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.

Farm Size and Productivity

There seems to be a lot of consternation about "large farms" in the foodie community and a desire to enact policies to support "small farms."  One of the issues often missed in such discussions is that larger farms tend to be the most productive farms and countries that tend to have the smallest farms tend to be the poorest.

These "stylized" facts were summarized in this paper by in Adamopoulos and Restuccia in the most recent issue of the American Economic Review.

(i) There are striking differences in the size distribution of farms between rich and poor countries with the operational scale of farms being considerably smaller in poor countries. Using internationally comparable data from the World Census of Agriculture, we show that in the poorest 20 percent of countries the average farm size is 1.6 hectares (Ha), while in the richest 20 percent of countries the average farm size is 54.1 Ha, a 34-fold difference. In poor countries very small farms (less than 2 Ha) account for over 70 percent of total farms, whereas in rich countries they account for only 15 percent. In poor countries there are virtually no farms over 20 Ha, while in rich countries these account for 40 percent of the total number of farms.

(ii) Larger farms have much higher labor productivity (value added per worker) than smaller farms, implying that farm size differences can potentially have large effects on measured agricultural productivity. Using data from the US Census of Agriculture (USDA 2007) we document a 16-fold difference in value added per worker between the largest and smallest scale of operation of farms reported. Available data from other sources, based on national censuses and farm surveys, indicate that labor productivity rises with size in a large set of developing countries as well (see, for instance, Berry and Cline 1979; Cornia 1985). This occurs despite differences in land scarcity, soil, geography, agrarian structure, and form of agriculture observed among these countries. In India, Foster and Rosenzweig (2011) show that efficiency also rises with farm size.

They also show this interesting graph relating average farm size in a country to GDP per capita in a country

Adamopoulos and Restuccia conclude that one of the main causes of inefficiently small farms in poor countries is government policy. Here are some examples they discuss

Many countries have set direct restrictions on farm size. In most cases these restrictions were ceilings on the size of permitted land holdings and were imposed as part of postwar-period land reforms that redistributed land in excess of the ceiling (e.g., Bangladesh, Chile, Ethiopia, India, Korea, Pakistan, Peru, Philippines). In many cases the ceiling on land holdings was accompanied by prohibitions on selling and/ or renting the redistributed land. Other countries have distorted size by also imposing minimum size requirements. This is done either directly by setting an explicit lower bound, as in the case of Indonesia and Puerto Rico, or indirectly by setting conditions for subdivisions, such as a “viability assessment” in the case of Zimbabwe. Several countries have imposed progressive land taxes where larger farms are taxed at a higher rate than smaller farms (e.g., Brazil, Namibia, Pakistan, Zimbabwe). Several African countries have offered input subsidies for fertilizer and seed that are either directly targeted at smallholders or disproportionately benefited them (e.g., Kenya, Malawi, Tanzania, Zambia). In other cases smallholders were provided with subsidized credit (e.g., Kenya, Philippines) or grants to purchase land (e.g., Malawi). Tenancy regulations, such as rent ceilings, tenure security, and preferential right of purchase (e.g., India), can also provide smallholders with an advantage.

However noble or virtuous it may seem to want to subside "small farms", we should at least acknowledge the adverse consequences and inefficiencies of such policies, which this paper shows are nontrivial because of  lower productivity,  and as a result lower wages, less economic growth, and higher food prices.   

The new dietary wisdom

Carbs are out.  Fats are in.  

We seem to be bombarded by messages these days warning of the evils of carbs, particularly sugar.  The recently released documentary, Fed Up, produced by Katie Couric presents one conspiratorial, over-wrought perspective on the issue.

In their indictment of farm policies, somehow the makers of Fed Up, failed to look at some of the best economic research on the topic, which shows that sugar import quotas, among other policies, make US sugar prices 2-3 times higher than the world price.  Moreover, ethanol policies have driven up the price of corn and have made high fructose corn syrup (HFCS) more expensive as well.  Here, for example, is USDA data on the price of HFCS over the past 14 years.  As you can see, prices have more than doubled since 2005.

Of course, that's just one example.  This week in the Sunday Review edition of the New York Times ran an editorial by David Ludwig and Mark Friedman, which a argued that over-eating is actually making us hungrier.  They seem to place the blame mainly on carbs, writing:

By this way of thinking, the increasing amount and processing of carbohydrates in the American diet has increased insulin levels, put fat cells into storage overdrive and elicited obesity-promoting biological responses in a large number of people. Like an infection that raises the body temperature set point, high consumption of refined carbohydrates — chips, crackers, cakes, soft drinks, sugary breakfast cereals and even white rice and bread — has increased body weights throughout the population.

