Blue Apron Blues

by Levi Russell

Blue Apron released a very nice-looking ad back in January that I'm certain appeals to their audience. Unfortunately, it perpetuates some wrongheaded ideas about food systems. Yes, I know this is an ad and that it's sort of silly to criticize an ad, but I think there's some value in explaining what is wrong with the sort of thinking put forth in ads like this. Now that I've "poisoned the well," here's the ad:



After mischaracterizing the US food system as a grayed-out assembly line factory, the narrator describes an ideal food system in which "chefs and farmers would plan crops and recipes together to make farm land healthier and grow ingredients that taste better." He then complains about the current system's supermarkets, food transit, and waste. Instead, in the ideal food system, food would be delivered fresh, straight to your door!

All of this sounds great, but what does it cost? Certainly Blue Apron isn't suggesting that literally the entire food system of the US could be replaced by their model. How much does Blue Apron cost? About the same as a meal at a fast-casual restaurant.

Yes, there are problems with food waste, lack of freshness, etc in the current food system. However, specialized production and large supermarkets feed the poorest among us quite well. At its current prices, there's simply no way Blue Apron could do that.

The Poultry Price Paradox - Why Are Turkeys Cheaper During Thanksgiving?

Guest Post
by David Williamson

Over the holiday, Catherine Rampell wrote a piece for the New York Times that raised an interesting question. Why are turkeys cheaper during Thanksgiving when demand is higher? Rampell offers two possible explanations, but I am not totally convinced by either of them. So, I will spell out my concerns with each of Rampell's explanations below and offer a third explanation of my own. Rampell's comments are in block quotes and mine are not.

Explanation #1 (Rampell) - Turkeys are "Loss Leaders"

The most intuitive and popular explanation for a high-demand price dip is that retailers are selling 'loss leaders.' Stores advertise very low prices — sometimes even lower than they paid their wholesalers — for big-ticket, attention-grabbing products in order to get people in the door, in the hope that they buy lots of other stuff. You might get your turkey for a song, but then you also buy potatoes, cranberries and pies at the same supermarket — all at regular (or higher) markups.

This is certainly the most popular explanation, but I worry that it ignores the consequences of competition. The way your store makes money selling turkeys at a loss is by attracting new customers that would normally buy potatoes, cranberries, and pies from your competitors' stores. But why would your competitors allow you to steal their customers? Wouldn't they lower the price of their turkeys in response? If so, wouldn't this cancel your effort to attract new customers and just leave you losing money on turkeys? Also, as an empirical matter, do stores really charge the same or higher prices for potatoes, cranberries, and pies during Thanksgiving? I can't find any systematic data to answer this question, but Kroger (America's largest traditional grocery store) had sales on all these items before Thanksgiving and not just turkeys.

Explanation #2 (Rampell) - Grocery Stores Are Price Discriminating

[P]lenty of economists...argue that it’s actually demand-side forces — changing consumer preferences — that drive these price drops. Consumers might get more price-sensitive during periods of peak demand and do more comparison-shopping, so stores have to drop their prices if they want to capture sales.

This explanation seems more theoretically consistent to me, but I think it rests on three shaky empirical assumptions. First, a grocery store needs market power to price discriminate. However, even after years of growing concentration, this industry is still pretty competitive (the top four firms account for less than 40% of sales). Second, to preserve its pricing strategy, a price discriminating grocery store needs to prevent others from buying in the cheap market (the Thanksgiving season) and selling in the expensive market (the rest of the year). But how do you stop anyone with a freezer from doing just that? Third, for charging consumers less in November to make sense, it must be that they are more price sensitive during the holidays. But is that true? Rampell gives some good reasons for why it might be true, but I can also see why they might not. Specifically, people tend to be more price sensitive when there are more close substitutes available. I am personally very sensitive to the price of Coke because there are always close substitutes (e.g. Pepsi). But it seems like there are very few substitutes for turkey during Thanksgiving. Would Thanksgiving be the same at your home if you served chicken instead?

