DRI-270 for week of 2-9-14: Can We Make Economic Sense of First Wives’ ‘Joining Forces’ Initiative?

An Access Advertising EconBrief:

Can We Make Economic Sense of First Wives’ ‘Joining Forces’ Initiative?

In 2011, the wives of President Obama and Vice-President Biden, Michelle Obama and Dr. Jill Biden, announced formation of a public-service initiative called “Joining Forces.” The action is ostensibly intended to “honor and support our veterans, troops and military families.” What sort of “honor” and “support” is provided? A fair idea can be gleaned from the op-ed appearing under Ms. Obama’s byline in the Monday, February 10, 2014,

Wall Street Journal. It is entitled “Construction Companies Step Up to Hire Veterans.”

It contains the sort of prose that adult Americans have been bombarded with since birth. Still, inquiring economists want to know: What sense can we make of this sort of appeal?

Why Should Construction Companies Hire Veterans?

Ms. Obama uses the lead paragraph of her op-ed to announce an announcement. On publication day, “more than 100 construction companies – many of whom are direct competitors – are coming together to announce that they plan to hire more than 100,000 veterans within the next five years. They made this commitment not just because it’s the patriotic thing to do, and not just because they want to repay our veterans for their service to our country, but because these companies know that it’s the smart thing to do for their businesses.”

“As one construction-industry executive put it, ‘Veterans are invaluable to the construction industry. Men and women who serve in the military often have the traits that are so critical to our success: agility, discipline, integrity and the drive to get the job done right.” Ms. Obama records her approval of this “sentiment” and reiterates the guiding challenge of Joining Forces: “Hire as many of these American heroes as you can.”

Joining Forces originated in 2011. “Since then,” Ms. Obama reports, “we have been overwhelmed by the response… The CEOs we have spoken to have been consistently impressed with their hires…veterans are some of the highest-skilled, hardest-working employees they’ve ever had… resilient, adept at building and leading teams, comfortable with diversity, and able to handle uncertainty.” This is attributable to veterans’ “training and experience,” including “some of the most advanced information, medical and communications technologies in the world.” To bolster her argument, she offers an anecdotal case of an Air Force manpower specialist whose service job was estimating the troop strength and specialties needed for missions. Like many veterans whose “qualifications aren’t always obvious from their resumes,” he would have been “easy to overlook” if not for the Disney Company’s human-resources specialists, who are “trained…to translate military experience into civilian qualifications.” They realized that his military background ideally qualified him to plan meals by specifying exact kinds and quantities of ingredients.

Ms. Obama earnestly implores us to consider the multitude of possible employment conversions. Military medics would make such good paramedics and EMTs. Tank crew members would make dandy truck drivers. The military employs “engineers, welders [and] technicians.” Small wonder, then, that “American businesses have hired nearly 400,000 veterans and military spouses” since Joining Forces opened up.

Why Do Construction Company Managers – or Employers

Generally – Need Advice on Whom to Hire?

The first question that occurs to the inquiring economist is: Why do construction company managers need advice on whom to hire? Indeed, why would any employer need that sort of advice?

Running a business can get complicated. But few decisions are as fundamental as qualifications for new hires. If owners and managers don’t know what they’re looking for in a job applicant, how can they ever hope to succeed?

It is true that we recently underwent a financial crisis, the trigger of which was a housing bubble. Undoubtedly many unwise decisions were made in housing sale and finance, and quite a few in housing construction. But nobody has suggested that the crisis was caused by construction companies hiring the wrong people.

In her op-ed, Ms. Obama didn’t actually

say that employers are boobs who are incapable of hiring the right candidates without the help of the federal government – more specifically, without the help of the wives of the President and Vice-President of the U.S. (Of course, her actions tacitly encourage this belief on the political Left, where it has always flourished.) In fact, what she actually said was that “CEOs …have been consistently impressed with their hires.” She even quoted “one construction industry executive” to the effect that “veterans are invaluable to the construction industry. Men and women who serve in the military often have the traits that are so critical to our success.” (The executive cannot be speaking from experience gained from working with Joining Forces, since that partnership is only now being announced.) If construction-industry executives

already knew

that veterans are “invaluable” – a plausible conjecture for reasons adduced above – why was the intervention of Joining Forces needed?

The clincher comes from Ms. Obama herself, referring to the commitment made by the consortium of construction companies. “They made this commitment not just because it’s the patriotic thing to do…but because these companies know that it’s the smart thing to do for their businesses.” If they

already knew that it was in their interest, in

advance

of this agreement, why was jawboning by Joining Forces required?

In her op-ed, Ms. Obama offers no hint as to why the employers she is urging need advice on hiring. She actually vitiates her own argument by providing persuasive evidence that they do

not

need her gratuitous advice.

If Employers Did Need Advice on Hiring, Why Would They Seek it from the First Wives?

When people need advice, they generally seek out experts. The hiring decisions of business owners and managers affect their livelihoods and the wealth of investors – all the more reason to obtain qualified opinions when in doubt. Why would a manager base hiring decisions on advice offered informally by two people whose fame and expertise lie outside the industry – and who have no experience in management or personnel?

Taking the advice of a lawyer and an English professor on hiring because their husbands happen to be the President and Vice-President would be tantamount to acting on the basis of a celebrity endorsement. We might heed a celebrity endorser on a question of taste – a choice of beer, say, or candy bar – but not on a matter demanding specialized or expert knowledge.

In her op-ed, Ms. Obama makes one reference to “current research,” but cites no original research attributable to her, Ms. Biden or Joining Forces. In other words, her initiative adds nothing not already available to employers, who already have the strongest possible incentive to seek out and act upon pertinent information about employment candidates.

It is clear that the First Wives would ordinarily not be people whom executives, managers and business owners would solicit for advice on hiring.

Is Ms. Obama Asking for Charity, Demanding an Entitlement or Offering Advice on Efficient Hiring?

Ms. Obama’s plea for hiring of veterans is a mixture of mutually exclusive messages. In the opening paragraph of her op-ed, she declares that construction companies made the commitment to hire over 100,000 veterans in the next five years “because it’s the patriotic thing to do…because they want to repay our veterans for their service to our country [and] because it’s the smart thing to do for their businesses.” Each of these motives is distinct from, and inconsistent with, the others.

