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The Nuclear Nudging of Your Food Choices

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In the book Nudge: Improving Decisions about Health, Wealth, and Happiness, the “choice architect” Cass R. Sunstein describes his idea of “libertarian paternalism.” The paternalism aspect refers to “nudging” people in a desired direction, for example by putting photos of rotted lungs on cigarette packages. The libertarian aspect refers to not actually stripping people of the freedom to choose. Balancing these two positions through regulation is what Sunstein calls “choice architecture.”

A prime example of choice architecture has been percolating in the Food and Drug Administration (FDA) since 2010, and it could be served up shortly. According to the FDA website, the agency is “hoping to issue the final rules” for menu labeling by the end of 2013. It “is proposing that the final rules become effective six months from the date of publication.” Rather than expressing a shred of libertarianism, however, the federal regulations are deeply anticonsumer and antibusiness. They express a deep contempt for individuals and their choices. Unlike Sunstein’s glib references to nudging, the regulations have teeth that will bite anyone who disobeys.

What is the FDA’s proposed new rule for menu labeling?

Sec. 4205 is one of the many hidden provisions of Obamacare, which was signed into law on March 23, 2010. The provision is subtitled “Nutrition Labeling of Standard Menu Items at Chain Restaurants.” It applies to restaurants and retail food vendors — including supermarkets, convenience stores, self-serve buffets, and vending machines — which have 20 or more locations. The food vendors are required to list calorie-content information for the standard food items they offer.

Among the specific rules are the mandates that there must be a statement of nutrient content that includes calories; that the statement must be next to each standard item on a menu board, whether the menu is inside a restaurant or outside at a drive-through; and that there must be a statement of the “suggested daily caloric intake, as specified by the Secretary by regulation … designed to enable the public to understand, in the context of a total daily diet, the significance of the caloric information that is provided on the menu.”

Upon written request, the food vendor must also provide a breakdown of the fat, saturated fat, cholesterol, sodium, total carbohydrates, sugars, fiber, and total protein in each standard item. Upon FDA request, the food vendor must also be able to produce a “reasonable basis” for the nutritional statements, such as laboratory analyses.

Subsection (v) of Sec. 4205 is especially problematic. It requires “standard menu items that come in different flavors, varieties, or combinations, but which are listed as a single menu item, such as soft drinks, ice cream, pizza, doughnuts, or children’s combination meals” to have menu statements for each variation.

Mary Lynne Carraway, the majority owner of 74 Domino’s Pizza stores in the DC area, explains that there are over 34,000,000 different ways to make a pizza. Therefore, the FDA’s new requirements will impose a close-to-impossible burden upon Domino’s franchise owners.

Moreover, 60 to 70 percent of Domino’s business now comes from the Internet, where customers have easy access to an online Domino’s Cal-O-Meter. The tool permits them to build a customized pizza, complete with a calorie count and the nutritional information associated with their choice of toppings.

According to Carraway’s estimates, the new menu requirement for physical signs would cost the franchise owner or manager of each store approximately $5,000. The cost would be passed on to employees, whose hours might be cut back, and on to customers, who might pay more.

Mike Mullen, who owns a Domino’s franchise in Maine, remarks, “for a business that runs on very slim profit margins, this would have a crippling effect.”

The FDA estimates the total cost to the private sector will be between $97 and $537 million. But such government estimates are notoriously low, and the ultimate cost of a regulation is often several orders of magnitude higher than the original estimate.

Mullen adds, “Additionally, we could be exposed to frivolous lawsuits if the calorie count of an item is incorrect as a result of an employee’s accidentally putting too much sauce or cheese on a pizza.” Owners could also be exposed to extreme legal penalties for noncompliance. Once the regulations are finalized, a chain restaurant or vending-machine owner who does not post the required statements could be found guilty of “misbranding” food. This violates 21 U.S.C. § 331 of the Food, Drug, and Cosmetic Act.