Explanation #3 (Me) - The Costs of Stocking Turkey are Lower

My preferred explanation is that because grocery stores are competitive, they must charge prices that reflect the marginal costs of the products they sell. Therefore, if the price of turkeys is higher in July than November, it must be because each turkey is more costly to sell. The tough part is figuring out why. One reason turkeys might be more expensive for grocers to sell in July is that they don't sell very quickly that time of year (i.e. they have low "turnover"). Low turnover means higher costs for grocery stores because every day a product sits unsold on your shelf, you are giving up money you could have earned by stocking something that would sell more quickly. When turkeys start flying off the shelves in November, the cost of stocking each turkeys drops and that is reflected in the price. An advantage of this explanation is that it also implies that we would expect the price of cranberry sauce and pumpkin pie to be lower during Thanksgiving, which I think is the case.

What do you all think? Am I missing something important about Rampell's argument? Am I wrong that higher turnover means lower marginal costs? Are there other reasons why turkeys might cost less to sell and product in November? Your comments are much appreciated. Happy Holidays!

Ignoring Positive Externalities

by Levi Russell

Recently ag economist Jayson Lusk visited UGA to speak on the future of food and the "food movement." One great point he made is that food is quite abundant now relative to any time in the past, and yet there is a very lucrative book and movie industry built around concerns with our food supply. Certainly our food system is far from perfect, but absolute poverty on a global scale has been curtailed dramatically.

A question from the audience particularly interested me: what about externalities related to our current food production methods such as pollution? Lusk's answer was very good. He acknowledged the existence of both negative and positive externalities in food production. He went on to state that both should be considered when designing policy. It certainly seems to me that a lot of attention is paid to the negative externalities associated with food production in the policy world and in the economics profession; relatively little attention is paid to measuring the positive externalities such as the fact that on average Americans spend only about 10% of their disposable income on food and are free to pursue all sorts of other interests.

This discussion reminded me of a paper I read awhile back. It's ungated, and I encourage you to read it if you're interested in this stuff. Here's the abstract:

This paper criticizes the treatment of externalities presented in modern undergraduate economic textbooks. Despite a tremendous scholarly push-back since 1920 to Pigou’s path-breaking writings, modern textbook authors fail to synthesize important critiques and extensions of externality theory and policy, especially those spawned by Coase. The typical textbook treatment: 1) makes no distinction between pecuniary and technological externalities; 2) is silent about the invisible hand’s unintended and emergent consequences as a positive externality; 3) overemphasizes negative externalities over positive ones; 4) ignores Coase’s critique of Pigouvian tax “solutions;” and 5) ignores the potential relevance of inframarginal external benefits in discussions of policy “solutions” to negative externalities. Aside from presentations of “The Coase Theorem” excerpted from only 4 pages of Coase’s voluminous writings, it is as though the typical textbook author slept through nearly a century of scholarly critique of Pigou.

Mandated GMO Labels: A Regressive Tax

by Levi Russell

The predictable effects of mandatory GMO labeling will be felt very soon in Vermont and those with low incomes will be especially hard-hit. Supermarkets in the state will lose some 3,000 products from their shelves. The video on this news story is telling: people don't seem to know much about GMOs and don't really think about the negative effects of mandatory labeling. Anti-GMO organizations such as Greenpeace have been accused of running a fear campaign that isn't supported by scientific evidence. There's no evidence that GMOs are harmful to people, but a law requiring them to be labeled very likely will be.

The federal law passed in the Senate will require companies to use QR codes or dedicated websites to provide information about the presence of genetically modified organisms in their food. The compliance costs associated with this law include the addition of the QR code or website URL to the packaging, the development of the databases with the required information, and the maintenance of this database as farming practices and ingredients change. The latter two will likely be far higher than the former and will affect food prices for the foreseeable future.

