When Innovation Breaks the Rules (with Adam Thierer)
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When Innovation Breaks the Rules (with Adam Thierer)

Transcript:

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00:07 Trevor Burrus: Welcome to Free Thoughts. I’m Trevor Burrus.

00:09 Aaron Ross Powell: And I’m Aaron Powell.

00:10 Trevor Burrus: Joining us today is Adam Thierer, the Senior Research Fellow at George Mason University’s Mercatus Center and former Director of Telecommunication Studies at the Cato Institute. Welcome to Free Thoughts, Adam.

00:20 Adam Thierer: Thanks so much for having me, guys.

00:22 Trevor Burrus: Now, I’m suffering from a really bad problem in this time of coronavirus ‘cause years ago, maybe about five years ago, they talked about how there would be burrito drones. So there were going to be these drones that would deliver you burritos. You’d put a burrito into a parachute, it would fly over, and a burrito would come down in a parachute and you would have burrito goodness. We don’t have burrito drones. I think they tested them in Blacksburg, so why don’t we have burrito drones?

00:49 Adam Thierer: I tell you, it’s the clearest example of market failure I’ve ever seen in my life.

00:54 Trevor Burrus: Exactly, exactly. [chuckle]

00:54 Adam Thierer: No, no, actually, it’s a pretty good case of regulatory failure because of course the Federal Aviation Administration has been dragging its feet for many, many years on drone freedom, and it’s a problem I discuss in a lot of my work, the problem of new technologies. Are they “born free” or are they born in captivity, as I call it? And drones were born into regulatory captivity. Immediately, regulators tried to pigeon-hole them into yesterday’s archaic, metaphysical distinctions. What is this thing? And they said, “Well, it’s a flying thing, it’s an airplane. No, no, no, it’s a model hobby aircraft.” And it’s like, “No, it’s something new and different. We should treat it new and different.” But of course, that’s not the way regulatory bureaucracy works.

01:38 Aaron Ross Powell: But isn’t it… Even if drones as a specific category didn’t exist when the regulations were created, the regulations were created in order to address certain kinds of issues in the market, certain kinds of perceived problems or dangers, and those problems or dangers are the result of characteristics of technologies. And so, just because they didn’t have a word for drones, those characteristics might still apply. Are we really pigeon-holing or are we just saying, look, the things that made us concerned about flying objects in the past ought to also apply to drones even if we weren’t thinking of drones at the time of the regulation?

02:17 Adam Thierer: Well, that sounds good in theory, but in reality the problem with so much technological regulation is that it’s set it and forget it, or as I call it my new book, a build and freeze model of regulation. We create it one day for one type of technology or sector and then we expect other new emerging technologies to somehow come into line with it even though it doesn’t necessarily make sense. It’s the same for driverless cars. Driverless cars are really essentially rolling computers, but we’re looking at them and saying, “Well, they’re also automobiles, so we gotta regulate them like automobiles instead of regulating the like computers,” which we don’t regulate much at all in this country. So, unfortunately, regulatory regimes matter and these distinctions, these metaphysical distinctions, “What is a car? What is an aircraft?” are really, really important in determining what literally gets off the ground in this case.

03:11 Trevor Burrus: Now, your new book, as you mentioned, published by Cato is called Evasive Entrepreneurs. So we’ve got a touched on it here, but we’ve also touched on the fact that entrepreneurship has changed a little bit, but what is an evasive entrepreneur?

03:25 Adam Thierer: Well, evasive entrepreneurs have always been with us, but first to define it, generally speaking, an evasive entrepreneur is innovators who do not always conform with social or legal norms. They buck up against those norms and sometimes actively try to evade them. Another term for this might be regulatory entrepreneur. This might be an entrepreneur who’s behaving evasively in the marketplace, but then also sets out to intentionally challenge or change the law through their innovative activities and, in essence, policy change becomes part of their business model. And that’s clearly been the case for a lot of sharing economy operators, for example. They set out to actively challenge the law in the marketplace and then get it changed, and they did.

04:06 Aaron Ross Powell: And so, evasive entrepreneurialism is growing in this country and around the world, I argue in my book, because what’s happened is there’s been a rapid decentralization and diffusion of technological capabilities. And these new technologies of freedom, or technologies of resistance, as I call them in the book, are spreading like wildfire. And this has empowered the masses to take action in a way that wasn’t possible in the past, and to really re-evaluate long-standing and crusty archaic regulations and policies that may defy common sense or the consent of the governed.

04:45 Trevor Burrus: Now, you kind of allude to it in your book too, which I’ve pointed this out a bunch that there’s something freeing about this too, in even the libertarian sense, that we might be able to get a freer world, I’ve said before that Cato could have devoted its entire 40 plus year existence to only writing papers about taxicab cartels and it would have been our entire reason for existence and we would have done less to expose them than Uber did in six months.

05:14 Adam Thierer: That’s exactly right. In fact, I say that in chapter two of the book when I tell the story of the sharing economy experience and specifically ride-sharing. For the better part of, in fact, 70 years I would argue, economists, political scientists, lawyers and many others argued that taxi cab regulations and hotel industry regulations and taxes were essentially an anti-consumer fiasco that were geared to serve special interests because these laws and taxes have been captured by these affected interests. We got to the point where the US Federal Trade Commission was coming out in favor of de-regulating in the city at the municipal level, but really didn’t have the jurisdictional authority to tell various captured taxicab commissions, “You gotta do this or else.” But they actually thought about trying to use anti-trust laws to stop this at the state or municipal level.

