Map of life expectancy at birth from Global Education Project.

Monday, February 09, 2009

Economics 102

NYT's Michael Moss runs down peanut buttergate for you, and yeah, it's pretty gross. Peanut Corporation of America (that's the true grandiose name of this flea-bitten, fly-by-night sleazedog operation) knew it was shipping out contaminated product, but they weren't required to notify Georgia state inspectors or the FDA when they got positive tests for salmonella. Georgia has 60 inspectors for 16,000 food handling businesses, and the FDA doesn't inspect plants in Georgia at all -- it has delegated the task to Georgia, as it has to most states. And you know how they feel about Big Government down in Georgia.

Now here is yet one more reason -- an obvious, trivial reason -- why the Free Market™ ideology taught in Economics 101 is complete nonsense. Actually there are two or three reasons all wrapped up in this single example.

  • Reason One: Consumers can't make "rational choices" or "maximize their utility" if they don't know what they are buying. You have no way of knowing whether the food somebody sold you is contaminated with salmonella unless somebody you know you can trust tells you so. And the only way you know you can trust said somebody is if they're working for you, and the only way that can happen in this situation is if a) said somebody is the government and b) the government agency really does work for you and not the businesses it regulates.

  • Reason Two: There is a whole chain of purchasing from farm field to your oral cavity. That means that the potential social costs and benefits of all of those transactions along the way are not captured by the transaction because that salmonella is going to land in your blood stream, not the blood stream of the buyer. As a matter of fact, the penultimate customer may be a school or hospital cafeteria, for example, and the person who gets sickened or killed by the food may have nothing directly to do with any transaction pertaining to that item at all. This is called "externality," which economists treat as an exception but which is actually ubiquitous and is a feature -- probably the dominant feature -- of every economic transaction, without meaningful exceptions.

  • Reason Three: The market provides no accountability for fraud or negligence in most cases. The only reason we know where this particular salmonella outbreak came from is because the government -- in this case the CDC -- investigated, and they were lucky enough to be able to figure out the source. But in other cases, it might be impossible. No government, no accountability.

So, what do we have to do in order to insure a safe food supply? It turns out it's not just the Chinese, it's us. We have to increase government spending on food safety. We have to effectively regulate businesses. In order to do those things, we need a functional democracy that works for people, not for economic elites who want to take advantage of us. We need to expunge shallow libertarianism, free market fundamentalism, and as a matter of fact the very term "free market," which is a fraud, from our political discourse.


robin andrea said...

Yes to everything you say here. But I don't see increased government spending to protect us from this kind of negligence happening anytime soon. I did see a new word somewhere this morning: glibertarian. It has a certain ring to it.

Anonymous said...

Reason 4: on the spot decisions in the present situation leaves no room for long term planning. Of course econ. 101 treats investment, but only in terms of return in one metric, dollaris, - absurd. All the effects and systemic ramifications are lumped together and shunted away under the term ‘externalities’ - whoo!

That is actually several more reasons not just one. And I simplify, as I failed econon. 101...