Full Employment will solve all our problems

The Following Commentary was delivered by Professor Michael Meeropol over WAMC radio in May of 2006.

THERE’S ONE POLICY THAT IS THE KEY TO SOLVING MOST OF OUR ECONOMIC PROBLEMS.

Are you worried about illegal immigration? Are you worried about global warming? … Worried about high gasoline prices? … About the trade deficit with China, the budget deficit, the unequal distribution of income and wealth? Are you worried about the lack of affordable housing and health care? I have a solution to all of these problems.

The solution is full employment.

You ask, how can one policy, even one you might agree with solve all these problems?
My answer is that every issue I have mentioned has a technically feasible economic solution. Unfortunately, every one of those solutions meets strong political opposition because of the potential cost to the economy – a cost that would be borne by people paying higher taxes and perhaps losing their jobs. Full employment – a situation in which the unemployment rate is never higher than four percent and is often lower – can permit us to adopt the technically feasible solutions without fear that those solutions will ruin people’s lives.[1]

Full employment, it may surprise you to know, is the law of the land. Passed in 1978 – it is called the Humphrey Hawkins Full Employment and Balanced Growth Act. This is a law that the recently deceased outstanding economist-citizen John Kenneth Galbraith embraced whole-heartedly when it was first considered over 30 years ago.[2] He embraced it for the same reason that he embraced Keynesian economics as a young Harvard instructor back in 1935, because he believed it was the right and proper role for government to correct for market failures, and the worst market failure of the 20th century was the Great Depression for which Keynes proposed a workable solution – government spending.[3]

AN EXAMPLE:

Since we have just experienced nationwide demonstrations around the immigration issue let me begin here. As I’ve said in previous commentary,[4] most Americans who fear immigration do so because of the downward pressure these immigrants allegedly create on the wages of low skilled workers. My solution is to raise the minimum wage dramatically and use the promise of full employment to create sufficient numbers of jobs so that the higher wage will not translate into higher unemployment.

If it’s environmental reform you’re most worried about – if you want to change our energy policies to stem the dangerous increases in greenhouse gases in our atmosphere,
but if you also fear that making those changes will put our very lifestyle in danger, a full employment policy guarantees that will not happen.[5] If government has to fund a crash program of research similar to that which created the first Atom and Hydrogen bombs and which put a man on the moon full employment will guarantee that people losing their jobs in one part of the economy will find similar good jobs in the new areas.

Or maybe you’re concerned about how much it would cost to guarantee that every American has health insurance. If taxes go up, how will businesses be able to continue creating jobs? The answer is that if taxes and government spending both rise the same amount, the result is an increase in total employment.[6] People have absolutely no problem paying more in taxes if their incomes rise more than their taxes do. That creates an increase in after tax income – take home pay.

The problem is that there has been less than full employment for most of the past 36 years, causing downward pressure on wages.[7] With very low unemployment (4% or less) wages will rise not fall and everyone will be able to afford to pay the higher taxes necessary to guarantee health insurance for all.

I could go on with examples.[8] All problems in our economy that need fixing can definitely be fixed if we keep alive a government policy which is actually supposed to be the law of the land – namely that the unemployment rate should be kept at 4% or less.

How do we do it? One good place to start is with your member of Congress. Ask him or her why there has been no effort to enforce the Humphrey-Hawkins Full Employment and Balanced Growth Act?

[1] First a definition. Full employment does not mean that everybody has a job. The common sense concept involves attempting to come up with an approximation of a situation where there is NO WASTE in the utilization of human resources. Clearly, someone who makes the choice to make her/his contribution to society by working full time in the home or doing volunteer work in a religious or civic organization should not be counted as “unemployed.” By convention, we don’t count anyone who is under 16 years of age as unemployed even though people aged 14 and 15 could undoubtedly make productive contributions by working at one job or another (and probably many do in family businesses even though we have officially banned child labor). Similarly, someone who has retired is not potentially part of the labor force unless he or she chooses to be. So the first thing to understand is that what we call the labor force is different from the population. [For an annual series of the Labor Force Participation Rate that shows the total population, the labor force, the employment ratio of the population, and, finally the unemployment rate, see the Economic Report of the President, 2006, p. 324-325.]

