Category Archives: Economics

Mar 28 2010
Leave a comment
Economics

Optimal location decisions for entrepreneurs

Published in the NYT, found here:

Though Uruguay’s small size is a handicap in trade with its Latin neighbors, Brenner says that for entrepreneurship, “being small is an advantage.” Companies are unlikely to get rich off of just selling in Uruguay, so they are forced to compete globally from the get-go. He sees an analogy with Israel, another place where the domestic market for numerous well-reputed tech companies is a mere afterthought. Brenner in fact got his start in Israel. While living there, he co-founded Breezecom in 1993, a pioneer in wireless LAN networks and played a key role in developing the initial IEEE 802.11 protocol, according to Phil Belanger, a founding member of the WiFi Alliance. Breezecom set up one of the first Wi-Fi access points in the world, so Brenner is accustomed to creating new market opportunities without being restrained by geography.

Tagged ,
Mar 23 2010
Leave a comment
Economics

Grade Inflation in University Education Departments

From University of Missouri-Columbia economics professor Cory Koedel:

This paper formally documents a startling difference in the grading standards between education departments and other academic departments at universities – undergraduate students in education classes receive significantly higher grades than students in all other classes. This phenomenon cannot be explained by differences in student quality or structural differences across departments (i.e., differences in class sizes). Drawing on evidence from the economics literature, the differences in grading standards between education and non-education departments imply that undergraduate education majors, the majority of whom become teachers, supply substantially less effort in college than non-education majors. If the grading standards in education departments were brought in line with those found in other major academic departments, student effort would be expected to increase by at least 10-16 percent.

The graphs at the end of the paper are worth looking at even if you don’t read another line.

Hat Tip: Abhi Sivasailam.

Tagged , ,
Mar 23 2010
Leave a comment
Economics

Voluntary price discrimination, Columbia solar power edition

From the local Columbia Tribune:

The city bought 10 kilowatts of energy produced by the solar panels, divided it into 140 blocks of purchasable power and, for an annual cost of $48 per 100 kilowatt-hour block, offered electric utility customers the chance to buy a piece of pure green power.

“It’s a creative way to provide solar power to the people who want it without making the rest of the city pay for it,” interim Water and Light Director Mike Schmitz said.

Ninety customers bought all the available blocks by early 2009, Schmitz said. With the success of the program, the city will soon more than double its available solar power. Quaker Oats and retailer Bright City Lights have entered a contract that will result in an additional 15 kilowatts of solar power available to customers by summer.

Schmitz said improvements in solar technology have resulted in lower costs, a savings that will be passed on to customers. The city now buys solar output for 42 cents/kwh. Quaker Oats will be able to sell the next batch of solar power at 25 cents/kwh and Bright City Lights at 37 cents/kwh.

The new blended cost will be $40 for a 100 kwh block per year. By comparison, the regular rate for electricity through the city is about $9 per 100 kwh block, Schmitz said. Solar One costs are added to a user’s regular utility bill.

Tagged , , ,
Mar 18 2010
2 Comments
Economics, law, Models

The Nonlinear Dynamics of International Conflict

Wolfson, Puri, and Martinelli write in the Journal of Conflict Resolution in 1992:

We propose a dynamic model of the interaction between two rival powers. It is not an easy model, because it involves nonlinear difference equations; yet it is simple in the sense that it involves only a few variables. Parsimony shows that complexity and apparent paradox need not arise from the multiplicity of factors but from their nonlinear connections. Complications certainly may be introduced such as considering more than two states and alliances among them (Wolfson 1973) as well as further specification of expectation formation. They might improve some future statistical investigations, but the theory has no need for those hypotheses to explain the complexity of the historical record. Occam’s razor suggests that small is beautiful.

Continue reading →

Tagged ,
Mar 18 2010
1 Comment
Economics, law

On Competing Federalism

John Payne at the Show-Me Institute has this to say about state legislative opposition to the reach of the federal government’s power:

Setting aside for the moment the specific content of the amendment, it is great to see Missouri and other states attempting to use the nearly forgotten tools of interposition and nullification to stop the federal government from abusing its powers. Of course, these are just tools that can be used for good (such as when Wisconsin nullified the Fugitive Slave Act in the 1850s) or ill (such as George Wallace attempting to preserve segregation). However, all else being equal, the more a political system is localized, the less dysfunctional it is likely to be, because the politicians are not as removed from the people. Consequently, anything that takes power away from the federal government and gives it to the states, or from the states to the counties and municipalities, or from the municipalities to the neighborhoods and individuals, should, as a general rule, be applauded.

