Is more information better?

Local food advocates aren't the only ones calling for more information about where their food comes from: with the many food recalls we've heard about over the past few years, the regulations calling for increased food traceability seem like a no-brainer. As a customer (and as a former Californian recently moved to the East Coast), I'm somewhat interested to know where my food comes from. Smart phone apps are increasingly able to tell me, and more information is a good thing, right?

Well, yes and no. As this article in today's Washington Post makes clear, more information should shine a light on all parts of the (often ignored) food distribution system. If that light helps clear up problems with food quality that sicken 48 million Americans per year, killing 3000 and costing $152 billion per year in damages (including almost $3 billion per year in Maryland alone!), that has to be a good thing.

Another potential benefit is avoiding lost income from recalls. The 2009 peanut recall adversely affected an industry worth over $1.2 billion per year. When that goes down, producers, harvesters, processors, distributors, and retailers all lose, costing jobs.

However, shining that light is expensive, and consumers will foot the bill. I worked with some agricultural economists at UC Davis who wrote a few papers arguing against labeling foods with origin information. This short paper argues that compliance will cost the industry over $1.3 billion / year. In addition, the food safety bill that finally passed Congress late last year had governmental costs pegged at about $300 million per year, according to detractors.

It's tough to pay for policies that don't have immediate, obvious beneficiaries, but I have to say that this seems like money well spent. In fact, some are calling for funding to be further expanded. If you have any other information, I'm interested to hear it....

Food and Energy

Two big resource economics topics are in the NYT over the past few days. First, Michelle Obama has apparently talked Walmart into subsidizing the consumption of fruits and vegetables, getting them to lower prices in hopes of increasing consumption. They hope that decreased prices will increase the quantity consumed, which seems likely, and that increased quantities consumed will lead to increased health, which seems less likely. This study by Dong and Lin disseminated two years ago shows that vegetable consumption is quite inelastic, responding little to changes in price. (Likewise the consumption of snacks is relatively unresponsive to changes in price, as discussed here.) I like the First Lady's economic thinking, but I'm guessing she'll need to be a bit more creative if she wants to make much of a difference here. The more interesting story is that Walmart is to some extent acknowledging its role as an influence on public health rather than as just a money-making corporation.

The second topic that has come up a few times lately is solar power. Although our food consumption patterns won't change much in the short term due to prices, there is more hope for changing energy consumption patterns, particularly when a longer term horizon is being considered. That's why concerns about barriers to the adoption of solar power here and China's increasing competitive advantage in the field are of some concern. On the one hand, China's production of cheap solar panels benefits those who want to see solar power increasingly adopted, but on the other, decreasing access in the US may dry up this country's investment in the area. Inexpensive loans and guaranteed demand boost businesses operating in China and hurt US investors, as solar power industry stocks lost an average of 26% last year. Here's to hoping the industry thrives somewhere, and that the newly available production capacity in the US is put to good use and soon.

Expensive new EPA plan pushes for clean Chesapeake

A Washington Post article today describes a new EPA initiative designed to clean up the Chesapeake. While Marylanders stand to benefit if the Bay gets cleaned up, this article points out that most of the costs, which look to be well upward of $2 billion, lie with the headwater states.

Political ramifications: Maryland Governor Martin O'Malley predictably released a supportive statement, but I'm a little more surprised to see Virginia's Gov. McDonnell doing the same thing. I guess it's easier to play nice up front than to come out against the plan when it has been clear for awhile that this is where things were going.

Technical concerns: I'll have to read the report to get more details, but apparently cuts of 20-25% are called for each of nitrogen, phosphorus, and sediment. I'm not sure how they're going to monitor that, but at least the plan identifies some very specific areas such as sewage treatment in West Virginia and in Virginia as well as agricultural pollution in Maryland.

Bringing together all the stakeholders and achieving the lowest cost reductions is a huge challenge when each faces different incentives. This looks like another huge test of the command and control model of pollution control: hopefully it can succeed in spite of the high costs.

Adjusting the demand curve

New data on the amount of emissions has pushed the Air Resources Board in Los Angeles to lower emissions standards. Usually shifts in this direction come from the business community asking for help, but this time seems different (though the cries for help are also there, which is no surprise given the economy). Environmentalists oppose the move, saying that externalities are still larger than is being acknowledged. It's always tough to find an equilibrium when the market's not there to help.

Externalities are irrelevant

William Baumol has a cute comment in a recent review of his life's work:

I remember once asking Hayek whether, in the real world, externalities could justify some government intervention in the marketplace. He replied that this was true in theory but so rare and insignificant in practice that it hardly merited attention.

Backstops

Another basic principle of resources in the same newspaper today: clean energy suppliers should be worried, apparently, because some of the raw materials they use in making products such as compact fluorescent light bulbs come mostly from China. In other news, we can mine them here, but it's not worth it, apparently even with China slapping a hefty tax on exports.

If it's cheaper to do it over there, the market says to do it over there. Yes, economic models will be off by the way they assume away the costs of getting back into the mining game, but is that so huge? Seems to me that if and when it's worthwhile, we'll do it, but apparently it's not worth it even for CFL manufacturers to get into the business. If they aren't worried about it enough to secure their own supplies, should the rest of us be?

When one resource gets depleted it gets more expensive, and when it's more expensive people look for alternate sources. The alternate source is called a "backstop." In this case it looks like US rare earths are a backstop for Chinese rare earths.

Economics: making tough choices

I'm finally done with giving grades and it's time for me to turn my attention to preparing for next semester, when I'll be teaching Resource Economics. That class starts off by looking at tough choices, and there's a great example of that in today's NYT. Water in California is scarce and most likely getting scarcer. So how can they balance the needs of their population for water for household use, with the needs of an endangered species of fish, with the demands of one of the country's most productive agricultural regions? The job of an economist is to sort these things out based on the estimated benefits of all of these uses: where will the marginal impact of lost water be felt the least? Of course, in this case and many others economists really aren't called upon: the stakes are high enough that no one wants a (relatively!) objective analysis. That's when politics takes over, for better or for worse.