06:04 Adam Thierer: Well, unfortunately, all of that good logic and economic and legal evidence, all of that didn’t matter at all. It didn’t have amount to anything. But then all of a sudden 2010 rolls around and Uber pops up, and then shortly thereafter Lyft, and almost overnight the entire situation changes. All of a sudden, we are giving consumers a taste of true competition and choice, and once we tasted those waters, we weren’t going back. And so what I argue in the book is that in that case, evasive entrepreneurialism or regulatory entrepreneurialism essentially is an effort to change the political dynamic, to change the leverage you have in a negotiation or a discussion about what the law will be. ‘Cause let’s be clear, it’s not like there’s anarchy in taxicab land right now or hotels. We still have a lot of laws and regulations. But the reality is is that we now have opened the door to choice and competition and options that we did not have before, precisely because of the pace of technological change.

07:02 Trevor Burrus: It’s also interesting that you imagine any science fiction movie, some movies like The Fifth Element is about a taxi driver, but every science fiction movie you can imagine these crazy new worlds with flying cars and all this stuff, but there’s always taxis. They couldn’t get their heads outside of the taxi paradigm. Which is something interesting, too, about what entrepreneurs do to envision futures that maybe people weren’t thinking about even when they are envisioning the future.

07:31 Adam Thierer: That’s funny, ‘cause my son and I just recently watched Escape from New York where Ernest Borgnine plays a taxicab driver on Manhattan Island when it’s turned into a prison in the future. And you’re right, sometimes we’re so locked into thinking about the way an industry or technology works that we can’t possibly imagine a world without it. And this is why innovators and entrepreneurs are so important ‘cause they break with tradition and they don’t accept the status quo. And that is the fundamental driver, I argue, of human betterment in my book. I say basically, this is what moves the needle on progress. The fact that people are sometimes willing to stand up and say, “We’re gonna do things differently. We’ve got a new and better way of doing something.”

08:09 Aaron Ross Powell: It strikes me, though, as you give these examples, particularly Uber, but this seems to be the case too for a lot of permission-less innovators in the Silicon Valley space, is there’s almost a cognitive or maybe it’s a cultural dissonance that we see at play. So we’ve got these cartels, and people tried to get rid of them and they couldn’t because they were entrenched, and voters weren’t paying attention to this so the politicians were easier to sway. But lots of people recognized they were bad, and then an innovator like Uber comes along and introduces a service that huge numbers of people flock to. And basically everyone who uses it immediately recognizes how much better of an experience it is as a consumer to use Uber versus hailing a cab in New York City. But at the same time, these companies and the founders who embody them in the public consciousness are quite widely despised by huge portions of the public. And interestingly, in particular, a lot of the technology sector, the tech press is constantly going after these guys while using this stuff. And is there something that explains that disconnect that we want to take advantage of the people who are not asking permission, but at the same time, we’re kind of mad at them for doing so?

09:36 Adam Thierer: Yeah, of course. I think there’s an expectation that people should “play by the book” or by the rules and that we want people to fall in line usually. But at the same time, we want choices and competition and sometimes we in the public don’t understand how it comes about. It’s complicated. I don’t think everybody fully appreciates the problem of regulatory capture and the sheer dysfunctionalism in legislative and regulatory processes today, and our inability to adapt these systems. In the book, I talk a lot about the problem of demosclerosis as Jonathan Rauch calls it, our government’s inability to adapt to the times.

10:14 Adam Thierer: So it takes entrepreneurs and free thinkers to come out with new ideas and try to break with that mold if we’re going to change a situation. But in the process, a lot of people get angry because their norms, their institutions, their businesses, their whatever is what’s thrown by the wayside. And so clearly, if you’re a taxicab medallion owner or you’re a hotel chain owner, you don’t like the sound of any this competition, you’re gonna make a big stink about it. And so it’s not just that, it’s just all of the regulatory advocates who think that, “Well, we’ve got a settled way of doing things in this field and in theory, we believe that it serves some higher value or a well-intentioned ideal,” even if it really doesn’t.

11:00 Adam Thierer: And so this is a very controversial thing, but I think at some point we have to realize that this is ultimately the better way to move the needle on progress than to expect that we’re gonna actually get positive change through democratic norms and processes because we’ve tried and have gotten nowhere in that regard. I begin the book by talking about what Deirdre McCloskey talks about in her new books about how there was a time when innovation was considered heresy, heretical, in medieval times but it’s still the case today.

11:33 Adam Thierer: Calestous Juma wrote a whole book called Innovation and Its Enemies, and talks about this and has numerous case studies throughout history leading all the way up to today with genetically modified organisms. And nobody likes it. The people who benefit from the status quo don’t want to see it changed, and they’ll make the case for why it’s good and should be preserved. And sometimes people in the public will believe it, but once you tell them, “Look, aren’t you happy you have these new options at your disposal?” I often ask crowds and I say, “Would you all like to see the sharing economy go away tomorrow or your smart phones or any other technologies or devices that you now take advantage of?” Not a single one of them would give them up. But then they say, “But they should do things by the book, and they should do it… Change the law.” Well, that’s not the way it’s usually working.

