Over at the Becker-Posner blog, Richard Posner posts on the New York City ban on trans fats (TFs). This is a possible policy for Australia (the prohibition has been introduced in some Scandinavian countries) and is of interest.
Posner generally supports the ban while Gary Becker, in a separate post, opposes it. This divergence in views has general relevance in thinking about claimed ‘nanny state’ interventions to protect the public against itself.
TFs are synthetic fats used in fried and baked goods. NTC’s Board of Health will ban TFs in restaurants from mid-2008. There is evidence TFs are significant contributors to heart disease (increasing heart disease by up to 6%). About half of NYC's 20,000 restaurants use TFs and a third of the caloric intake of New Yorkers comes from restaurant meals.
A libertarian analysis sees the ban as inefficient. The restaurant industry in NYC is competitive so, if consumers will pay more for meals without TFs, the industry will oblige. To force a ban is unnecessary and forces people to pay higher prices even if they would prefer to pay less and experience increased risk. Some consumers would rarely eat in restaurants and avoid TFs when they cook at home, so their health risks are small. Others would be people who disbelieve the medical opinion or think that TFs improve the taste of food. Finally, enforcing the ban will increase costs of government.
Posner. Posner argues that what is missing in this analysis is the absorption cost of information. The direct cost of informing consumers about TFs is trivial - a restaurant would tell its customers whether or not it used TFs and if it lied would invite class action suits for fraud. But there is a difference between disseminating information and absorbing it. Many people have never even heard of TFs and don't know they are probably harmful to health or by how much. They do not know what a dangerous level of TFs is, what their own consumption of TFs is and how much restaurant-going increases risks. Therefore even those who distrust government regulation of the economy should be open to the possibility that the ban on TFs would produce higher welfare.
Cost-benefit analysis suggests that the ban will reduce annual heart attack deaths in NYC by 500. Then using a value of life of $7 million gives a benefit of $3.5 billion. Cost side effects are not large - half the restaurants in NYC have already phased out TFs, without a big jump in prices. The only advantage of TFs is that they increase the shelf life of foods somewhat – an important but not critical issue.
The NYC restaurant industry has annual sales of $9.5 billion. Assume, conservatively, that restaurants that use TFs account for $6 billion of the $9.5 billion. Suppose the ban increases costs by 1% or $60 million . A $3.5 billion benefit is much greater than this.
Becker. Sees the ban as ‘nanny statism’ with government wrongly presuming consumers are too ignorant to make decisions in their own interests regarding health.
Posner’s main concern is the difficulty consumers have in ‘absorbing’ information about TFs. Specifically, consumers do not absorb the alleged fact that expected benefits of cutting TFs far exceed their costs. Becker agrees the evidence is strong that TFs contribute to heart disease, but the degree of harm from different levels of consumption is doubtful. See e.g. ‘Trans Fatty Acids and Cardiovascular Disease’, New England Journal of Medicine, April 2006. These authors find estimated mean effects of common levels of TFs on cardiovascular disease are large, but in one of the best data sets that they analyze cannot reject (at the 95% confidence) that there is either no effect.
Evidence cannot disprove Posner's claim about consumer ignorance of information about TFs. But half of all NYC restaurants did not use TFs even prior to this ban, many foods sold in ordinary supermarkets have become TFs free in a short time period, we do not know much about whether consumers who eat high TF foods in restaurants eat little of these fats at home, young persons are the primary consumers of heavy TF diets, and other unknowns should make us skeptical of the ignorance argument. It is remarkable how the food industry and restaurants have responded to the greater evidence that TF in sufficient quantities contribute to heart disease. There is evidence elsewhere that consumers respond quickly to health news - studies have documented the rapid reduction in salt intake in response to evidence in the 1980's - now considered exaggerated - that high salt levels have been an important source of high blood pressure.
The prominence of young persons among the big consumers of TFs may be due to an unarticulated awareness that when they reach older ages where heart disease and other diseases are more common, drugs are likely to have been developed that offset the negative consequences of what appears now to be unhealthy diets.
Posner's estimate of the benefits from eliminating TFs is $3.5 billion and he takes $60 million as an estimate of the cost to restaurants from becoming TF free. Then the cost of TF consumption would exceed the expected benefits from lower prices in restaurants with TFs, even for quite but not completely ignorant consumers who attach no more than a 2% chance to the likelihood that these fats have serious consequences for health (0.02 x $6.5 billion > $100 million). These largely ignorant consumers too would only go to restaurants that are TF free so other restaurants would adjust or go out of business.
Posner also gives a kind of lower bound estimate of the benefits as $100 million, and also suggests a much lower cost to restaurants of becoming TF free - take this as $30 million. With a small ‘taste benefit’ from TFs - the New England Medicine Journal article admits positive effect on ‘palatability’- the total cost of the ban would equal or exceed total benefits. For example, suppose 1 million persons on average eat 200 meals per year in NYC restaurants with TFs. If they value tastes of TFs by only 35 cents per meal, the taste cost to consumers of the ban would be $70 million per year. Then total cost would equal benefits.
Becker therefore asks whether one really wants to go down the road of a ban on TFs when the net gains to consumers are dubious, and probably negative and when reversing directions is politically difficult. Hence governments should continue to help provide the best information available about TFs on health but market forces of supply and demand should determine fats consumed. Otherwise, we encourage further attempts to legislate fat and calorie content of permissible foods not only in restaurants but also in the home. There are just too many opportunities for ill-considered attempts to override, on limited evidence, individual judgments about what people want to consume.
Summing up. In my view (largely based on the nutritional claims of Robert Atkins that I have followed for many years) TFs are probably dangerous from the viewpoint of heart health. But doubts about their costs suggest that public bans on such fats are an overreaction. KFC and McDonalds – firms that in the past have produced a lot of TF-rich food have agreed to voluntarily cease using them anyway – these are market forces at work. There are not huge amounts of TFs in the average Australian diet anyway. Nevertheless, publicity on the possible costs is worth providing particularly and consumers are entitled to know TF content of foods they eat, particularly since the main foods in which TFs are used – biscuits, fried fast food and that disgusting replacement for healthy butter, margarine, are rubbish foods that are best avoided anyway.