Here are some of the potential indirect effects:

1) Less consumer choice - The article linked above shows that this is already becoming a reality. I suspect those 3,000 products will come back to shelves eventually, but the development of new products is now more costly due to the necessity of adding information to GMO databases.

2) Higher prices - Additional costs to food companies will effectively shift the food supply curve to the left and raise prices.

3) Less innovation - Though "very small" food companies are exempted from the rule, many startups are created with the goal of becoming mass-market products (If you don't believe me, just watch an episode of "Shark Tank."). This requirement will be another cobweb of red tape these companies have to get through to get on consumer shelves.

Maybe all these costs are worth it. Given the lack of scientific evidence of harm and the fact that humans have been modifying the genetics of food in a far more haphazard way for a very, very long time, I have my doubts. The reality is that the costs mentioned above will fall disproportionately on those with the lowest incomes. Those with moderate to high incomes will be able to pay more for the food they really want, but for those who spend a substantial portion of their income on food already will find it harder to make other ends meet.

Problems with the Definition of Food Deserts

by Brandon McFadden

Food deserts are often used to define areas that have low access to food.  In fact, many people are now referring to food deserts as low access, low income areas.  A Food Access Research Atlas is a map that shows tracts that are defined as food deserts throughout the U.S.  The Atlas is made available by the USDA and can be accessed here.  According to the USDA, “The Food Access Research Atlas maps census tracts that are both low income (li) and low access (la), as measured by the different distance demarcations. This tool provides researchers and other users multiple ways to understand the characteristics that can contribute to food deserts, including income level, distance to supermarkets, and vehicle access.” 

However, the current definition of low access may be too general.  A tract is defined as low income if: 1) The tract’s poverty rate is 20% or greater; or 2) The tract’s median family income is less than or equal to 80% of the State-wide median family income; or 3) The tract is in a metropolitan area and has a median family income less than or equal to 80% of the metropolitan area's median family income.  The original food desert measure defines low access as living one mile from a supermarket in urban areas and 10 miles in rural areas.  For more information about how the USDA defines food deserts read this. 

To illustrate that the current definition of low access may be too general, allow me to use Gainesville, FL as an example.  Below are two maps of Gainesville.  The map on the left is from USDA and the map on the right is a map from a Google search (the scaling for the two maps is not exact).  The green tracts in the USDA map represent the original food desert measure and the brown tracts represent a more stringent measure of access—0.5 miles from a supermarket in an urban area. 

From the Google map you can see that there are many Publix grocery stores in or near these green and brown tracts.  Moreover, there are many other supermarkets in the map area that are not shown.  Also in this map area are 3 Winn-Dixie grocery stores, 3 Wal-Marts, Target, Lucky’s Market, Earth-Fare, Trader Joes, Fresh Market, Ward’s Supermarket, Earth Origins, several ethnic specialty stores, and a weekly farmer’s market.  Something not captured by the Atlas, is the availability of public transportation.  For example, there is a bus system in Gainesville that increases the access to supermarkets.

The high number of supermarkets in this map area makes me wonder how access could be reasonably increased in Gainesville.  Consumers obviously need supermarkets, but consumers also need housing, green spaces, medical services, shops, etc.  The point of this is not to trivialize the effects of access to food.  Rather, the point is that the current measure of food deserts appear to be too liberal.  If we are interested in the effects of access and income on diets, we need more realistic measures of low access and income. 

The GMO Knowledge Gap

GAINESVILLE, Fla. --- While consumers are aware of genetically modified crops and food, their knowledge level is limited and often at odds with the facts, according to a newly published study by a University of Florida researcher.

Last year, Brandon McFadden, an assistant professor of food and resource economics at the UF Institute of Food and Agricultural ‌Sciences, published a study that showed scientific facts scarcely change consumers’ impressions of genetically modified food and other organisms.

