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Medicare and Medicaid as justification for public health interventions

When public health care costs rise due to obesity, diabetes, smoking, and the like, it is often said that an externality exists,justifying public intervention.  The logic is that as costs to Medicare and Medicaid rise, so too must taxes to offset the higher costs.  Thus, my health care costs (if I'm enrolled in Medicare or Medicaid) impose an externality on you the taxpayer.

I've written several times in the past suggesting that this sort of argument is not particularly well founded (e.g., see here or here or here). I ran across another line of reasoning in a post about immigration and the welfare state by Don Boudreaux that suggests how slippery a slope this sort of reasoning can be.

“And, while we’re at it, doesn’t the existence of the welfare state require government also to restrict which majors college students choose? Without a welfare state, students would be more focused on finding gainful employment after they graduate. But with a welfare state, the risk of being unemployed for long periods – or of earning very low pay for most of one’s working life – as a result of majoring in the likes of “race studies” or “dance criticism” will too often be ignored by irresponsible or lazy students, who rely upon welfare-state payments to subsidize their indulgence in majors that promise no decent monetary rewards.

Where does the enhanced scope for government action end once we admit that government buys for itself, by illegitimately exercising power W, an indulgence for the exercise of otherwise illegitimate power R? What sort of distrust of the motives and knowledge of government officials leads many self-described libertarians to oppose government’s exercise of power W but approve of government’s exercise of otherwise-illegitimate power R if government insists on simultaneously exercising illegitimate power W?”

The logic used to assert that existence of public health care benefits justifies restricting (or altering) consumers' choice of foods is no different than the logic Boudreaux uses (in jest) to argue that the existence of welfare programs and public unemployment benefits justifies restricting (or altering) student's choice of college majors.

Food Demand Survey (FooDS) - June 2014

The June 2014 edition of the Food Demand Survey (FooDs) is now out.

Some highlights:

  • Willingness-to-pay for all tracked foods increased in June relative to May (and also increased relative to June 2013).  The largest dollar increase was for beef steak.
  • Consumers continue to expect higher meat prices, and their expectations of higher prices are much more pronounced today than they were a year ago.
  • There were relatively large jumps in awareness of news stories about Salmonella, E. Coli, and Mad Cow in June.
  • Concern for GMOs and antibiotics experienced the largest drops in June,

Three new ad hoc questions were added to the survey in June relating to preferences for unpasteurized or "raw" milk.  The questions were prompted by some discussions with Wendy Rahn, a professor of political science at the University of Minnesota.

Initially, respondents were told the following:

“Milk sold in most grocery stores is pasteurized, meaning it has been briefly heated to a high temperature to kill bacteria before cooling it. Some people want to drink raw or unpasteurized milk, arguing that it tastes better or offers health benefits. Many states do not allow raw milk to be sold in stores because of evidence of higher levels of bacterial contamination and the potential for food borne illness.”

Then three questions were then asked (the order was randomized across participants).

One question asked: “Suppose the next time you went to the grocery store to buy milk there were two options: pasteurized and raw, unpasteurized milk available for sale.  Both are the same price. Which would you buy?”  

The vast majority, 79.14% of participants, replied saying they would choose pasteurized milk over unpasteurized milk when both products were the same price at the grocery store. 

Participants were also asked: “Suppose the next time you went to the farmers market, a vendor offered to sell you unpasteurized, raw milk.  You can buy unpasteurized, raw milk at the farmers market or pasteurized milk at the grocery store.  Assuming both are the same price, which would you buy? Approximately 75% of participants replied they would rather purchase pasteurized milk from the grocery than the 12.51% who said they would purchase unpasteurized milk at the farmers market for the same price. Thus, changing the context of the purchase setting from grocery store to farmers market had only a very slight effect on the desirability of unpasteurized milk (increase from 9.5% o 12.5%).

Finally, we asked a public policy question.  Participants were asked: “Regardless of whether you personally are willing to buy raw, unpasteurized milk, do you believe that it should be legal to sell in grocery stores to adult consumers?”  Respondents were nearly evenly divided across response categories.  34.37% believe that the selling of raw, unpasteurized milk to adults in grocery stores should be legal, 33.68% believe it should be illegal, and 31.94% of respondents replied “I don’t know”. 