Once we know the labor force, those who are not working but “actively seeking work” are identified as unemployed. In 1961, the President’s Council of Economic Advisers argued that a four percent unemployment rate was as good an approximation of “full employment” as we were likely to get.

[2]I have already recommended Richard Parker, John Kenneth Galbraith, His Life, His Politics, His Economics (NY: Farrar, Straus and Giroux, 2005). The Humphrey-Hawkins Full Employment and Balanced Growth Act was actually introduced in 1975 as a very strong amendment to the Employment Act of 1946. It provided a mechanism whereby individuals who could not find a job could sue the government for triple damages. Needless to say, such “teeth” to enforce such a “promise” was stripped from the bill as it moved through the Congress. Even with all methods of compelling the government to actually deliver on the promise out of the bill, it faced very rough sledding in Congress and many economists went on record opposing it vigorously. Nevertheless, when that law was passed it provided a goal of four percent unemployment and three percent inflation.


[3]Keynes proposed a graduated income tax as well because he believed that very rich people did not spend as high a percentage of their incomes as did middle and lower income people and that the problem of a depressed economy was that first of all, businesses did not think it profitable enough to make investments and second of all, as people got laid off their incomes fell so consumption spending fell as well. A graduated income tax financing government spending on, say, roads would do two things at once. It would take money from high income individuals who were not spending much and give it to people who would be hired to produce these roads (for example) and those people would spend virtually all of their increases in income. At the same time, the building of the roads would be a useful addition to society’s infrastructure. In 1935, before he actually rearmed Germany, Hitler proved Keynes right by ending the depression when he hired lots of unemployed people to build the Autobahns. In the US, it took the high spending on World War II to end our depression.

The public works expenditures in Germany and the experiences of all industrialized countries during World War II proved that Keynes’ insight was correct. When private spending is too low to generate sufficient total demand to employ the workforce, government spending can take up the slack.

[4] See my commentary from April 7.

[5] In a rapidly growing economy, such significant changes occur without government intervention. Consider one simple example from the 20th century. As the automobile replaced the horse and the horse and buggy method of transportation, there was a significant decline in the job opportunities for people associated with that complex of businesses and services involved in raising, maintaining and utilizating “horse-power.” Because the economy was growing rapidly, the growth of jobs in automobiles and associated industries (rubber, servicing, etc.) as well as construction more than compensated for the loss of jobs in the “horse-related” industries. In the context of retrofitting our harnessing of energy, it will be the government’s responsibility to see that sufficient numbers of good jobs are created as certain industries shrink and even disappear. I believe it is much better to work our way through this using the political process than to HOPE that the natural economic processes will do it better. This is especially true because established industries often have the power to utilize government to PROTECT themselves from the declines being enforced by the market. This was never more true than now when we are finally beginning to understand the magnitude of the global warming problem and the dangers of continuing to rely on a hydro-carbon based energy system.

[6] Embedded in endnote (3) above is the explanation of this point. In some economics textbooks it is still taught as the concept of the Balanced Budget Multiplier. Basically the idea is that if taxes go up $10 million, that will reduce consumption expenditures on the part of those who pay the tax by some fraction (say 90%) of that $10 million. If that $10,000 is immediately spent to repair bridges, build schools, wire libraries for the internet, or any other useful infrastructure project, the people hired to do this work will spend some fraction (say 90%) of that $10 million AND at the same time, society’s total production will have gone up by the $10 million worth of bridges, schools, etc. that was produced. The usual economic critique of the balanced budget multiplier concept is to say that these government projects are “pork” and the money spent on them is wasted. While there is no doubt plenty of waste in government purchases of goods and services, there is no evidence that government projects are more wasteful than private ones (think of shopping malls built that never get filled by stores, for example! Think of all the fiber-optic cables laid during the dot-com boom – cables that may never be used!). Even if lots of government money is spent unwisely, the solution is more accountability in how government money is spent.