Consumer polls are often cited in policy debates about genetically modified food labeling. This is especially true when discussing whether food that is genetically modified should carry mandatory labels, McFadden said. In conducting their current study, McFadden and his colleague, Jayson Lusk, an agricultural economics professor at Oklahoma State University, wanted to know what data supported consumers’ beliefs about genetically modified food and gain a better understanding of preferences for a mandatory label.

So he conducted the survey to better understand what consumers know about biotechnology, breeding techniques and label preferences for GM foods.

Researchers used an online survey of 1,004 participants that asked questions to measure consumers’ knowledge of genetically modified food and organisms. Some of those questions tried to determine objective knowledge of genetically modified organisms, while others aimed to find out consumers’ beliefs about genetically modified foods and crops.

The results led McFadden to conclude that consumers do not know as much about the facts of genetically modified food and crops as ‌they think they do.

Of those sampled, 84 percent supported a mandatory label for food containing genetically modified ingredients. However, 80 percent also supported a mandatory label for food containing DNA, which would result in labeling almost all food.

“Our research indicates that the term ‘GM’ may imply to consumers that genetic modification alters the genetic structure of an organism, while other breeding techniques do not,” McFadden said.

As participants answered questions designed to measure their knowledge of scientific data on genetic modification, respondents seemed to change their statements about the safety of genetically modified foods, McFadden said.

The study is published in the Federation of American Societies for Experimental Biology Journal.

Last Modified: Mon, 23 May 2016 10:36:46 EDT

GMO Labeling Bootleggers and Baptists

"Bootleggers and Baptists" is a term coined by Clemson economist Bruce Yandle to describe coordination among groups who might seem at first to have very different interests on a given issue. You can find more information in this video or this article.

In this view, the Baptists are the people or groups who explicitly call for a regulation to fix something they don't like. The Bootleggers are the ostensibly unintended beneficiaries of the regulation. Some examples are firms or groups who are "grandfathered in" under a less-strict standard or individuals in possession of a license that increases the costs of entry to potential competitors. Check out the video linked above for a couple of concrete examples.

With that as background, let's move to the case of GMO labeling.

The recent defeat of a bill in the Senate that would prohibit states from creating mandatory labeling requirements for firms gives us a real-world example of the Bootleggers and Baptists phenomenon in the ag sector. In this case, the Baptists are individuals and interest groups calling for GMO labeling requirements.

The bootleggers are companies like Campbell's who support labeling requirements likely knowing that it will increase costs for its competitors. Large firms like Campbell's can more easily bear the costs of regulation than their smaller competitors or potential entrants can. If they simply wanted to tell their customers that their products contained GMOs, they could have started doing so a long, long time ago.

The Bootleggers and Baptists framework can be used to understand the particular features of a lot of regulations. What examples can you think of?

Relatively Good Regulation - GMO Edition

In previous posts on food labeling I've discussed food labels and the information they provide as well as possible reasons why a private GMO label hasn't already appeared. In this post, I'll discuss the reasons commodity groups are in favor of federal GMO labeling legislation.

Senator Pat Roberts (R-Kansas) recently introduced legislation that would establish federal guidelines for GMO labeling. The law would preempt state mandates for GMO food labels and start an educational campaign for the public on the safety of GMO foods.

The question isn't whether farmers, food companies, and retailers believe the guidelines are good for them financially but whether these guidelines are better than the relevant alternative. I'd wager that food companies would, in an ideal world, prefer to label their food in a manner that maximizes their profit.

Since that world doesn't exist, and there's a credible threat that interest groups in some states will successfully pass legislation mandating GMO labels, federal preemption of such laws is preferable. For producer groups, federal preemption makes it less likely that potential discounts on conventionally-produced food will be passed on to them. Additionally, the cost of educating consumers will not be borne by food companies, retailers, and farmers but by taxpayers.

As I argued in a previous post, the tremendous cost of educating the public on the safety of GMO foods is one possible reason why we haven't seen widespread efforts by food companies or third parties to create a GMO labeling scheme.  Another possible reason is the presence of substitute labels. Many consumers who are concerned about the safety of GMO food might be content buying food labeled "organic."

