Tag Archives: obesity

Is Unhealthy Eating our Choice?

As obesity and diabetes continue to become a bigger and bigger part of American society, policymakers are attempting to limit access to unhealthy foods in attempt to curb these trends. As economic principles would suggest, sugary and fatty foods’ direct correlation to diabetes and obesity poses a negative externality on the health of our society. Normally, negative externalities pose an additional tax meant to offset their societal consequences. In the case of food, however, many argue that it is their right to buy a 64 ounce “Big Gulp” or stock up on salty snacks and are willing to fight to keep those options available.

The most famous instance of these policies coming to life was the quota on soda drinks in New York City that was to go into effect last March. The city’s Board of Health determined that large containers of soda were a leading cause to the diabetes problem in America and planned a ban for the sale of non-diet drinks larger than sixteen ounces. Immediately, citizens furiously challenged the law claiming it directly violated their right to choose. Last summer, an appeals court overturned the policy and ended this would-be ban on large drink sizes.

This weekend, the Native American Navajo tribe voted to impose higher taxes on junk foods while creating tax breaks for healthier choices such as fruits, vegetables and nuts. Under the plan, taxes on soda and unhealthy snack foods would increase to 7% while the aforementioned health foods would not be taxed at all. The objective of these rulings is to modify opportunity costs of these foods so consumers choose the healthier option simply by their preferences. If the prices are adjusted enough, the lawmakers hope that fruits and veggies will give as much of a benefit in terms of taste per dollar as the sugary options. They certainly already are providing a much better nutritional value per dollar, but that hasn’t seemed to influence U.S. consumers’ purchasing behavior in the past as much as taste.

Of these two scenarios (imposing tax hikes or quotas), the tax increase scenario seems much more reasonable. There is something scary about a full ban on a product, even if it remains available in smaller sizes. Fundamentally, the reason consumers often choose to purchase large sizes in the first place is the economies of scale: a thought process that says “what’s 25 more cents when I’m already paying $1.50?” By taxing larger sizes at a value that makes a significant price increase (let’s say an additional $1, or 40%), I believe a significant number of consumers would stick to buying the small size. In addition, eliminating free refills could be an option that does not restrict choices but makes larger quantities more costly. Going forward, using externalities to levy taxes on junk-foods may be the only option we have to solve the obesity problem in America.

The many campaigns over the years encouraging healthy eating in the U.S. simply haven’t worked, and much of the problem is that eating healthy costs more. Sure, places such as McDonald’s have added options such as apple slices to their menu, but when customers have the option to choose a McDouble (390 calories) or apple slices (15 calories) for the same price, they seem to always purchase the one that fills them up. An attempt to eliminate the junk-food options completely would violate our rights and really isn’t necessary for a large part of the population, who can effectively maintain a healthy diet and only are treating themselves to junk-food on occasion. A tax of sorts on soda and sugary/salty snacks, especially in excessive sizes, may be what America needs to control its diet and avoid serious health concerns in the foreseeable future.

Featured Articles:

Campoy, Ana, “Navajos vote to try junk-food tax in fight against obesity”, The Wall Street Journal. January 31, 2014.

Associated Press, “Appeals court rules against NYC soda ban,” July 30, 2013.

For more McDonald’s Nutrition Facts information, see this link.

The Health Benefits of the Earned Income Tax Credit

Believe it or not, the Earned Income Tax Credit (EITC) does more than help low income families get involved in the economy.  A new study by the Federal Reserve Bank of Chicago finds that the EITC helps low income families to eat healthier.  (WSJ: Households Spend More on Healthy Foods When They Get Earned Income Tax Credit)

Unlike food stamps, the EITC is paid out as a lump sum payment, which takes advantage of the wealth effect.  Low income families, feeling richer after receiving a large cash payment, alter their spending habits and choose to purchase more healthy foods such as fish, eggs, and dairy products, and consume less unhealthy foods such as sugary beverages.  Given that obesity rates are significantly higher in low-income families (because unhealthy foods is typically much less expensive than healthy food), the EITC is helping to fight a rising economic concern in the United States.

According to Forbes, in 2012 obesity passed up smoking as the most expensive health issue in the United States, increasing annual national healthcare bills by over $190 billion a year!  Indeed, the average obese male has health care bills costing nearly $1,200 more each year compared to non-obese males.  For the average obese female, this cost is an additional $3,600 per year!  (Forbes: Obesity Now Costs Americans More in HealthCare Costs than Smoking).  Furthermore, given that obesity is most common in low-income families that will now have a significant portion of their health care costs paid by the government (via The Affordable Care Act), much of the cost of obesity will be passed on to the Federal Government, contributing to this country’s already growing debt problem.

By encouraging healthy behavior, the EITC is helping to drive down healthcare costs that are indirectly paid for by taxpayers.  Obesity has grown 34% since the 1960s, and this growth has made obesity is an issue that we literally cannot afford to ignore.  Additionally, the impact that the EITC has on food spending illuminates another important issue in the United States: the price disparity between healthy and unhealthy food.  It is unfortunate when a double-bacon cheeseburger costs $3 and a salad costs $10.  By the substitution effect, this type of pricing obviously encourages less healthy eating.  I think it is important for us to address the horrifying price gap between healthy and unhealthy foods, and I think a good place to start is farm subsidies.  I have already written about the impacts of farm subsidies on the market for high fructose corn syrup (https://econ411w14.lsa.umich.edu/why-farm-subsidies-are-stupid/), and as you pointed out with your comments, tariffs and trade barriers are likely another way that we can confront this price gap.  However we address this price gap, it is important that we do so soon, as rising obesity rates are not only saddening, but grossly expensive as well.