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Do farm subsidies prop up rural communities?

A new paper in the journal Applied Economic Perspectives & Policy by Jeremy Weber, Conor Wall, Jason Brown, and Tom Hertz asks whether farm subsidies boost the rural economy.  The abstract:

“Policy makers in the United States often justify agricultural subsidies by stressing that agriculture is the engine of the rural economy. We use the increase in crop prices in the late 2000s to estimate the marginal effect of increased agricultural revenues on local economies in the U.S. Heartland. We find that $1 more in crop revenue generated 64¢ in personal income, with most going to farm proprietors and workers (59%) or nonfarmers who own farm assets (36%). The evidence suggests a weak link between revenues and nonfarm income or employment, or on population. Cuts to agricultural subsidies are therefore likely to have little effect on the broader rural economy in regions like the Heartland.”

Who are the Soda Tax Baptists and Bootleggers?

That is a question asked by Adam Smith and Bruce Yandle in an article over at Reason.com.  They write of the traditional Baptist and Bootlegger scenario where one group with the moral high ground gives cover to another group with entirely different motives:

“Why “bootleggers and Baptists”? Recall that both historically supported laws that shut down liquor stores on Sunday, but for entirely different reasons. Taking the moral high ground, the Baptists fervently hoped to see a decline in alcohol consumption. Just as fervently, the bootleggers longed to eliminate competition at least for one day a week. Together, they formed a powerful duo.”

They then go on to discuss the various calls for soda taxes.  But, they apparently only see Baptists and no bootleggers.

“The “Baptist” part of the story is clear cut. Long-time support for such excise taxes comes from the American Heart Association, the American Academy of Pediatrics, and the NAACP. These and other organizations see sweet drinks as a major detriment to American health and well-being that feeds our skyrocketing obesity and diabetes rates.

...

But where are the bootleggers? If we probe a wee bit deeper, we may discover why there is no bootlegger/Baptist success story for taxing away sugary drink consumption. Bootleggers are generally associated with producing substitutes for the highly-taxed or regulated item. For example, U.S. producers of natural gas love it when the Environmental Protection Agency places heavy restrictions on coal-burning power plants.”

Because Coca-Cola and other soda manufacturers also sell diet drinks, juices, water, and other non-taxed alternatives, they apparently don't have an incentive to be "bootleggers", and thus Smith and Yandle conclude there are none, which is why they argue that soda taxes haven't gotten far politically.

In part they're right.  But, I think they're missing an all together different sort of "bootlegger" in the story.  Some baptists are bootleggers: they're one and the same.   

Yes, non-profits, public health advocates, academics, and bureaucrats often make appeals that seem virtuous and Baptist-like.  But, often their motives are less than altruistic.  

Consider the fact that almost every call for soda or fat taxes also suggests that the tax receipts should be spent on activities that would directly or indirectly benefit said groups.  Here for example, is Mark Bittman in the New York Times

“The resulting income should be earmarked for a program that encourages a sound diet for Americans by making healthy food more affordable and widely available.”

A New York Assemblyman, arguing for a statewide fat tax said the proposal should go foward

“as long as the revenue is directly targeted and used to address a healthy lifestyle, and not to fill a budget gap”

Yes, these programs might benefit people's health.  But, look at who else the earmarks also help.  Who will be paid to do the education, promotion, monitoring, etc.?  Moreover, the federal government already spends millions of dollars every year on dietary and obesity research, and surely many academics would benefit from increased budgets for research and education grants on obesity, nutrition, and health care.

I'm not necessarily saying this sort of research or education shouldn't be done, but what I am saying is that many of the Baptists in this case also have (perhaps not even self conscious) bootlegger-type motives.  As a result, its often hard to have thoughtful discussions about the economic justifications (or lack thereof) of fat taxes.  I think it was Upton Sinclair who said

“It’s difficult to get a man to understand something if his salary depends upon his not understanding it.”

Lost Pleasure

I'm confused by this article by Sharon Begley that appeared in Reuters yesterday.  She writes:

“U.S. health regulators estimate that consumers will suffer up to $5.27 billion in “lost pleasure” over 20 years when calorie counts on restaurant menus discourage people from ordering french fries, brownies and other high-calorie favorites.

The lost-pleasure analysis, which is criticized by some leading economists and public health groups, was tucked into new regulations published last month by the U.S. Food and Drug Administration which require chain restaurants, grocery store chains selling prepared food, large vending machine operators, movie theaters and amusement parks to display calorie counts.

Public health advocates alerted Reuters to the inclusion of the analysis, which they say makes such regulations more vulnerable to challenges by industry because it narrows the gap between the government’s projections of a regulation’s benefits and costs. ”

Here's the problem - I can't find any evidence the FDA did such a thing in relation to calorie counts on menu labels.  Here is the FDA's final rule, which puts total costs at about $1.7 billion, which is far less than the $5.27 billion from "lost pleasure" cited in the article.  Indeed, the net benefits cited in the final rule are only $510 million - far less than the supposed "lost pleasure". Maybe there is another cost-benefit analysis not mentioned in the federal register?

