Markets Need Regulators – Food Edition
by Mike Kimel
Markets Need Regulators – Food Edition
Back in college, I had a chat with one of my more libertarian economics professors about the need for regulation. He thought regulation was completely un-necessary.
“But what about mislabeled food?” I asked, “How do we even know that what is labeled on the side of the box or the can is what is inside?”
His reply was one I’ve heard, in one variation or another, many times since, “A company that sells customers something than they ordered will quickly go out of business.”
I’ve known it was BS every time I heard that, but it is interesting and unfortunate to see validation lately.
In the US, we have mislabeledfish:
Chicago diners who think they are eating red snapper may actually be munching on goldbanded jobfish.
Those who order Alaskan cod may really be tucking into a threadfin slickhead. And fans of yellowtail could just be getting a fish tale.
These are some of the findings of a Chicago fish fraud investigation to be released Thursday by conservancy group Oceana.
After its troubling seafood fraud investigations in East and West Coast cities over the last two years, the group expanded its testing to other cities, including Chicago. Thirty of 93 fish samples taken from Chicago restaurants, retail chains and sushi bars were mislabeled, mirroring percentages found in other cities.
Eight of nine Chicago red snapper samples tested by Oceana turned out to be different fish, the report said. And none of the three
yellowtail samples tested was actually yellowtail. Single samples sold as corvina, jack, mackerel and even perch did not match those descriptions, according to Oceana’s DNA tests.The ocean conservancy organization does not list the names of the restaurants or stores where it bought the fish because “we didn’t know where, along the supply chain, the mislabeling first occurred,” said Beth Lowell Oceana’s seafood fraud campaign director.”So we didn’t want to call out businesses that may not have known their fish was mislabeled.”
This comes in the heel of the horsemeat (and occasionally donkey meat) sold as beef scandal in Europe.
What is interesting is that a) these behaviors have been going on for a long time and b) they were either spotted by a shrunken regulator (in Europe) or a non-profit (in the US). The market’s incentives didn’t stop any of the players involved.
Now, one could respond that “this didn’t actually harm anyone’s health.” That may be true, but it is fraud. Lack of damage isn’t true of all cases. We’ve all read about cases where adulterated food products did kill, where mechanical components that didn’t meet stated standards caused deadly accidents, or pharmaceuticals that weren’t as stated caused tremendous harm. Different fields have different stories. Decades ago, I knew people who worked with blood banks, buying and selling blood products for use in medical and pharmaceutical tests and manufacturing. Apparently it wasn’t uncommon for low quality, poorly tested, and badly identified blood from East Germany to be surreptitiously mislabeled as its high quality, tested-to-the-nines West German equivalent, and with a wink and a nod, enter the bloodstream so to speak. Who knows how many people were harmed by that? More familiar to most Americans these days is the mislabeling of financial products – there were an awful lot of risky financial products mislabeled as being AAA safe.
For commerce to work, confidence in the products being sold needs to exist. But the marketplace by itself can’t provide that – the financial incentive apparently is just a bit too strong for some of the players.
There are three major firms in the area which I specialize. Two were started in the 1940s, the other in the 1950s. I am willing to bet that these three firms or their corporate descendants will dominate the market 50 years from now just like they to today. About the only thing I can think of that would change this dynamic is a fourth firm from China pushing its way in, but there aren’t any contenders at the moment and all three of the big firms are firmly entrenched there. There really isn’t much of anything these firms could do that would knock them off their pedastals.
Essentially your libertopian professor is citing an evolutionary process for firms, which doesn’t make any sense given that biological evolution takes hundreds or thousands of generations to have major effects. With typical firm lifetime and reproduction rates on the order of a decade, this mechanism is all but irrelevant except for perhaps the highest turnover business types such as restaurants.
The professor will be singing a different tune once he finds out that the milk he just fed his kids came from a herd of cows with mad cow disease. It is people like this professor that give the study of economics a bad name.
The question no one has ever answered satisfactorily for me, when I’ve brought up Mike’s argument, is,
“How many people have to be harmed -and the harm made public – before other erstwhile customers drop the bad operator and/or his product?