In a free-market economy, the purpose of business is to produce as many goods and services as efficiently as possible. This requires hiring workers solely on the basis of their productivity. While business owners are not barred from having ulterior motives and acting upon them, they will suffer a penalty for indulging any prejudices or whims not consonant with the goal of maximum efficiency and profit. And when businesses depart from the straight and narrow, consumers suffer as well.

If the veteran is indeed the best employee for the job, everybody – the veteran, the company and consumers – wins if the vet is hired. But in that case, the intercession of Ms. Obama, Dr. Biden and Joining Forces is utterly superfluous. If the vet is not the best candidate, then the efforts of some outside agency might well be decisive. But that is hardly a victory for truth, justice and the American way. How is patriotism served by making the company and consumers worse off? For that matter, what is patriotic about sticking a veteran in a job in which he or she is inferior to somebody else?

The notion of “repay[ing] our veterans for their service to their country” is at best an anachronism, a throwback to the days before the all-volunteer military. The draft was viewed – erroneously – as a means of assembling a fighting force without having to pay the full economic costs that would be demanded by willing workers. In that context, it might have made a semblance of sense to provide extra compensation to surviving soldiers after demobilization. But today’s fighting force is composed of volunteers. They are professionals who are paid for their work and equipped with physical, mental and emotional skills that pay dividends after their service ends. It is patronizing and insulting as well as flagrantly inaccurate to treat them as naïve conscripts who need looking after. They are not “our boys.” They are men – and women. Apart from medical treatment for injuries suffered on duty, the only further payment they require is respect.

Why is it Desirable for Construction Companies to Collude in Hiring Veterans?

Ms. Obama went to great pains to announce that over 100 construction companies were “coming together” to “plan” their hiring of veterans. To alleviate potential ambiguity on the point, she noted that “many of [them] are direct competitors.” The term economists and lawyers use to characterize collective hiring decisions made by direct competitors is “collusion.” It is presumptively illegal, on the theory that it allows firms to set wages lower than would be the case were the companies to compete independently in the same labor market. Collusion allows the firms to replicate, or at least approach, the outcome attained by a single

monopsony buyer of labor – just as collusion by a cartel of sellers in a market for output strives to replicate the

monopoly

result attained by a single seller.

When owners of major-league baseball teams were adjudged guilty of collusion in bargaining with players, they were subject to legal penalties. Why is it wrong for baseball-team owners to collude in hiring players but praiseworthy for construction companies to collude in hiring veterans? Does the approval of Madams Obama and Biden sanctify the practice?

It seems axiomatic that when two people whose primary basis for association is political cooperate to achieve an outcome, their motives are presumed to be political. A political motivation does not sanctify collusion – just the opposite, in fact. A political motivation suggests that the collusion will benefit one political interest or party at the expense of the other or others. Moreover, it also suggests that the gains of the gainers will be less than the losses felt by the losers. That is one way of defining the difference between economic change and political change.

Will Madams Obama and Biden personally supervise the hiring to prevent the monopsony outcome described above? Ms. Obama made no mention of it. There is no reason to expect that, since we have no reason to think that either Ms Obama or Ms. Biden have advanced training in economic theory and no reason to think they could effectively supervise the hiring of thousands of people even if they did. It is competition that precludes the possibility of monopoly, not minute scrutiny of each economic transaction by government authorities.

How Do We Explain the History of Joining Forces?

We have cast overwhelming doubt on the public rationale behind Joining Forces, the initiative promoted by the First Wives. What, then, is its likely purpose? The late Milton Friedman likened the actions of politicians to those of the lead duck in a flying V-formation. Periodically, the leader glances back, only to discover that the formation has deserted him and is flying off in a different direction. The leader must scramble to find the formation and resume his place at the head. The point is that this form of leadership is purely ceremonial; the formation leads and the apparent leader is really following.

It was clear even in 2011 that the Obama administration’s economic stimulus package had failed to stimulate. The Federal Reserve had embarked on an unprecedented program of monetary expansion that was being sold as stimulus but was really designed to prop up the financial system. The Obama administration needed something it could point to as a success and claim credit for.

Presidential spouses since Mamie Eisenhower have been publicly active. Mostly their activities have been innocuous; i.e., non-political. The most conspicuous exception was Hillary Clinton’s leadership of her husband’s health-care program – a choice that turned out to be notably unsuccessful. This time, Mrs. Obama’s involvement was shrewdly chosen.

Politically, her support for veterans was designed to appeal to both friend and foe. It would satisfy Democrats who had become accustomed to a party line of supporting soldiers but not war and whose nostrils quivered at the scent of a victimized interest group. The President

was thought to be particularly unpopular with the military community and pro-military Republicans, so Ms. Obama’s stand couldn’t help but improve matters there.

Economically, Ms. Obama would be betting on a sure thing. The President’s wind-down of wars in Iraq and Afghanistan, coupled with Defense Department budget cuts, would gradually feed veterans into the civilian work force. Mrs. Obama’s strategy would portray them as if they were draftees coping with a painful readjustment amidst civilian indifference or even hostility,

a la the World War II vets in the movie

The Best Years of Our Life or the Vietnam vets of

Coming Home

.

Of course, nothing could be further from the truth than this pretense. The volunteer military has been working well for decades. In order to attract recruits, the military has had to offer not only wages and salaries sufficient to compensate soldiers for the opportunity costs of service, but also training in the skills and technological savvy necessary to run a modern military. To employers starved for job applicants with just those skills and training and the emotional maturity gained from military service, skilled vets are like raw meat to hungry lions. And even unskilled vets offer physically trained bodies coupled with mental self-discipline – two more attributes that are highly attractive to sectors like the construction industry.

What about the publicity given to returning vets suffering from forms of emotional trauma such as delayed stress? Could this have given rise to a bias adversely affecting the employment prospects of all returning veterans? Could Joining Forces play a role in overcoming this bias?

We will never know because Ms. Obama’s op-ed says nothing on the subject. We cannot very well grant Joining Forces the credit for overcoming a bias that may or may not exist and that the initiative has ignored. It is easy to understand why the First Wives might skirt the issue. They have no expertise in this area either and do not want to introduce an issue that can only detract from their otherwise favorable publicity.

