3 billion in user fees and $1.63 billion in funding over the next 5 years for Pandemic Preparedness. FY2023 FDA Budget Fact Sheet.

Yet when we look at our food supply, particularly with the exploding weight problem, America’s food supply is problematic. Americans are growing increasingly obese and diabetic. Our poor food supply, which the FDA is tasked to protect, is killing us.

The other wing of the FDA is drugs, which are perhaps just as problematic as food for our nation’s health. By the FDA’s own statistics, there were over 880 recalls in 2022. Now, we can look at these one of two ways: either it shows the FDA is doing its job and getting harmful products off the market, or it is not doing its job and letting harmful products on the market.

According to Time, one in four Americans cannot afford their prescription medication. This comes from the industry’s patents, which are supported by the industry’s huge lobbying efforts. CBS reports pharmaceutical industry spent $263M in 2021 lobbying congress to keep drug prices high. The Defender reports 63.58% of pharmaceutical lobbyists were former government employees. Pharmaceutical lobbying is by far the largest lobbying effort in America. That’s not surprising, with the size of the industry. According to Zippia, the ten largest pharma companies in 2021 are huge:

Company	2021 Market Cap
Johnson and Johnson	$93.8B
Pfizer	$81.3B
AbbVie	$56.2B
Bristol-Myers Squibb	$46.4B
Abbot	$43.1B
Merck	$39.1B
Stryker	$17.1B
Regeneron Pharmaceuticals	$16.1B
Biogen	$11B
Eli Lilly and Company	$2.2B

That is over $360B from just these three companies. They have deep pockets to afford to lobby and a large financial incentive to do so. There clearly seems to be a regulatory capture going on here.

Drug Enforcement Agency (DEA)

The mission of the Drug Enforcement Administration (DEA) is to enforce the controlled substances laws and regulations of the United States and bring to the criminal and civil justice system of the United States, or any other competent jurisdiction, those organizations and principal members of organizations, involved in the growing, manufacture, or distribution of controlled substances appearing in or destined for illicit traffic in the United States; and to recommend and support non-enforcement programs aimed at reducing the availability of illicit controlled substances on the domestic and international markets. (https://www.dea.gov/about/mission)

What I find interesting about the mission statement is that it says NOTHING about protecting the American people. At best, it is implied. Criminal regulatory capture can influence the laws and regulations above. The mission statement should explicitly link to the general welfare and protecting the citizens. Otherwise, we are on a slippery slope.

The blog entries The Fentanyl Attack and Critical Thinking Policy: The Wars on Drugs and Poverty provide background on the DEA the war on drugs. Now, let us look at it from a regulatory capture perspective.

One of the key questions in critical thinking is cui bono: who benefits (see Critical Thinking: Logic and Reason)? While this question is helpful for any analysis of regulatory capture, it is critical for the war on drugs. Given the spectacular failure on drug policy and the war on drugs, those that benefit the most are the drug cartels. By keeping drugs illegal, the policy inflates drug prices and provides barriers to entry for other cartels.

National Institutes of Health (NIH)

NIH’s mission is to seek fundamental knowledge about the nature and behavior of living systems and the application of that knowledge to enhance health, lengthen life, and reduce illness and disability. (https://www.nih.gov/about-nih/what-we-do/mission-goals)

The NIH led the response to COVID-19 and developed policies and actions designed to control it. While I do not know enough about vaccines and disease, there seems to be evidence that not these efforts made a difference in COVID, and may have even made the situation worse. Even some NIH personnel have admitted this. Also, the NIH mission and goals imply a research agency vice a regulatory agency, but it lately it acts as a regulatory and enforcement agency. This could be an example of political regulatory capture.

Great Society Programs

See Part 7 of the Inflection Point Series, Part 2 of the Faustian Bargain series, and Creating the Monster: The American Bureaucracy for a discussion and analysis of these programs. Arguably, the Johnson administration designed these programs to control the population rather than help it and have harmed the people rather than help them. They are potentially another example of political regulatory capture.

Department of Defense (DoD)

The Department of Defense is America’s largest government agency. With our military tracing its roots back to pre-Revolutionary times, the department has grown and evolved with our nation. Our mission is to provide the military forces needed to deter war and ensure our nation’s security. (https://www.defense.gov/About/)

DoD is an immense beast with over a $800B budget. Set aside the uniformed combat forces and it is perhaps the largest bureaucracy in the world. President Eisenhower, in his farewell address, warned the nation to beware of the military industrial complex.

A vital element in keeping the peace is our military establishment. Our arms must be might, ready for instant action, so that no potential aggressor may be tempted to risk his own destruction. . . . American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. . . . This conjunction of an immense military establishment and a large arms industry is new in the American experience. . . .Yet we must not fail to comprehend its grave implications. . . . In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

I suspect we are seeing this play out now. While the DoD does not regulate the defense industry per se, its contract policy and regulations are de facto regulation. And anyone who observes the military industrial complex can see the symptoms and effects of regulatory capture.