12:20 Trevor Burrus: Yeah, sometimes they don’t even know how to do it. I think when Austin killed Uber, a friend of mine who went there said that it was bizarre watching these college students who’ve never hailed a cab in their life, walk out of the bars on Fridays and have no idea what to do, wandering around, getting into people’s cars, trying to get together rides ‘cause it becomes such the norm. But on that point, with the banning for example, the countries and localities at different times that have banned Uber, or that they had maybe a gray area of legality, is it okay for these companies to break laws? It kind of was Uber’s model. I remember, I don’t know, Adam, if you remember ‘cause you’re also in DC, that I got an email sometime around 2011 that offered me 20 free rides with Uber, which at that time was a black car service. And I thought they were gonna sell me Amway products or timeshares in Mexico during the ride. But actually it ended up being real. But they were trying to create customers before even asking permission. But is that okay, that kind of lawbreaking?

13:24 Adam Thierer: Well, generally speaking, no, it’s not. I don’t want to recommend that people go out and actively try to break the law. But the question I raise in the book is a practical one, which is, what happens when the law is so confusing, so inefficient, so utterly captured and so backwards that you don’t really have any other choice? Or worse yet, in some cases, the law is so voluminous and complex and confusing, you don’t even understand it. You can’t even really tell what is the law in this area. I think that’s what’s confronting not only a lot of entrepreneurs and capitalists, but it’s what’s confronting a lot of consumers.

14:00 Adam Thierer: And frankly, the reason we’re seeing so much evasive entrepreneurialism today, I argue in the book, is precisely because of this problem, and we’ve never done a thorough spring cleaning of the regulatory state. We’ve never gone out and said, “Do these licenses make any sense anymore? Do these CON laws, these certificated of needs laws, make any sense to these FDA regs?” All we do is accumulate and accumulate, layer after layer. And then all of a sudden we have a crisis like the current one we’re in today, the COVID crisis, where people all of a sudden wake up and say, “Wait a minute, what the hell is going on here?” The most shocking thing to me, I don’t know about you guys, but over the last two months, has been just reading the headlines in The New York Times and in The Washington Post about outrage over FDA intransigence and behavior. It’s like, “Where were you guys at before?”

14:46 Adam Thierer: And they’re saying, “Well, now it’s great that everybody’s going out and distillers are making their own hand sanitizers, and people are sewing their own face masks, and people are using 3D printers to create ventilators.” And they’re applauding this. And all I’m doing is screaming and saying, “You know this is all illegal, right? You guys defended all of this before. So what’s going on? What justifies this being okay today, but it wasn’t okay yesterday?” It’s a key point I make in the book that defending evasive entrepreneurialism is easy after it occurs, but few defend it before or as it’s happening.

15:19 Adam Thierer: But the COVID crisis has changed that. All of a sudden we’re saying, “Yes, this is great, go out and convert those breathing machines into working ventilators using 3D printed parts.” Or, “Go ahead, distillers, make your own hand sanitizers” kind of thing. People are applauding it. Andy Kessler of The Wall Street Journal had a column two weeks ago called Innovate From Your Couch, America, basically cheering on people actively engaged in evasive entrepreneurialism. So maybe things have changed because of this crisis.

15:49 Aaron Ross Powell: It’s interesting. As you say that, it makes me think of that thesis about crisis capitalism and never let a good crisis go to waste, which is not a great thesis, but it lines somewhat with this, that we’re watching… We’ve got a crisis and suddenly the entrepreneurs are taking advantage of it and taking advantage of a regime that’s suddenly more friendly to them moving fast and potentially breaking things. But the role of crisis in this because, as you’re saying this, on the flip side of it, a lot of the regulations that we have come about because someone told us there was a crisis. “We need to regulate this thing… ” Like vaping. “We need to regulate this thing because there’s a looming crisis of lots of people dying from something if they all vape.” And so everyone seems to latch on to a crisis, and this just happens to be a crisis where the narrative of it, the immediacy of it, and what the people on the sides of it are trying to do happens to advantage the permission-less innovation over more regulation. So my question is, is there a way to have this kind of movement without a precipitating crisis or at least imagining one?

17:09 Adam Thierer: Well, in my book I talk about this. What’s the dynamic? What moves change forward? How does this happen? And sometimes, yes, it is a crisis but other times it’s just the pace of technological change. Sometimes a technology just comes in and moves so fast that the law just really can’t keep up and consumers demand it, and we want it so fast and we need it that we we’re not gonna give it up once we have it. You think about the situation around 2007 with smartphones and when Steve Jobs came out with the iPhone and then Google quickly followed with Android devices. Pretty soon it became the all-purpose technological Swiss Army Knife that we all had to have in our pockets and purses at all times. There’s just no way conceivable that we’re gonna take that back.

17:54 Adam Thierer: That wasn’t crisis-driven, that was a demand-driven function of the fact that consumers truly valued having that much convenience and technological sophistication in their possession. So sometimes it can happen in other contexts. And the question is, what are the impediments that can stop that diffusion process from happening? And it goes back to my point about technologies that are “born free” versus born into regulatory captivity. This explains why it’s so hard for us to get drones in the sky, to get driverless cars moving, to get supersonic jets, to get a lot of the bigger physical things moving because those are easier to regulate, and they’ve got really convoluted and long-standing regulatory regimes that govern every aspect of innovation.