So what role have the First Wives and Joining Forces played in the absorption of vets into the civilian work force? None whatsoever. They are the leader ducks scrambling to get in front of the formation. They are desperate to take credit for veterans’ inevitable success. No wonder, since this has been the only bona-fide economic success that the Obama administration has rubbed up against in recent years.

Why Has Business Cooperated in this Sham Initiative?

Ms. Obama’s op-ed makes it clear that businesses throughout the country have cooperated with the First Wives in professing solidarity with their initiative and making sympathetic noises toward veterans in general.

Our analysis shows that Joining Forces is a sham. Its motives are purely political. In economic terms, it is superfluous. The internal logic behind the project is so contradictory that the more contemplation it receives, the more ludicrous is becomes.

Why, then, have businesses been so cooperative with the First Wives? The obvious answers would seem to be: fear and prudence. Businesses have watched the conduct of the Obama administration. They have seen auto-company shareholders expropriated for the benefit of unionized employees. They have seen one regulatory agency after another launch assaults on industries in the form of new rules, regulations and policies. They have observed an entire Presidential campaign built around attacks on business success and a candidate who epitomized it. They saw the President’s approval rating remain consistently high throughout, suggesting that his actions resonated with a majority of the general public – not just the proverbial 47% that are supposedly dependent on government. Thus, they have every reason to fear the wrath of this administration and to avoid displeasing it if possible.

In this case, business leaders almost certainly reason that playing along with the sham of Joining Forces is a form of cheap insurance. They can make effusive public statements supporting the goals of the First Wives – talk is the cheapest form of political payoff. And they don’t even have to lie – at least not much. They can sign declarations of support and even make public “plans,” “announcements” and “commitments” – none of which contractually obligate them to anything and which the public will have forgotten about within days. The Obama administration has no intention of later holding their feet to the fire and checking to see if they follow through on that “commitment” to hire 100,000 veterans. (Follow-through would have everything to lose and nothing to gain, since the administration only cares about

seeming to cause veterans to be hired, not about actually

doing

it.) Businesses will certainly hire veterans, who constitute an attractive employment option. No economic archaeologist is going to later paw through the data to calculate whether veteran hires reached the promised total. As political blackmail goes, this is probably the cheapest form of protection these businesses will ever pay.

What’s the Harm?

Readers might wonder where the harm lies in allowing the First Wives their little deception. They aren’t altering the course of economic activity much by their actions. Perhaps this forestalls them from pursuing some more destructive pastime.

Willful deception practiced by government cannot be beneficial. Its effects will harm us both directly and indirectly. Waste and misdirection of resources are bad enough. But the misleading impression of an omniscient and confident government compensating for the ham-handed, ineffectual efforts of a short-sighted private sector establishes a precedent for future interventions. Each new intervention sets the stage for the one that follows. The success of a protection racket like this one emboldens and empowers politicians to attempt bigger and more expensive scams.

There is no conceivable rationale or defense for Joining Forces, the job-placement initiative for veterans begun by Madams Obama and Biden. Its economic benefits are entirely illusory. Its aims are purely political. It is big-government bunkum at its most cynical and demagogic. And this conclusion derives not from political animus, but rather from the straightforward logical implications of Ms. Obama’s own words.

DRI-276 for week of 3-10-13: Understanding Motivation in the Nutritional Regulation Debate

An Access Advertising EconBrief:

Understanding Motivation in the Nutritional Regulation Debate

What is the rationale for government to intervene in our lives – that is, to insert itself between us and the objects of our actions? It is either to prevent something bad from happening or to bring about something good that would otherwise not occur.

This would appear to be an obvious answer to a straightforward question. Yet by this simple standard recent declarations on nutrition by American authorities and government officials seem utterly incoherent.

To make any sense of their comments, we must ask ourselves: Who are they really talking to? What are their real motives, as opposed to their stated or apparent ones? And what is their underlying agenda?

That is where our understanding of economics comes in handy.

The First Lady’s “Business Case for Healthier Food Options”

In a widely publicized Wall Street Journal op-ed (2/28/2013), First Lady Michelle Obama made what she called “the business case for healthier food options.” Ms. Obama has seized upon the so-called “epidemic” of childhood obesity as her personal cause célèbre, much as Nancy Reagan urged kids to “just say no” to recreational drugs. “For years,” she recounts, the problem was viewed as “insurmountable” because “healthy food simply didn’t sell – the demand wasn’t there and higher profits were found elsewhere.”

No longer. “Today we are proving the conventional wisdom wrong… American companies are achieving greater and greater success by creating and selling healthy products.” Now, it seems, “what’s good for kids and good for family budgets can also be good for business.”

A herald of the dawn of a new age had better be able to point to sunlight on the horizon. Ms. Obama cites the example of Wal Mart, which has “cut the costs to its consumers of fruits and vegetables by $2.3 billion and reduced the amount of sugar in its products by 10%. It has also “launched a labeling program that helps customers spot healthy items on the shelf.” Sales of these products have increased.

Disney has “eliminate[d] ads for junk foods from its children’s programming and improve[d] the food served in [its] theme parks.” Walgreens is adding fruits and vegetables to (selected) stores. Restaurants “are cutting calories, fat and sodium from menus and offering healthier kids’ meals.”

The First Lady refers to an opinion-survey finding that “82% of consumers feel that it’s important for companies to offer healthy products that fit family budgets.” She cites a Hudson Institute study that finds over 70% of sales growth in consumer-packaged goods comes from “healthier foods.” Moreover, in recent years the Institute found a direct correlation between percentage of healthy food sold and rate of return.

Ms. Obama closes her piece on a ringing note of patriotic boilerplate. American businesses are at last heeding the call to arms – they are “stepping up to invest in building a healthier future for our kids.” The bandwagon is rolling like an avalanche down a mountain and everybody is hopping aboard. Teachers, mayors, faith leaders, parents, leaders from every sector – why, even “Republicans and Democrats are working together in Congress” to improve school lunches, for goodness sake!

In Mississippi, obesity rates have fallen by 13% at the elementary-school level. Childhood obesity has fallen measurably in California and in cities like New York City and Philadelphia. Of course, we have “a long way to go” since “the problem is nowhere near being solved,” but she “has never been more optimistic.”

