Prior to the COVID-19, the hot topic in acute lung injury was a new phenomenon called Vaping Associated Lung Injury (VALI). As cases and deaths increased, several US states proposed bans on vaping. I presented an argument why such bans would not work, instead leading to unanticipated consequences. Bans on any product lead to a black market for that product, just ask Al Capone. The suppliers to black markets have fewer incentives for quality control than suppliers to unrestricted markets which the VALI outbreak demonstrated to perfection. Subsequent research has shown that the main cause of VALI was vitamin E acetate added to cannabis-extract THC modules as a cutting agent, much as talc is sometimes used to cut heroin.
It is likely the misuse of vitamin E acetate would not have occurred in the absence of sensible regulation which led to illicit supply chains of vaping products.
Australian Vaping Regulation
Australia is proposing therapeutic regulation of vaping as a ‘medicine’ from October 1st. As laid out, such regulation will not be as harsh as the current restrictions which treat vaping as a means to deliver a poison. But if the regulations are sufficiently strict, the same unintended consequences regarding illicit supply and black markets, as seen in the US, are inevitable. The following discussion will cover the points of the proposed regulation and explain why the regulation will lead to inferior results than would occur with a free market.
Australia recently published a website for the new regulations regarding e-cigarettes. The main points are:
♦ Nicotine modules and e-cigarettes will be classified as a medication available only by prescription. This will not cover cigarettes.
♦ The manufacture and advertising of nicotine modules and e-cigarettes will be restricted by licensing and registration. This will not apply to vaping products that do not contain nicotine.
♦ Vaporisers of nicotine for the purpose of smoking cessation are exempted from registration.
♦ Minimum standards for non-registered nicotine products.
♦ Restrictions on advertising of nicotine products by manufacturers. Pharmacies will be permitted to advertise availability of products.
Point #1: Prescriptions for nicotine products other than cigarettes
The obvious problem here is that cigarettes, which are more toxic, become more desirable to produce relative to e-cigarettes containing nicotine. If the cost of obtaining the prescription, including the time burden of seeing a physician, is high enough, then people will switch — often switch back — to unregulated cigarettes.
The more problematic work-around, however, is the illegal sale of prescriptions. This is a well known with regard to narcotic medications in the US, where every imaginable way of illegally obtaining prescriptions flourishes. Unscrupulous physicians sell prescriptions without actually seeing the patient. Unscrupulous pharmacists buy legal prescriptions from patients in order to sell narcotics on the black market at a substantial profit. Scam artists recruit people on Medicare and Medicaid to obtain legal prescriptions that are redeemed by unscrupulous pharmacists.
This is a multi-billion-dollar problem each year in the United States — and a warning to Australia if there are policymakers intelligent enough to recognise it.
Point #2: Licensing and regulation of nicotine products other than cigarettes.
As was the case with point #1, this favours the supply of cigarettes over less toxic vaping products. Another issue is the cost of compliance. If the cost is sufficiently high, then Breaking Bad-style characters emerge to supply illicit product at a better price. The growing prevalence of cheaper, untaxed, under-the-counter smuggled cigarettes illustrates this point.
What is required, other than a fee/bribe to obtain such a license? Most people want to know what they are buying, so it seems reasonable to have minimum standards for product quality and consistency — standards the black market can never be expected to observe.
What seems reasonable to me might not be reasonable to the director of the CDC and FDA in the US or the TGA in Australia. A problem emerges when minimum standards exceed what the public demands – especially when the cost of compliance with the excessive standards is greater than what the public will pay for the benefit. Once costs exceed what people are willing to pay, producers and vendors emerge to supply demand.
The free market solves the problem of minimum quality and consistency via the entrepreneurial process. Successful entrepreneurs determine which quality and consistency standards people are willing to pay for at a profit to the entrepreneur. These standards will eventually emerge without any coercion from government.
Point #3: Vaporisers of nicotine for the purpose of smoking cessation are exempted from registration.
This point has some really perverse incentives. Just how perverse will depend on whether or not this exemption extends to the prescription requirement. Manufacturers will want to claim every product containing nicotine is for the purpose of smoking cessation. If the exemption extends to the prescription requirement, then every user will claim the use is for smoking cessation. Some might even become cigarette smokers to validate the claim.
Point #4: Minimum standards for non-registered nicotine products.
As has been previously discussed, this will depend on how much cost and effort is required to meet the minimum standards vs. any perceived benefit for being certified as having met the standard. If the standards are more costly to meet than consumers are willing to pay for any perceived benefit, then the Breaking Bad crew will appear with illicit product at prices lower than products meeting legal standards. If minimum standards are demanded by consumers, then the free market will offer products that meet those standards.
Invariably, government standards are beyond what consumers are willing to pay for – otherwise, the standards would have already been met.
Point #5: Restrictions on advertising of nicotine products by manufacturers.
Most likely, the reason for this point is to avoid TV ads that use models to glamorize vaping, just as the Virginia Slims advertisements once promoted cigarette smoking to women. However, there is a perverse side effect of this point. It is claimed by some that health care is special and cannot be delivered by the market. One reason that health care is supposedly special is the asymmetry of information: the providers possess much more information about health-care products than the consumers, so consumers are in a poor position to decline goods and services they really do not need. This restriction on advertising puts all the information about products in the hands of providers (pharmacies) and limits the availability of information to consumers. This is particularly problematic when Big Tech censors the dissemination of any information that deviates from official government positions. Rather than solving the problem of asymmetry of information, this regulation worsens the imbalance.
My opinion on vaping is that it is unhealthy. I do not recommend vaping to anyone. If someone has two choices, vaping or not vaping, the correct choice should be not to vape. However, there are many people whose choices are restricted to smoking cigarettes vs. vaping. In my opinion, there is a clear increase in health risk of smoking cigarettes compared to vaping. While converting vapers to non-vapers is a worthy goal, that doesn’t apply if the conversion sees the vaper return to cigarette smoking.
Ancient wisdom says the road to hell is often paved with good intentions. Modern experience shows that government is often paves this road with regulation. Only time will tell whether Australia’s new vaping regime will end in ‘heaven’ or ‘hell ‘or perhaps just ‘purgatory’. Economics and history suggest, however, that the chief beneficiaries of the vaping regulations will be the underworld.
Dr. Gilbert Berdine M.D. is an associate professor of internal medicine at the Texas Tech University Health Sciences Center (TTUHSC) and a faculty affiliate with the Free Market Institute. He writes for both the American Institute for Economic Research and Mises Institute. Dr. Berdine earned his B.S. degrees in chemistry and life sciences from the Massachusetts Institute of Technology in Boston and his M.D. degree from Harvard University School of Medicine in Boston.