18:36 Adam Thierer: The crisis is forcing some changes in some of those institutions. I clearly think we’re going to see some changes at the FDA. We already have. The sheer number of laws that have been sunset or suspended in the midst of this crisis is astonishing to me. I recently wrote a paper with two of my colleague at Mercatus calling for a fresh start initiative whereby we use a BRAC commission model to try to sunset many of the laws and policies that have been paused during this crisis. And so, clearly this crisis has advanced the ball in that regard. But even before that happened, the Food and Drug Administration was grappling with the question of what to do about smartphones, what to do about 3D printers, what to do about social media sites. Because people are utilizing these new technologies to go out and act independently and do innovative things regardless of what federal or state law says. And that’s a truly interesting phenomenon in its own right, and not necessarily was always crisis-driven.

19:33 Trevor Burrus: A lot of the discussions around, especially in the libertarian sphere, we’ve seen a lot of discussions about some people are realizing that bureaucracy and many of these rules never were that good. And could this be a moment of freedom and liberation, or are we gonna get a surveillance state out of it? I could go either way, probably. But I think it’s interesting, on a broader level, that some of these entrepreneurial advancements, they happened so fast. Ten years ago, there wasn’t Uber. 15 years ago, there wasn’t an iPhone. And you have a generation that comes up that expects these things to be easy. Like, “Why isn’t there an app for that?” And it’s interesting when it collides with government, which is just not easy. And you wonder if that will help increase the demand for getting rid of some of these ossified systems just that younger people expect to be served by innovation and the government is not doing it. And maybe this is showing that that’s an actual, we’ve seen in this crisis how many ways that they didn’t do it.

20:31 Adam Thierer: I think that’s a great point. I address that in chapter five of my book and I talk about this back and forth dance, if you will, between governments and technologies and technologists and innovators, and I talk about this question about does technology constrain or expand state power? And can tech address the power of nation-states or help keep it in check? And I have a nuanced answer to that. This is a question that a lot of libertarian folks have debated for a long time. One of my bosses and colleagues, Tyler Cowen, wrote provocatively about this question about Does Technology Drive the Growth of Government in a 2009 paper. And his answer was decidedly different than what most libertarians want to hear. His argument was like, “Look, nothing facilitated the growth of the modern state. Technology did and specifically transportation and communications technologies, which made it much, much easier for governments to surveil and control people, and specifically to tax them.”

21:29 Adam Thierer: And this is a challenging thesis for those of us who want to believe technology is something that emancipates, that it frees us, that it gives us new capabilities, and I really do believe that. But we have to provide some caveats as to why it’s also empowered the state and how to keep that in check, how the state uses technology against us and against our liberties. And so, again, I devote chapter five of my book to that and try to provide a balanced approach and talk about this dance that goes back and forth between checking the state and empowering it.

22:03 Trevor Burrus: It’s also interesting ‘cause as I was reading your book, at one point I thought about Charles Murray’s book, and then a couple pages later you reference Charles Murray’s book By the People, where you get to, you mentioned this earlier, demosclerosis and also the kludgeocracy aspect that Steve Teles has coined. But on one level, if you’re looking at the system we have, the regulatory structures in place, the regulatory structures on top of regulatory structures, some of which were designed in say the 1930s and haven’t really been updated that much, it’s somewhat hopeless if you’re a libertarian and you say, “Are we gonna get a massive wave of regulatory oversight, overhaul and repealing of regulations, repealing of statutes that are outdated?” Is that gonna happen? Congress can hardly vote on a stimulus package at a time of crisis, much less trying to figure out how to overhaul the SEC or something. But maybe this entrepreneur aspect is the best way of getting people to see what is ossified.

23:05 Adam Thierer: Yep, that’s exactly right. And as you can tell from having read the book, after 30 years of covering public policy for five different non-profit organizations, including Cato, I have grown to be sort of an embittered old man who just basically looks at this and says, “There’s absolutely no chance of getting serious reform through democratic processes.” I spent a lot of time as a young man trying to figure out how to reform the SEC both in comprehensive ways but then in just narrowly tailored ways, and getting absolutely nowhere. But it wasn’t just the SEC, it was the FDA and so many other agencies, the FAA, that I’ve taken on and dealt with, and we’re getting nowhere/ I mean, in my own lifetime, I’d have to go back to my elementary school days in the 1970s when I could think of a major comprehensive de-regulatory initiative undertaken in this country for airlines. And ironically enough, it was pushed through by Democrats, as you know.

23:58 Adam Thierer: And so I look at the situation today, and say, “Look, I’ve basically given up on Congress.” In fact, an essay that I wrote before this book was published that was derived from this book was called Congress as a Non-Actor in Tech Policy. But it’s not just true for tech policy, it’s true for many other areas. Congress just has checked out of the process. They’ve shunned their oversight role and they don’t do the occasional spring cleaning I alluded to. They transferred the authority to these agencies, they delegated blanket authority with a lot of bags of money attached. Nothing changes, except, except technology changes. Innovative minds come together and find ways to work around these archaic, crusty, old systems and the kludges that have been put in place. And that’s why I talk about innovation as the new checks and balances. That in essence, this is all I really have faith in keeping our liberties intact and our economy spontaneous today, because I can’t find much hope for getting serious reform in any other way.