We’ve probably all received the email about how “we survived eating dirt, sleeping in a crib with lead paint and wider slats, etc., and we survived. But again, “the dead tell no tales”, so if we don’t know others have been harmed or killed, what is supposed to change our buying habits?
just wait till they start selling that prof those fish caught near the nuke plant; that’ll change his tune…
RJS,
Unless he becomes a super hero. 🙂
The prof is dead now, rjs. At least I’m guessing that he’s the econ prof in the obituary I read a few years ago who died of radiation poisoning from some undetermined source.
Austrian style libertarians really seem to believe you can just scale up the market interactions typical of an alpine village in 1745 (i.e. really micro) to the world trade village of 2013 (i.e. really macro) by five easy steps: one each for the fingers and thumb on the Invisible Hand.
If Hans sold a sick lamb as good last Market Day you can bet his buyer/neighbor made sure all the other neighbors/potential buyers knew it. Which given the velocity of news in a small village means in time about negative ten seconds. As such there is nothing particularly crazy in assuming you have a Efficient Market made up of Fully Informed Actors. And that Ricardo rules. I mean nothing is more natural than shipping mountain grown fleeces down the hill in exchange for goods like wine that cannot easily be produced in the village or manufactured goods for which the market is not such as to justify the capital expense of the machinery.
But even in Arcadian Austria you have to watch out for short weighting and quality swapping of the wine going up and the fleeces going down, the instant buyer and seller are no longer literal neighbors and fellow parishioners some sort of need for regulating trade and punishing fraud has to be established. Or at a minimum the kind of self-certification that mountain monks brought to their cordials and beers.
And right along fraud you find the collective actions of cartels, historically even in rural Austria you have guilds or equivalents of wool buyers and wine sellers whose realized intent is to exercise control over supply and so price in the light of predictable demand. In these kind of economies it is just not possible to substitute for salt or to withhold agricultural goods for alternative buyers who in practice don’t exist. In practice even these theoretical Efficient Markets are only so in that they allow the Informed Actors to fully understand the screwing they are getting from the middle man.
Austrianism in all its forms is just a fairy tale hidden in a fantasy by a veil of equations and cartoonish depictions of human interactions. I mean who knew that people would cheat if they knew they could mostly get away with it?
In several of the fish cases, the substitution is a fish that is dangerous to a portion of the population. The one I remember tends to have a high concentration of mercury and is not recommended for pregnant women.
Mike’s professor might note that the case is difficult to make and more difficult to win. As a “cost of doing business,” MR >> MC. Or he could just state platitudes.
In several of the fish cases, the substitution is a fish that is dangerous to a portion of the population. The one I remember tends to have a high concentration of mercury and is not recommended for pregnant women.
Mike’s professor might note that the case is difficult to make and more difficult to win. As a “cost of doing business,” MR >> MC. Or he could just state platitudes.
Ah, yes, the asymmetry of information in the market place that is typically skewed in favor of businesses/producers. Yet, even though that is a major assumption of the perfectly competitive markets, policymakers of that ilk never, ever, ever want to address the point. In fact, one of the major failings in our policies, in my humble opinion, is this conflating of how models expect markets to work, with how markets actually work. Worst still is that many of our jurists (Scalia) come from the Chicago school, so they think markets are the bestest, most wonderfulest things in the world, and actually believe notions like predatory pricing is impossible because, well, our models tell us potential entrants will tame any potential predatory pricing schemes . . . even though those models do not mimick reality. But, hey, Ligget v. Regents is great law . . . right? Anyone? Anyone? Bueller?
Sandi Campbell —
Memory says 1 deaths and 1 close call is quite sufficient. Try Googling “Non Vivant”, or just go to Wikipedia “1971 Bon Vivant botulism case”
http://en.wikipedia.org/wiki/Bon_Vivant
45 deaths & 700 sick from sloppy compounding pharmacies kind of pushed the annual mislabeled fish story off the front page here in Massachusetts.
It’s really amazing how many things there are that can screw up – from Chinese drywall or blown in insulation making it necessary to pull the walls down to dirty spinach & a salmonella outbreak.
It shouldn;t be that tough for somebody to do an overall risk study of modern life & just kill off the myth, at least among the small percentage of the population that believes in math.
It seems to me that government regulation is a Constitutional requirement. From the Preamble: Does this sound familiar?