Also, the article makes reference to a paper by Jason Abaluck, but the only paper of his I can find that seems to have any relation to this topic is this one, and it includes no such "lost pleasure" calculations that I see in my quick look at it.  Again, the paper may very well be out there and I've overlooked it. 

What I can find, after a bit of internet searching, is much concern about including "lost pleasure" in relation to tobacco labeling policies from back this summer, including the concern mentioned by some economists about using "lost pleasure" in this context.  

It's clear why many public health advocates don't like the idea of "lost pleasure" in a cost benefit analysis.  However, a good cost benefit analysis needs to include ALL the costs and ALL the benefits; and it must also consider the longer-term second order effects.  Moreover, many of the articles seems to suggest that "good economists" would never include "lost pleasure" in a cost benefit analysis - an implication that is wholly false.   

A lot of the discussion in these articles, including the one in Reuters, seems to suggest that "consumer surplus" is an invalid way to measure the benefits/costs of a policy.  That's baloney.  And, indeed I think you'd have a hard time finding many economists who wouldn't say that any policy analysis of food (or tobacco) taxes or bans SHOULD use "consumer surplus" which captures "lost pleasure" from being unable to consumer the same consumption bundle as was the case pre-policy.    

At issue seems to be the question of whether the same holds true for a mandatory labeling policy.  The argument is that information does not change prices or available options per se, and as such more information can only make consumers better off (more consumer surplus).  On the surface that's true - and I suspect that is the point the cited economists are making in objecting to using "lost pleasure" in this particular context.  However, it is not unreasonable to include "lost pleasure" in a cost benefit analysis of a label or information policy if:

  • food/tobacco companies respond to the new law by removing some options;
  • food/tobacco companies respond to the new law by changing prices; or
  • consumers continue making the same purchases after the policy, but only do so now with more "guilt" (there can only be a value of information if people change behavior; if you just reduce the pleasure they get from buying a product without changing behavior, then there is indeed "lost pleasure").

Food Demand Survey (FooDS) - November 2014

The latest edition of our Food Demand Survey (FooDS) is now out.

This month, consumer willingness-to-pay (WTP) for all food products (except steak, which was essentially unchanged) was up relative to October.  

Consumers continue to expect higher meat prices in the coming month (but not quite as much as last month).  Planned purchases of chicken were up relative to last month.

Three new ad hoc questions were added to the survey this month. Given the recent WTO ruling on the US mandatory country of origin labeling law (COOL) (see some discussion of the issues here), several questions were added to gauge consumers' knowledge and perceptions of different meat origin labels (thanks to Glynn Tonsor at K-State who provided suggestions on the questions).  

The first question asked: “Which of the following are grocery stores required by law to label for fresh meat products?” Participants were shown seven issues and were asked to select “required”,” not required”, or “I don’t know”, for each issue.  

64% of respondents believe nutritional content information is required to be labeled by law.  Over a third (39%) thought there was mandatory labeling for use of hormones.  For the remaining five issues, the plurality of consumers chose “I don’t know.”  This includes the three issues related to MCOOL.  About 40% of consumers did not know whether grocery stores required to label where an animal was born, raised, or slaughtered.  More consumers than not thought grocery stores were not required to label such origin information.  Only 22% of consumers thought grocery stores were required to label where an animal was born.   

Secondly, (and only after answering the preceding question), participants were asked: “What portion of pork products consumed in the United States is covered by current mandatory country of origin labeling laws?” The plurality, 23.79% of participants, responded saying that 40% to 59% of pork products consumed in the United Sates is covered under mandatory country of origin (COOL) laws.  17% though no pork products were required to be labeled, and about 12% though all pork products were required to be labeled.

he third question pertains to consumer’s willingness-to-pay for a 12oz boneless rib eye beef steak dependent on the country of origin. Respondents were randomly assigned to one of four groups that differed in the label given to the ribeye steak.  On fourth of participants were asked: “ What is the most you would be willing to pay for a 12oz boneless rib eye beef steak that was labelled as: Born, Raised, and Slaughtered in the U.S.?”  Other respondents answered similar questions except the labels were changed to: Born in Canada, Raised and Slaughtered in U.S.; Born and Raised in Canada, Slaughtered in the U.S.; or Product of Canada and the U.S.  Respondents answered by clicking a response category with a range of dollar values such as, $0, $0.01 to $2.99, . . ., $13.00 to $15.99, $16 or more.  Answers were used to estimate the mean WTP for each of the four groups.

Results indicate consumers valued beef that was born or born and raised in Canada $0.89 and $1.05 less, respectively, than beef that was born, raised, and slaughtered in the U.S.  Consumers do not distinguish between beef born in Canada and born and raised in Canada; the difference in WTP for these two labels ($6.11 vs. $5.95) is not statistically different.  Mean WTP for the label “product of Canada and the U.S.”, $6.55,  is higher than the other labels that mentioned Canada and only $0.45 lower than “Born, Raised and Slaughtered in the U.S.”, a difference that is not statistically different.