25:01 Aaron Ross Powell: I’m curious about the role of hardware versus software in this story, because a lot of the regulatory barriers that we seem to see are hardware-based. Like drones are regulated as a product and you can’t build them or deploy them. Uber is cars driving around that can be pulled over by the cops because they’re not doing the right thing per the regulations, and so on. But the area especially over the last 15 years where we’ve seen the most rapid proliferation of new tech is in software. Once we got the phone, the phone started replacing via software everything, enormous numbers of other things that we used to use and enormous numbers of other devices that we used to use. And I’m reminded of Mark Andreessen’s line about how software is eating the world, that all of these things, all of these businesses are getting turned into apps.

25:54 Aaron Ross Powell: And it seems like apps are harder to regulate. First, they move really quick, we can install them really quick. There aren’t as many regulations about them. We used to have regulations on encryption technology but, by and large, software is not as heavily regulated as hardware. And also it can be decentralized in a much more thorough way than hardware. Hardware needs someone building it and it needs a factory that can be shut down, and a business that’s providing the funds, whereas software can be open source with a bunch of anonymous people who put together an app that can replace your bank and hide you from snooping feds. And so does the move to software, as software replacing a lot of the things we once needed hardware for, mean that this positive story you’re telling potentially accelerates?

26:52 Adam Thierer: Yes, I think it does. And you’re making a very important point that I deal with it several chapters in the book when I basically say, “Look, physicality matters. There’s a difference between the world of atoms and the worlds of bits, and it’s no doubt easier to regulate the world of atoms. If you can hold it, touch it, kick it, whatever, then it means that it’s easier to find and tax and regulate.” And so I talk a lot about innovation arbitrage in the book and how innovation and innovators often will move around to wherever they’re treated most hospitably by various jurisdictions.

27:24 Adam Thierer: Well, that is greatly facilitated by digitization and the intangibility of the modern information economy, but not everything can be intangible or digital in character. It can take on aspects of digital technology, it can utilize computing, and almost everything does today, but at the end of the day, it still matters if it’s a physical device. That being said, your second point is important, which is that these devices are only growing more intangible or computerized and digitized, and that is creating a serious problem for regulators. And it’s leading to what I spend a lot of time talking about in chapters four and five in the book, the compliance paradox. The problem that increasingly when legal and regulatory efforts fail to reverse unwanted behavior, a lot of regulators will unfortunately just double down on trying to regulate.

28:17 Adam Thierer: But if they do that in the digital sphere we’ve seen what happens. This is the story of why so many innovators and venture capital flocked out of Europe in the 1990s and 2000s as the EU really went hard and doubled down on their use of privacy directives and data directives, and America became the hotbed of the digital revolution. And so that’s gonna only continue because more and more of our economy is service-based and digital and intangible. So it’s a good news story, but we have to be careful about it, we have to understand that that does not mean we’re gonna have supersonic jets any time soon if the FAA doesn’t want them, and we’re not gonna have drones flying through the air just because they rely on AI and machine learning. And same with driverless cars, it takes a lot of hard work. It still will require reforms, and in some cases it will require some evasive entrepreneurialism.

29:08 Trevor Burrus: Your concept of innovation arbitrage, it kind of reminds me, though, what some of our economists friends talk about with tax policy, that capital can move across borders and you could only tax your citizens so much before they can go across borders and find some place else to do. So we have seen this in the world with, say, I think it’s Liechtenstein that’s the crypto capital and also Switzerland. We’ve attempted to do some things here, but do you think America in general is lagging behind? Is there any of these burgeoning areas you discussed where we’re at the forefront? Or have we accumulated so much dead weight of regulation through our somewhat moderate to extremely dysfunctional governing apparatus that we’re getting left behind?

29:54 Adam Thierer: Well, we are getting left behind in some important sectors of the United States. That is a… I think it’s clearly the case that America’s Food and Drug Law and Medical Device Regulations are so unbelievably restrictive, so rooted in the precautionary principle, that we have actually seen not just China and many other Asian countries advance the ball further on things like genetics testing and editing, but we’re even seeing in some cases Europe move a little bit further ahead on that front. Now, it’s too early to know who exactly is gonna prevail on that or in the biotech revolution, nano technology, it’s still an open question.

30:33 Adam Thierer: And America still has one enormous advantage, which is it’s the home of a huge venture capital community, which is willing to use risk capital to make bets on unproven technologies. But what’s most interesting about that, and I tell that story in this book and in my previous book on permission-less innovation, is to note how many major tech companies today that have succeeded so wildly in the digital sphere and the Internet sphere have openly said, “Hey, we’re gonna be very careful about our bets on health tech and health innovation because we are confronted with a regulatory Leviathan there that is just impenetrable. It’s impossible to navigate that.”