One reason we consume so many refined carbohydrates today is because they have been added to processed foods in place of fats — which have been the main target of calorie reduction efforts since the 1970s. 

Last week, the Wall Street Journal also ran an editorial on the issue by Nina Teicholz, who has a recently released book, The Big Fat Surprise: Why Butter, Meat and Cheese Belong in a Healthy Diet.  In the editorial, she argues that past nutritional guidelines that emphasized carbs and demonized fat were a major cause of the rise in obesity, writing:

Seeing the U.S. population grow sicker and fatter while adhering to official dietary guidelines has put nutrition authorities in an awkward position. Recently, the response of many researchers has been to blame "Big Food" for bombarding Americans with sugar-laden products. No doubt these are bad for us, but it is also fair to say that the food industry has simply been responding to the dietary guidelines issued by the AHA and USDA, which have encouraged high-carbohydrate diets and until quite recently said next to nothing about the need to limit sugar.

Indeed, up until 1999, the AHA was still advising Americans to reach for "soft drinks," and in 2001, the group was still recommending snacks of "gum-drops" and "hard candies made primarily with sugar" to avoid fatty foods.

Teicholz does a good job describing how previous dietary guidelines were based on tenuous scientific evidence and largely represented group think and a desire to "do something."  

Here's my question: How can we be so sure we now know more?  It seems to me this history lesson would cause us to be much more cautious about what we know about nutritional science and about the ability of public policy to beneficially affect food choice, weight, and health.  Yet, the aforementioned writings, and others, often contain as much hubris as ever.  It is unhealthy to eat too many carbs (or too much fat for that matter), but do we really know enough to design policies that will have intended effects?  I'm skeptical.

One reason is that writings by medical doctors and nutritionists on carbs often narrowly focused and miss larger "macro" issues.  Here, for example, is USDA data on per capita sugar consumption.  I've added in the recent trend lines, which show a strong downward trend in consumption over the past decade.

I suspect some of the downward trend is due to increased public awareness of the dangers of over-consumption of sugars, but also because of market conditions and aforementioned government policies.   

Another factor that many of these writers seem to overlook is that we grow a lot of carb-producing grains not just because of nutritional guidelines but because of economic forces.  The reality is that, by far, the most cost efficient producers of calories and protein are crops like corn, wheat, soybeans, and rice.  Historically, the challenge has been (and it remains a current challenge in many parts of the world), producing enough food and calories to keep pace with a growing population.  Moreover, if you're concerned about environmental issues, you also want to get as many calories and nutrients using the least amount of land and other resources, and that's precisely why economic forces lead farmers choose to grow so much corn, wheat, soybeans, and rice (not to mention these can be stored and will not spoil and waste soon after harvest).  I'm not saying we shouldn't re-think how much of these types of grains we eat, often in processed food, but I think it is useful to have some perspective on why these crops are so prevalent on our farms and in our diet.

I'll conclude with this passage I recently read from Sara Hara, a nutritionist who was dismayed by what she saw in Fed Up.   

An important note for those who are earnestly trying to sort through the abundance of the information and misinformation about "good foods" and "bad foods" in search of the truth: know the source of the information being promoted and the difference between a real nutrition expert and a self-proclaimed "expert". Most medical doctors are well trained in medicine, but have less than a semester of nutrition education in the entirety of their training (there are a few rare exceptions). Medical doctors are smart, but are not typically experts in nutrition. Investigative journalists are also a talented lot, but rarely have formal education in nutrition.Registered Dietitians/Nutritionists (RD or RDN) have at least a 4 year degree in nutrition (many have an additional 2 year master's degree), have completed a clinical nutrition internship, and maintain continuing education requirements to retain their credential. THESE are the nutrition experts... along with researchers and other professionals who have advanced degrees in Nutrition. I was struck by the fact that the new film Fed Up has a list of "experts" that includes medical doctors, a psychologist, politicians and journalists...all very intelligent and respected professionals, but none with extensive training in nutrition. There are no RDN's among their "experts"... and for good reason. Most true nutrition experts do not agree with the propaganda being promoted by this film. The RDN experts know that the issue is multi-faceted and cannot be reasonably blamed on a single factor. Nutrition needs to be viewed in context of lifestyle habits, genetics, personal preferences, and so much more. Sensationalism sells... but healthy living and common sense are what will fix our nation's failing health.

