The Catholic University of America
Dec 6 2010

The Obesity Wars, Laissez-Faire, and the Government: An Economist’s Perspective

Posted by Ernest Zampelli at 10:12 AM
- Categories: Economy | Government & Civil Society

This morning in the New York Times I read the article regarding the recently passed child nutrition bill.  Georgia Congressman Paul Broun, Republican and physician, said this about that bill:

“This bill is not about child nutrition. It’s not about healthy kids. It’s about an expansion of the federal government, more and more control from Washington, borrowing more money and putting our children in greater debt. The federal government has no business setting nutritional standards and telling families what they should and should not eat.”

This follows closely on the heels of Sarah Palin’s (very mature) tweet after her appearance at a Pennsylvania elementary school:

“I'll intro kids 2 beauty of laissez-faire via serving them cookies amidst school cookie ban debate; Nanny state run amok!"

Obviously, this is shaping up to be another battle between proponents of free-market, laissez-faire capitalism (of which I am one) and those who support government policies directed at curbing the rise in obesity (of which I am one).  Now how can I be a supporter of both?  Very simply.  I believe strongly in the power of markets, the free interaction of buyers and sellers, to allocate resources to their most valuable uses.  But I also know that there exist situations in which markets fail in their resource allocation role and when such failures are serious enough, there is justifiable cause for appropriate government intervention.

A classic situation of this type arises when some production and/or consumption activity generates what economists call a negative externality, i.e., a cost or damage, for which no one is held accountable, imposed on someone who is in no way involved in the activity.  For example, consider drinking alcohol at the local pub.  An individual freely stops in and willingly pays to consume alcoholic beverages that are willingly supplied by the pub’s owner—laissez-faire at its best.  Or is it?  Suppose this individual has little to no self control and/or has some distorted machismo view of how much alcohol he can hold.  In either case, he ends up drinking way too much.  He gets in his car and gets into an accident, severely injuring or killing someone.  Or maybe he drives home and ends up physically abusing his wife or child, sending them to the hospital and leaving them with deep psychological scars.  We all know that this is not fiction.  It’s all too real and it happens all too often.  So what do we do.  Do we let the market for alcohol operate freely with no encumbrances?  Of course we don’t.  The possible external damages from drinking alcohol are severe enough to warrant government intervention of many types—drunk driving checkpoints, fines, license suspension, license revocation, restraining orders, and yes, taxes on alcoholic beverages.  We can and should argue about the relative effectiveness of these particular policies but there is no argument about the rationale for government intervening into this market.

So how does this relate to the obesity wars?  First, let’s understand that rising obesity among children and adults is a very real phenomenon leading to serious health problems over time, the most onerous of which is diabetes.  But frankly, it could be a stretch to rationalize extensive government involvement in solving the obesity crisis using the negative externality argument.  Yes, if health insurance premiums for the obese are not adjusted upwards to reflect fully the added risks of their less healthy lifestyles, then we will all share, to some degree, in the cost of treating the resultant obesity-related health issues.  Additionally, there is some evidence that one person’s eating habits rub off on other people’s eating habits.  So kids who hang around sedentary obese kids who eat a lot of sugary junk are, in turn, more likely to become sedentary, eat a lot of sugary junk, and become obese too—“secondhand” obesity, if you will.  Given that evidence for the latter is less than compelling and that the former will likely be ameliorated by some upward adjustment in insurance premiums, the negative externality argument for government intervention is thin.

As a consequence, one might be tempted to conclude that from an economics perspective, Representative Broun and Ms. Palin are on pretty sound footing.  That, however, would be a serious mistake for two reasons.  First, markets work best when decisions are made on a reasonably rational basis.  If the current decisions we make have important consequences for our future, then rationality requires that the benefits and costs of these future consequences be adequately incorporated into our decision making process.  Individuals who lack self-control lack the ability to make rational consumption decisions and hence are likely to make decisions that will have severe adverse impacts later on in their lives.  This too is a market failure, not because of a negative externality imposed on others but because of an internality imposed on oneself.  Second, efficient markets require adequate information with which to make decisions.  If information is lacking or incomplete or wrong, then consumption decisions will not be optimal even in the absence of self-control problems.  If we underestimate and/or are unaware of the future health damages we impose on ourselves because of current consumption decisions then there exists an internality rationale for government intervention.

Now, just because there is a rationale for government intervention doesn’t imply that the government should actually intervene.  Just as markets are imperfect, so too is the government.  So where there is a rationale for government intervention, the net benefit of such intervention needs to be determined and compared with the “laissez-faire” result.  Considering that the health costs of obesity are estimated in some cases to be around $115 billion per year, I suspect that some form(s) of government involvement—posting calories, banning trans-fats, taxing sugary soft drinks, regulating school lunches—would be reasonable.                         



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