Instead of getting out of the way, the Biden administration is trying to fix past government intervention with more government intervention.
Instead of getting out of the way, the administration is trying to fix past government intervention with more government intervention.
O ver the past few days, the White House has been in damage-control mode over the ongoing baby-formula shortage. The proximate cause of the shortage seems to be a recall of formula from an Abbott Labs facility in Michigan, which happened in February. But issues were bubbling up even before then, with smaller shortages occurring late last year that should have sounded alarms.
In a background call with senior administration officials yesterday, Kevin Robillard of the Huffington Post asked a sensible question: “Why weren’t steps being taken . . . over the past few months to alleviate this problem?”
The unnamed administration official replied, “I can assure you that this is not new to the White House’s radar. We have been working on this issue since the very beginning, in the days leading up to the recall and ever since then.”
If that’s true, they were awfully quiet about it. Since the February 17 Abbott recall, the first White House document that even mentions “infant formula” or “baby formula” is Jen Psaki’s press briefing on May 9, and it only came up because a reporter asked a question about it. Certainly it’s possible that they were working behind the scenes on this issue, but it’s not as though it’s a top-secret national-security matter, and families would have been happy to hear about the White House’s efforts before the widespread shortage began.
It’s also clear that, even if the administration has been “working on this issue since the very beginning,” whatever it tried didn’t work. The shortage is here.
In a free market, a shortage like the one we are currently seeing for baby formula should not occur. The negative supply shock from the Abbott recall should result in a short-term increase in prices, which incentivizes other producers to make up the difference, thereby bringing the prices back down and avoiding a widespread shortage.
But as I wrote earlier this week, the market for baby formula is rife with government interference. The WIC program, originally implemented to help impoverished mothers afford food for their babies, has been expanded so much over the years that it now accounts for over half of all baby-formula consumption in the country. In the words of the USDA (the federal department that oversees the program), “WIC essentially replaces price-sensitive consumers of infant formula with price-insensitive consumers.” That means the price signals that prevent shortages aren’t going to work like they should.
Making matters worse, the government also imposes a number of protectionist policies on baby-formula imports. That means that, in the event of domestic-production problems, Americans are stranded without baby formula. This shortage should demonstrate to everyone that making everything in America is not, in fact, an advantage, and our trading relationships with other countries are beneficial to us, not harmful.
The consequence of all that government involvement is that when something does go wrong, it’s on the government to fix it. The White House’s plan, released yesterday, to fix the baby-formula shortage won’t fix it.
Let’s start with the positive: The plan says the administration is looking to increase baby-formula imports. That’s good news because European baby formula gets to the U.S. anyway through black markets. There’s no reason to force mothers who want perfectly safe European formula for their babies to purchase it through black markets, and legalizing it for everyone would significantly increase supply, both now and for years to come.
But that’s the only positive, and the way the White House plans to implement it does not seem encouraging. The plan says that “the FDA will, in the coming days, announce specific new steps it is taking concerning importing certain infant formula products from abroad.”
Here’s the step it should take: The FDA should announce that baby formula that is currently approved in Europe is now approved here, and the administration should use its executive authority to eliminate trade barriers with Europe and ask Congress to do the same. Baby formula that is perfectly safe for babies in the European Union (not known for taking a laissez-faire approach to regulation) is also perfectly safe for babies in the United States. One of the top brands in Europe is Danone, the French firm whose yogurt products are already popular here.
By not taking that simple step and instead announcing “specific new steps” for “certain” products, the administration is likely starting a never-ending FDA-approval process that won’t result in much at all. The FDA’s incentives lead it to be too risk averse (as we saw during the pandemic), and its risk-aversion costs American lives by not approving safe products and treatments in a timely manner. That agency is not going to suddenly become a nimble deregulator overnight, and in all likelihood, American mothers who want European baby formula will still be buying it on black markets a year from now.
The rest of the White House’s plan is simply unhelpful. It says that the FTC and state attorneys general will go after “price gouging or unfair market practices.” Part of the reason the market got to this point is government interference with price signals, so promising more government interference with price signals, which is what this part of the plan means in practice, is not the answer.
Siccing the FTC on “unfair practices” also sounds a lot like the White House’s plan to fight inflation. Blaming rising prices on greed and suggesting they can be cured by federal investigations is so disconnected from economic reality that even left-leaning Washington Post columnist Catherine Rampell has called it a “conspiracy theory.” The White House likely talks this way because it polls well, not because it works.
The other part of the White House’s plan involves making WIC more flexible and allowing more baby-formula purchases to be covered by the program. Without significant structural reforms to the WIC program and its state-based, sole-supplier contracting model of procurement, allowing more U.S. baby-formula consumption to go through the program will only distort price signals further, making shortages more likely in the future. Formula manufacturers don’t make money off of WIC sales and rely on non-WIC sales to compensate. As the non-WIC market shrinks, so does the incentive to produce baby formula. It’s no wonder that Reckitt Benckiser, one of the largest producers in the U.S. market, is looking to sell its baby-formula division.
The White House’s plan to fix the baby-formula shortage has all the hallmarks of the Biden administration: It’s a late response to a crisis that caught it by surprise; it’s based on bad economics; and it’s calibrated to look like Doing Something rather than addressing the actual problems. Government involvement already made this shortage worse than it needed to be. Now’s the time to reduce government involvement so that we aren’t dependent on incompetent presidential administrations to get formula to hungry babies.