If a scofflaw owner is deemed to be also guilty of “the intent to defraud and to mislead,” then the “misbranding” becomes a felony. It carries a possible punishment of three years imprisonment and fines of “$250,000 per count for individuals and $500,000 per count for organizations.”

Both the requirements to post and the possible penalties constitute powerful incentives for restaurant and vending-machine owners to never expand beyond 19 locations, even if their businesses are successful. The requirements tell American businesses not to grow, not to hire. If a businessman does decide to grow past 19 locations, then the regulations tell him “we will legally favor your smaller competitors. We will make it less expensive for the mom-and-pop convenience store next door to sell pizza or soda.”

The FDA’s menu-label message

Individuals are stupid; that is one of the main messages of Sec. 4205. With respect to vending machines, for example, the FDA acknowledges that the usual justifications for regulation of the industry do not apply. Instead, intervention is justified because “there are systematic biases in how consumers process information and weigh current benefits (from consuming higher calorie foods) against future costs (higher probability of obesity).” In short, people are too stupid to know that eating chocolate bars right now might lead to weight gain later.

Human nature is untrustworthy and must be corrected. The FDA states, “This market failure [of vending machines without calorie listings] occurs because at the time of purchase, consumers do not value calorie information as much as they do later, when the effects of excess calorie consumption are evident.” The FDA is describing “time preference.” This is one of Austrian economics’ universal insights into human nature: namely, that if all things are equal, individuals will prefer to satisfy a desire now rather than later. The fact that the “effect of excess calorie consumption” becomes evident should come as a relief to the FDA. It means that stepping on the scale after a fast-food binge should be what Obama calls “a teachable moment.”

Customers do not want to know the content of the food they are served. The FDA contends that “if a sizable fraction of consumers were willing to pay for — and discriminate based on — the visible calorie information at the point of purchase then the industry would provide it to them.” The FDA is assuming that food vendors do not provide calorie information. This is contradicted by the growing trend of food vendors to provide a nutritional breakdown in order to acquire a competitive advantage. A significant number of customers do not merely utilize the information, they also reward it with their business. The most the FDA can say is that some people care about the nutritional value of fast food, and other people don’t. A similar statement could be made about any product.

The free market should not reflect the desire of customers. The FDA laments, “Because of competition for consumer time and attention, vending-machine operators have limited time and space in which to convey information to consumers.” Operators will naturally include that information that makes an item attractive to customers, such as price and size; in other words, they will include the information the customer most values. Accordingly, the FDA’s “proposed requirements mitigate the apparent market failure in information provision stemming from present-biased preferences [that is, from the customers’ human nature].” (Emphasis added.) The FDA considers the satisfaction of customer demand to be a market failure. Presumably, a market success would satisfy the demands preferred by government. And government wants to reduce obesity.

Posting a calorie count will reduce obesity. The FDA assumes that “the proposed requirements [will] mitigate the increase in the prevalence of obesity and the prevalence of … costly co-morbidities.” But for customers who are not already calorie conscious, study after study has found that posting a calorie count makes little difference. Julie Downs, the lead author of a recent study published in the American Journal of Public Health, explains, “Putting calorie labels on menus really has little or no effect on people’s ordering behaviors at all.”

Where there will be a deep effect, however, is in the ability of businesses to keep struggling onward. Carraway explains,

Sometimes, when things like this are constantly bombarding the small businesses of America, it’s just too much. And you think, “Why am I doing this?’” and “What am I doing here?” But I have to look around and to remember I have 1,800 people who believe in this company, who need this work, who need these jobs.

Carraway conceded that $5,000 for a new menu board may seem like a small matter. “But it’s the added on regulations, it’s the added things that are constantly being thrown at us. And as a small business person that wants to keep going, it is really, really hard to do that.”

Eating out may become more expensive in the near future. The cause will be a paternalism with nothing libertarian about it.

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    Wendy McElroy is an author for The Future of Freedom Foundation, a fellow of the Independent Institute, and the author of The Reasonable Woman: A Guide to Intellectual Survival (Prometheus Books, 1998).