[7] The unemployment rate has been below 5% seven years out of the past 35 and was at 4.5% or less only three. [Economic Report of the President, 2006, p. 324-325]

[8]Very briefly: The trade deficit with China is based in large part on a problem of the growth in productivity in American business. One of the side effects of full employment is higher rates of growth of productivity. We saw that quite dramatically during the years 1997-2000 when unemployment was permitted to fall to 4% [I say permitted because usually the Federal Reserve, our Central Bank, takes steps to stop unemployment from getting “too low” but in 1997 they chose not to take those steps.]. Productivity grew so much that some economists and politicians started talking about “new economy” with a permanently higher rate of productivity growth. See Economic Report of the President, 2001. The budget deficit was also briefly cured in the late 1990s in part because the full-employment associated rapid economic growth increased tax revenues faster than expected. Even though spending rose dramatically, tax revenues rose even more. As to the unequal distribution of income and wealth, periods of low unemployment have been the most significant periods of increase particularly for the incomes of low wage workers. One of the major policies associated with full employment is rising taxation and government spending. Since taxes fall for the most part of higher income individuals and some of the revenue is redistributed to lower income individuals (say with the Earned Income Tax Credit, for example) the more our government pushes low unemployment and faster economic growth through raising taxes and raising spending, the more the inequality of income and wealth is moderated. By the way, there is a cliché out there touted by politicians and pundits which claims that it is “impossible to tax and spend ourselves into prosperity.” That is errant nonsense. There are plenty of examples from our recent past when we in fact DID tax and spend ourselves into prosperity – the most dramatic example of this in fact was the late 1960s and the recently celebrated late 1990s. (In the 1990s, expenditures rose in absolute terms but fell as a percentage of GDP because the economy was growth so rapidly.). For the data, see Economic Report of the President, 2006, p. 376.

IMMIGRATION: What to do?

The Following Commentary was delivered by Professor Michael Meeropol over WAMC radio in April of 2006.

CUTTING TO THE HEART OF THE IMMIGRATION POLICY DEBATE[1]

I believe we can begin to get a handle on the issue of immigration by describing it in terms of supply and demand. There is a very great supply of potentially hard working individuals who live in countries where opportunities to work hard and rise to comfortable living status is limited.[2] There is a demand on the part of American businesses and individuals for workers who are willing to work at significantly lower wages than the customary wage expected by an average American. This law of supply and demand, trumps the laws against illegal immigration. The result is that there are approximately 11 million people in the US illegally, most of them working.[3]

Allegedly these individuals are in the US working at jobs that according to President Bush and many others “Americans won’t do.” The truth is that there are plenty of difficult, dangerous jobs that Americans routinely do. (Coal mining for example) The problem is that the jobs that these people take don’t pay a wage high enough to attract Americans. Americans would work in laundries or in restaurants for $15 an hour, just as they work in construction, in steel mills and in meatpacking for $15 to $20 an hour. In the 19th century, coal mining and the iron and steel industry were routinely employing the latest immigrants and paid very low wages. That is why both industries suffered through a tremendous amount of conflict over attempts to unionize during that century. By the mid-20th century, with the success of labor organizing, these industries began to pay good wages and they became places where young workers wanted to work. It should be obvious to everyone that if, by some turn of events, the average nurse’s aide in a nursing home, the average dishwasher in a restaurant and the average worker in a laundry were to receive $15 to $20 an hour, American citizens would be flocking to those jobs.