31:13 Adam Thierer: And so, that is probably what concerns me most that America could lose on, but I don’t know. I’m still hopeful. A lot of those companies have come back, like Google and Apple. And after initially saying, “No, no, no, we don’t want to be part of it,” they’ve actually now made major plays in this sphere and so have many other tech companies in the so-called Internet of Things space. So I think it’s still to early to tell, but there’s no doubt America could be on the losing side of innovation arbitrage in some of those new sectors.

31:42 Trevor Burrus: This has been a moderately… Right up to this point, I feel like this conversation… I can’t decide if it’s pessimistic or optimistic. You do both… You describe the way some of these things actually have behaved. One of the things that you talk about, which sometimes is the only thing that can be done, is that regulators themselves just stop enforcing laws. Which is maybe something we should be against if we’re for a rule of law, but then also take a look at the size of the federal register and say, “If we actually had equally applied rule of law now, we’d all be in prison.” So is that something we should be endorsing as a short stopgap?

32:22 Adam Thierer: Yeah, that’s a great question and you’re pointing to what will probably be the most controversial portion of the book for many libertarians, which is when I start talking about the explosion of so-called rule departures and the growth of “soft law.” And what are those two things? Well, rule departures are just basically any time a regulatory agency essentially turns a blind eye to the enforcement of a rule or its violation of the law, or it actively basically ignores it and just says, “You know, we’re not even gonna try to deal with our own rules, they’re so complicated. We’re just gonna see what happens.” And one of the ways they do this, the agencies do this, is through the use of so-called soft law.

33:00 Adam Thierer: Soft law is basically most easily defined by its opposite, which is it’s not hard law, it’s not promulgated, it’s not clearly defined by Administrative Procedures Act regulations, it’s not in the Federal Register, it’s more the form, it takes the form of things like agency guidance or best practices or workshop reports or speeches. And this is something that most libertarians and even a great many conservatives have very much lived in fear of, and I spent the first 15 years of my life trying to stop all of that nonsense and saying, “This is really troubling and dangerous stuff.”

33:33 Adam Thierer: But here’s what’s interesting, is that a lot of the rule departures we’ve seen over the last 15 years and a lot of the soft law efforts by agencies, is an attempt by the agencies to acknowledge the pacing problem, the fact that technology is moving as fast as we’ve described, and their inability to keep up. But also to say, “No, we still want to have a say. We want to play a role in governance, but it’s not the same role as in the past.” It’s not a command-and-control “thou shalt not” approach, it’s more like, “Hey, you should come talk to us” approach. And so what’s happening for a lot of these technologies I described, and just to go back to the FDA example, is the FDA is just issuing one guidance document after another saying, “Here’s some best practices for 3D printing. Here’s some approaches you should consider for social media conversations about health and technology. Here’s some approaches you should consider for Internet of Things.” And yet it never is clear what’s legal and what’s illegal.

34:29 Adam Thierer: Now, I look at that and say, “Well, this is arbitrary government at its worst.” And then I look at it as a pragmatic analyst and say, “But innovation is happening.” And optimally, we would reform these laws, we would clean them up, the agencies would be shrunk, their budgets would be tightened, and we would have smarter rules and regulations. Practically speaking, there isn’t a chance in hell that’s gonna happen, and this is probably what’s changed most of my own approach since my times at Cato, which is I’ve come to be more of a realist about the regulatory state. Again, no agencies have been downsized or eliminated in the last 30 years. I don’t think there’s a chance in hell we’re gonna get rid of the FDA or any of these other agencies a lot of libertarians say we should get rid of. But I do know this, technology is changing the political dynamic and the amount of leverage we have when we go in to have discussions about giving technology a fair shake. Doesn’t mean we’re always gonna win in those battles, but it does mean it’s a different kind of governance environment than the one we came out of in the past.

35:26 Aaron Ross Powell: It seems, though, that that, how optimistic we should be about that particular safety valve on innovation scales with the nature of the innovation. Because if you’re three guys in a basement who are gonna code up an encrypted messenger that might run foul of certain things, and there’s this soft law, and there’s been guidance and you think you’re following it, but then the agency says, “Oh, no, no, we’re gonna stop you,” you’re out however many months of three guys’ time. But if instead you’re trying to build supersonic jets which have huge upfront costs, or you’re trying to do new medical devices, as you mentioned, or biotech research where you have to spend billions before you know if it’s even gonna work, it seems like any degree of uncertainty is going to almost be too much uncertainty. The last thing you want is to dump a billion dollars into something and then have the government say, “We’re not so sure about that one.”

36:30 Adam Thierer: Yeah, amen, absolutely. This is why we cannot and should not ever stop trying to push for legislative changes when we can get them. And this is… I say this on the introduction of the book and the last page, that it’s very, very important we not give up entirely on trying to push for those sorts of policy reforms and using the sort of traditional academic evidence that we’ve tried to bring to muster on these issues. But again, I’m just being realistic about where we stand today, because I know we have spent so many, so many years trying in so many sectors to do exactly that. And we can’t even get very simple things through. And at the state level, it’s almost worse.

