Accounting for the Negative Externalities of Food

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I wrote a couple weeks ago about chronic disease, and compared it to deadly plagues of our past. Chronic disease today isn't so different from ancient plagues; not as acute, but just as deadly. Seven out of ten Americans die from a chronic disease such as cancer, heart disease, and diabetes. These aren't "inevitable" diseases from old age. Today's rates of chronic disease are unprecedented in human history. They're the diseases of modernity, progress, and industry.

Chronic diseases are the negative externalities of rapid change and optimizing for profits. In this context, a " negative externality" refers to the effect of a production or consumption process on society, with no compensation paid to those affected.

Negative externalities from production [credit tutor2u]

Pollution emitted by a factory that affects the health of nearby residents and contributes to climate change is an example of a negative externality.

The consumption of industrially processed foods also result in negative externalities, namely chronic disease that affect our nation's productivity, healthcare costs, longevity, and wellbeing.

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Negative externalities from consumption [credit tutor2u]

I don't think there's anything wrong with industrialization or the pursuit of progress and profits, but the only way it works in our free market economy is when the negative externalities are accounted for. Currently, negative externalities are not on any company's P&L. Hershey's doesn't have a line item for "diabetes treatment" and Crisco doesn't account for "treating heart disease" on its financial statements. So whose responsibility is it?

In some senses, it's the individual's responsibility since it's the individual who chose to eat the food, buy the product, etc. But most negative externalities are caused by a system, not by individuals. If the CEO of Hershey's decides it's best to admit that sugar consumption results in major health issues, and that the company should start funneling a large % of profits to healthcare, that CEO will be removed by the board.

Really, most negative externalities are just inevitabilities of societal progress.

Progress is inevitable. Evolution is progress. So how can we setup a form of government that accounts for the negative externalities associated with progress, without slowing it down? One argument is that we just let it happen. We let the negative externalities happen, knowing that future progress will solve them.

In New York in the late 1800s, the transportation technology of the day was horse and carriage. In fact, there were so many horses that the resulting manure was piled high as buildings all over the city. It became such a problem that city planners at one point believed urban civilization was doomed, as streets and neighborhoods would by buried in over 10 feet of manure. Just as the city seemed destined to bury itself alive in manure for the sake of convenient, quick transportation, the Model-T was invented by Henry Ford, cars replaced horses, and the horse manure problem quickly went away.

The invention of the car solved one problem, and introduced another: carbon emissions from transportation. Although cars are not the only reason we're pulling fossil fuels from underground and combusting them, they are a major contributor to greenhouse gas emissions and global warming. In the case of cars, the technology of progress is the automobile; the negative externality is the pollution and its effect on our planet. Do we make cars illegal and stunt any progress that requires fossil fuels? Or do we put resources toward making it a moot point, like with the piles of horse manure in New York?

In 2001, Portugal became the first country in the world to decriminalize all illicit substances. Before doing so, the price of drugs didn't reflect the negative externalities their consumption were causing: violence, poor health, lost productivity, etc. After being decriminalized, those externalities became part of the accounting. Drug sales are now taxed, and a large share of that tax income is put toward drug prevention programs and illicit drug education. The country has not only seen a decline in violence and drug-related crimes, but has actually seen a decrease in illicit drug usage, all by simply accounting for the negative externalities.

As another example of accounting for negative externalities, certain counties and states have begun taxing carbon emissions. On a global scale, this is exactly the incentive we need to start accounting for the negative externalities of industry. Companies and technologies with comparatively low emissions will start to have a competitive advantage, displacing some share of the unsustainable incumbents.

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Certain counties and states have begun taxing carbon emissions [credit MIT].

What if we did the same for unhealthy foods, foods with high carbon footprints, and all other products and industries that have unaccounted for externalities?

Not all externalities are negative. There are positive externalities, too. For example, buying an electric car is displacing the use of a car powered by fossil fuels (petroleum based gasoline). In fact, the government does often account for these positive externalities by means of tax incentives.

In the food industry, formulating a product that has a lower blood sugar impact may go unnoticed by many, but that food product is producing a positive externality in people's health.

Externalities should be accounted for in those cases where one individual or company is responsible for them, yet our entire society pays the price. When someone unknowingly consumes rancid, oxidized vegetable oils in a restaurant meal and as a result is one step closer to a heart attack, it's the restaurant that's responsible for that adverse health outcome, but it's our entire society that pays the price, in the form of increased insurance premiums, higher healthcare costs, and lower productivity. The restaurant benefits in the form of cheaper cooking oil, but on the grand scale of accounting, the books are not balanced.

When pesticide spray in agriculture ends up in rivers that flow into the ocean, the farms benefit with fewer pests and thus higher profits, but our planet's biodiversity suffers. The farmer's books may be balanced, not having to account for the downstream effects of heavy pesticide use, but there is no entity left responsible to pay the price of our planet's losses.

Externalities need to become a part of our accounting. If we put resources into accurately calculating both the positive and negative externalities of products, practices, and industries, we can "balance the books" by taxing them and putting that additional income into preventing and fighting chronic disease, pollution, biodiversity loss, and unsustainable practices.

And it doesn't have to be perfect. We start with the low hanging fruit and ensure our "life cycle analysis" of the externalities are accurate. There should be some strict criteria to prevent frivolous externality taxes, like 90% of scientists agreeing on the order of magnitude of the externality. Ultimately, most of fast food will become more expensive and fresh produce will become more affordable in relation.

Such a change would not widen the inequality gap, it would narrow it. For example, not only would people be healthier (assuming some % of spend shifts from fast food to real food), but they would also have more financial support. A major reason for fast food consumption is that it's cheap, it tastes good, and it's convenient. Many families don't even own the proper cooking equipment to prepare a meal from "real food.” Income from taxing the worst offenders in junk food could be funneled into food education, programs to feed the poor, community gardens and farmers markets, public food halls, and the like.

Income from taxes on sodas, candy bars, cigarettes, and french fries could go into better food education in school, or even government funded health coaches for those suffering from food addiction and obesity.

As another example, income from taxes on roundup-ready corn could go toward diminishing the effects of that roundup in our rivers. Governments could provide grant money for promising technologies that turn fertilizers and herbicides in rivers into harmless byproducts.

Externalities that present local problems are comparatively easier to solve and account for than global externalities. We’re seeing this in climate change. Certain countries and leaders don’t want to be individually burdened to help fix a global threat. All countries contribute to climate change, but smoke from deforestation in Indonesia may have more extreme externalities in nearby Singapore. Emissions in Mexico may cause pollution in California. It’s easy for Mexico or Indonesia to shrug, thinking it’s “someone else’s problem.”

While we can't impose a tax on the production of goods in other countries, we can still tax their importation and consumption. If a few other powerful countries follow, we could affect major change. If all conflict palm oil from Indonesia faced a 50% tax, the price of unsustainable palm oil would actually be higher than the price of sustainable palm oil for sales to those countries. Farmers in Indonesia would be financially incentivized to farm more sustainably, and demand for sustainable palm oil would increase as the price decreases.

The answer is not to make glyphosate, cigarettes, alcohol, and sugar illegal; rather, it's to do like more progressive governments, and turn something harmful into a vehicle for good.

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