I would like to make a novel proposal. If we really believe there are lots of jobs that Americans won’t do and that we have an absolute shortage of citizen or legal immigrant labor in our country, then let’s make two major changes. Let’s raise our immigration quotas dramatically (starting with legalizing all individuals who can prove they have been working in the United States for five years) and at the same time, raise the national minimum wage to $10 an hour.[4]

Crazy idea, you say? Let me remind everyone that if we just were accounting for inflation and raised the minimum wage today to the same level in purchasing power as it had been in 1968 (when it reached its post World War II maximum), the minimum wage today would have to be $7.44 an hour.5] Since 1968, worker productivity in the United States has basically doubled.[6] Even a $10 an hour minimum wage is a lower cost per unit of output in 1968 for the average employer paying minimum wage.[7] Were American businesses in deep trouble in 1968? No they weren’t. Corporate profits were 10.86% of GDP and the “business failure rate” was actually quite low.[8] In other words, a minimum wage that was the equivalent of $7.44 in today’s dollars coupled with labor productivity that was significantly lower than it is now was not harming American business. [9]

With a $10 an hour minimum wage, immigrant workers would have to compete with American workers for those jobs, but if American workers truly didn’t want to take them, then the immigrants would, along with the higher incomes. Why don’t we make these policy changes? In part because there are powerful interests who like the fact that there is a large and growing group of people in the US who are so desperate that they are willing to work for much lower wages than is customary and necessary for a decent standard of living. This is a trend we should definitely fight against, but not by the punitive “build a fence, keep ‘em out, catch ‘em and deport ‘em” approach which has already proven impossible to enforce. My alternative approach which recognizes the dignity of all workers, immigrant and native is far superior.


[1] In the face of President Bush’s recommendation that Congress adopt an “guest worker” program, there have been conflicting bills in the two houses of Congress. The House of Representatives has actually passed one with an emphasis on punitive efforts to stop illegal immigration and make life more difficult for those that are here. The compromise Senate proposal that appears to be in trouble seems aimed at creating a path to permanent residence and citizenship for many people currently here and working illegally. These two alternative approaches represent the fact that we as a nation appear terribly conflicted about the issue of immigration. We know that our country is a nation of immigrants that has been enriched, and become rich because of the great waves of immigration that have come to the Western hemisphere – both the voluntary and the involuntary immigration (better known as the slave trade). At the same time, there is a sneaking suspicion among many that the current rate of immigration of people not following the rules set out by our immigration laws is a danger to our long run economic and even societal health

[2] We call these lesser developed countries, underdeveloped countries or sometimes just POOR countries – though it’s important to note that even in the poorest of countries there are some very rich people.

[3] The Immigration and Naturalization Service estimated from the 2000 census data that there were approximately 7 million immigrants in this country illegally, but most commentators today are using a figure closer to 12 million for their estimates. See “Estimates of Unauthorized Immigrant Population Residing in the US: 1990-2000. You can find an executive summary of this document as well as a link to that document at http://uscis.gov/graphics/shared/statistics/illegals.htm.

[4] This won’t just affect minimum wage workers. One of the things that occurs when the minimum wage is raised, is that individuals who previously made just a bit more than the minimum wage would also get raises. Thus, people who were making $10 an hour would probably find themselves making, say, $12 an hour. I am indebted to my colleague John Anzalotti, Professor of History at Western New England College for making this suggestion and inspiring me to explore it and its possibilities.

[5] For a table of the real and nominal values of the Federal Minimum Wage, check www.epinet.org and go to the menu on the left identifying their minimum wage research and click on Table 5, The Real Value of the Minimum Wage, 1947-2005.

[6] See Economic Report of the President, 2006: 340. The index of output per hour of labor for the nonfarm business sector went from 66.9 in 1968 to 136.8 in the third quarter of 2005.

[7] This is a little complicated but in the end rather easy to understand. An employer is interested in earning profit on the items produced. Leaving out all sorts of fixed costs, the labor cost of producing a unit depends both on the wage per hour AND on the number of units produced during that hour (the labor productivity). If in 1968, a worker earning $7.44 an hour produced 10 units of some item in an hour, then the unit labor cost of the item would be 74.4 cents. If that minimum wage worker were to improve her/his productivity at the same rate as the national average, then today that worker would produce 20 units in an hour for a unit labor cost of 37.2 cents. A raise to $10 an hour would represent a 50% raise over $7.44 which would raise the unit labor costs to somewhere around 54.2 cents – not even as high as it was back in 1968.