While I understand very pertinently the reasons John makes these claims, I come to a different conclusion. Or, at least, I offer a different interpretation. I don’t think it’s right to say that the more a political system is localized, the less dysfunctional it will be. If anything, some of the worst abuses of government happen at the local level, where specific people or organizations can gain control of the executive powers of government, including and particularly police power.

In this sense the analysis misses the point. Devolution of power is not strictly a good thing. The desired aim should be to maintain an balance of power between governments. In some fashion we can think of this balance of power as competition in the sense that governments compete for citizens. Federal, state, and local governments all offer different goods and services to the public; some goods and services are unique to the level of government (like diplomacy to federal governments and trash services to municipalities) and not open to competition, while some goods and services are open to competition between governments. Another way to say it is that that governments compete for the right to regulate different things to citizens. Perhaps the most important service governments offer citizens is protection from other governments: the federal government, for instance, serves a very useful recourse against systemic racism in state and local governments. From the other direction, state and local sovereignty provide a hedge against excesses of federal power.

In some sense this interpretation of federalism says that a balance of power between competing governments best serves individual interests. I stress the “competing” here; looking at America in that light it is clear that there has been a big shift in consumer preferences away from federal provision of goods and services and towards other lower-level government entities.

Note that when governments compete, they offer justifications for elevating their power and reach relative to other governments. While governments might question the justification for other governments they never as a rule question the justification for government itself. In this sense the statist game is a rigged game and I suggest it points us in the directions of thinking of governments as networks for politicians and bureaucrats. The game of questioning the legitimacy of another government or its power is a way for politicians to elide the complex interactions between local, state, and federal governments.

Interested readers will find much to ponder in the collected work of Laurence Tribe and Steven Calabresi. Particularly, I might point you towards Tribe’s 1977 article in the Harvard Law Review and Calabresi’s 1995 article in the Michigan Law Review.

Tagged ,
Mar 10 2010
Leave a comment
Economics, law

On New Things: The L3C

Wikipedia reports:

The L3C is a low-profit limited liability company (LLC), that functions via a business modality that is a hybrid legal structure combining the financial advantages of the limited liability company, an LLC, with the social advantages of a non-profit entity. An L3C runs like a regular business and is profitable. However, unlike a for-profit business, the primary focus of the L3C is not to make money, but to achieve socially beneficial aims, with profit making as a secondary goal. The L3C thus occupies a niche between the for-profit and charitable sectors. As of September, 2009, an L3C can only be formed in the states of Michigan[1], Vermont, Wyoming, Utah, the Crow Indian Nation and the Oglala Sioux Tribe. On August 4, 2009, Gov. Pat Quinn signed Illinois‘ L3C Bill SBO239 and the law will take effect on January 1, 2010. [2]

HT: Sam Burnett.

Tagged , ,
Mar 10 2010
2 Comments
Economics, law

A Thought On the Fair Tax Debate

Missouri will soon decide whether to replace its income tax with a revenue neutral sales tax. This proposal of course has attracted much debate, some rational, some strident. This post was inspired by two conversations: one with Lily Fortel of Grassroots Organizing, a group of political activists on the left, and Abhi Sivasailam, who co-wrote a policy analysis of the fair tax proposal with Dr. Joe Haslag.

My general principle of goverment is that we should treat most of our important government programs as if we were engineers designing and operating HVAC systems (by way of example). The difference of course, is that HVAC systems aren’t political.

So here’s the deal with how the taxonomy of taxes can be misleading. Sales taxes, by definition, are regressive taxes: they apportion liability regardless of income level. Graduated income taxes, by definition, are progressive: you can tax people by their income level.

But here’s the problem. These are definitions of taxes in a vacuum. In the real world parameters matter and allow us to make more nuanced judgments. A bad income tax is not necessarily superior to a good sales tax.

