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.

Regulating your food choices vs. retailers' food choices

Suppose the government made it illegal for you to buy sugared soda.  What would be your reaction?  How would you feel?  

Now, suppose instead that the government made it illegal for grocery stores and other vendors to sell sugared soda.  Is your reaction to the second law less visceral than the first?  

I suspect so.  But, here's the key: both laws impose the same restriction on your freedom - the outcomes are precisely the same.

Writing at Forbes, John Goodman notes this dichotomy in the case of California eggs (HT David Henderson)

“California has a new law that requires all eggs sold in the state to come from chickens that are housed in roomier cages. Specifically, the hens “must be able to lie down, stand up and fully spread their wings.”

So how many Californians have been arrested for eating the wrong kind of egg? Zero. Not even one? Not one. Actually, the law doesn’t take effect until January, but even then egg eaters will have nothing to fear. The reason: the law doesn’t apply to people who eat eggs. It only applies to people who sell eggs.

When you stop to think about it, that’s not unusual. Almost all government restrictions on our freedom are indirect. They are imposed on us by way of some business. In fact, laws that directly restrict the freedom of the individual are rare and almost always controversial.”

After discussing various reasons for the differences in the way we respond to individual vs. business restrictions, Goodman concludes:

“Finally, the idea being proposed here seems consistent with history. Over the past two hundred years, we have had a steady migration of people from agriculture to the cities, where they became employees of firms. Over the same period of time we have had a parallel increase in the intrusiveness of government.

Bottom line: if there were no firms, taxes would be much lower, there would be far fewer regulations and government would be a much less important institution in our lives.”

GMO and Soda Votes

I have been keeping an eye on several ballot initiatives in yesterday's election.  Not all results are finalized, but here's what we know so far:

In Colorado, mandatory GMO labeling was defeated by a wide margin, 66% to 34%, with 93% of precincts reporting.

In Oregon, mandatory GMO labeling is very close and still up in the air.  With 88% of the votes counted, the "No's" are ahead by about 26,000 votes (659,404 to 633,132), giving the "No's" a current 51% to 49% margin. 

A vote in Maui, HI to ban cultivation of GMOs is too close to call

Berkeley, CA passed a soda tax (75% in favor vs. 25% opposed)

The majority of voters in San Francisco, CA favored a soda tax (55% in favor), but the initiative required a 2/3 majority to pass. Thus, the soda tax failed in San Francisco.  

Country of Origin Labeling

The WTO recently ruled against the US in the latest dispute over mandatory country of origin labeling (MCOOL).  Their latest ruling cites work I've conducted with Glynn Tosnor, Ted Schroeder, and Mykel Taylor at Kansas State, among others (not necessarily in an uncritical light).

In any event, I was skeptical of the way the US chose to respond to the original finding that they were out of compliance with the WTO, and the latest finding seems to only reinforce those views.

Darren Hudson had a few thoughts on the issue, with which I largely agree: 

“Overall, Lusk and Anderson found that modest increases in total beef demand (2-3%) would offset any producer costs [Lusk note: subsequent research by Taylor and Tonsor have found no demand response to MCOOL]. But are we focused too myopically on U.S. beef/meat? If we step back and truly think about consumers and the functioning of markets, we have a highly integrated North American livestock complex. Does it help the consumer more to be able to identify which cattle are born in the U.S., or to have an efficient, lower cost movement of livestock to production and processing areas with comparative advantage to do those functions? That includes things like harmonized health and safety inspections and transport rules. Does COOL put a wedge between us and our North American partners so that we do not get those benefits simply for the possible benefit that someone out there would buy a rib-eye steak over another because it was born in the U.S.

The COOL ruling gives us a moment to step back and take stock of what is really important in this argument. I know there are those that value the information provided by the label, and I know there are those that are harmed by it. But we need to think big, strategically, and long-term if we are to remain competitive globally.”