July 27, 2008
Is Government Intervention in the Fast Food Industry Justified?
Is Government Intervention in the Fast Food Industry Justified? Becker
New York City's ban on the use of trans fats in restaurants is the first of many efforts to restrict not only trans fats, but also the whole fast food industry. Boston has approved a similar ban, while on Friday California became the first state not only to ban trans fats in restaurants, but also to ban trans fats in all retail baked goods-packaged goods are so far exempt. San Francisco as well as New York City has approved bills that require fast food chains to post on menus the calorie content of the food they serve. Los Angeles is considering a bill that would prevent fast food restaurants like McDonald's from adding any outlets in a 32 square mile part of the city that already has many such restaurants. The concern behind these and similar ordinances is that trans fats and fast food restaurants have contributed in a significant way to the rapid growth in obesity among Americans.
Several arguments have been advanced to support these and even more onerous bans and restrictions on fast foods, but I believe they are of dubious merit. One claim is that consumption of trans fats, and of fast foods more generally, creates an "externality" because this helps produce obese teenagers and adults. The so-called externality results from the fact that greater obesity raises taxes on others because the medical bills of the obese are partly paid by general taxpayers due to subsidized medical care. As Posner points out, this argument may be weak because obese adults die earlier than others and in this way obesity saves medical costs. However, even if true, I am uneasy about such externality arguments. Typical true externalities occur when actions by one individual or firm directly harm others, as when pollution by a company worsens the health of inhabitants, or when a drunk driver crashes into another car and injuries or kills the driver and passengers of that car.
But the alleged "externality" with regard to obesity is due only to the government's subsidy of medical expenditures, so that it is a case of one government intervention- justified or not- causing another intervention-control of eating. It is not a path of intervention causation that most people would be comfortable with in many situations. For example, since the government subsidizes the medical care of children of poorer parents, a mechanical application of this type of externality argument would say that this justifies governmental control over the number of children that poor parents can have. Additional children of these families create an "externality" by raising taxes on others to pay for the medical costs of these children. Many similar examples can be given where government regulations and other government programs cause certain types of behavior that raise taxes or subsidies and adversely affect taxpayers, even though there would be no externality from this behavior in the absence of the government programs.
Another argument made for interventions in the fast food industry and sales of other foods is that individuals are somehow duped into eating too much, and into eating unhealthy foods. As a result, they gain weight, and become vulnerable to diabetes, heart disease, cancer, and other ailments. Yet it is hard to justify the word "duped" when studies show that much of the growth in obesity has been due to the development of cheap fast foods that consumers find tasty, and also to the growth of television, computer games, the Internet, and other attractive activities that are sedentary. Increased consumption of low priced tasty foods and changed time allocation toward more sedentary leisure and work activities would be optimal responses according to any model of human behavior where individuals are trying to increase their well being, as they, rather than outsiders, interpret their well being. Economic analysis would predict that the lower priced high caloric goods and sedentary technologies that are found throughout the world would lead to weight gain and growing obesity not only in the United States but also in other richer countries. And so they have. Special theories about consumers being duped, misled by advertising, etc are not needed to explain what are normal responses to low prices and new technologies.
To better understand this movement against fast foods, one has to appreciate first of all that many individuals do not like fat persons. This might be called an externality from obesity because overweight people lower the utility of others, but few people, even including most economists, would want to take government actions to try to correct eating that has such (prejudicial) effects on others. A second crucial point is that most of the gain in obesity is concentrated among children and adults in low income, low educated families, especially African-American families and other minorities. Educated people find it easy to claim that less educated individuals are often misled into choices that the more educated do not like, and often do not understand.
Yet it is no surprise that poorer individuals- poor whites as well as African-Americans-find fast foods particularly attractive. Fast food outlets are so common in poorer neighborhoods partly because they are cheap. In addition, since working single parents (mothers), and working dual parents, predominate in minority families, fast foods are a time saving way to consume tasty foods when free time is scarce. Any possible longer term adverse health consequences of these foods are put on the back burner when immediate needs to feed children and parents are much more pressing.
Requiring restaurants to post calorie content of foods will have a negligible effect on demand for these foods because, as I argue above, consumers are buying these foods not mainly because they are ignorant of the effects on weight, but because of cheapness, convenience, and taste. Banning fast food restaurants would have an effect by eliminating their convenience. Still, substitutes would develop, such as prepared foods in supermarkets, or fast foods served not in chains but in individually owned restaurants (hostility to food chains is also partly responsible for the growth of legislation against them). Maybe eventually some of these substitutes would be banned too. Such continuing extensions of the power of government are a very unattractive prospect. Given all the ineptitude in government regulation, as reflected for example in the regulation of Freddie Mac and Freddie Mae, and in other housing problems, I believe it is better to tolerate some mistakes by consumers in their choice of foods. Such additional regulation of fast foods will make people worse off in the long run as well as in the short run.
Compelled Disclosure of Food Characteristics--Posner
Last week New York City began enforcing an ordinance that requires fast-food chains to post on menus and menu boards the number of calories in each menu item, in the same type size as the item itself. (The ordinance is rather complicated, see www.nyc.gov/html/doh/downloads/pdf/cdp/calorie_compliance_guide.pdf, visited July 24, 2008; my summary is a simplification.) The stated purpose of the ordinance is to reduce obesity.