American conservatives dislike our income tax structure. It is costly to comply with, inefficient, and applies high marginal tax rates to our most productive citizens, stifling innovation and economic growth on the margin. These are legitimate concerns. Liberals, of course, are a far more varied group, but the general consensus is that sales taxes are too blunt an instrument of fiscal policy, since it is harder to exempt low-income people.

But I suggest that a re-evaluation of the costs are in order. Implicitly, complying with an income tax is extremely costly on every level. One must keep records, and receipts, and spend many hours doing tedious calculations and revisions or outsource it to a professional; the more successful one is the worse this problem becomes because you start having to deal with more complicated tax structures. The incentive to cheat on one’s taxes rises with income, and the richer you become the more tax shelters of some variety you can buy your way into. We spend inordinate amounts of money on monitoring and enforcement through revenue departments, who are unique amongst all government entities in the amount of scorn and derision flung upon them by virtually everyone of every political stripe.

Keep in mind this basic fact of our income tax system. Many people never file or sufficiently pay their taxes and get away scot-free because the IRS simply can’t monitor everyone.

The costs of complying with a sales tax are far simpler, since instead of dealing with individual citizens, you deal with the far smaller number of businesses, which are far more easily regulated. There are already straightforward and efficient mechanisms for enforcing and collecting point-of-sales taxes. Businesses face far great incentives to meaningfully comply, since sales taxes are usually tied to the status of their business license. Functionally, increasing a sales tax would at best only marginally increase the cost of collecting the tax. You don’t need much extra machinery to scale up or down.

There are other arguments relevant to this debate, but the point here is simple: we should consider the implicit costs of the economy-wide market distortions that exist relative to a world in which sales taxes replaces some or all of the tax revenue for governments.

Right? Because a world where there is an artificial market for tax professionals, for example, is  a world where talent that might find itself pursuing other more productive options is drawn into preparing income taxes for people. A world in which there is an artificial market for tax professionals who help you shelter your income from taxation is a world in which very smart people are incentivized on the margin  to pursue careers in wealth management and protection as opposed to wealth creation. There is a very clear tradeoff in the choices people make career-wise; it is a common theme that grossly oversized incomes in the financial sector drew some of the world’s greatest minds away from professions like teaching, medicine, the hard sciences, etc, over the past twenty years. In some sense the forgone benefits of the advancement in other fields due to the financial sector brain drain is incalculably great. Likewise, industries that exist to add nothing of value but to enforce and monitor a tax system that is comparatively less efficient are functional brain drains. Perhaps the incentives are lower, but they are systemic. Forgone economic growth is particularly hard to calculate, demonstrate, and weigh, but it is surely important.

In a nutshell, income taxes are vastly more expensive to enforce and monitor and generate large industries devoted to servicing income taxes and not doing other productive things. Sales taxes don’t have any of those liabilities. To extend the nod to engineering this fits the maxim that the best interface is the most idiotpoof because it’s the cheapest to maintain. I leave the implication up to the reader.

Tagged , ,
Mar 08 2010
Leave a comment
Economics

On Broken Windows

After making a rather incoherent comment on Hazlitt’s ‘broken window’ parable at a libertarian book club meeting, Abhi Sivasailam suggested I write a post to clarify. My thought was to extend the insights from Hazlitt with observations from institutional economics.

The ‘broken window’ parable is used to distinguish the economic interactions that occur when a person buys a suit from the economic interactions that occur when the person has forgo the suit to repair a window a thief broke. The key insight is that the forgone opportunity to purchase a suit is itself an implicit cost that people often fail to consider when comparatively evaluating both interactions.

My thought was to extend Hazlitt’s analysis further. When we look at the glazier and the tailor and the brick and the suit that wasn’t made, we can compute the immediate implicit costs of the vandalism. But it doesn’t stop there. Every transaction, real or forgone, implies an extensive chain of economic activity. After the brick is thrown people have more reason to think about the security of their persons and their possessions. A brick through a window means a whole host of interactions happen: people demand more security services, either public or private. The increased demand for laws and mechanisms to protect property from loss resolves itself in a manner that involves a whole system of costly interactions.

The world post-brick is not simply a world of a forgone sales opportunity for the tailor. It is a world of forgone opportunities for everyone in the community, because there is a cost to the cleanup, to the search and prosecution and punishment of the criminal; costs that everyone in a community might be expected to be reasonably invested in. These costs shape and determine the underlying institutional costs that the community faces both now and in the future.

