Saturday, May 14, 2005

Economic Justification for the Dietary Guidelines and Checkoff Programs

It is easy to see why the Federal Government would want to develop Dietary Guidelines. From the recent working paper mentioned in an earlier post:
To assess the wisdom of any public policy action, economists typically ask, "What is the market failure?" This question is motivated by a well-known theorem that consumers and producers who pursue their own private interests in the marketplace will make economic decisions that are in a specific sense optimal for society as a whole, if certain assumptions are met. These assumptions include perfect information, the absence of externalities (in which one person’s private choices affect another person’s well-being), and the absence of public goods (from which each person can benefit without reducing the benefit available to another person). If these assumptions are not met, there is a market failure, and an economist will begin to consider whether government action could contribute more good than harm.

In the case of the obesity epidemic, the most obvious possible market failure is imperfect information, which could perhaps be remedied by dietary guidance. The private market for information about how to manage body weight is like a hurricane, ear-splitting loud and blowing in every possible direction at once. Far from converging on a coherent position, the economic dynamics of the book publishing trade and the food marketing trade both seem to ensure that each new year will bring a new, improved, and different account of how to maintain a healthy weight.
Meanwhile, it is more difficult to see why commodity advertising for beef, pork, and cheese is the government's rightful line of work:

The checkoff programs are federal efforts, so one should consider the policy motivation for checkoff programs just as the previous section did for dietary guidance. A common justification given for checkoff boards is that a free-rider problem prevents commodity producers from capturing the economic benefits from their own investments in advertising and promotion (Becker, 2004). If Tyson or Purdue advertises a branded poultry product, the argument goes, much of the benefit accrues to the company itself. For such branded advertising, private markets yield the optimal level of advertising spending. By contrast, a farmer who produces beef or pork as an undifferentiated commodity cannot afford to advertise in the same way, because any benefits in terms of increased demand will accrue to beef and pork farmers in general, with minimal benefit for the individual advertiser.

To a casual listener, this justification might sound like the usual market failure arguments that economists recognize as possible grounds for government intervention, as discussed in section. One might think there is a free-rider problem in the provision of a public good, for which the solution is federal action to promote that good. However, increased meat and high-fat dairy consumption are not public goods in the usual sense. Indeed, food products are the archetypal private good, because one person’s consumption unambiguously prevents another person’s consumption of the same unit of food. A public interest justification would be compelling only with the addition of an argument that Americans consume too little hamburger and cheese, for example, or that they are exposed to too little advertising for their psychological health. Without such an argument, it is difficult to see the public goods motivation for federal intervention to promote beef, pork, and high-fat dairy products.

Instead, Congress’ policy motivation for federal intervention to establish and oversee the commodity promotion boards was, without apology, to support the private-sector interests of the dairy, beef, and pork producers. For example, the beef checkoff program’s mission statement is: "The Cattlemen’s Beef Promotion and Research Board is dedicated to improving producer profitability, expanding consumer demand for beef, and strengthening beef’s position in the marketplace." The title of the board’s annual report is, "It’s About Demand" (Cattlemen’s Beef Promotion and Research Board, 2005).

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