The more I think about it, though, the more I'm convinced that the main reason we haven't seen a third-party, private effort to create a GMO label is that the public generally trusts only the federal government to ensure food safety. It's true we have all sorts of private labels informing consumers of the characteristics of the food they buy, but safety is a separate issue in most people's minds.

The new legislation introduced is likely to be a net benefit to farmers, food companies, and retailers. They'll be shielded from the risk of more onerous regulation at the state level and won't have to bear the cost of educating the public about GMO safety. This makes the bill, from their points of view, relatively good regulation.

Don Boudreaux's Review of Phishing for Phools

I'm a regular reader of Don Boudreaux's (George Mason U) blog Cafe Hayek so I was glad to see his review of George Akerlof's (Georgetown U) and Robert Shiller's (Yale U) recent book "Phishing for Phools." Boudreaux's review is very good and I recommend you read the whole thing. If you're not a Barron's subscriber, you should be able to bypass the gate by searching "Boudreaux ivory tower economics" in Google News.

The review begins with a short synopsis of the book. Akerlof and Shiller argue that most people, as consumers and investors, suffer from weaknesses and informational problems that lead them to buying things they don't really want or need. Entrepreneurs who take advantage of these problems are "phishermen" and those who fall prey are "phools."

As you might expect, food is a popular topic in the book. The folks at Cinnabon are said to create a product so irresistible, yet full of empty calories, that passersby are helpless to resist. Another example are "Sunkist" oranges. According to Akerlof and Shiller, this advertising "trick" causes consumers to buy too many oranges.

It's certainly true that these products are tempting and likely deliberately so. The questions are 1) whether these temptations amount to a moral problem and 2) what is to be done. Assuming that there is a moral problem, it's difficult to know what should be done. As I've discussed previously here on the FH blog, it's not enough to criticize real-world market results relative to perfect theoretical policies drawn out on a black board. We have to compare said market results relative to policies that operate in the real world.

Here's Boudreaux's analysis of Akerlof and Shiller's solution:

Suppose it’s true, however, that modern markets are chock-full of devious phishermen preying successfully upon helpless phools who buy too many oranges in the belief that each has been “kist” by the sun. What’s to be done? The authors offer no specific proposals. Yet they clearly imply that more government regulation is a key part of the solution. At one point, for example, they advocate “more generous funding” for the Securities and Exchange Commission; at another, they speak approvingly of greater regulation of slot machines.

Solutions via government are based on a glaring fallacy: that people deficient in choosing for themselves in the marketplace will automatically shed those deficiencies once the government authorizes them to choose for others. Ironically, while citing slot machines, the authors make no mention of a related scam: government-run lotteries. The lotteries are perhaps the most obvious example of how those who are supposed to protect us from phishing scams themselves eagerly phish for phools.

Nothing, indeed, could be more phoolish than for ordinary men and women to submit to elites who are as confident as professors Akerlof and Shiller that they know best how other people should behave. Such elitism poses a far worse danger to society than entrepreneurs offering aromatic pastries for sale.

Even if people are terrible at making choices in their own best interests, a fundamental truth is that they own their lives. Self-respecting people want to be free to consult those with greater knowledge. But they would much prefer to risk undermining their own well-being through their own choices than to be saddled, bridled, and steered by self-appointed experts.

Consumer Prices and Federal Regulations

In April I'll be presenting a paper at the Association of Private Enterprise Education meetings on the relationship between EPA regulation and food prices. I'll talk more about that when I get a draft of the paper together, but I want to summarize a paper that caught my eye the other day.

Dustin Chambers (Salisbury University) and Courtney Collins (Rhodes College) recently published a working paper with the Mercatus Center on the relationship between consumer prices and federal regulations.