Fact Check: Mirabile Dictu, Ms. Obama Seems Factually and Substantively Accurate

It is never safe to take politicians at their word. Ms. Obama does not hold elective office, but First Ladies have long been as politically saturated as their husbands. Thus a fact check of Ms. Obama’s contentions is in order.

Lo and behold, there are indications that not only the sum but the substance of her remarks is accurate. Quoting from the HealthDay newswire earlier last month (2/7/2013): “A leaner menu may lead to a fatter wallet for those involved in the restaurant industry, research suggests.” The Raymond Johnson Foundation surveyed 21 of the nation’s largest restaurant chains for a 5-year (2006-11) period. According to an analyst from the Hudson Institute, “those [businesses] that increased the amount of low-calorie options they served had greater increases in customer traffic and stronger gains in total servings than those that didn’t.”

The researchers developed their own categories for “low-calorie” servings of main courses, side dishes, desserts and drinks. During the survey period, new items that met the low-calorie criteria outperformed others in 17 of the 21 participating chains. The servings classified as low-calorie increased their percentage of total sales in all 21 chains.

Among the chains surveyed were McDonald’s, Wendy’s, Burger King, Taco Bell, Applebee’s, Olive Garden, Chili’s and Outback Steakhouse. Not surprisingly, the chains included in the study comprised 49% of the total revenue in the top 100 U.S. restaurant chains, or some $102 billion in annual sales.

Meanwhile, Back at the Regulatory Ranch…

A few days earlier (2/1/2013), the HealthDay newswire carried this story: “FDA Should Work to Cut Sugar Levels in Sodas, Experts Say.” The subheading was: “Petition by leading consumer-advocate group and academics urges artificial sweeteners be used instead.”

The “leading consumer-advocate group” was none other than the Center for Science in the Public Interest (CSPI), the left-wing group that can with justification be characterized as the nation’s leading scientific-scare-mongering activist organization. Draping the organization in the mantle of “nutrition experts and health agencies from a number of U.S. cities,” Director Michael Jacobson announced a petition urging the Food and Drug Administration (FDA) to set a “safe level” for high-fructose corn syrup (HFCS) and other sugars used to sweeten sodas and other drinks.

The petition claimed that 14 million Americans get over 1/3 of their daily calories from added sugars like these. They “are causing serious problems – obesity, diabetes and heart disease, among others,” according to Jacobson. But Jacobson’s statement accompanying the petition dialed down the relationship from causation to correlation, pointing out the “great deal of evidence linking sugar to [these] problems,” from which CSPI is now “concluding that much of the evidence centers on HFCS.”

Having first donned his scientist hat, Jacobson then doffed it for his lawyer hat by declaring that the FDA is legally obligated to act by – in effect – treating sugar as a toxic substance. Since the First Law of toxicology is “the dose makes the poison,” the FDA must determine the safe level of consumption for HFCS and other sugars in drinks. Then it should set “voluntary sugar targets” for manufacturers of other foods. Finally, Jacobson completes his expert-witness hat trick by posing as an expert on education. The FDA should “educate consumers” about the dangers of sugar, he concludes.

Just what, exactly, should manufacturers of America’s most popular drinks use to sweeten their products – assuming that they are permitted to go on producing them at all? “Artificial sweeteners” is CSPI’s papal verdict. Ironically, their blessing is exquisitely timed to coincide with a barrage of publicity suggesting that aspartame and alternative sweeteners are linked to diabetes and other adverse health outcomes. Yet here, Jacobson is mysteriously complacent. “The FDA considers all these sweeteners perfectly safe. We think the certain harm [from HFCS and sugars] greatly outweighs the speculative risk from artificial sweeteners.”

Jacobson’s position conclusively establishes CSPI as an irony-free zone. Two decades ago, CSPI waged a vocal public campaign to gain regulatory approval for Trans fats as the

“healthy alternative” to saturated fats in the American diet. Today, of course, Trans fats are so firmly fixed in the bad graces of regulators that food manufacturers take care to note their absence on ingredient lists whenever possible.

The Economics of the Current Nutrition Debate

It is no accident, as old-time Marxists were fond of saying, that economics is routinely omitted from the public debate about nutrition and regulation. (Indeed, Michael Jacobson went so far as to demand that “economic issues shouldn’t figure in this” at all.) Economic logic reveals that – even when the principals make statements that are factually accurate – their underlying logic is completely awry and their motives have no relationship to their public utterances.

First, consider Michelle Obama’s “business case” for “healthy foods.” To whom is she speaking? And why? After all, her remarks appear in the Bible of American business, The Wall Street Journal. On their face, they appear to be addressed to food manufacturers in an effort to persuade them to produce more “healthy foods.”

And this is completely crazy, is it not? After all, the livelihoods and happiness of food manufacturers depend on their producing foods that people like and want to buy. Their sales and profits provide a clear-cut index of consumer wants. Their gaze is fixed on sales 24/7. This truism can hardly be news to left-wing commentators like the Obama’s, since half the time the Left is criticizing business for producing the wrong things and the other half the Left excoriates business for its maniacal pursuit of profit and inordinate success in attaining it. If there is one thing business does not need to be reminded to do, it is to produce more goods that consumers want in order to earn higher profits.

Ms. Obama spends a thousand words in the Journal telling American business that healthy foods are now profitable. Does she really believe this was unknown to them before she spilled the beans in print? When these foods are the sales leaders for 17 of 21 leading restaurant chains over the last five reporting years? Who is she kidding?

No. Even the First Lady cannot be this obtuse. She cannot believe that food manufacturers are utterly ignorant of their own business, nor can she expect them to take her advice on how to run their business. They are the experts on the food business. Even if they needed advice, they would never solicit hers. She has openly disdained business; advising young people to forego careers in the business world.

No, Ms. Obama’s motive is not what it seems to be. She has another agenda.

The same thing is true of Michael Jacobson. In response to CSPI’s petition, the American Beverage Association released a statement pointing to the elephant in the room alongside CSPI and the self-appointed nutrition “experts.” 45% of all non-alcoholic beverages consumed in the U.S. today have zero calories. Average calories per beverage serving are down 23% since 1998. Calories from sugar in beverages are down 37% since 2000. In other words, the free market has beaten CSPI and its small army of would-be regulators to the punch.