[8] For corporate profits as a percentage of GDP see Economic Report of the President, 2006: 312, 313. For comparison’s sake, in 2004, a quite good year for corporate profits, they represented 10.33% of GDP. For the Business Failure Rate, see Economic Report of the President, 2004: 395. After peaking at 64 per 100,000 enterprises in 1961 at the height of the previous recession it had fallen to 39 in 1968 and continued to fall in 1969 despite the rise in the minimum wage in 1968. The business failure rate is a good measure of how difficult it is for small businesses to stay in operation. Most business failures are in the small business sector.

[9] And, in general, American workers were doing quite well in terms of increases in their incomes and their general standard of living. A much higher proportion of the work force was covered by union contracts, had defined benefit pension plans and significant job security.

A PROPOSAL RE HEALTH CARE.

The Following Commentary was Delivered by Professor Michael Meeropol over WAMC radio in March of 2006.

HOW DO WE DEAL WITH THE ISSUE OF HEALTH CARE?


Experts predict that by 2015 one dollar in every five spent in the United States will be spent on Health Care.[1] We know that other countries pay less of their GDP for their health expenditures and they get better health outcomes.[2] The important question is, why? Why do we in the US spend so much on health care.

One possible rather positive reason is that we voluntarily buy a much higher quality of care than the rest of the world.[3] However, in fact we as individuals do not really buy our own health care. Our insurance providers guide us to our consumption of health services by covering some treatments and not others. Our medical professionals determine what treatments are advisable for us.

Medical cost inflation is a fact of life in the US because the providers of medical services control the information about their products.[4] As lay consumers we cannot make ourselves expert about relative costs and effectiveness of medical procedures or medical professionals.

Those who believe in the cure-all capabilities of the market argue that the solution is to make more information available to patient-consumers and give them more direct control over how their money is spent. (This is the idea behind Health Savings Accounts). Today, when you go to the doctor or a hospital, your insurance company or the government pays. You only pay indirectly. According to free marketers, if you considered how much it was going to cost to see the doctor or go to the hospital you would become an intelligent consumer just as you are when buying a car, a house, or a vacation trip.

This approach is a recipe for disaster. If everyone were responsible for making their own health care decisions, what would happen when people make the wrong decisions and find themselves very sick with no way to pay for it? We would be back in the days of “charity hospitals” and doctors treating some percentage of their patients for free. Just as “charity” was not a viable solution for the unemployed during the Great Depression and for those forced to work past the age of 65 before the advent of Social Security, “charity” is not a good solution to the current Health Care mess. And charity is a necessary component when you pay for necessities by relying on the magic of the market to deliver. Market-based delivery depends on the ability of the patient-consumer to actually pay.

Is there an alternative? I believe there is. Health care would be best delivered as a form of social insurance. What is social insurance? It is a system where everyone insures everyone else against potentially serious costs associated with sustaining life. Social security already insures the entire working population against outliving their savings (that’s the pension) or becoming disabled or unemployed. It also insures retirees through Medicare. What it doesn’t do is extend that insurance to the entire population, which is why medical cost inflation is so much higher in the US than elsewhere. Though Medicare strives mightily to contain the costs of the procedures it subsidizes, hospitals, nursing homes and other medical facilities are able to raise prices charged to insurance companies who then of course raise premiums charged to employers.

If we were to re-organize our system in conformity with social insurance principles, then the system could be integrated institutionally (at either the federal or state level). It would be much easier to contain costs. The basic principle of social insurance is – we all pay to guarantee health care to everyone who gets sick. When a healthy person gets sick, he or she gets to dip into the revenue stream being contributed by fellow citizens. If you “lose” by never getting to spend any of that money because you never get cancer or need a heart transplant, you WIN by being healthy. Those who must have recourse to the insurance fund can rest easy knowing their needs will be met without bankrupting them and their families

MY SOLUTION: Extend Medicare to the entire population. Social insurance is the answer to our health care crisis.