Here's the intro to the on-line summary:

When the federal government introduces new regulations for an industry, there are numerous potential consequences for both producers and consumers. Often, complying with regulations is costly for firms, and these higher costs may in turn drive up prices for consumers. Higher prices caused by regulatory growth are unlikely to affect all consumers equally. High-income and low-income households tend to have different spending patterns, and regulations may have a larger impact on one group than on another.

The authors use data from the Consumer Expenditure Survey and the Mercatus Center's RegData database, which is comprised of data on industry-level federal regulation, in a statistical model to determine the impact of federal regulations on a range of consumer prices from 2000 to 2012.

They summarize their key findings:

The stated purpose of regulations is often to help protect consumers from a variety of problems in the market. However, the benefit of any sort of protection must be weighed against the cost of higher prices. The data show evidence of a statistically significant relationship between regulation and increased prices.

There is a period of time between the publication of new regulatory restrictions and when they have a measurable impact on prices, so it is important to evaluate both variables over time. After the impacted production processes have been altered to comply with a new regulation, there is an associated jump in the price of the affected goods and services. Comparing the growth rate of prices over time against the growth rate of regulations over time, the data show that a 10 percent increase in total regulations leads to a 0.687 percent increase in consumer prices.

While this effect seems small, there are distributional issues at play. The authors conclude:

Regulators and policymakers often claim that regulations are intended to protect the poorest and most vulnerable consumers. However, the effects of regulations are most harmful to the poor because regulations drive up the cost of doing business, resulting in higher prices. Unfortunately, the goods and services to which the poor devote much of their limited budgets, such as energy and food, are also the most heavily regulated.

Another unintended effect of regulation is that the poor face a higher overall rate of inflation in the goods they tend to purchase. In addition to undergoing larger price hikes, these heavily regulated products also display greater volatility, meaning that low-income households face more uncertainty in their household budgets than do wealthier households. Policymakers must understand the unintended effects of higher, more volatile prices on the poor when considering new regulations.

GMO Labeling and Market Failure

Three Oklahoma State University ag economists, Eric DeVuyst, Jayson Lusk, and Cheryl DeVuyst, recently published a short fact sheet on GMOs. The whole thing is interesting, but I especially liked #9.

9. Should food companies be required to label foods with GMOs?
     There are several existing voluntarily labeling programs, such as the USDA organic certification, which provides consumers choices on this matter in the marketplace. Thus, the question isn't whether GMOs should be labeled, but rather whether labels should be mandatory.

Though they aren't the same thing, any product that is USDA certified organic is also GMO free. The only reason I can imagine this wouldn't be a satisfactory solution to the problem of GMO labeling would be that a significant number of people want GMO-free products but don't care if they're certified organic.

Whether or not that group exists in large enough numbers determines the need for a mandatory label. If most people who want GMO-free products are content buying certified organic products, there's not much of a profit incentive to create another label or certification scheme specifically for GMOs. In that case, the mandatory label isn't necessary either.

If there are a substantial number of people who want a specific label for GMOs and that label doesn't exist, I would conclude that either 1) there's some "hidden" cost out there preventing the creation of that label (see this podcast or read about the "people could be different" fallacy) or 2) this is a textbook case of market failure.

I'm no expert on labeling (I dabble) but it seems to me that most people who don't want to consume GMOs also prefer organic. What do you think? Is this a textbook market failure? Are there costs we aren't counting? Have I missed something?

Potpourri

Ag Regulation

Pointing to recent studies, Jayson Lusk discusses the cost of animal welfare regulation.

In a classic Independence Institute article, ag economist E.C. Pasour Jr. looks at the history of meat inspection regulation.

Meat & Cancer Risk Studies

Matt Bogard and Jayson Lusk both discuss a recent study of the relationship between red meat consumption and cancer risk. There's a great lesson on statistical inference in this episode!

The Importance of (Good) Economics

Don Boudreaux discusses the value of Econ 101.

Alex Teytelboym reports on an unlikely collaboration between Chicago economists and the country's largest food bank.

Arnold Kling brings some realism to the theory of financial markets.

