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.

Comments

[jonm]

You say that "Requiring restaurants to post calorie content of foods will have a negligible effect on demand for these foods", and since the cost is negligible, presumably you don't really object to this regulation.

I, on the other hand, observe that lots of people are very very far from being rational intertemporal optimizers and instead find there is a painful trade off between buying tasty fattening food in the short term and regretting the pounds on the waist-line in the long term. Further, I think that almost no one will object to seeing the information while a significant number will reduce their overconsumption, increasing their long-term happiness, so we might as well implement this one, as you don't really seem to object.

The trade-off between short term and long term goals is also consistent with posting the information being sub-optimal for any one restaurant chain, but being socially optimal.

[Mike Liceright]

Let's assume that there is a chemical "TFT"
that will kill 1% of the people who eat it
a year early, but that it will preserve the
food so that the cost to the fast food
restaurant of not using it is $0.01 per
serving.

Is it your contention that it is the responsibility of
the customer to get a signed contract with
the restaurant that they are not using "TFT"
and that any involvement of the Government
is too much interference, or is the amount
of government involvement in the use of
"Trans FaT" dependent on the risks and costs,
as far as whether there should Government
required, 1) Notifications, 2) Warnings,
3) Taxes, or 4) Outright bans?,
and in the
case of Trans FaT, the Risks/Cost are low
enough that the We, the Citizens, should
not, or Must not, interfear with the Free
Enterprise system.

[dWj]

You seem not quite to come out and explicitly note that the government, in other ways, is subsidizing poor people eating at these restaurants. Some kind of tax or restriction on them eating at these restaurants is a correction of a previous error.

Still, it seems the easiest way to make people pay the costs of their health care decisions would be to make people pay the costs of their health care.

It may well be that better nutritional information will be of little interest to consumers, though it may well not be the case, either. As long as the costs of providing this information are low, I tend to support a better-informed consumer. I certainly think posting statistics on trans-fats and providing information on the trans-fat content of food is a far less onerous combination of regulations than simply banning it outright, insisting that no consumer is competent to decide that the benefit is greater than the cost.

[Richard]

Becker makes an excellent point about the tendency to propose big-government "solutions" to problems that were caused by big government in the first place. It happens all the time. Politicians should pay much closer attention to the law of unintended effects, before they adopt new programs and/or requirements.

[Thomason]

The regulatory issue is less about the supporting logic and more about: does it work; do lists of nutrients or the banning of transfats give actual results? If there's a disconnect between the theory and the result, then toss both. Some hate regulation, others advocate self-determination, but again, it's not about personal philosophy.
The banning of transfats will have an immeasurable effect on obesity or health problems related to it. No, transfats are not good, and probably are bad, for you nutritionally - but, banning them will not reduce consumption of a million other products that can lead to obesity and related health issues. So too with nutritional information - consumers cannot accurately interpret it. Thus, they can read every label on every foodstuff, but only through the exercise of self-control will they have nutritional health. That self-control works as well even if you have no idea what's "in" food products. Knowing the nutritional components of stuffing smothered with gravy adds little to a near-innate understanding that these foods will fatten me.
Pointless regulation is the evil, not those changes that actually promote healthful changes.

[neilehat]

"Is Government intervention in the Fast Food Industry justified?" Let's extrapolate this question out and see, "Is Government intervention in the Food Industry justified?" and again, "Is Government intervention in Industry justified?"

If one does an historical and economic analysis of any of the questions, one will find that the answer is a resounding "YES"!

[david]

while it's true that calorie info and banning trans fats won't reduce the demand for fast food generally they may help those who do eat at such places make better choices while they are there--letting people know how unhealthy 32 oz of coke are may lead someone to choose water or diet soda instead--thereby saving hundreds of calories

[Anonymous]

The issue seems much larger than just banning or limiting the number of "fast food" units in an area or insisting that they divulge what they are putting in their "food", but the whole model that has made them ubiquitous.