[1] See Health Spending Projections Through 2015: Changes On The Horizon
Christine Borger 1*, Sheila Smith , Christopher Truffer , Sean Keehan , Andrea Sisko , John Poisal , M. Kent Clemens in HEALTH AFFAIRS, THE POLICY JOURNAL OF THE HEALTH SPHERE, 10.1377/hlthaff.25.w61 (Feb 22, 2006) available on the web at www.healthaffairs.org.

[2] According to the Organization for Economic Cooperation and Development (the OECD) which is comprised of all of the advanced countries in the world, the US spent 15% of its GDP on health care expenditures in 2003 (the journal Health Affairs puts that percentage at 16% for 2005). The countries that came closest to the US were Germany at 11.1% and Switzerland at 11.5%. Countries that have particularly generous government health care programs like Norway and Iceland were over 10% of GDP but the country we often are compared to, Canada, because they have a private system with government acting as a “single-payer” rather than a nationalized system like Great Britain, had a ratio of 9.9% of GDP and that ratio had been unchanged since 1993 (whereas the US percentage had grown from 13.2%). See Health Spending and Resources: OECD in Figures – 2005 Edition – ISBN 926401 3059. This is available on the web at www.oecd.org. Once at the home page click on statistics, once on that page, click on Health. At 79.9 in 2003, US life expectancy was lower than that of EVERY advanced European country and Canada, despite their lower rate of expenditure AND their lower total GDP as well. Our infant mortality rate at 7 per 1000 live births was higher than that of every advanced European country and Canada – in most cases two percentage points higher. Both statistics are also from the OECD.

[3] We are richer than the rest of the world and thus can choose how to spend that discretionary income. We choose to buy very high quality, quite expensive health care to, for example, prolong life with high quality treatments for cancer, emphysema, etc. We use the most advanced surgical techniques to save lives and prolong lives. We, in other words, are choosing to spend this money – we are voluntarily allocating a higher percentage of our national income to health care than do our not-so-rich fellow members of the OECD (France, United Kingdom, Canada, etc.).

[4] Medical Cost inflation is measured by the Bureau of Labor Statistics as one of the components of the Consumer Price Index. It is neatly collected in Table B-64 of the Economic Report of the President. From 1990-1993, medical cost inflation was twice the rate of inflation in the general consumer price index (CPI). In 1994 and 95, medical cost inflation was two percentage points higher than the inflation in the CPI. In 1996, in the wake of intense pressure from insurance companies to move more people into managed care plans, the rate of medical inflation was 3.5% while overall inflation was 3.3%. In the next two years as overall inflation fell below 2% medical cost inflation was a bit more than one percentage point higher. Since then, medical cost inflation has risen, reaching 4.7% in 2002. From 2001 through 2003, medical cost inflation was twice the rate of overall inflation and has remained over 4% (1.7 and 1.8% higher than overall inflation) for 2004 and 2005.

ADVERTISING AND FAST FOOD, WHAT SHOULD WE DO?

The Following Commentary was delivered by Professor Michael Meeropol over WAMC radio in February of 2006:

Advertising and Fast Food: What should we do?

I recently saw the movie Supersize Me. In it, a 30-something man decides to eat his three meals a day at McDonalds for 30 days. He gained 25 pounds, his blood pressure and cholesterol rose dramatically and his liver was seriously affected. After 22 days, his doctors told him to stop but he persisted for the full period.[1]

The film contains interviews with experts, spokespeople for the food and beverage industries, workers at fast food restaurants and public school cafeterias, persons on the street and medical personnel. At various points during the movie, we see segments of a press conference featuring the Secretary of Health and Human Services talking about increased obesity and the dangers of the rising incidence in Type 2 Diabetes.[2]

This movie intersects with economics when it examines the role of advertising as it habituates children and young people into accepting fast food consumption as normal.
McDonalds and other fast food restaurants whose food selections are heavily laden with fat and sugar (even their salads are unless you eat them without the dressings) spend hundreds of billions of dollars while advertising spending that promotes nutritional eating is in single-digit billions.[3]