A thought for a further post: in the real world, some market actors invariably engage in rent-seeking behavior. This is particularly evident in our justice system. There are insights from Sam Bowles’s ideas on ‘guard labor’ that are relevant here.

Tagged , ,
Mar 08 2010
3 Comments
Economics, Food

A Follow-up to the School Lunch/’Local Food’ Debate

Caitlin Hartsell in the comments:

It’s all well and good to link to articles that show that nutritional foods benefit children… I don’t think Sarah or anyone else would really disagree with you there. But I don’t see any studies in your list that say that local food is more nutritious or better for students than food from a distance, which is the point that Sarah made. Your entire argument and objection to Sarah’s posts is useless without that. (I explain it better in a blog post where I made the argument in the other direction: local foods are less likely to be grown in optimal climates with good soil and their freshness and potential nutritional content is not improved and potentially worsened as a result of the “local” emphasis: http://www.showmedaily.org/2010/02/buying-local-not-always.html)

While you make nice arguments for nutritional food, they do not address anything Sarah says at all. Her objection is not to local foods in and of themselves, but to districts forcing it upon their students as the only option. The real issue here is giving children access to healthy foods, whether they come from Missouri or California or South Africa. An undue top-down emphasis on locality is (as Sarah put it) protectionist and subverts the real issue of nutrition.

I noted earlier that part of the problem when we talk about ‘local food’ is that not everyone means the same thing at the same time. Functionally, the term is used in a way that doesn’t exclusively include spatial distance. What is typically meant is to distinguish food that is part of one system (processed, national distribution, industrial production) from other systems that reject one or all of those parts. When I say ‘local food’ I generally am talking about food that isn’t produced using industrial methods on large factory farms. I certainly don’t mean foods that are entirely processed, like refined sugar, or spam, or the mystery meat patties served on so many ‘hamburgers’ in schools. Those foods are typically distributed on a national scale to capture efficiencies of scale in branding and transportation. So in a sense you’re right. The spatial distance between where a food is produced and consumed isn’t always a strict indicator of quality. But the people who use the phrase ‘local food’ mean more than strict spatial distance when they’re using the term meaningfully.

So there are three more issues that are relevant in answer your comment. The first is that your comment that ‘local food’ is less likely to be grown in optimal climates which means we  don’t get to maximize freshness and nutritional content is specious at best. It’s specious because it doesn’t happen. Farmers who expect to sell to local populations try to forecast precisely so that doesn’t happen because that is where their paycheck comes from. And the other argument is that the drive towards processed foods based on industrial agriculture means that our food networks are optimized for production of those foods (corn, sugar, wheat, etc) which has a crushing effect on the production of other indigenous edible food. Local farmers have a variety of things they can and could produce that are optimized for their region and climate. This book has a good list of those indigenous foodstuffs. If you’re in Missouri, you might visit some local or regional producers, like Patchwork Farms, or Chert Hollow Farms, and actually talk to farmers who make these decisions. I have actually done this through work at local restaurants and in later work in vineyards around the state. I claim that my assessment of these systems is empirically superior to Sarah Brodsky’s armchair hypothesizing.

The second issue you don’t seem to get is that I’m making a distinction between industrial agriculture and agriculture regimes that aren’t predicated solely on maximizing yield. Earlier I referred readers to literature on the nutrition and genetic dilution hypotheses, which state generally:

  • Maximizing yields means maximizing water weight at the expense of nutritive content
  • Selection for strains focuses on plant systems that maximize yield while crowding out selection for the systems that provide and generate nutrient content.

Both hypotheses have extensive empirical grounding going back at least 25 years. Whether or not you agree with those hypotheses they are fundamental issues at the heart of this debate that Brodsky never addresses (I don’t think she is even aware of their existence). I’ll address your specific claim here as well. Your claim that distance and nutritional content are not strictly related might be true but the argument I am making is that it is the producer and manner of production that is the true indicator of quality foodstuffs. So yes, tomatoes from California might be cheaper than tomatoes produced in Columbia in mid-winter but that’s a misleading comparison; local Columbia farmers are not selling tomatoes right now. The choice the market should be making available to me is a selection of Californian tomatoes where I can discriminate by production method because that’ll give me accurate nutrition information. Unfortunately the market rarely makes that information available. Earlier I noted that locally produced foods have one huge advantage over foods distributed nationally: consumers are far better placed to evaluate quality and safety of local foods as opposed to nationally distributed foods, the safety and quality of which are regulated by ineffective and incompetent federal regulators. Brodsky doesn’t address this argument at all.

