Don’t blame Milton!

Paul Krugman’s terrible column on food safety reminds me why I haven’t missed the Times op-ed columnists since they went subscriber only. Krugman tries to make the case that recent E. coli outbreaks are somehow the fault of Milton Friedman. Here’s his logic:

1) The Bush Administration loves Milton Friedman (I wish!)

2) The Bush Administration has never instituted strict new food safety regulations

3) E. coli outbreaks have occurred

4) It’s Milton Friedman’s fault you’re throwing up

As Russel Roberts at Cafe Hayek points out, E. coli outbreaks have happened under all kinds of regulatory environments. When you move a lot of food, it’s the kind of thing that happens. Without researching why these problems are occurring, it’s just as reasonable to suspect that they’re a failure of regulations as they are of markets.

Krugman didn’t do this research. Instead he relies on two very incidental bits of evidence. First there’s this:

What we do know is that since 2001 the F.D.A. has introduced no significant new food safety regulations except those mandated by Congress.

So the FDA actually has instituted significant new regulations. They’ve just been mandated by Congress, not the president.

And then there’s this:

This isn’t simply a matter of caving in to industry pressure. The Bush administration won’t issue food safety regulations even when the private sector wants them. The president of the United Fresh Produce Association says that the industry’s problems “can’t be solved without strong mandatory federal regulations”: without such regulations, scrupulous growers and processors risk being undercut by competitors more willing to cut corners on food safety. Yet the administration refuses to do more than issue nonbinding guidelines.

Citing this as evidence displays an astonishing degree of ignorance from a professional economist. When existing industry players call for supposed public interest regulation, that should immediately send up a red flag that what they really want is to squeeze out potential competitors. Strict regulations will almost certainly put up barriers to entry in the food industry. Whether they’ll actually make things safer is far less obvious. At no point does Krugman explain what regulations he’d like to see put in place, how they’ll deal with imported food, and whether or not they’ll be cost effective.

I claim no expertise in the food handling industry. I’m naturally inclined to the free market position on this issue, but I’d have to do a lot more research before I’d make the case for it — especially if I was making the case in one of the world’s most respected newspapers rather than on an obscure weblog. Krugman’s use of recent food scares to score points against his deceased ideological opponent is just pathetic.

[Cross-posted on EatFoo. Hat tip to Chad.]

Update 5/24/07: Reason weighs in on the market vs. regulation.


7 thoughts on “Don’t blame Milton!”

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  2. It was a badly written article, and I agree that whenever a CEO argues for more regulation, one should be suspicious.

    That being said, though, food safety is one of those areas where government regulation is absolutely necessary. The normal corrective mechanism of the free market – choosing a different supplier – comes at far too high a cost to be acceptable (“Hmmm, that guy’s kid seems to have died from Brand X meat. I suppose I’ll go with BeefoSave.”).

    The disturbing part of that article was the discussion about Chinese imports and how they’re evading our regulatory structure. The answer should be requiring them to meet our safety expectations, not letting our own industry sink to their level.

  3. Zhubin, I agree with you that the case for food safety regulation is stronger than the case for regulation in a lot of other industries. Here a few thoughts though:

    1) The costs in reputation to food sellers can be extremely high if they sell tainted products. My flatmate won’t eat at Jack in the Box because of a problem the restaurant had when he was a child, and he’s one of the most rational people I know. Similarly, the Food Lion grocery store chain suffered a huge hit in Texas after bad meat was discovered in one of its locations. One bad incident can have negative repercussions for years to come. Profitable companies will try to avoid this.

    2) If they weren’t taught to rely on the FDA, consumers would probably pay more attention to the food they eat and where it comes from. Millions of people keeping an eye on food might do better than a single, centralized regulatory agency does.

    3) A free market obviously wouldn’t perform perfectly. But neither does a regulated one, which is why we’re having this discussion. The question is which would do better at the margin.

    4) To be fair, we also have to consider the costs imposed by excessive regulation. One of these is overall higher expenses on food. Another is bans on food that people really want, like artisinally made meats and cheeses. Current regulations favor industrialized agriculture in myriad ways, arguably to the detriment of consumers.

    I won’t claim the above four points are a knockout case against regulation, but they at least make me skeptical of it.