The ordinance will be criticized as being at once unnecessary, because information about calorie content can be conveyed without requiring that it be printed in large type on the menu (an alternative would be publication on the chain's website, or the posting of a separate notice in the restaurant), and paternalistic, because people concerned about their weight have the incentive and ability to inform themselves about the number of calories that they consume. The ordinance may also be ineffectual, because most people eat most of their food at home rather than in fast-food outlets; anticompetitive, because small chains will incur the same costs as large ones to certify the caloric content of their offerings; blind to the effect of competition in forcing retail firms, including restaurants, to disclose whatever information will give them an advantage in competing for calorie-conscious consumers; unhelpful, because it will contribute to information overload on consumers bombarded with all sorts of warnings; and not based on a responsible cost-benefit analysis.
These are legitimate criticisms, but they may not be conclusive. A law aimed at reducing obesity would be paternalistic if obesity did not produce external costs, but it does, because obese people consume a disproportionate amount of medical resources, and there is extensive public and private subsidization of medical expenses (private through insurance pools that are unable or forbidden to identify and reject high-risk insureds). However, the size of the externality is in question, because obese people die on average at a younger age than thin people, and so consume medical resources for fewer years on average than thin people do.
While some obesity has strictly physical causes, most is due to poor eating habits and lack of exercise and is therefore treatable by changes in behavior. If the necessary changes can be induced by low-cost informational warnings, the result is likely to be a reduction in the external costs of obesity. However, government programs designed to educate consumers in the causes and consequences of obesity have not been effective.
Fast food is one of the factors that is responsible for the obesity "epidemic" in the United States and other wealthy countries. Economic studies find that weight rises with lower relative prices of fast-food and full-service restaurants and the wider availability of such restaurants and hence the lower full price of eating at them.
Partly because some of the costs of obesity are external, competition among restaurants or other food providers cannot be counted upon to optimize caloric intake. An obese person will not eat less in order to reduce the social costs of medical subsidies. It is not even clear that competition will produce the caloric intake desired by consumers for purely selfish reasons of health, medical expense, and appearance. Firms are reluctant to advertise relative safety, because it alerts the consumer to the existence of danger. Cigarette and auto companies were traditionally reluctant to advertise safer cigarettes and safer cars, as that might get consumers thinking and as a result induce substitution away from the product. Prominent display of calorie numbers might persuade consumers to avoid fast-food chains rather than to look for the chain with the lowest calorie numbers. This is especially likely because the high-calorie items on the menu tend to be the tastiest. Inexpensive food rich in butter, cream, sugar, and egg yolk generally tastes better than inexpensive food low in those ingredients; low-calorie foods that taste good tend to use expensive ingredients.
For people who want to be thin, there is an abundance of information that enables them to adopt a healthful diet. Neither ignorance nor externalities seem to be the important forces in the growth of obesity. More important may be exploitation by food sellers of people's addictive tendencies, which have biological roots. In the "ancestral environment," to which human beings are biologically adapted, a taste for high-calorie foods had great survival value. As Becker has emphasized in academic work, the choice of an addictive life style may be freely chosen and the life style itself may be socially productive and personally satisfying; Becker and I, for example, are addicted to work. But many obese persons became addicted to high-calorie foods as children, and a child's choice of an addictive life style is not an authentic choice, to which society need defer. Nor can parents be assumed to be the perfect agents of their children, protecting them from unwise choices; it takes a lot of parental work to keep children physically active in the era of the video game, and away from rich foods. So there is a case to be made for public efforts to reduce obesity.
The significance of the New York City ordinance lies in its requiring that calorie numbers be printed next to the food items on menus and menu boards and in large type. The purpose is less to inform than to frighten. Psychologists have shown (what is anyway pretty obvious) that people respond more to information that is presented to them in a dramatic, memorable form than to information that is presented as an abstraction or is merely remembered rather than being pushed in one's face; that is the theory beyond requiring reckless drivers to watch videotapes of accidents and requiring cigarette ads to contain fearsome threats. It is one thing to know that a Big Mac has a lot of calories, and another thing to have the number emblazoned on the menu board, next to a mouth-watering picture. The warnings--for that is what the display of high calorie numbers amounts to--may create fear of high-calorie foods, not only in fast-food chains but generally. If so, and if as a result there is less obesity, there will be a reduction in medical expense and possibly a gain in happiness if, as one suspects, thin people are on average happier than fat people.
No one can know in advance the net effects of the ordinance. Its effect on obesity may be small, and it will impose costs of compliance on the fast-food chains subject to them and as a result cause the price of fast food to rise, though perhaps by a trivial amount--and the increase in price will contribute, albeit modestly, to efforts to reduce obesity. An increase in general education, by tending to reduce people's discount rates, may have a greater effect than the ordinance in checking obesity, because the ill effects of obesity are greater in the long term than in the short term and education tends to reduce discount rates.
The argument for the New York City ordinance thus comes down to the argument for social experimentation generally: that it will yield valuable information about the effects of public interventions designed to alter life styles. I therefore favor the ordinance, though without great optimism that it will contribute significantly to a reduction in obesity.