What do food and finance have in common?
Reader rjs sent me this morning to this most excellent blog by James Kwak. It touches on something I have blogged about before: the disconnect between utility and preferences in consumer decision-making, a disconnect that is fostered by those who gain financially from it. In my previous blog I attempted to draw the parallel between nutrition and banking, but Kwak has done it far better than I. After laying the foundation for his assertion that knowledge about food and nutritional science has been "shaped" by food manufacturers, aided and abetted by weak or cowed regulators, he draws the link to finance:
What does this all have to do with finance? Roughly speaking, read academic finance for nutritionism; the financial sector for the food industry; subprime loans, reverse convertibles, and CDOs for highly processed food claiming to improve your health but actually killing you; current disclosure laws for the FDA-approved health claims on corn oil; thirty-year fixed-rate mortgages and index funds for the neglected, unsubsidized, unadvertised fruits and vegetables in the produce section; the OCC and OTS for the FDA; and the long-term increase in obesity and diabetes for the long-term increase in household debt.
In both cases, you have an industry that earns profits by convincing people to do things that are not in their long-term interests; that, in the process, creates negative externalities for the rest of society; and that has cowed regulators into submission, if not outright cheerleading. In both cases, the industry defends itself from critics by saying that it is simply providing what customers want, and hence any new constraints (even, say, accurate organic labeling laws) constitute a paternalistic intrusion into people’s economic freedom. And in both cases, the industry claims that if it isn’t allowed to continue on its current course, the economy as a whole will suffer. (After all, our corn- and soy-based diet is what enables the industry to provide huge numbers of calories at low cost.)
I wish I had written that.
I suggested some time ago that the price of casino-like finance is higher than we think in terms of the labor market distortions it has created by siphoning some of our best and brightest away from objectively productive contributions to national output and well-being. As Kwak makes clear, the distortion is not just to the workforce as I and others have suggested, it is also to the information we need to make sound judgements about what we ingest (and I would add: wear, drive, and live in).
How free is a man or woman who is making decisions that affect, not only their own and their children's lives, but the well-being of their friends, neighbors, and countrymen, when the information they base the decisions on is questionable at best and highly distorted to favor someone else's pocketbook at worst?
The food industry has financial incentives to "shape" information and it is not alone. Pharma also confronts considerable incentives to overstate the benefits of the drugs it produces. I don't suppose it helps that medical research may be compromised by the similar conflicts of interest. Nor does applied economics research appear to be free of bias although it appears that it is biased in favor of false null findings (at least in what is published and except when we become aware of and mentally "correct" for the bias, thus allowing us to approximate reality or perpetuate self-delusion depending on the extent to which our pre-existing knowledge, theory, and delusions correspond to reality; of course, without a confidence interval, the size of the false null we failed to reject will remain a mystery).
I don't want to discourage you, but the only solutions that occur to me involve an educated electorate (educated in basic economics, statistics, and probability), regulators who are empowered and responsive to all stakeholders, and applied researchers whose promotion and tenure do not depend only on publication in the top 5 journals of their field and the amount of NIH grant dollars they bring in. Now there's an interesting and unrealistic idea for an alternative universe, yes?
Read Kwak's blog please.