“….establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and..” And repeated in Art. 1, Section 8: “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”
Provide for the general welfare, and regulate commerce; how much clearer does it have to be? You see if one is truly an “originalist” in regards to Constitutional power then all the neo-conservative bull shit needs to be tossed out the window.
Jack you clearly missed the
10 1/2 Amendment
The one that eliminated the General Welfare and Commerce clauses, inserted Nullification, and prospectively struck down any future One Man, One Vote SC decisions.
Bingo! The Originalist Tea Party Constitution
(well it would explain a lot)
Just to offer the other side of the argument from that presented here:
“”But what about mislabeled food?” I asked, “How do we even know that what is labeled on the side of the box or the can is what is inside?”
His reply was one I’ve heard, in one variation or another, many times since, “A company that sells customers something than they ordered will quickly go out of business.””
The history of brands is actually exactly that. By about 1850 in London (especially, but UK in general) there was a vast amount of adulteration of food going on. From alum in bread (pretty much universal and not all that damaging) to lead and cadmium paints on childrens sweets (obviously, hugely damaging).
A lot of it, but not all, was because people simply didn’t know. The producers that is.
The laws agains food adulteration came in in the mid-1860s. But by 1860 or so we’d seen the rise of “brands”. People with a reputation to protect. It’s largely accepted as true that the adulteration problem had gone away by the time the laws were passed. That market had indeed dealt with it.
BTW, no, I don’t think that pure free markets are perfect at dealing with this sort of problem. Nor do I think that government regulation is (Europe has very strict regulation of meat and meat processing but we’ve still got this horse in beef problem right now).
But markets are at least useful in dealing with this sort of problem. As the rise of brands shows us. Those early brands (Heinz among them) became valuable precisely because they were less likely to kill people through adulteration.
Another example in the UK would be “Hovis” flour. You could actually see that they didn’t use alum because their flour was light brown rather than the white that alum created.
Markets really do “work” in this sense. But only for a fairly loose definition of “work”. Sadly, regulation doesn’twork perfectly either.
well, everyone seems to agree that some kind of price fixing “screws” the customer.
i tend to agree with that, myself, but here is an aspect that seems to me to be generally overlooked:
the agreement among suppliers to hold prices above some level sufficient to guarantee them, the suppliers, an adequate living, is not really different from a union agreeing to hold wages above some level sufficient to guarantee workers an adequate living.
the customer is, in general, not screwed in either case. the customer pays as much as he wants for the product or service. all the agreement-in-restraint=of-trade does is assure that the various providers will not “compete” to the point of driving themselves out of business or into poverty.
there are obvious limits to this line of reasoning, but i think it might be salutary for us to refrain from demanding “free markets” from “business” at the same time we are decrying the impoverishing results of demanding “free markets” for labor.
fwiw, i just stumbled on to the oceana study cited in the chicago trib article mike linked to here:
Oceana Study Reveals Sea Food Fraud Nationwide
From 2010 to 2012, Oceana conducted one of the largest seafood fraud investigations in the world to date, collecting more than 1,200 seafood samples from 674 retail outlets in 21 states to determine if they were honestly labeled.
DNA testing found that one-third (33 percent) of the 1,215 samples analyzed nationwide were mislabeled, according to U.S. Food and Drug Administration (FDA) guidelines.
Of the most commonly collected fish types, samples sold as snapper and tuna had the highest mislabeling rates (87 and 59 percent, respectively), with the majority of the samples identified by DNA analysis as something other than what was found on the label. In fact, only seven of the 120 samples of red snapper purchased nationwide were actually red snapper. The other 113 samples were another fish.
Libertarians, those of the American variety anyway, especially ones who were somehow awarded Ph.Ds in economics while knowing nothing about it, are truly the stupidest people in the world. Sure, doctors who order expensive tests from their own captive testing companies, who then pronounce you OK after those tests, will soon go out of business. This will happen because . . . ? Waiting for an answer.
How about libertarians who would eliminate Social Security even though the overwhelming majority of the people want it — i.e., they want to use their government to operate a retirement income security program? What, Mr or Ms libertarian, you would deny people the freedom to make their own decisions because you would prefer a different system? What kind of love of freedom is that?
coberly — I usually love your comments on Social Security, but i was stunned to see your equation of business collusion to raise prices among those who dominate a product or service market with labor unions which correct for the complete absence of bargaining power of individual workers is just plain nuts.