If the FDA had set voluntary guidelines in 1998 for a changeover to artificial sweeteners, it would today hail the current state of the market as a great victory for regulation. (And then it would demand an increase in its budget on the grounds that much, so very much, remained to do in order to usher in soft-drink nirvana for American consumers.) But because our current status was achieved by free markets, without regulatory carrots or sticks, a crisis exists for the regulatory Left.

The obesity “epidemic” is not a crisis for the Left because it threatens the health of Americans. It is a crisis because it represents a wasting opportunity. Onetime Obama advisor Rahm Emmanuel gained fame by coining the slogan “Never let a crisis go to waste.” His point was that every crisis is a potential opportunity to expand the scope and power of the federal government. A political administration should seize that opportunity by creating more federal agencies, spending more money and enacting more regulations. Failure to do so sacrifices power – and power is all that matters in politics.

The history of the obesity and diabetes “epidemics” reveals why the Left is now sweating bullets on the issue of nutritional regulation.

The Real Cure for the Obesity “Epidemic” – and the Scramble to Get Back in Front of the V

Ms. Obama’s op-ed was not only right about the growing popularity of so-called healthy eating. She was also right about its previous lack of appeal to consumers. For many years, the Left hectored food producers to produce what consumers ought to eat instead of what they wanted to eat. And for years, consumers voted for tasty food over what the experts told them they ought to want.

The Left reacted to this by blaming the victim. Academics and public-health officials insisted that consumers were sluggards who refused to eat right and shunned exercise. In reality, consumers were only following the revised nutrition guidelines that advised them to make carbohydrates the chief source of energy and eschew fat in general and meat in particular. Weight loss was a mechanical process in which calories expended in energy exceeded those ingested in food. Counting calories was the necessary centerpiece of this process.

Food manufacturers did not refuse to produce low-calorie foods. But fat not only produces flavor in food, it also makes it filling – thus producing satiety. Food manufacturers discovered that cutting back on fat made foods tasteless and left consumers feeling hungry. They learned that by adding carbohydrates in the form of sugars, they could replace the taste with only a moderate increase in calories. (Simple carbohydrates are not calorie-dense.)

The problem with this program is that it did not work. Consumers would buy foods that replaced fat with simply carbohydrates but these did not promote weight loss. In this regard, it is vital to appreciate the difference between expertise in the marketplace – as represented by food manufacturers – and in academia. Food manufacturers are experts because they have to be. If they fail, they go out of business and are experts no longer. But academic experts on nutrition and weight loss did not actually have to aid customers in losing weight or reaching optimal nutrition. They only had to surmount the hurdle of peer review. Consequently, they were able to mislead two generations of consumers.

The damage wasn’t limited to obesity. The emphasis on carbohydrates also caused a ghastly upward spike in the incidence of late-onset, Type II diabetes. While the rush of insulin generated by the ingestion of carbohydrates was sufficient to prevent diabetic shock and coma, it did not prevent the damage caused by frequent, repetitive upward spikes in blood sugar. Because the insulin eventually returned blood sugar to normal and because standard medical practice has been to check blood glucose after a period of fasting, these spikes and the accompanying damage went undetected for many years. Eventually, the baby-boom generation began to suffer peripheral neuropathy and other symptoms of nerve damage resulting from Type II diabetes. The influx of television commercials offering treatments for this condition is an index of its prevalence.

It took a doctor on the fringes of scientific respectability named Robert Atkins to explain that the culprit in weight gain was not fat consumption per se. Instead, carbohydrates were at fault. When consumed undiluted, carbohydrates entered the bloodstream quickly and caused the body to release insulin to counteract the resulting upward spike in blood sugar. The insulin caused the body to store fat in the body’s cells rather than burning it as energy.

The key to weight loss was to make protein, rather than carbohydrates, the body’s leading energy source. Carbohydrates should be consumed only when their release into the bloodstream could be slowed by simultaneous consumption of fiber (as with whole apples), fat (as with butter), protein (as with meat) or acid (as with sourdough bread). Meat consumption is not problematic for weight gain or cholesterol accumulation because the body burns fat for energy.

The observed trend toward healthy eating is largely this revolution in blood sugar regulation, which modifies the original Atkins insight with a more precise scientific rationale developed by cardiologists like Arthur Agatston. The difficulty in finding unsweetened iced tea on store shelves – Rush Limbaugh was forced to add an unsweetened option to his lineup of sweet teas – is one indication of the power of this approach. The sudden ubiquity of broccoli, once the butt of standup comedy routines, is another. (Broccoli is high in fiber as well as phytonutrients.) The French fry was a mainstay of the 20th century American diet, but it now shares menu space with sweet-potato fries because sweet potatoes do not share the glycemic (blood-sugar related) drawbacks of white potatoes.

This is the healthy eating referred to by Ms. Obama and the Robert Johnson Foundation study. It endures where its predecessors failed because it works. People actually lose weight without having to count calories. They eat until they are full, so do not feel deprived and find it easy to put up with the loss of starches and desserts.

This approach was developed by the free marketplace, over the hysterical objections of the academic and regulatory nutrition authorities. The establishment labeled the Atkins diet dangerous and predicted it would kill its adherents. Instead, the descendants of Atkins’ program are killing off the nutritional competition. And this puts the Left wing in an untenable position today.

The late Nobel-prizewinning economist Milton Friedman compared political leaders to the leader in a V-formation of ducks. Every once in a while, Friedman said, the leader would look back and notice that he was flying alone. The ducks had deserted him, flying off in another direction. The leader was forced to scramble after them in order to get back in front of the V and resume his leadership position. In this case, the public realized that the government’s nutrition leadership was wrongheaded and disastrous. They left formation and flew off in pursuit of an approach that worked – the principles pioneered by Atkins and refined by newer, more scientific approaches like the SouthBeach diet.

Now the Left is scrambling to get back in front of the V. She knows that she needs to hurry. Ms. Obama doesn’t just want children to stop getting fat. She wants to be able to claim the credit for that result.