It is instructive to look at the break-down of personal preferences for purchasing unpasteurized milk vs. beliefs about whether purchases should be legal for others.  Of the 79% of consumers who said they would prefer pasteurized milk over unpasteurized milk in the grocery store, 38.6% thought unpasteurized milk sales should be illegal, 30.5% thought legal, and 30.9% didn’t know.  Thus, even among those who don’t personally prefer to buy unpasteurized milk, there is some fraction of the population (30.5%) who think it should be legal for others.  

New FDA Nutritional Facts Panel Explained

Adding to their already fantastic farmdocdaily blog, the department of agricultural and consumer economics at the University of Illinois has just launched a new policy blog.  

The most recent post is on proposed changes to the nutrition facts panel by Brenna Ellison, one of my former students at Oklahoma State.  In the link at the bottom her post (which jumps to a brief survey), Brenna created the best visual illustration I've seen to date of the proposed changes.  I've reproduced it here with Brenna's permission. 

I should also note that the results from our Food Demand Survey (FooDS) suggest most people prefer the new label to the old.  

Loss in Number of Farms

A few months ago, the USDA released the results of the 2012 Census of Agriculture.  One of the statistics that seems to have attracted a lot of attention is the finding that there was a 4.3% loss in the number of farms from 2007 to 2012.  More recent discussions have begun to breakdown these numbers by state and even by county within a state.

The loss in the number of farms is seen as a worrying trend my some.  For example, here is North Carolina's agriculture commissioner:

“the loss of 2,700 farms is troubling at a time when worldwide demand for food continues to grow. We also know that North Carolina is gaining about 100,000 people a year, which will only increase the pressure on farmland. We clearly have to step up our conservation efforts. It’s a priority I will work on with the General Assembly this year”

I'm not so sure whether these changes are worrying.  There are some important things to remember in these discussions.

First, the USDA defines a "farm" as any place from which $1,000 or more of agricultural products were produced and sold.  $1,000 is a very low threshold.  If you sold one cow, you're a farm according to the USDA.  And, what we see is that most of the "lost farms" are those in this very small category.  For example, using the Census data, here is the breakdown of the number of farms in 2007 and 2012 by dollar sales.

The vast majority of the lost "farms", both in absolute and percentage terms, had less than $2,500 in annual sales.  I know many of us have a soft spot for "small farmers", but I would guess there are very few people selling less than $2,500 in agricultural output who are relying on those sales as a main source of income.  Indeed, according to the USDA-ERS, the average off-farm income (see figure 4) of farms with sales less than $1,000 was between $70,000 and $80,000, and most in this category (87.7%) are farming at a loss (i.e., they're paying to farm; the farm loss is a write-off against non-farm income gains). I conjecture that some of the loss of farms in the low sales category might be explained by better off-farm job and income prospects in 2012 than what existed in 2007.

As the table above also shows, there were more farms in the highest sales category.  Much of this likely reflects the fact that many of the farms that, in 2007, were in a lower sales category, were, in 2012, selling more than $500,000 because commodity prices were much higher.  That is, farms didn't get bigger per se, it is simply that the value of the output they were selling rose.  Farms were simply moving up the distribution of sales classification categories.  There are, of course, also changes as a result of an older farm population (which also mirrors an older US population) with people retiring out of agriculture resulting in some farms consolidating.

If the concern about the drop in farm numbers food security (i.e., will we have enough food to eat?), the above table also suggests little cause for alarm.  The data shows that larger farms (those that experienced an increase from 2007 to 2012) account for the vast majority of agricultural output.  In 2006, only 3.9% of farms have more than $500,000 in sales.  But, they accounted for 62.5% of agricultural output value.  A drop in the number of farms does not necessarily imply a drop in the amount of food produced.

Finally, one shouldn't just focus on the "number of farms" but the financial viability of farms.  When we look at profitability of farms, what we see from the Ag Census data is that there was an enormous increases in the value of products sold by farms from 2007 to 2012.  In fact, net farm income was up almost 24% from 2007 to 2012.

All in all, I see little cause for alarm from the Ag Census numbers on the recent change in number of farms.