Brodsky is a linear thinker, not a non-linear thinker. She tends to make arguments that justify the status quo without realizing the path-dependent nature of the interactions between agriculture policy and market conditions.  For years our government has restricted the ability of smaller producers to sell their products locally and impeded their access to national distribution. For years our government has doled out huge amounts of production subsidies to large agribusiness. My argument is that Brodsky’s emphasis on ‘provide our children cheap food’ misses the point that all the cheap food we feed our children in schools has large implicit costs in terms of agricultural production and academic achievement and health outcomes that we are only just waking up to. There are numerous instances where Brodsky completely misreads articles where the people making these decisions (school nutrition counselors, district supervisors, etc) say things like ‘it’s expensive and difficult to change the quality of the meals we provide but it’s worth it’. Most notably there’s that post where she mocks an organization of kids in New Orleans who are trying to make their schools serve them good food, which I find unbelievably arrogant and offensive.

Finally, Brodsky fundamentally misses how these changes are happening. They are systemic and grass-root. Go through the articles she’s posted on the subject and count the number of low-level local functionaries who are referenced. Widespread changes in consumer preferences are being filtered through school boards, state and local agricultural boards, and slowly through the USDA. Laws that serve to close the market to small local producers are being overturned. It is a slow process but it appears that consumer preferences are evolving. This is not a process being driven in a top-down fashion. It is a systemic change in consumer preferences that is expressing itself through nonlinear interactions on many levels between a variety of public and private institutions.

Finally, you make the claim that you object to districts forcing ‘local food’ as the only option. My claim is that the status quo is defined primarily by school districts forcing children to eat heavily processed foods, low in nutritional value. This is currently their only option. I will defend that forcing children to eat ‘local food’ is far superior to the status quo, where millions of children are served crappy lunches that tend to look like this.

I also make another policy recommendation earlier that one possible solution is to increase competition in the lunchroom by allowing cafeterias to face competition from private vendors. This is a simple solution, because school boards can set some kind of mandate that meals provided by private vendors have to have some minimum nutritional content and so you can experiment with what is possible.

And hey, Walmart is getting into the game. I claim that’s evidence that my argument that consumer preferences are changing is true.

A final thought: I don’t make the food miles argument or any argument about carbon production but the distribution chain is one example where nonlinear thinking yields insights that linear thought does not (essentially the idea that the costs of inputs here are best thought of in non-linear not linear terms).

Tagged , , ,
Mar 03 2010
Leave a comment
Economics, Literature

Keynes on Clemenceau on Germans

From The Economic Consequences of the Peace:

He felt about France what Pericles felt of Athens–unique value in her, nothing else mattering; but his theory of politics was Bismarck’s. He had one illusion–France; and one disillusion–mankind, including Frenchmen, and his colleagues not least. His principles for the peace can be expressed simply. In the first place, he was a foremost believer in the view of German psychology that the German understands and can understand nothing but intimidation, that he is without generosity or remorse in negotiation, that there is no advantage he will not take of you, and no extent to which he will not demean himself for profity, that he is wihout honor, pride, or mercy. Therefore you must never negotiate with a German or conciliate him; you must dictate to him. On no other terms will he respect you, or will prevent him from cheating you.

Tagged , ,
Feb 25 2010
Leave a comment
Economics, law, philosophy

Traiberman-Li Blog

Two of my former high school debate friends, Sharon Traiberman and Jimmy Li, have graduated college and have started a blog. I highly recommend it for people interested in good analytical arguments, particularly with regard to economics and ethics.

On an aside, Sharon Traiberman remains one of the people I felt were truly treated unfairly by the the politics of Missouri high school debate. He has always been a brilliant thinker and unfortunately innovation outside of the narrow political box of Missouri high school debate has never been consistently rewarded.

