Should we require meat packers to print the country of origin on every package of meat sold? Should the government publish long-term projections of spending, revenues and the national debt? These contemporary questions are important ones and economists can furnish some insights.
Start by realizing that information usually is scarce, often valuable and, generally, not free. Most economists agree that more or better information usually improves economic efficiency. The more that producers and consumers know about the relevant factors that bear on their decisions, the better such decisions are. More goods and services get produced from the same available resources, and these goods and services produce more satisfaction of human needs and wants. That is the core definition of economic efficiency.
So efforts to improve information available to guide people’s decisions usually are good. But assembling information itself requires resources. It has its costs. At some point, diminishing returns set in and the extra benefit from more information is less than the extra cost of acquiring it.
For purely private decisions, the decision-makers themselves can decide where that point is. Should we go to one more furniture store to look at more recliners? Do I need to do another soil test before ordering fertilizer for the west 80 acreage? Should we do background checks on all prospective employees? Should I ask how much salt is in this Big Mac?
Some information, however, has characteristics of being for the public good. Information like a tornado warning made available to one person can be equally available to others at zero additional cost. It is not easy to exclude anyone from hearing the information, so it is hard to charge for it. Thus there are no incentives to set up businesses.
So how does this apply to Country of Origin Labeling, or COOL? A bill requiring it passed Congress in 2002. Opponents, including the big meat packers and Canadian and Mexican livestock producers, fought it tooth and nail and now are suing in federal court to overturn it. They claim it violates the U.S. constitution by “compelling speech in the form of costly labels that do not directly advance a government interest.”
On its face, this more information to consumers helps them make better decisions. Surveys, albeit ones conducted by advocates of the law, consistently show that 80 percent or more of the public supports the law.
Hence one might think that economists should also. But many don’t.
Economists who favor minimal government argue that if it really is important to consumers, they would be more willing to buy from companies that voluntarily label their products and would shun those that don’t. Firms that make the disclosure would earn more money than those that don’t, just as putting a “union-made” label on clothing did for some companies in our grandparents’ generation.
Other economists oppose it because they think it implies the mercantilist message that imports are bad and society would be better off if we imported less. That trade benefits societies overall is a consensus view for economists and an article of faith for many.
This law initially did not arise from popular demand, but from efforts by domestic livestock producers and the smaller meat processors that do not have international operations or use imported meat. So COOL has the effect of being a “non-tariff trade barrier.”
I’m not sure that if one took a poll of economists, where the majority would fall. I personally favor COOL in guarded terms because consumers do place some value on the information. However, I recognize that there also is an element of “rent-seeking,” or the use of government by a special interest group to get higher incomes than they would otherwise.
Separately, the Intergenerational Financial Obligations Reform Act is proposed legislation that would require the federal government to calculate and publish annual estimates of the “fiscal gap” between projected revenues and project outlays over a long period. It essentially would extend the annual 75-year projections already required of the Social Security Trustees to the entire federal budget.
Some 14 Nobel laureates in economics, politically liberal as well as conservative, have already signed a statement in support of the act. So have myriad other prominent economists and a lot of minor ones, including me.
However, there are some who oppose it and they have good reasons. It is not an intellectual slam dunk.
Any time one makes projections far into the future, the results are highly dependent on very subjective assumptions as to what rates of economic growth may occur, population trends, inflation levels, real interest rates and other unknowable factors.
Technologic or policy changes, such as new medical devices or new healthcare financing structures are large unknowns. So are future defense needs. On September 10, 2001, few would have anticipated how great our military and homeland security spending turned out to be.
Moreover, both revenues and outlays are variables that depend on legislation passed and signed.
Projections made in 1999 or 2000, before the two George W. Bush tax cuts and the bipartisan approval of a very expensive and unfunded Medicare drug benefit would be sharply more optimistic than ones made afterward.
Given the inherent tenuousness of such projections, critics argue, the bill would add more confusing noise than useful signal. Projections would become fodder for demagoguery.
These are real concerns. As with meat labeling, I am cautiously in favor. But these are issues in which people with the purest motives can come down on either side.