In economics, an externality is either a cost or a benefit thats not reflected in the price of the commodity. One typical example is that if 99 out of 100 people get flu shots, that hundredth person is generally safe from the flu even without a shot, just because there are fewer carriers.
In contrast, in the August 2011 issue of American Economic Review, Nicholas Z. Muller, Robert Mendelsohn and William Nordhaus published a paper Environmental Accounting for Pollution in the United States Economy in which they reported that the environmental costs of coal-fired electric generation can cause damages adding from 0.8 to 5.6 times the market price of the electricity.
In situations like this, the cost or benefit of the externality is shifted from the person paying the market price to somebody else. A classic example is acid rain. The gases that caused acid rain, sulfur and nitrogen oxides were released from power plants in the Midwest, but the cost of these pollutants was paid by farmers and fisherman far distant from the power plants.
On Nov. 14, 2011, Congress, in its infinite wisdom, coupled with the wisdom of $5.6 million in lobbying costs, overturned Department of Agriculture rules that would have changed the standards for school lunches to reduce the amounts of starch and sodium and increase the amounts of fresh fruits and vegetables.
The opposition to the new rules was bipartisan and included Sen. Mark Udall (D-Colo.), and Sen. Susan Collins (R-Maine). The lobbying to block the proposed rules came from major food companies including ConAgra, Coca-Cola, Del Monte Foods and Schwan, a major marketer of frozen pizza. Support for the new low-fat, low-sodium requirements included the Center for Science in the Public Interest, and Mission: Readiness, a group of retired military officers who are concerned about the physical state of the armed forces. Per Mission: Readiness, According to the Defense Department, being overweight is the leading medical reason why young adults cannot enlist, with one in four too overweight to join. The Mission: Readiness press release was extremely blunt: Given that the USDA has spent the past year finalizing science-based standards to limit salt, unhealthy fats, and calories and include more nutrient-rich vegetables, fruits, and whole grains as part of school cafeteria menus, youd think wed be off to the races and kids would soon be eating much healthier food at school.
Instead, we appear to be reliving the past battles over ketchup as a vegetable. If schools or industry lobbyists want to count pizza as a vegetable, they should make a pizza that meets vegetable standards, not tamper with the standards to create a pizza loophole.
In a June 2011 report in the New England Journal of Medicine, researchers from Harvard reported a correlation between types of food and long term weight gain. They reported 4-year weight change was most strongly associated with the intake of potato chips (1.69 lb), potatoes (1.28 lb), sugar-sweetened beverages (1 lb), unprocessed red meats (0.95 lb), and processed meats (0.93 lb) and was inversely associated with the intake of vegetables (-0.22 lb), whole grains (-0.37 lb), fruits (-0.49 lb), nuts (-0.57 lb) and yogurt (-0.82 lb).
Lobbyists for the food processors argued that the costs of the USDA regulations would strain the lunch budgets of local school districts, but this is an example of a clear externality since obesity is the number 1 risk factor for development of type 2 diabetes, and the American Diabetes Association estimates that the direct medical costs of diabetes care come to $116 billion per year.
This is more than 10 times the federal budget for the school lunch program, and doesnt include costs of treatment of other obesity related conditions. The USDA proposals would have increased the cost of school lunches but the current prices are subject to an externality. The current standards may seem inexpensive, but the real price is paid in the Medicaid and Medicare budgets, which are the fastest growing costs the government faces. Economists have estimated that we can never control the Federal deficit without controlling health care costs, and (not counting going to a single payer system) it seems as if the easiest way to do that would be to listen to your Mother and eat your vegetables.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email email@example.com.
From The Progressive Populist, December 15, 2011
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