They've fine-tuned their model of profiting from cheap food and soft drinks combined with such low wages that among the "externalities" we might discuss is that of taxpayers subsidizing the difference between what the employees get in their paycheck and what the cost of a minimum existence costs.

Using this formula for 50 years they've frozen out other types of cafes. These would include the "Mom's" cafes and those catering to "merchant lunches" and diners where fairly wholesome "home cooked" food could be obtained even before the, moms going to work too, movement created such a huge market for eating out, or on the run.

Again, in a functioning democracy? there is more to the story than simply that of "the market" and as a community of human beings first and "economic units" or consumers for giant corporate interests, it is a part of our ongoing educational function to inform folks about the nature of the food they are putting in the only body they'll ever have.

BTW a tip of the hat to the many new immigrant or ethnic cafes that by dint of tremendous labor have been able to survive and provide a locally owned, tastier, and most likely far healthier alternative to the corporate juggernaut.

[David Heigham]

Forgetting is such sweet oblivion; however, I cannot help remebering noting more than half a century ago that the food served by MacDonald's and by Burger King was considerably healthier than that offered by most of their then competitors. I have also recently confirmed that MacDonald's and Burger King now serve healthier food than they did then.
(The Economist's Big Mac index is of relative prices between markets, so the upward quality creep at MacDonald's does not affect it.)

Recently the idea of policy "Nudge" to change behaviour has become deservedly fashionable. I suspect that this New York legislation will soon be quoted as an example of how not to nudge. For the target groups, the increased information noise is likely to swamp the message. However, done sensibly, nudging as an approach to reducing behaviour which imposes externalities on others is surely right. and entirely proper.

Regulating out of a market a substance or activity which has been found to be subtly harmful is a regular public health function. Each case needs looking at on its merits, but transfats seem to have few advantags to offset the case against them. However, regulating them out of only a part of a market seems very strange.

[Gonzalo Edwards]

One issue that should be addressed is the issue of "attention diversion". The more information one is exposed to about what not to eat or about the number of calories of different foods, the less attention one is able to pay to adds on the importance of not smoking; of not eating salt; of regular check-ups for early detection of many diseases; of not using the car for pollution or climate-change reasons; of the importance of sun blockers to avoid UV radiation, etc.

[Gazi Islam]

Although both Posner and Becker framed their arguments in terms of government intervention vs letting the market take care of itself, I think there are 2 big counterarguments to such a framing:

1. Much of the fast food industry is SUBSIDIZED by the government through the agricultural subsidies on their ingredients. Things like corn (corn syrup) and industrial beef are heavily protected from markets, and such ingredients are differentially present in fast food vs slow food. Actually letting the market truly take care of itself would hurt fast food much more than simply putting warning lables.

2. Related to Becker's analogy about the limitation of children because they result in externalities, I think a distinction should be drawn on interventions which force or prohibit action (i.e. no more babies) and those which force disclosure. Fast food already makes fatty Big Macs, but would only be complelled to admit it under the new law. If efficient markets presuppose full information, then greater information disclosure should help consumer choice. The restaurants would only be forced to be transparent about their actions/products.

[neilehat]

Gazi-Islam, Is this another feeble attempt by you guys to undermine Western Industry, specifically American Agri-Business, by calling it "SUBSIDIZED". Of course it is and so it shall remain. If you don't like it and can't compete, get out of the Market. That's the game.

As for more information increasing the efficiency of the market place by creating more and better informed consumers, there is a phenomenon that occurs in Communications Theory called "Information Overload" that occurs and leads to just the opposite effect - producing poorly and less informed individuals. So much for greater efficiency and a rational market place by providing more and more information.

[Jack]

Neil: Would one response to the problem of info overload be that of doing more regulating and reducing more of the worst pitfalls?

[neilehat]

Jack, Sounds good to me. As long as we handle it on an "as needed" case by case basis. No matter how much the world is painted as a ""warm" "fuzzy" and "friendly" place where all can live their "fantasy"", it is still populated with many liars, cheats, theives, frauds, and scroundels using the smokescreen of the globalists con job to mask their many crimes.

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