Tag Archives: dumb government

They’re Magically Delicious

9 Jul

Before you read this post you should head over to the brilliant, talented, and woolly blog miscellaneous sheepery. There you should read this post about the new regulations on advertising in children’s food. Expectedly, it is awesome and correct.

Having read it, I just wanted to add a point to everything that sheep already said. It is my experience and belief that, in general, government regulation is bad. Usually, when the government gets involved they turn their good intentions towards societal change into a counterproductive problem. I think this is a perfect example of that (and if any of our staff economists can show that this thinking is flawed, please show me that I’m wrong).

The government’s goal here: reduce childhood obesity by preventing food manufacturers from advertising to children when their food is unhealthy. Nobody doubts or disagrees that this is a worthy goal, and within the scope of government power (i.e. keeping its citizens healthy). And most people would look at the regulation and think that it is sensible and reasonable.

But simple consideration might prove otherwise. We will take sheepy’s simple example and expand it a little. In her example Lucky Charms was an unhealthy children’s cereal, and Corn Flakes was a healthy children’s cereal. The advertisement restrictions allow Corn Flakes to advertise to children, and prohibit Lucky Charms from advertising to children.

When you tell Lucky Charms that they cannot advertise to children, what happens to their advertising costs? Necessarily, they are fewer, and they don’t have to spend the money that they would have spent towards advertising to children. This lowers the fixed costs associated with manufacturing their product, and as a result, they can sell Lucky Charms for less than they did before the regulation.

When you tell Corn Flakes that they can advertise to children, but have to stay within the confines of the nutritional requirements laid out by the law, what do they do? They have to hire a consultant or firm or specialist or manager to make sure that the nutritional requirements are met. Sometimes they have to modify their packaging. Sometimes they have to modify their product to meet the requirements if they are close. All of these things result in a higher fixed cost for the Corn Flakes product. Higher cost equals higher prices.

If the price of Corn Flakes goes up and the price of Lucky Charms goes down, as they inevitably will do as a result of the new regulations, what do you think will happen to parents who are buying cereal for their kids? More parents will be buying Lucky Charms, because the marginal price is now lower, especially in this kind of economy. The kids aren’t going to care that the leprechaun isn’t on TV anymore, so long as they get to eat marshmallows for breakfast. The kids are happy, the parents are happy, and everybody is more obese as a result.

I think this is a perfect example of why government regulation oftentimes has unintended effects. The capitalist system is so dependent on freedom of choice. This kind of regulation is intrusive on that choice (by design), and the system isn’t designed to deal with that kind of intrusion. As a result, you get an awkward and misdirected result. The only way to make such an intrusive regulation effective is to change the system entirely, and nobody wants that.

In other words, the commercials with the leprechaun are pretty accurate (even though they probably won’t air anymore), because kids and parents will always be after his lucky charms, no matter what the government does to try and stop them.

Thanks for the cool post sheep, and sorry for hijacking, but I just couldn’t resist. People, put this blog in your rss reader: miscellaneous sheepery. Do it.