According to economics textbooks advertising is a tool used by companies to compete for customers. Some advertising is informative but the goal of much advertising is to merely remind the viewer that the product is available. The general consensus within the economics profession is that advertising cannot make anyone buy a particular product. Economists argue that McDonalds, Burger King and Wendys’ advertising merely cancels itself out.[4]

A counter-argument is that the sum total of all such advertising persuades us to alter our consumption patterns – creating wants where none existed. If this is true, it makes a mockery of the economics profession’s view that the economic process is governed by what is called consumer sovereignty. If advertising can actually create wants, then in fact there is producer sovereignty.[5]

A most dramatic example of creation of wants occurred in the 1920s when public relations expert Edward Bernays developed a strategy to promote smoking among women. The tobacco companies were looking to expand their potential market to the entire population and it was Bernays’ genius that he figured out ways to create an advertising campaign that significantly increased the percentage of women who smoked. For example, Lucky Strikes were created specifically for women and touted as part of a weight reduction regimen.[6]

Today we see rising obesity and the potential for a serious epidemic of type 2 Diabetes directly linked to increases in the percentage of our meals consumed at fast food restaurants. In Supersize Me, even the spokesperson for the food and beverage industry’s trade association admits that it is “part of the problem…” [He had lost that job by the time the film was released.]
If those who see advertising as capable of creating wants (even for things that are downright harmful) are correct, then there is only one remedy, one that economists don’t particularly like but which is probably the only solution: government regulation.

For starters (and this example is presented in the film) all public schools could ban soft drink vending machines and demand that all school lunch contracts be given to companies that prepare lunches on site with emphasis on fresh vegetables and fruits.[7] If we truly want to take this seriously we should ban all fast food advertising from television and radio just as we banned cigarette advertising many years ago.[8]

It’s a matter of life and health – and the costs will be paid by all of us as taxpayers if we don’t take preventive measures now.



[1] Supersize Me, (2004) directed by Morgan Spurlock is available for rental from Netflix and no doubt other DVD rental companies as well as from many libraries. The doctor actually begins to plead with Mr. Spurlock that he is doing much more damage to his liver in a much shorter time period than he (the doctor) ever would have imagined. The doctor argues that his liver is betraying the evidence of alcohol abuse.

[2] Dr. Francine Kaufman has written a book called Diabesity: The Obesity-Diabetes Epidemic That Threatens America—And What We Must Do to Stop It (Random House, 2005 – also available as a Bantam Paperback, January 2006). “Experts now predict that more than one-third of American children born in 2000 will develop diabetes in their lifetime. Once a disease of the elderly, type 2 diabetes now strikes adults in their prime–and, increasingly, children. It has nearly doubled in the last decade. The cause? Our soaring rates of obesity.” (from a review at RandomHouse.com).

[3]The actual numbers are in the film but I didn’t write them down. I remember a ratio of something like $200 billion to $2 billion.

[4]To take just one example, Campbell McConnell and Stanley Brue, Microeconomics, Principles, Problems and Policies, (Boston: Irwin/McGraw Hill, 1999) provides a typical “on the one hand,….on the other hand….” discussion of the two sides of the advertising debate (the kind of discussion that led former President Harry Truman to demand a “one handed economist” so he could get a straight answer to his policy questions). “Consumers need information about product characteristics and prices to make ration (efficient decisions). Advertising can be a low-cost means of providing that information … advertising is frequently associated with the introduction of new products designed to compete with existing brands … Viewed this way, advertising is an efficiency-enhancing activity.” P. 254-5. But, they go on to say, “…advertising is sometimes based on misleading and extravagant claims that confuse consumers rather than enlighten them … in some cases advertising may well persuade consumers to pay high prices for much-acclaimed but inferior products … Firms often establish substantial brand-name loyalty and thus monopoly power via their advertising …” (255). Finally, the book concludes that advertising may be self-canceling raising costs but not increasing consumption. Paul Krugman and Robin Wells in their work Microeconomics (NY: Worth Publisher, 2005) argue that “… ads can serve as indirect ‘signals’ in a world where consumers don’t have good information about products. … ads feature celebrities [because] … the fact that the … manufacturer is willing and able to pay her fee tells you that it is a major company that is likely to stand behind its product. According to this reasoning, an expensive advertisement serves to establish the quality of a firm’s products in the eyes of consumers.” (401).