Tagged , , ,
Feb 25 2010
Leave a comment
Economics, law, politics, pop culture

The National Security Argument for Legalizing the Use of Performance Enhancers for Professional Athletes

I note first we are willing to make distinctions as far as enhancement is concerned for athletes that we don’t make for soldiers (ref: Dexedrine use by Air Force pilots) or for students (who increasingly use performance enhancing substances like adderall and coffee).

Second, I note that there are possible invasion scenarios for which we face a shortage of soldiers with highly specialized physical abilities. I claim first that we have a natural pool of these kind of recruits in professional athletes and second that in doomsday invasion scenarios where there is a premium to be placed on the physical skills and endurance necessary to perform highly specialized tasks we want to have the ability to select for specific traits and want to absolutely maximize the expressions of those traits. Under these circumstances there is no counterargument for legalizing and using performance enhancers and indeed much depends on the state of the scientific knowledge base that we can access to inform those efforts.

That’s why we should legalize performance enhancers. There are several parameters that need to be set, for instance, the nature of the optimal regulatory framework, and how professional sports leagues should react to chances in these laws. But note that this policy carries a positive externality for athletes: it allows them access to the legal and scientific remedies that they don’t have access to in a world where they necessarily and exclusively bear the totality of the physical, emotional, and financial tolls that come with using illegal performance enhancers now.

Tagged , ,
Feb 24 2010
Leave a comment
Economics, law

How Legalizing Performance Enhancers in Major League Sports Might Benefit Athletes

At the outset, let me note that I have an visceral dislike of the idea that the sports that I follow, or at least that I admire, should be populated by athletes willing to use performance enhancers of all kinds. But after thinking about performance enhancers more generally I found some incongruities in my own thinking and this series of posts will be my attempt to flesh out the meaningful arguments to the debate. So here goes.

I start by noting that athletes are often the people most likely to be injured meaningfully by sports. This is because they’re the ones risking their lives to make a payday or to win a medal. Coaches, team organizations, and the corporations that utilize the human capital of skilled athletes only face the costs of having poor outcomes in competition and seek to maximize profit. In this world athletes have substantial incentives to use performance enhancers to attain even marginal competitive edges because marginal differences, especially at the top, come with disporportionately larger payoffs. The organizations that support them face incentives to maximize athlete performance both continuously over time and in specific, critical situations.

But performance enchancers come with dangers. I don’t know the state of the literature, but I hypothesize that the illegality of consumption has some dampening effect on investment and research, so in an general sense we’re constricted to a limited and diffuse body of knowledge. That is to say, the typical things that people do to hedge against risk, specifically risk assessment, are a lot more limited in this arena and athletes have to bear the risk of unknown and poorly understood outcomes from specific enhancers without the prospect that time will be of much value. Additionally, the constraints on research and legality also constrain the knowledge of the medical professionals who illicitly provide enchancement services to athletes.

And athletes rarely have real recourse. In the case of death, perhaps there are liability issues that can be mediated through the legal system. It seems logical however that most athletes who use enchancers have to hide their use, even years after retirement. For athletes who have been injured through the direct or indirect use of performance enhancers, there is little to no recourse. There is no mechanism that holds medical professionals in this black market accountable, or even to separate negligent quacks and charlatans from real professionals. Moreover, teams and coaches who pressure and exploit athletes don’t face financial penalties or real sanctions from their actions, regardless of outcomes. Worse, athletes who aren’t stars are routinely undercompensated for the risks they face.

So here’s the argument as to why performance enhancers should be legal and athletes who consume them should be allowed to participate in sports. In a world where performance enhancers are legal, there are a lot more protections, legal and otherwise, for players. Legalization of performance enhancers means that players don’t face the real legal sanctions that the status quo holds and it’ll be politically easier to institute mandatory testing and disclosure of players who take performance enhancers. Players will face payoffs relevant to how consumers in the aggregate evaluate their decisions, though I doubt that consumers will really change their behavior too much.

Where this really pays off for players is where insurance companies and other market-based regulatory mechanisms get involved. Because legalization means that markets and market actors get access to more information. Performance enhancers become things subjected to rigorous scientific risk assessment and players have access to medical professionals who they can vet for quality and honesty. Treatments and procedures are documented and now athletes have access to legal remedies against people who exploit them for their talent and health.

I don’t like the thought of sports being poorer for not being pure. But it seems to me that as a spectator who is part of a system that ultimately victimizes a lot of athletes I should be willing to consider ways to end the exploitation of athletes.

