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More on the Law of Unintended Consequences

2010-03-14

A friend of mine was talking about the work of David Kessler, the former FDA chief whose appointment spanned two presidential administrations, and who is now taking on the myth that obesity is a simple matter of willpower. Kessler’s thesis is that food manufacturers have learned how to exploit the human brain’s natural tendency to seek salty, sweet and fatty foods, and that they are pushing all meal design in that direction. Companies whose food products don’t hit the magic tripartite of brain-stimulating factors find that their sales slip and their products become less competitive, and that means lower profits.

But what about problems on the supply side? Does the government muck with markets in a way that motivates companies to “run to the bottom” in the race toward unhealthy food? I was put in mind of a documentary report from Peter Jennings, where he examined the relationship between food ingredients and US government agricultural subsidies. It will come as no surprise that corn, meat, dairy and vegetable oil products have received decades of subsidies, while green vegetables and fruits receive almost no support.

These subsidies were originally well-intentioned; in the 1930s there was fear of food prices spiraling out of control due to sudden increases in farming efficiency and food supply. If farmers abandoned their fixed capital resources (farms) in the wake of a couple of seasons of low prices and no profits, the government felt that it would take too long to rebuild those resources, leaving the US with a dramatically increased prices and a shortage of food. So the government tried to give agriculture a “soft landing”, and paid farmers to stay in business. But even back then, there was some understanding that all this mucking about with free markets might have negative effect. FDR’s New Deal, a comprehensive program of government intervention intended to pull the US out of the Great Depression, led to strange abuses of the market. Dairymen were paid by the government to pour milk out into ditches, because too much production was driving prices lower.

We now know that FDR’s policies of trying to influence prices by creating artificial scarcity probably made things worse, not better. Supplies needed to correct in order to account for advances in farm efficiency — fewer, more productive farms would lead to profit maximization. Inefficient farms should have gone out of business. Yet the farm subsidies that started in the 1930s continue today, driven by congressional hubris that the government must “save the family farm”, despite abundant evidence that the farm doesn’t need saving.

Now we’re left with decades of artificially reduced prices for certain key food products, and that constant downward pressure on prices has encouraged food companies to drive costing decisions in the direction of corn, oil and meat for decades. It should be no surprise that Americans consume almost 25% more calories in the form of sugar than they did 30 years ago. Corn syrup accounts for more than just the increase; it’s displaced plain sugar. The average American eats almost 80 pounds of dry fructose and glucose in the form of corn syrup per year, more than half the total intake of basic sugars.

Which bring us back to Kessler and the design of food. Anybody who thinks that constant downward price pressure on ingredients hasn’t driven the design of food and the shelf price of packaged food is simply refusing to acknowledge the economics of supply and demand. As Peter Jennings rightly realized, government subsidies are making US residents sick, and continued refusal to understand and accept those consequences is going to make us sicker.

Did FDR understand that his mucking about with the agricultural system was going to hurt children 50 years later? Probably not. That’s just one of the dangerous consequences of injecting individual judgment into a complex system, or as F. A. Hayek put it, “processes by which mankind has achieved things which have not been designed or understood by any individual and are indeed greater than individual minds”. The emergent order of the farm economy is complex, and trying to drive it with simple ideas is rife with the danger of unintended consequences.

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