Parisomony in Academic Writing

Victoria Clayton discusses "The Needless Complexity of Academic Writing."

Potpourri

Brent Gloy and David Widmar at Agricultural Economic Insights revisit the issue of declining farmland values and come to roughly the same conclusion they did earlier this year.

Farmland values and cash rents in the Corn belt continue to come under downward pressure. When current cash rents are compared to current farmland values, the outcome is a capitalization rate of around 3%. This value is reasonable given current longer term interest rates. However, the bigger question is whether cash rents can be sustained at current levels in this economic environment. 

When one considers the returns that would be generated by a farmland owner-operator relative to current farmland values the rate of return is very low. This means that farmland values and cash rents are likely too high to be justified given the current economics of crop production. This low rate of return can be addressed through farmland values and cash rental rates falling and/or the row crop income situation improving.

Jayson Lusk points to an interesting article that he says should be filed under "Unintended Consequences."

Researchers find that a ban on bottled water on the University of Vermont campus (presumably to cut down on waste) led to more plastic bottles being shipped to campus and to more soda consumption. 

Marian Tupy and Chelsea German at HumanProgress.org tackle Akerloff and Shiller's recent op-ed in the Washington post on the effects of markets on our well-being.

Arnold Kling provides some wisdom on proper critiques of economics. My favorite bit:

A bias toward “engineers” rather than “ecologists.” That distinction comes from Greg Ip’s new book, Foolproof. The engineer is like Adam Smith’s man of system, who ignores evolution, both as a factor that may permit markets to over come their own failures and as a factor that may cause government “solutions” to become obsolete.

Continuing this theme, Steve Forbes provides a critique of economic theory. I enjoyed reading the first page, but lost interest on the second.

Don Boudreaux points to Gene Epstein's response to some of Bill Gates' comments in an interview.

Potpourri

Food
Jayson Lusk disputes the claim that local foods are good for the environment.

Helen Viet writes "An Economic History of Leftovers"

Angus Deaton's Nobel Prize
Pete Boettke's commentary

Peter Klein points to Deaton's critique of randomized control trials.

Regulation
Jared Meyer discusses the effects of regulation on economic growth.

Bonnie Christian on regulating the gig economy

David Henderson comments on Sunstein's review of Akerloff and Shiller's book "Phishing for Phools."

Food Labels and the Informed Consumer

Product labels are an important part of communicating product information to consumers. For a long time, regulators and politicians have been in the business of mandating the content of labels for a whole range of products, especially food. While other reputation mechanisms are important to being fully-informed, we all rely on labels to some degree.

But mandated labeling has its share of pitfalls. Regulators might require too much information on a label, increasing costs to consumers with little upside. They might reduce the amount of information on a product label by increasing the costs of using certain language. More bizarrely, they might require completely misleading information to be put on a label. Arguments in favor of different labeling requirements can come from consumer pressure groups, but often they come from within industries.

An example of the first problem is mandatory country-of-origin labeling (or MCOOL) of meat products. Though there are efforts in congress to repeal MCOOL, it is currently the law of the land. A fact sheet distributed by K-State concludes:

The overriding finding of limited awareness of MCOOL, narrow use of origin information in purchasing decisions, and no evidence of a demand impact following MCOOL implementation is consistent with the argument that voluntary labeling by country of origin would have occurred if it were economically beneficial to do so. More broadly, the findings of this project generally support the assertions of MCOOL opponents who have asked “where is the market failure?” 

MCOOL creates international trade issues and increases costs to producers, processors, and retailers with little to no upside.

Whole Foods Co-Founder on "Why Intellectuals Hate Capitalism"

This is just a fantastic conversation. Nick Gillespie usually does a good job with interviews; this time he did a great job. John Mackey, co-founder of Whole Foods,

My only quibble is that he misunderstands the idea of firms maximizing shareholder value. Keeping your customers happy and creating the perception in the public's eye that you value other stakeholders is 100% consistent with maximizing long-run shareholder value. What else do shareholders want?

