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May 21, 2007

Paul Krugman on Food Safety

There's been increasing suspicion over the years that Paul Krugman is rather losing the plot. His latest jeremiad about food safety in the US adds another sliver of evidence to the scales:

These are anxious days at the lunch table. For all you know, there may be E. coli on your spinach, salmonella in your peanut butter and melamine in your pet’s food and, because it was in the feed, in your chicken sandwich.

Who’s responsible...? Some blame globalization; some blame food-producing corporations; some blame the Bush administration. But I blame Milton Friedman.

Because of course food poisoning was so much lower in the days before globalization, food corporations, the Bush administration and Milton Friedman, right?

Without question, America’s food safety system has degenerated... [S]ince 2001 the F.D.A. has introduced no significant new food safety regulations...

That's odd. We must assume, that if the Bush admin is somehow responsible for the problems that pre-Bush the system was actually OK. So the state of the law and the regulations in 2001 was in fact just fine. In which case, why should there be any new regulations, significant or not? At some point, surely, we can stick a fork in it and say that as far as is possible, we've got the correct set of laws and go on to other problems? Or are we to judge a bureaucracy by the process, not the outcome?

This isn’t simply a matter of caving in to industry pressure... The ... United Fresh Produce Association says that ... without strong mandatory federal regulations..., scrupulous growers and processors risk being undercut by competitors more willing to cut corners on food safety. ...

Why would the administration refuse to regulate an industry that actually wants to be regulated? Officials ... are also influenced by an ideology that says business should never be regulated, no matter what.

Well, there are those people, like Milton Friedman, who would point to regulatory capture. The established incumbents are quite happy to have increased (and expensive) regulation as it acts as a barrier to entry into the market. Odd for an economist not to mention that.

The economic case for having the government enforce rules on food safety seems overwhelming. Consumers have no way of knowing whether the food they eat is contaminated, and in this case what you don’t know can hurt or even kill you. But there are some people who refuse to accept that case, because it’s ideologically inconvenient.

Again, very odd for an economist to say this. The reason for the success of brands in food production is exactly that: they have a reputation for not killing you. Heinz soups are no better (and often much worse) than other brands and no brands. But in the early years of canning, when bad manufacturing could and did lead to death from botulism, Heinz managed this feat less often than others. People came to trust the brand and that trust is the valuable thing about the name. Thus the corporation is highly motivated to preserve the most valuable possession it has, that brand.

Just as an example, let's think about Tylenol shall we? There was no specific regulation against Johnson and Johnson adding cyanide  to their capsules but then there really didn't need to be. Then some nutter decided to adds some to a batch and then what happened?

It has been almost two decades since a consumer products company's worst nightmare became tragic reality for Johnson & Johnson. In the space of a few days starting Sept. 29, 1982, seven people died in the Chicago area after taking cyanide-laced capsules of Extra-Strength Tylenol, the painkiller that was the drugmaker's best-selling product..

Marketers predicted that the Tylenol brand, which accounted for 17 percent of the company's net income in 1981, would never recover from the sabotage. But only two months later, Tylenol was headed back to the market, this time in tamper-proof packaging and bolstered by an extensive media campaign. A year later, its share of the $1.2 billion analgesic market, which had plunged to 7 percent from 37 percent following the poisoning, had climbed back to 30 percent.


What set apart Johnson & Johnson's handling of the crisis from others? It placed consumers first by recalling 31 million bottles of Tylenol capsules from store shelves and offering replacement product in the safer tablet form free of charge.

Really? Who would have thought it? A profit seeking company is willing to spend $100 million of its own money, acting vastly faster than any bureaucracy, in order to protect its good name and brand, the thing that enables it to make profits.

Boggles the mind, doesn't it? 

May 21, 2007 in Economics | Permalink


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Tracked on May 23, 2007 10:22:24 AM


You said:
What set apart Johnson & Johnson's handling of the crisis from others?

doesn't this destroy your argument? By your own words you are saying that Johnson & Johnson is the exception and that the others do not conform to your argument that self interest prevents firms from cutting corners and producing dangerous products.

Tim adds: The "what set apart" is a quotation, not my words.

Posted by: spencer | May 21, 2007 2:16:47 PM

Pity economists can't use plain-speak. I didn't understand "regulatory capture" until you explained that it was supporting regulation after you were already in.

Posted by: jameshigham | May 21, 2007 7:47:49 PM

Cynaide? OK.

Feeding cow brains to cows? Hmmm...I rather think it's that sort of stuff that The Krug is railing against.


Posted by: Martin | May 21, 2007 7:54:37 PM


You should try our Aussie 'branded' Beef and Lamb, we passed a law against feeding them ground animals back in the 60's, nothing to do with BSE then. Both types, Kosher and Halal!

As Tim quoted earlier 'bureaucrats are the same as us, only facing worse incentives.'

Posted by: Forester | May 22, 2007 2:58:53 AM

picking on brand names in food production is a bit of a curious choice. If anything approximates perfect competition it is (small) fresh produce markets. Now it seems you are fan of monopolistic competition.

Posted by: reason | May 22, 2007 2:19:58 PM

Since Paul Krugman has a very limited number of words to get his point across he cannot pre-emptively cover all possible objections, such as regulatory capture. Personally I don't see how regulatory capture can be an argument against regulations. At most it's an argument against badly designed regulations.

As for your Tylenol example: Sure, Johnson & Johnson corrected their mistake (AFTER killing 7 people that is). However this is a very clear cut case, where the consequences were instant, dramatic and the responsibility easy to place. The problem with his motivation by profit argument is that a company will NOT be motivated to place consumers first when they don't have a profit at stake because all these things are not so clear.

There could be many reasons for this. Often the negative health effects of poor food standards are very hard to trace, for instance because there is a considerable time lag between the food intake and the adverse effect to your health. Maybe the intake of damaging substances doesn't immediately hurt you but rather accumulate over years from many different sources. If you use cancer inducing agents in your food, there is no way that a cancer patient 5 years later can know this particular company's involvement. How can the market possibly regulate itself in such a case?

Or how about small restaurants with no major brand name to protect? What about those highway restaurants, or tourist spot restaurants which are unlikely to serve the same customers more than once. What is the incentive to keep standards high? It'll cost them money, but it will not do a darn thing to maintain their profits. Spending more to maintain a nice exterior will do much more to help business.

I'm not a trained economist, but I believe the economic term which sums up my objections here is information asymmetry. Even though producers have a brand reputation to protect this will in many cases be done much more effectively by keeping information from the consumer/public, rather than by taking initiatives to protect the consumer. The Johnson & Johnson case is the exception which confirms the rule.

Paul Krugman is right. The case for government regulation of food safety standards is extremely compelling. We simple need it to overcome the information asymmetry. Only regular controls by an agency of informed specialists can do this.

Posted by: Esben | Jun 18, 2007 6:01:30 AM