I don’t know if there are empirics to support this argument, but I thought it was worth at least hypothesizing.

Tagged ,
Feb 19 2010
4 Comments
Economics, Food

The Literature on Local Food, School Nutrition, and the School Lunch Program

One of my prominent criticisms of Show-Me Institute blogger Sarah Brodsky’s opposition to local food movements is that her arguments are grounded in armchair theorizing without reference to any serious data or literature on the many and varied subjects that one might discuss on this issue. Here is a rough list of the work I am aware of in the field. The literature on the subject is deep and fascinating. I have attached commentary or key excerpts where possible. I apologize for any formatting inconsistencies, and I’ve tried to link to ungated versions of papers where possible. Obviously this is not close to an exhaustive list and I just realized I haven’t linked to any papers on the nutrition dilution hypothesis, so that’ll have to wait until I have time tomorrow. Continue reading →

Tagged , ,
Feb 19 2010
1 Comment
Economics, Food

The Shadow Cost of Undernourished and Hungry Children

I argue that there are significant implicit costs that opponents of school nutrition reform and the local food movement neglect in cost-benefit analyses of the grassroots transition to serving more local, nutritious foods in schools.  One of the key omissions is the implicit costs of hunger in the classroom. Kleinman et al 1998 in the journal Pediatrics note:

The data from this study reveal that hunger may constitute another of these poverty-related burdens and seems to have a unique impact on the daily psychosocial functioning of poor children. In this rigorously selected community sample of low-income children, hungry children were 3 times more likely than at-risk for hunger children and 7 times more likely than not hungry children to receive scores indicative of clinical dysfunction on the PSC.

They continue:

…Analysis of specific symptoms revealed that hungry children were 7 to 12 times more likely to exhibit symptoms of conduct disorder than not hungry children. In addition, the PSC case rate (8% in this sample) was consistent with case rates of 7 to 11% found in recent large-scale studies of low-income populations using an oral administration of the PSC,33,34 although lower than the rate found in earlier studies using the standard written administration with African-American children. Although poverty puts a child at-risk for dysfunction, the added burden of periodic experiences of hunger may increase the chance of psychosocial  dysfunction and may produce some important negative behavioral sequelae. Specifically, the findings from this study suggest that hungry children demonstrate higher levels of anxious and irritable, aggressive and oppositional behaviors than their low-income, but not hungry, peers..

Here is a partial list of the implicit costs associated with our collective failure to provide schoolchildren with sufficient nutrition through the school day. A useful framework is the concept of ‘guard labor’ developed by Samuel Bowles and Arjun Jayadev.

  • The cost of discipline professionals in schools: security/police officers, nurses, counselors trained in psychiatry and other sciences predicated on managing behavior.
  • The cost of discipline problems in schools immediately linked to hungry or malnourished children. This includes the costs of separate detention facilities, social workers to manage cases, legal costs, incarceration costs, etc.
  • The costs of diagnosis and medication of misbehaving children. There is a massive industry that is predicated on the notion that we can medicate away most behavior problems. As a result, it is probably true that disorders like ADHD are massively overdiagnosed and drugs like Ritalin and Adderall prescribed far too often.
  • The implicit costs of the forgone gains in academic achievement. Hunger systemically mitigates the effectiveness of all other programs we have in place to boost academic achievement.

The implication here is that the aggregate costs of managing hunger and misbehavior in schools are large and systemic. Two additional implications:

  • This means that increasing net participation in school breakfast and lunch programs is a policy imperative.
  • This means that we should have a preference for nutritious food over processed commodity foods with low nutritive value and hard-to-evaluate safety risks (like the bottom-grade meat subsidized for school consumption by the USDA)

In terms of increasing net participation, serving tastier food is a logical choice. In this sense the pure taste dimension of food serves important branding function. So arguments that we shouldn’t spend more money on food that simply taste better miss the point: if we spend more money on tasty food, we increase school lunch participation, and we garner large-scale aggregate benefits to increased academic achievement and large-scale indirect savings from the reduction in the equilibrium quantity of non-productive guard labor and technologies used.

