knowledge has certain public goods properties. But the public-goods point in no way justifies the restrictions we see; it could only justify government subsidization of knowledge production.
He is writing about FDA regulation of pharmaceuticals. Think of dividing what the FDA does into two functions. First, it conducts trials of drugs and reports the results. Second, it restricts the way some drugs are marketed (requiring a prescription), regulates the way that they are advertised, and bans some of them altogether.
Suppose that we grant that the first function looks like a public good, addressing a likely market failure to produce the information. What market failure does the second function represent?
I think that what people have in mind intuitively is the impact of hard-sell marketing. The thinking is that the sellers of unsafe and ineffective products are so persuasive that we need a paternalistic FDA to protect us. Like Odysseus, we ask the FDA to lash us to the mast in order that we not be lured by the siren song of the snake-oil salesman.
Paternalism of that sort ("stop me before I...") is not in the traditional economic definition of public goods. Maybe the behavioral economists will put it there. If so, then I say we should lash people to the mast lest they be lured by behavioral economics.
Lurking in the background, there is a bootleggers and baptists story that Klein briefly hints at. The large pharmaceutical companies have a huge advantage over small start-ups in having the capital and know-how to run the regulatory gauntlet. The FDA approval process is a wonder drug for stifling competition and keeping the number of new medicines low.
I think that carmakers secretly like auto regulation for the same reason. Lots of gearheads could come up with attractive and competitive designs for automobiles. But they could never overcome the legal and regulatory hurdles to bring their inventions to market.