As it stands now, she can hardly claim credit for trends that began well before she even became First Lady. Her only hope is to associate herself in the public’s mind with the business trend away from the failed Establishment diet. That is why she chose the Wall Street Journal as the venue for her piece, because of its association with business. She knows her public will not actually read the op-ed. That is good; she wants them to hear about it through the filter of the mainstream media, which will spin its content in ways favorable to her. Her constituency will believe anything bad about business, so she will be seen as telling business what is good for them and for the public. And when the Administration eventually proposes rules telling food producers what they can and can’t produce and how to produce its output, she can then be seen as benign – somebody who is merely helping business to do what is good for it as well as everybody else. And she can claim credit for outcomes attained before those rules ever went into place. The public will have forgotten, if it ever knew, the real story.

Michael Jacobson’s back is against the wall because the blood-sugar revolution is threatening to abort the CSPI’s cherished goal of federal regulation of the American diet. If free markets are allowed to cure the obesity “epidemic” unaided by FDA regulation, it will dawn on the public that the FDA is the equivalent of Edmund Rostand’s character “Chantecler” in the eponymous allegorical play. Chantecler was a rooster who lived his life convinced that his own crowing was responsible for the rising of the sun at dawn, only to suffer cruel disillusionment after a bout with laryngitis.

Jacobson is desperate to achieve FDA regulation in time to claim credit for lobbying in its favor. He, too, is scrambling to get back in front of the V. If the free-market stampede away from sugar and carbohydrates goes on, soon he will not be able to claim the existence of a crisis as grounds for an FDA takeover of American nutrition. CSPI’s raison d’être will be exposed as intellectual pretense.

Jacobson cannot appeal to consumers directly because they are not about to accept his self-appointed expertise as a substitute for their own. After all, they are the experts on their own bodies, their own tastes and preferences – not Michael Jacobson and CSPI. He wants his views enacted as regulatory law because consumers won’t be able to veto their adoption and will then be stuck with them, like it or not.

How (Not) to Cure Social Problems

The most striking aspect of the nutritional debate is its utter clarity when explained as above. So-called “epidemics” of obesity and diabetes were caused by failures of regulation and academic expertise. They are now being eradicated by the free market. As the lawyers say, these facts are not in dispute. Ms. Obama herself is at pains to establish them, although she does not say so in these words.

The Left only wants nutritional regulation for reasons of naked opportunism. There is no case for regulation to prevent obesity and diabetes because it is too late for that. There is no case for regulation to cure them because that is already happening, to whatever extent possible. There is no case for regulation to prevent future incidence because the free market’s program for prevention is already well under way.

Of course, one could always argue that the free market is taking too long to do its work. The contention that markets work slowly while regulatory government works quickly and expeditiously seems grotesque on its face, which is probably why we don’t hear it advanced by Ms. Obama or Jacobson. Of course, we will continue to be browbeaten with news reports about obesity and diabetes. It takes time for blood-sugar levels to normalize. Nerve damage caused by diabetes, even the Type II kind, is probably irreversible.

But truth is like a cat. Once it escapes confinement, it is hard to get back in the sack.

DRI-293 for week of 3-3-13: The Sequester: A Barack H. Obama Production

An Access Advertising EconBrief:

The Sequester: A Barack H. Obama Production

The appearance of First Lady Michelle Obama as presenter of the climactic Best Picture Academy Award at the recent Oscar ceremony is the latest sign of the symbiosis between American politics and Hollywood. The convergence between the political and entertainment industries is now so close that we can use the same economic model to analyze them.

Since both industries are popular and objects of public scrutiny, this model will have great practical value. Its first application will be to analyze the sequester, the current political-theater production now enjoying its first run on popular media throughout the nation.

The Model

The late Nobel-Prize-winning economist James Buchanan campaigned tirelessly against what he called the “romantic view” of government as the promoter of the “public interest.” Government is composed of particular individuals. In order to be operational, the concept of the “public interest” must be comprehensible to those people. If the activities of government were limited only to those whose net benefits were positive for everybody, it would be a miniscule fraction of its present size. Clearly, the actual purposes of government are redistributive. But what unique redistributive plan could possibly command unanimous support from the bureaucratic minions of government? The only conceivable answer is that bureaucrats serve their own interests, presumably having convinced themselves that their interest and the public interest coincide.

Government bureaucrats thus share a common goal with private business owners. But whereas private businesses produce goods and services in markets under the discipline of market competition, governments provide only executive, legislative and judicial services while contracting out for the production of and needed goods and services. Far from submitting to the discipline of competition, governments claim monopoly privileges for themselves and dispense them to others – often in exchange for political support.

From inception until the gradual disintegration of the studio system of moviemaking, Hollywood operated under the marketplace model of competition. When adverse antitrust decisions in the 1940s killed the long-term viability of the giant studios, movies changed their way of living. This drift away from competitive capitalism accelerated over the last two decades. Today, the approach of government and Hollywood to production is remarkably similar.

Private businesses produce goods and services in order to satisfy the demand of consumers. They satisfy consumer demand in order to earn profits and maximize the profit of their owners. Thus, both sides of the market strive to maximize their real income or utility through the consumption of goods and services. Consumers act directly when purchasing for their own consumption or saving for their future consumption. Producers act indirectly when producing for the consumption of others or directly when producing for themselves. Input suppliers act indirectly by supplying labor and raw materials to producers to facilitate production and consumption for others.

Governments cannot act as private businesses do because their bureaucrats are not spending their own money and taxpayers have no effective leverage over them. Bureaucrats serve their own interests – which are those of the politicians who control their fate. Politicians, in turn, most want to retain their hold on office. For the most part, this is accomplished by redistributing money in favor of those who vote for them. Since government has little or no power to increase the supply of goods and services but considerable power to reduce it, redistribution is accomplished predominantly by harming some people while purporting to help others.

We know that private production is beneficial because consumers voluntarily choose from among many competing products in a free marketplace in which producers can enter and leave at will. The existence of prices allows everybody to incrementally assess the value of every unit of input and output to insure its net benefit before purchase. Profit directs the flow of resources to areas of greatest value to consumers.

None of these safeguards applies to political production. In government, the principle of coercion replaces voluntary choice. No profits exist to tell bureaucrats whether they have succeeded or erred. No prices direct the incremental flow of resources and no competition is allowed to provide an alternative to government provision of goods and services. Sure, voting does take place. But the notion that a one-time choice between a restricted field of two candidates can somehow take the place of millions of everyday choices made under vastly better marketplace circumstances is quaint, if not utterly ridiculous.