37:13 Adam Thierer: I saw an article just a few days ago where someone asked a regulator in New Hampshire, which is a pretty libertarian state, but they too have an occupational licensing board for barber shops and hair salons. And somebody called the head of it and said, “Is it okay that all these people are cutting their hair or their loved one’s hair at home?” And the woman who runs the board couldn’t answer. She was like, “You know, I’m not really sure. I think it’s okay, but I’m not really sure.” And I’m like, “My gosh, we can’t even get to the point in this country where we tell people it’s okay to cut their own hair at home anymore?” To hell with it. Go cut your damn hair. That’s, I think, our answer that we’re at there. And so, practically speaking, and not of course just for hair cutting, but for a whole hell of a lot of other technologies, we’re at that point now where people are saying they’re frustrated with it and they’re gonna take these steps to basically evade.

38:00 Adam Thierer: What I argue, again, in the book is that there’s this balance that we need to pursue the policy reforms, we need to try to do things the traditional way, but at the same time, I’m ready to start cheerleading on technologists and innovators who are willing to buck the status quo and say, “We’re gonna blaze a new trail, we’re gonna try to do something new and different to improve human welfare in multiple ways.”

38:22 Aaron Ross Powell: How far does this go, though? Your book strikes me to some extent as if you took the… I could see it as an argument that’s similar to what you’d find in Usenet groups of [38:36] ____ and crypto-anarchists, but we’ve put a tie on it and made it respectable in Washington DC circles. In the sense of it seems to be gesturing in that direction without going all the way. But why aren’t these arguments, or in fact, are they an argument for going all the way? That we should innovate to our heart’s content and if the state tries to stop us, it tries to stop us, and if we can find ways to route around it or hide our activity from it, we should take those and just build an alternative economy and communications sphere and world outside of the reach of this thing, which is the crypto-anarchists’ argument. Is your argument different from theirs?

39:20 Adam Thierer: Yeah, I think it is. And in fact, as you probably saw on, I think, the third or fourth page of the book I say, “If you’re looking for a crypto-anarchist manifesto, you’re not gonna like this book.” Because at times I get pretty squishy, as I just did when talking about soft law and giving regulators some leeway and working with them. And this is a lot of what I do today, is work with regulators to try to take a different approach to these issues. At the same time, I try to get regulators to acknowledge that we live in a new world and that they should accept some of the new realities.

39:47 Adam Thierer: I think, realistically, what’s different here, what I try to present that’s different than a traditional crypto-anarchist approach, is that I don’t say, “F the law. Screw the regulators.” I take the concerns of the critics seriously. I spend a lot of time in the last two chapters of the book talking about existential risk and talking about technologies and technological processes that pose a serious threat to human welfare. And there are many, many critics who want to see those technologies bottled up and shut down entirely because of it, and they would impose a strict precautionary principle approach to those sectors and technologies.

40:22 Adam Thierer: I look at that and say, both for pragmatic reasons and principled ones, we should reject that thinking. That ultimately, most of these technologies, most of these genies, are gonna get out of the bottle. That we need a different approach to them, but we need to be thoughtful about the privacy, safety, security types of trade-offs that exist with these new technologies. This is something that Matt Feeney’s done a lot of good work on at Cato, and he and I have worked on this issue of things like dual use technologies for surveillance and so on and so forth. Drones are wonderful and awesome but, my God, they can be frightening as hell when used in the wrong ways.

40:56 Adam Thierer: And of course, facial recognition technologies, biometrics, and a whole host of other tools. 3D printers are awesome, they’re incredible, but boy, they can be used to create some interesting and some maybe dangerous things. We have to have serious responses to these things. I think the problem with a lot of the crypto-anarchist crowd is that they don’t bother. They just say, “We’ll figure that out. Don’t worry about that.” Or they’ll say, “Well, there’ll be market mechanisms.” Well, maybe there will be or maybe we’ll need a more sophisticated approach, which I talk about the book, a multi-stakeholder collectivized approach, but not one that is based on strict government precautionary regulation, more of a decentralized approach to governance and one that acknowledges technology is going to change, should change, and will ultimately on net be better off for us that it does. And that’s something that I think is decidedly different than the traditional crypto-anarchist approach to these kind of things.

41:54 Trevor Burrus: Let’s talk about some of those proposals you have to get out of this morass. People will continue to innovate. Some of them will breaking the law, some of them will not realize they’re breaking the law. I think the real tragedy are the ones who don’t even consider innovating, like you mentioned with some of the medical stuff, because they know that the law is so damaging and impossible to get around. So those are the dogs that never bark, the things that we would never even imagine. But you have some proposals of what might be some steps in the right direction.

42:25 Adam Thierer: Yeah. There’s a couple of practical reforms that I’ve been pushing for many many years at the federal and state and even local level, generic frameworks for reform. One of them that I talk about quite a bit in my work is the need for what I call the innovator’s presumption. That whenever we are crafting any sort of policy to govern technology or innovation, the presumption should be in favor of the right to innovate and the right to earn a living. And that we should give innovators, generally speaking, the green light, unless there’s a very compelling reason not to. The problem with so much policy, so much regulation is that it’s got the opposite default. The default is one that says, “Let’s give them the red light or the yellow light, and say it’s a “Mother may I?” kind of approach. You have to come and beg for permission. That’s why Tim Sandefur has a whole book called The Permission Society talking about this problem.