Does the US Have a "Cheap Food" Policy?

It's often said, in defense of payments to ag producers, that these subsidies constitute a "cheap food" policy. Advocates of the policy contend that the subsidies incentivize increased production such that food prices fall. It's a win-win: producers benefit directly from the subsidy and consumers (especially the poor) benefit from reduced prices at the grocery store.

Leaving aside the question of whether or not these types of policies should exist, it's interesting to see whether the subsidies actually result in lower food prices. It's important to note that direct payments to producers have been reduced as of the 2014 Farm Bill and that the USDA spends an increasingly greater percentage of its budget on direct food assistance. That said, the article's findings are still interesting today.

With all that out of the way, I want to summarize the findings of a paper by Corey Miller and Keith Coble of Mississippi State University. The paper is relatively old; it was published in 2007 in Food Policy, but it nevertheless provides some interesting insights. The gated, full version is here and an un-gated but incomplete version can be found here.

Potpourri

Jayson Lusk gives his thoughts on a (relatively) recent book that points out some flaws in the "conventional wisdom" regarding saturated fat and other food no-nos. This one is definitely going on my reading list.

I agree with a lot of what Arnold Kling says about open-access versus limited-access orders. The idea that a country can only be one or the other seems patently false.

Bob Murphy discusses the predictive failure of the Keynesian model regarding the 2013 sequester.

Steve Horwitz identifies three regulatory barriers to upward income mobility.

Confusion on GMOs from Financial Heavyweights

Mark Spitznagel and Nassim Taleb have an interesting article in the NYT attempting to draw an analogy between systemic financial vulnerability and alleged problems with GMOs. They start off by describing some ways in which the financial system was vulnerable leading up to the crash.

I find a lot I can agree with in that section, but my agreement stops in the second half where they attempt to convince the reader that alleged problems with GMOs fit the same patterns. I'll give my thoughts on each of these 5 issues.

First, there has been a tendency to label anyone who dislikes G.M.O.s as anti-science — and put them in the anti-antibiotics, antivaccine, even Luddite category. There is, of course, nothing scientific about the comparison. Nor is the scholastic invocation of a “consensus” a valid scientific argument. 

Interestingly, there are similarities between arguments that are pro-G.M.O. and snake oil, the latter having relied on a cosmetic definition of science. The charge of “therapeutic nihilism” was leveled at people who contested snake oil medicine at the turn of the 20th century. (At that time, anything with the appearance of sophistication was considered “progress.”)

None of this should be convincing to anyone, as it doesn't have a shred of logic to it. The first paragraph has nothing to do with the usefulness or safety of GMOs, but it does reveal the authors' experience with other people who disagree with them. In the same way, the second paragraph fails to make their point. Just because some of the name calling that exists now is similar to the name calling surrounding snake oil salesmen doesn't mean GMOs are like snake oil in any other way. I would have expected more from both of these men, as they're clearly very intelligent.

Do Supermarkets Have Market Power?

Back in 2013, a former graduate school colleague of mine at K-State, Veronica Pozo (now at Utah State) presented a paper on price transmission along the beef supply chain (retail, wholesale, and farm prices). The authors used data from the BLS and retail scanner data to look for asymmetries in the price adjustment process.

On the issue of BLS and scanner data, the authors note some problems with BLS data:

Evidence suggests that the BLS retail price data may be biased. Hausman (2003) showed that the methodology BLS uses to calculate the food Consumer Price Index (CPI) may overestimate the price of food. The omission of random-weight food items (BLS collects only price data, but does not collect quantity data) and supercenter purchases (reflecting shifts in shopping patterns to lower-priced stores) may cause a significant upward bias on price estimates. In addition, BLS data do not account for large volumes sold at discounted prices during retail specials (Rojas et al., 2008; Lensing and Purcell, 2006). Therefore, this issue raises the question of whether findings from previous studies that have used BLS retail price data are reliable.