How Hollywood Has Come to Resemble Politics

More and more, Hollywood production has come to resemble political production. This evolution has accelerated during the last two decades.

Under the old studio system, motion-picture production often left the confines of Hollywood in favor of distant locations. This was sometimes motivated by concern for production values, as when director John Ford sought the scenic vistas of Monument Valley, Utah for his revival of the Western genre in the 1939 film Stagecoach. Increasingly, however, economics lay behind the decision of producers to abandon Hollywood in favor of locations in the eastern U.S., Canada, Mexico, Spain or elsewhere in Europe. Hollywood production was hamstrung by inefficient work rules established by Hollywood craft unions under the sway of organized crime. It became far cheaper to incur heavy travel costs to foreign locations than to bear the costs of a Hollywood shoot.

That was back in the day when Hollywood still operated under the rules of economics that govern private markets. Today, every state of the Union has a state-level “department of economic development.” These Orwellian entities are distinguished by their lack of adherence to economic principles. In particular, they offer subsidies to private businesses for locating and operating within the state. In the case of motion pictures, this takes the form of subsidies to production companies that shoot movies in-state. The rationale for this activity is almost always a purported “multiplier benefit” to the location’s “economy.”

A subsidy is the opposite number of a tax. Both drive a wedge between the price paid by the buyer and that received by the seller; both are inefficient actions with adverse effects on production and consumption. Whereas a tax causes too little of the taxed good to be produced and consumed, a subsidy causes too much production and consumption of the good affected and too little production and consumption of other things. State agencies justify their actions by ignoring their bad results in favor of the supposed good effects.

The most highly touted benefit of movie-location subsidies is “job creation.” Even under the studio system, it was standard operating procedure for casting directors to scour the rolls of local actors to play subordinate parts, rather than pay travel expenses and higher salaries of Hollywood actors. The principal cast, whose work comprised the guts of the movie, was chosen on the basis of star power and acting ability. This was basic economics at work. Today, however, the pretense that subsidies are necessary to insure work for locals and keep local industry alive is another way in which Hollywood has abandoned economics for politics. Movie subsidies are directly analogous to protective tariffs (taxes) levied on foreign goods to make their prices higher than local prices, thus protecting the jobs of local workers.

There is no economic value in creating or protecting jobs because the end-in-view in all economic activity is consumption, not production. The idea is to provide the best combination of output quantity and quality. The implication behind job creation – rarely stated outright but unmistakable – is that our goal should be to maximize the quantity of human labor employed in producing output, rather than to produce the most and best output. This suggests that the profession of economics should hold up ancient Egypt as its model state. The production of pyramids using slave labor may be the best means ever devised for maximizing the number of human beings doing work and eliminating unemployment. (The slave-labor camps in the old Soviet Union’s Gulag Archipelago are a legitimate contender for the title, but lose out on the grounds that they produced comparatively little tangible output and services.)

Since the general idea is to make people as happy as possible, though, we can rule out “job creation” as our lodestar. The reason it is such a popular political goal despite its economic drawbacks is that it concentrates benefits heavily on a group of easily identifiable people who can readily recognize and gauge their gains. The beneficiaries of a job-creation policy are a good bet to vote for their benefactor.

Another prime example of Hollywood’s shift from economic to political priorities is the re-ordering of the bottom line. The mainstream media still behaves as though the success or failure of a movie depends on its box-office receipts. This was certainly true throughout the 20th century, during the birth and development of the motion picture. But it is no longer true today.

Most movies today are conceived or at least approved by the “talent” – stars, writers, directors and their agents. Studios are coordinating and marketing vehicles. The astronomical fees commanded by the talent, together with high labor and insurance costs, make it prohibitively expensive to make most movies. The only way turn a profit is by marketing ancillary products to young customers. Most movies lose money at the box office and are subsidized by ancillary revenues and (as the studio level) the occasional box-office blockbuster.

The shift in priorities away from the box office has allowed the talent to cater to their own tastes in choosing the subject matter of movies. Under the studio system, the preferences of the audience were worshipped by movie-studio moguls like Louis B. Mayer, Irving Thalberg, Harry Cohn and Darryl Zanuck. Many of the moguls were immigrants and Jews who had strong opinions and might have loved to indulge their own tastes. Instead, they ruthlessly pruned the esoteric and controversial output of their directors, writers and stars because their instincts sensed that public tastes would not embrace it. Now Hollywood’s implicit motto is “the public taste be damned” – an attitude it would condemn unhesitatingly were it struck by a private industry producing hula hoops, automobiles or soap. This allows the talent to freely indulge their political preferences on screen.

Hollywood’s bias has long been to the Left. The Obama administration is now busily engaged in centralizing as much production as possible under the aegis of government – executive, legislative, judicial and regulatory. The case of Solyndra is a representative example of the results. Large subsidies were given for the production of an alternative energy facility. Market demand was unfavorably disposed toward the company’s output and it lost money hand over fist. But ancillary considerations – in this case, the ostensible necessity for the gestation of alternative energy production – outweighed the losses in the disposition of funds.

Losses, subsidies and the substitution of personal priorities for those of consumes has long characterized political production. But now it describes Hollywood, too.

How Politics Has Come to Resemble Hollywood

In the early 1950s, veteran actor and movie star Robert Montgomery was asked to tutor President Dwight D. Eisenhower on the fundamentals of spoken communication to improve Eisenhower’s performance in televised speeches and news conferences. Much was made of this intrusion of Hollywood into the pristine, public-spirited world of politics. The election of Ronald Reagan as Governor of California and U.S. President led to his subsequent anointing as the “Great Communicator” – a title that was given a pejorative cast by his critics on the Left. While these episodes may have painted the Oval Office with a show-business veneer, they hardly tell a story of Faustian corruption.

Today, however, candidates are chosen on the basis of qualities associated with movie stars rather than statesmen. Would a candidate as homely as Lyndon Johnson or with the profile of William Howard Taft even bother to register for the Presidential primaries? Journalists have expressed a public longing to sleep with Bill Clinton and Barack Obama, even though political scientists have never ranked amatory skill among the vital attributes of a Chief Executive. The candidacy of Mitt Romney was widely felt to be fatally handicapped by his biography, as if a Presidency were a movie that needed suitable first and second acts to set the stage for a dramatic finish.