FooDS May 2014

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

Because we've been conducting the survey for over a year now, we are not only able to report changes relative to the previous month but also changes relative to the same month last year.

This month's survey reveals willingness-to-pay (WTP) for meat products is down in May relative to April and relative to May 2013. Consumers expect higher meat prices this month and report spending more on food at home and away from home.    

Some of the biggest changes witnessed this month relate to a spike in how much consumers said they heard, and how concerned they said they were, about greenhouse gasses.  The result is likely a consequence of the widely publicized release of a report on climate change by the White House on May 6 (the National Climate Assessment update).  

We also added some ad hoc questions to gauge public support/opposition for the controversial laws that seek to prohibit release of undercover reporting at animal production facilitates (these are derogatorily known as "ag gag" laws).

We randomly allocated participants to one of two groups.  The first group was told and asked the following:

Several state legislatures have considered bills to outlaw certain activities on livestock facilities.  The laws would prohibit a person entering an animal or research facility to take pictures by photograph, video camera, or other means with the intent to commit criminal activities or defame the facility or its owner.  the laws would also charge a person with a crime if he or she willfully obtains access to an agricultural production facility by false pretenses or knowingly makes a false statement or misrepresentation as part of an application for employment at an agricultural production facility with the intent to commit an act no authorized by the owner. Would you support or oppose such legislation?  

The second group was asked the same question except the first sentence was altered to provide some context for the laws and give some insight as to why the laws are coming about.  The first sentence for this group read:

In response to the release of undercover videos revealing cases of animal cruelty by animal activist organizations, agricultural groups have lobbied legislatures in several states to introduce bills to outlaw certain activities on livestock facilities.  

Here's what we found:

Regardless of which group a participant was randomly assigned, more people supported than opposed such laws.  Unexpectedly, adding contextual information increased the level of support for the laws.  Interestingly, providing contextual information also increased opposition as well.  This means that it moved people out of the "undecided" category.  Given that there are about 500 people in each group, the margin of error (or sampling error) on these questions is plus or minus 4.4%.  With the 1st group, we can be pretty confident there are more supporters than opponents, but with contextual information, there is a statistical dead heat.  

Do USDA Quality Grades Mislead Consumers?

If you've ever seen the words "Choice" or "Prime" advertising a cut of beef, then you've been influenced by the federal beef quality grading system, which is administered by the Agricultural Marketing Service of the USDA.  From "best" to "worst" the grades are Prime, Choice, Select, and Standard.  

In a paper forthcoming the Journal of Animal Science, Eric and Megan Devuyst and I report the results of a study revealing that the USDA beef quality grading system likely sends confusing and misleading signals to final consumers (which is exactly the opposite of the purpose of the grading system).

The key determinant of quality in current grading system is "intramuscular fat" - the amount of fat inside the muscle of the steak.  Steaks with more fat get higher grades, primarily because of the large amount of research showing that consumers prefer the taste of steaks with more intramuscular fat.

But, do consumers know this?  And do they understand the information communicated by the grade names? Based on results of two nationwide surveys (both with over 1,000 people), we believe the answers are clearly: "No".

Most people thought the grade name "Prime" was the leannest, while also expecting it to be juiciest.  When looking just at the pictures (the same ones shown above but without the names), most people thought the picture of the Prime steak would be the cheapest, and they were most likely to associate the picture of the Prime steak with the name "Select."  

Only 14% of respondents correctly ranked the grade names according to leanness, and only 14% correctly matched the pictures with the respective grade names.  That's worse than random guessing (16.67% would be correct just by pure chance given that people had to match three items).   

We conclude the paper with the following:

if the current grading system fails to adequately inform consumers of the relative quality of grades, there remains the likelihood that consumers’ expectations will be unmet. There are three potential methods for addressing this lack of understanding. First, the current quality grading system could be dropped in lieu of private or third-party systems. . . .Second, an educational program could be  developed to promote knowledge of the link between higher marbled beef and taste. . . . The costs of such an effort, however, are likely to be large, and it is unclear what effects they may have particularly when one realizes the existence of many prior educational efforts that have been undertaken in the 70 year existence of the Prime-Choice quality grade nomenclature. . . . Finally, consumers could likely benefit from more descriptive nomenclature. . . . for example, “USDA Prime—Higher Fat, Most Juicy,” “USDA Choice—Juicy,” and “USDA Select—Less Fat, Less Juicy.” 

You can read the whole thing here.