43:17 Adam Thierer: And evasive entrepreneurs try to challenge that permission society quite directly. But what if we could, when laws are being written, write into them something about how the benefit of the doubt is in favor of innovation and that it should be generally allowed by default? The second thing we should be doing when we write technology policies or regulations is we need to get more serious about some sort of sunsetting. I talk in my book about the idea of Moore’s Law for technology policy or innovation policy. Moore’s Law, obviously, is the principle that the power of a semi-conductor doubles about every 18 months to two years, and the cost generally comes down by half.

43:54 Adam Thierer: Moore’s Law has governed the pace of innovation now in the computing and digital technology sectors for many, many decades. Companies are expected to reinvent their business models every 18 months to two years because of it, and yet governments never reinvent their business models. Companies throw their business models out, regulators just keep regulating as if nothing’s changed. So what we could do is whenever we’re crafting policy is write into it, “This provision will sunset after two years. If you want to put it back on the books, you can.” And that’s a simple thing, but I think it’s a powerful one because it forces that spring cleaning that I talked about that we never seem to do of the regulatory state. Instead, we just have endless regulatory accumulation.

44:35 Adam Thierer: And then finally, I mentioned something earlier in the podcast that I just proposed with my colleagues, which is for the rules that we already have in place, we need to do a thorough evaluation of them, we need to inventory the ones that no longer work, we need to get rid of the crusty archaic ones that should have been off the books many, many decades ago. We need an institutional reform mechanism to do that. I think the BRAC commission idea is something that is one of the few things that had great success in recent memory, which was a way to get rid of unneeded military bases and congressional districts. We basically had an independent body study all of them, compile a report for which ones could be sunsetted or eliminated, and then we had an up or down vote on the entire package with no possibility of amendments, no possibility of tweaking it. You had to be all in or all against.

45:18 Trevor Burrus: Yeah, it was Congress figuring out what it was unable to do due to public choice constraints.

45:23 Adam Thierer: Exactly right. And they obviously were never going to allow their district to be sunset, unless they could have a conspicuous up or down vote. This is… Well, look, I was just voting on a big package and a lot of other people had to face the same fate, their base got taken away too, so it gave them some coverage with their electorate or their people back home. So that is the kind of reform mechanism we’re gonna ultimately need for a lot of technology policy so that we’re not applying things that were put in place for governing airplanes in the ’50s are applying to drones today or automobiles from the ’70s are governing driverless cars, and yet we still have that.

46:00 Adam Thierer: I mean, you may remember the section of my book where I talk about the fact that we have crazy laws still on the books in some municipalities for cars. Things like in New Jersey it’s still a part of the law that you’re supposed to honk every time before you pass someone. I mean, you’d get murdered if you honked every time before you pass someone in New Jersey. Or in other communities, they have red flag laws from 100 years ago that say a man who is supposed to run in front of any woman who’s occupying or is driving a vehicle under 10 miles per hour, and wave red flags to let the world know a woman’s coming in a car. [chuckle] I would think most women would find that pretty offensive. Again, regulators don’t enforce it and we ignore it, but why does that exist? It exists because we never clean up yesterday’s messes, so we need a mechanism to do that to get serious about cleaning up the regulatory state.

46:45 Adam Thierer: So back to the most important question. Right now, in this coronavirus pandemic, I would love a burrito drone to be dropped from the sky. I know a lot of people would love a burrito drone. So why don’t we have them? And can we get them? And in general, are you optimistic about things like that, and other things coming out in the benefit of humanity and burrito lovers everywhere?

47:10 Adam Thierer: Yeah, I’m actually optimistic about burrito drones and pizza drones and more specifically beer drones. I’m a beer fanatic. And I think what’s happened in the midst of this crisis, for beer delivery, beer, wine and spirits delivery is absolutely astonishing. And it’s been happening in almost every state and locality and I noticed that Governor Abbott in Texas tweeted out last week how it’s been a great success, people seem to love it, maybe we should just keep it when this whole crisis is over. And I said, “Amen, brother.” That’s exactly what we need. I hate to say that it really does take a crisis to change attitudes and policies, but indeed sometimes it does. And in this case, something like a delivery drone, I think we’ve paved the way for it to some extent by basically saying, “Look, we’re delivering beer and wine through cars. Why can’t we do it some other way that isn’t create such an environmentally insensitive footprint?” We can just say, “Let’s have a drone deliver it direct to your house.”

48:04 Adam Thierer: I think that really is possible in coming years, and I think the FAA is slowly starting to change its policies to allow it. I think the bigger problem there is one that I think a lot of people haven’t anticipated yet. It’s gonna be a local control problem. It’s gonna be what happens when you have the proverbial neighbor with a shock and coming out to shoot your drone out of your backyard. And this has happened in many communities and I think that’s going to be the interesting thing to see how it plays out, like how is my HOA and my community here gonna handle it in Arlington, Virginia? How is the local zoning board can handle it? That’s gonna have to be worked out, that’s a little bit more complicated. But I’m still optimistic about your burrito drone and I think you’ll be getting one sometime soon.

[music]

48:53 Aaron Ross Powell: Thank you for listening. If you enjoy Free Thoughts, make sure to rate and review us on Apple Podcasts or your favorite podcast app. Free Thoughts is produced by Landry Ayres. If you’d like to learn more about libertarianism, visit us on the web at www.libertarianism.org.

When Innovation Breaks the Rules (with Adam Thierer)

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