Movies are an emotional medium rather than an intellectual one. Their narrative form is highly stylized, based on that of the theater. Movie scripts can be divided into first, second and third acts. There is a (preferably heroic) protagonist, who wages a conflict with one or more villains during the course of the movie. The protagonist undergoes a transformative experience and emerges better for it. There is a climactic resolution of the conflict.

Today, politicians structure campaigns and issues in this manner. They cast themselves as the hero. They demonize their political opponents as villains. And, most importantly, they appeal to the emotions of voters rather than to their intellect.

The timing of announcements, and sometimes even the substance of policies, is determined by “optics” – the snap judgments and emotive reactions of the public. The weight of issues is measured by their standing in opinion polls rather than by their impact on the real incomes of citizens. Like motion pictures, politics has become a purely emotional business in which objective truth is completely overshadowed by subjective perception.

The Sequester: A Barack H. Obama Production

Now we are engaged in a great civil debate on the issue government spending. It will ultimately determine whether our nation – or any nation so constituted – can long endure. The opening volley in that debate has been fired by President Obama himself. But it has not been launched in the rhetorical tradition of intellectual inquiry and contention. Instead, it has been presented as a production of political theater – a Barack H. Obama production. Its title is: “The Sequester.”

In 2011, the Obama administration and Congressional Republicans fought a symbolic struggle over the raising of the debt limit. In order to orchestrate a victory over Republicans, the President crafted the sequester. The word “sequester” means “to set apart, segregate, or hand over (as to a trustee).” That refers to funds in the budget that were removed from consideration for spending purposes. In return for agreement to raise the debt limit, the President met Republicans halfway by agreeing to spending reductions in the form of sequestration.

Now, in 2013, when the time to follow up on his promise has come, President Obama has rewritten the script. He has recast himself as the hero and Republicans as villains in a melodrama in which spending reductions threaten hardship and economic setback. The original terms of the sequester called for $1.2 trillion in spending reductions spread over 10 years, averaging out to around $120 billion per year in reductions.

The actual reduction for 2013 would be about $85 billion. But there is more to the story. First, the cuts come only from so-called discretionary spending; entitlement programs like Social Security and Medicaid are unaffected. Second, the $85 billion figure reflects a reduction in budgetary authority – the statutory authorization to spend. Actual reduction in government outlays is projected to be only half the $85 billion total, or about $42 billion. The difference is accounted for by “baseline budgeting,” the notorious government budgetary practice that automatically increases expenditures every year. When the budget is ruled by the implicit logic that government spending is always good and a growing country will always need more of it from year to year, it is easy to grasp why the federal government is swimming in a sea of debt.

The biggest chunk of sequestration (about half of the authorized total) is slated to come from military expenditures. The remainder is sprinkled more or less equally throughout the federal discretionary budget, with the proviso that it should be distributed to cause the most pain to the populace. Does that sound like a pejorative characterization? No, The Wall Street Journal cited a memo to precisely that effect. Perhaps the most telling index of the melodramatic nature of this Barack H. Obama production came from a White House memo announcing that free tours of the White House would be cancelled until further notice due to “staffing reductions” caused by the sequester. As various bloggers hastened to point out, the tours are conducted by volunteers.

The President’s exercise in political theater contained many other dramatic high points. A White House fact (!) sheet stated that federal programs like Meals On Wheels would serve 4 million fewer meals thanks to the sequester. The document also claimed that 70,000 youngsters “would be kicked off Head Start,” the subsidy program for pre-school education, thanks to the sequester – a claim backed up by Health and Human Service Secretary Kathleen Sebelius. White House Press Secretary Jay Carney expressed grave concern for federal-government janitors who would receive less overtime pay because of the sequester. Department of Education Secretary Arne Duncan made headlines by declaring that there are “literally now teachers who are getting pink slips,” a whopper so outrageous that he was forced to retract it within 24 hours. Not to be upstaged by his supporting cast, the President himself gravely warned that federal prosecutors “will have to let criminals go” if the sequester is allowed to proceed.

The public is accustomed to seeing movies tell lies in the service of dramatic effect. That is exactly what this Barack H. Obama production does. Like many popular movies, it has borrowed its storyline from other successes. For over three decades, state government legislatures have faced laws – such as Missouri’s Hancock Amendment – limiting state-government spending. The standard legislative tactic of opponents is to concoct a fantasy wish-list of worst-case spending reductions designed to terrify voters into repealing the laws. In fact, the laws say nothing about specific spending cuts. They allow the legislators themselves the flexibility to choose which spending to cut. The legislators are supposed to cut the most wasteful, redundant spending and retain only vital programs – assuming there are any. Yet in practice, the legislators do just the opposite – they pick the most painful cuts in order to blackmail voters into spending ad infinitum.

That tactic, straight from the playbook of radical activist Saul Alinsky, is the plotline of “The Sequester.” It makes no sense. When air-traffic controllers went on strike in 1981, President Ronald Reagan protected consumers, who were otherwise helpless against the threat posed by a government monopoly. He fired the striking controllers and hired replacements. Are we confronted by angry restaurant owners who threaten to close up unless we spend more money dining out? Of course not; the restaurant industry is competitive. Strikers would simply lose business to competitors who would step up to serve consumers. But government monopoly employees can successfully hold taxpayers hostage unless the Executive branch fulfills its duty to protect the public. Instead, the Obama administration is siding with the blackmailers.

The Administration’s economic rationale for its actions is transparently absurd. Unofficial Administration economic advisor Paul Krugman hints darkly of 700,000 lost jobs and the CBO forecasts a loss of one-half point’s worth of economic growth – all due to a net reduction in discretionary spending of $42 billion. Yet the Administration absolutely demanded that the Bush tax cuts end on schedule, producing a much larger effect on “aggregate demand” by Keynesian economic lights. Krugman has consistently maintained that the 2009 stimulus of nearly $800 billion was not nearly large enough to produce marked effects, so how can he now bemoan this piddling spending reduction?

Movie plots are not supposed to make sense. They are structured for emotional impact only. Producers, directors and screenwriters are granted dramatic license to lie in order to manipulate our emotions. Their actors and actresses are expected to speak lines from a script in order to enact the drama.

This is what politics has become. It is political theater, dedicated to the proposition that government of itself, by itself and for itself, shall not perish from the Earth.