  4. 1) Even if that were true, and I don’t think it is (after that E. Coli outbreak less than a year ago, Taco Bell is back to normal sales), a “bad incident” in the food industry does not carry the same consequences for the affected consumer as a bad incident in, for example, retail electronics. I don’t buy another phone and tell you to stay away from this goddamn Samsung A870; I get seriously sick and/or die. That’s worth more oversight and regulation.

    2) I don’t think that’s really true. It’s not like you get the combined expertise of millions of people when you’re considering grocery store meat. You’ve only got yourself, and how much do you know about meat contamination? Or fruit pesticides, or everything else you put into your stomach? And even if you knew a lot about it, that would cripple your free time. That’s why I don’t see why relying on the FDA is a bad thing. I would rather pay taxes than devote the time and energy and fear needed to ensure that my personal food supply is untainted, especially when you consider the added efficiency that centralization brings, the easier accountability, yadda yadda (you can track the rest of this argument).

    4) Sure, but again, I’d prefer more expensive food to cheap food that has a good chance of killing me. Your objections to artisinally made meats and cheeses are all valid, but they can be easily addressed within the constraints of a regulatory framework.

    Once you find the political muscle to support cheese reform, I mean.

  5. Zhubin, when we both reach 35, we must put aside our differences and run for the presidency on a cheese reform ticket. Are you with me, man? Are you with me?

  6. Jacob! I send you the article, it spurs a debate on FDA regulations, and you missed two important discussion points! Tsk tsk.

    What do we want when we ask for “food safety”? It seems to me that we don’t want ZERO health risks, because that would have draconian implications on the way our food supply is managed, and the costs that would be passed on to us in both food prices and taxes would be rather astounding. What we want instead is the best possible optimization of health risks vs. available food at reasonable prices — and assuming we are rational actors we presumably want it the best way we can get it, without prior bias against either the government or the market as the means.

    To be fair, what we have now, deathly salads and all, certainly isn’t be that bad. The odds of a given person coming down with food poisoning in a given year (~1000 meals!) are pretty darn low, and people willingly take on much more severe risks on a daily basis — like driving, smoking, and eating fatty or cholesterol-ridden foods. And the combined costs of FDA regulation in taxes and higher food prices pales in comparison to the costs of special interest subsidies, local sales taxes, and protectionism on the food supply. We’ve got it pretty good right now.

    Unfortunately, when we’ve got it good, we know how it could be worse but we usually don’t know much about how it might be better (and certainly aren’t willing to incur any of the transition costs). But in the absence of knowledge about the opportunity costs of the present system, we can look to the incentives as a proxy of sorts. The FDA’s incentive is clear: to keep the health risk as close to zero as possible. If the FDA announces a health warning on salads and people stop buying salads, a lot of good people that we may never meet could lose their jobs, and the FDA looks good for protecting the public. Conversely, if one person gets sick on salad and the FDA was supposed to be watching, heads roll at the FDA.

    We also know something about the incentives of private companies. We know that grocery stores want to make profit, and that they can maximize their profit by keeping customer traffic high, transaction costs low, and prices competitive. Zhubin, as you pointed out, the grocery store might well have an incentive to risk a few deaths. But grocery stores rarely pick their crops from the ground one by one. Instead, they buy their food from distributors or wholesalers, and if they get a bad shipment it could lead to a hell of a lot more than one death. Is it so hard to imagine a world in which some grocery stores would only choose to buy product from distributers who have received safety certification from Food Safety Underwriters, Inc. or another competing insurer, and then market themselves as the safest grocery in the area?

    Seems to me that safe food would catch on faster than free refills — a concession by the profiteering fast food industry that can only be attributed to consumer demand plus a little healthy competition. And the best part is that insurance companies like this already exist in other industries, so we know it works! We haven’t seen it in food safety because the FDA has a “monopoly” — a really negative term when it’s used (incorrectly) against Microsoft or, for reasons defying all sensibility, McDonald’s.

    Again, I want to stress that the issue of food safety is really low on the list of things we can do to offer people a healthier life at a lower cost. But I did want to add these two points to the discussion: that society is really seeking risk optimization rather than risk elimination, and that when thinking about this issue we shouldn’t discount the opportunity costs (postive and negative) simply because we have a hard time envisioning what is unseen.

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