[5]On consumer sovereignty see any Principles of Economics textbook. The McConnell/Brue book alluded to in note 4 defines it as: “Determination by consumers of the types and quantities of goods and services which will be produced with the scarce resources of the economy; consumer direction of production through dollar votes.” (G-3,4) The idea of “dollar votes” is that whenever a consumer buys something the dollars she/he spends on it constitutes a “vote” with producers and potential producers guiding them with positive reinforcement to produce more of that good. The idea that producers can actually “produce” customers dates back at least to the work of Thorstein Veblen. (See his The Theory of Business Enterprise [1904]). It finds excellent expression in the work of John Kenneth Galbraith. “The consumer is not sovereign if he or she is subordinate, or partly subordinate, to the will of the producer. … “Economics and the Public Purpose (Boston: Houghton Mifflin, 1973): 134. He goes on to detail the variety of ways that large industrial concerns in the US “manage” consumption both by government (military, other contracts) and by consumers. IN the latter case he notes that far from canceling itself out, advertising by competitors say in the auto industry, the beer industry and, yes, the fast food industry combines to develop a generalized view that this product in general is important: “... the aggregate of all such persuasion affirms in the most powerful possible manner that happiness is the result of the possession and use of goods and that, pro tanto, happiness will be enhanced in proportion as more goods are produced and consumer.” (140) As to the argument that advertising cancels itself out, Galbraith retorts: “Were this the case, steps would long ago have been taken to limit advertising outlays by common agreement.” (141).

[6]Edward Bernays is known for his long service in public relations (which actually was officially called “propaganda” until World War II gave that word a bad connotation because of its association with Nazi misinformation) having begun his career in Woodrow Wilson’s war cabinet and concluded it late in the 20th century. In 1928, he was recruited by the American Tobacco Company to help them increase the number of women who smoked. The green Lucky Strike package initially clashed with the clothes women were wearing so Bernays sponsored several high society events in New York City featuring green colored themes. “[He] arranged for women’s society elite to smoke Lucky Strikes in the New York City Easter Parade of 1929.” (“A Primer on Women and Tobacco: The Leading American Epidemic” Jamie P. Morano, (American Medical Student Association, Reston, VA) available at www.amsa.org/pdf/womentobaccoprimer.pdf): 4.

[7]The film presents a contrast between what we are led to believe is a “typical” high school lunchroom where there is lots of fried food available – in fact some students are seen taking nothing but French fries – with the lunch room in an Appleton, Wisconsin school which contracts with a healthy meals firm that serves no meat whatsoever and prepares every meal fresh that day emphasizing fruits and vegetables. The film notes that the cost per meal is virtually the same as the more mass produced often pre-prepared and flash frozen meals at more traditional schools. No data is presented on how many schools make a concerted effort to ban high fat, high sugar content food but it would definitely be a useful first step for State Legislatures to ban them all outright. If families want their kids to eat junk food, let them do it on their own time and their own dime. A number of state governments have taken a good step forward by making sure that all vending machines in pulbic schools dispense only juices and water and athletic drinks (with electrolytes) not soft drinks, but they could obviously go a lot further.

[8]Please note: If the economists are right that much of that advertising cancels itself out, then there actually will be no harm done to the companies at all from such a ban. However, if the opponents are correct, that all this fast food advertising habituates generation after generation to wanting and expecting to eat this food on a regular basis, then banning the advertising will be a useful part of a comprehensive program (that will need to include lots of counter-advertising just as in the anti-smoking campaigns) to begin the process of reversing the rise in obesity among our youth with the subsequent danger of a type 2 Diabetes epidemic.