Why local food? And yes, the definition of what is ‘local’ is somewhat variable. But think of ‘local’ in relational terms, or in terms of search costs. ‘Local’ functionally means that search and management costs are low; in relational terms this means that you have a personal relationship of some meaningful nature with the people you do business with. In a world of electronic communication, this means that the spatial component is less meaningful. By way of example, take a look at the number of wineries trying to build their brands through direct internet marketing over Facebook, Twitter, etc. ‘Local’ wine products are branded and distributed globally and winemakers and brands can manage their relationships directly. ‘Local’ food also implies small production (or at least non-industrial production) and a commitment to sustainable farming; as a corollary, food yields are relatively lower and more nutritious.

Under these parameters, does it make sense for Sarah Brodsky to criticize a Vermont school district for spending an additional $1 per pound for local beef by misrepresenting this grassroots shift in consumer preferences as “protectionism”? Consider what the school in question (Sharon Elementary) got in return:

  • Less food waste and increased participation in their school lunch program, meaning lower waste costs and  systemically better academic outcomes:
    • When Ms. Perry used to prepare salads for the kids, there was a lot of waste. But when kids could choose what they wanted in their bowls or on their plates, more were eating fruits and vegetables, she says.
      The number of students buying hot lunch has jumped by 50 percent since the school added the salad bar, Perry says. The salad bar is also used for tacos and stir-fries.
  • Gains in student interest that directly translated to better academic outcomes:
    • Kids are interested, and teachers are given more diversity in the curriculum — they can work the food angle in science, reading and health classes, he says. “That really changes kids’ perspectives on the traditional reading, writing, math, science, social studies,” Mr. Williams says. “If they can see that they are meeting writing standards through doing a response to their cooking activity that day, you know, that means something to them.”
  • Increased the performance of students who responded well to different modes of instruction:
    • A student who may struggle with a textbook — sitting down and reading text and responding to text — may excel going into a place-based activity,” Williams says. “Whether it’s visiting a farm or going on some type of field trip and having a hands-on experience, and then being able to respond to that through writing.” Working with local farmers helps build community, he says, although that food may be more expensive than the commodity food that some schools use.
  • Lower marginal costs of providing education, since schools don’t have to pay for the expertise and knowledge base that they’re able to access from local farmers that they’re buying product from. This saves on the costs of purchasing curriculum and allows teachers to become more efficient by tapping into informational synergies garnered from collaboration with local farmers.
  • The article also notes throughout that this program has resulted in children getting excited to learn and performing well. Implicitly this means that there are savings from not utilizing non-productive behavior management personnel or technologies.

So here’s my point. There are fair criticisms and arguments as the difficulties and costs associated with the proposals to utilize more local foods in school lunches. But a fair assessment of the costs of child hunger in the status quo are also in order, and it is important to note the implicit costs of market distortions. But Brodsky doesn’t do that. She sticks to selective, patronizing arguments against the children and parents and school districts who evaluate the food choices available and decide it is worth the extra money and effort to acquire local food products (here, here, and here). In fact, virtually all of the articles Brodsky cites conclude that increasing usage of local food is good and present cogent arguments for improving the quality of school lunches, despite the structural barriers in the status quo. These are arguments she never addresses seriously or represents fairly.

Before I finish, I’ll address one last argument here. First, the role of public health agencies in promoting local food is a good and necessary one. The argument is that educated people make better decisions than ignorant people, and health decisions are hugely meaningful when we are confronting obesity and diabetic* epidemics that are caused in large part by uneducated consumption habits of our population. Public health agencies have a lot of work to do to persuade people to decrease their consumption of refined sugar, processed grains, and other processed foods that are artificially cheap because of large, market-distorting subsidies. In this sense, public health agencies have a consumer protection function: consumers are victims of large information asymmetries and the public agencies are uniquely placed to mediate those asymmetries. This is a good thing.

If we can replicate this program in Missouri, why not? I’ve been touting Culinary Institute of America graduate Brook Harlan’s** program at Rock Bridge High School and the Columbia Area Career Center for as long as I’ve known him and the woman he works with, Carrie Risner. Here is a profile of Brook and his program by local food blog He Cooks, She Cooks.

(*: Full disclosure: my father is an endocrinologist specializing in diabetic treatment. **More full disclosure: I’ve worked with several of Brook’s students and even hired some of them in previous jobs).

Tagged , , , , ,
← Older posts
Newer posts →