- FAMRI Center
The FDA made the right decision not to appeal the current warning labels
Yesterday, Attorney General Eric Holder announced that the Department of Justice would not be appealing the Court of Appeals decision striking down the current warning label regulation. Holder noted that, "the court concluded that FDA had not established that 'the graphic warnings will 'directly advance' its interest in reducing the number of Americans who smoke.''"
The court was, unfortunately, correct in that the FDA did not make a compelling case that the warning labels would have an important effect on smoking largely because of the poorly done cost-benefit analysis that both grossly understated the benefits and overstated the costs of the warning labels.
Fortunately, new papers have been published that supplant the need for the FDA to estimate the effects of the warning labels, particularly an excellent study of the effects of the Canadian warning labels that showed a 22.5% drop in the likelihood of being a smoker and 33% increase in the odds of a quit attempt following implementation of the warning labels. (This is a much larger effect than the FDA's flawed analysis estimated for the Canadian warning labels.) A survey done in the US also showed that the FDA's approved warning labels increase intention to quit by 30%.
The FDA can and should use this information to estimate the effects of the warning labels rather than its sophomoric economic model.
The FDA also ignored most of the health benefits of quitting and heavily discounted the value of the added health due to stopping smoking (or not starting) because of the "lost pleasure" that smokers would be deprived of by not smoking (lost consumer surplus). The FDA could not point to any empirical evidence to support the value for the consumer surplus discount they applied when I questioned them in email correspondence, (The FDA relied solely on theoretical arguments.) This is an important point, since OMB Circular A-4, which is supposed to guide regulatory cost-benefit analyses lists specific cautions regarding the measurement of consumer surplus using revealed preferences. OMB notes that revealed preference methods are appropriate “[i]f the market participant is well informed and confronted with a real choice” and that “the goods and services affected by the regulation are traded in well-functioning competitive markets.” Neither of these conditions applies to addictive substance use, particularly smoking, when most people become addicted as youth. Even more to the point, OMB directs that “the statistical and econometric models employed should be appropriate for the application and the resulting estimates should be robust in response to plausible changes in model specification and estimation technique.” Given that the FDA did not use actual evidence to come up with its discount rate, they don't come close to meeting this standard.
For these reasons, the FDA should drop the consumer surplus discount from its analysis.
To avoid making the same mistakes again FDA Commissioner Margaret Hamberg is going to have to insist that the economists move beyond their models and pay attention to behavioral scientists who actually understand the determinants of smoking behavior.
These two steps -- a more realistic assessment of the effect of the warning labels and not heavily discounting the health benefits -- will make a much better case for a "substantial government interest."
The court also objected to the way that the warning labels themselves were constructed (which ignore modern understanding of communications) that were irritating, but can be easily dealt with in the construction -- and, more important, justification for -- the new warning labels. Indeed, the judicial decisions provide an outline on how the FDA could design effective warning labels that would pass legal muster. One thing that the FDA could do is use photographs of real people with real tobacco-induced diseases, just as the CDC does in its TIPS campaign.
The FDA also can rely on the legal record and ruling on "corrective statements" ordered by Judge Gladys Kessler in the RICO ruling against the major cigarette companies.
My only concern is that the FDA will take way too long doing more research on warning labels before moving ahead. The work that the FDA did before, combined with the new information cited above, provides the information that the FDA needs to meet the court's standard. Given how effective warnings are, further delay at the FDA will mean more smokers and more unnecessary disease and death.
It's time to to it right.