Monday, May 21, 2012

Thorstein Veblen had some good ideas

Bryan Caplan marvels over the organic food industry:

"Right-leaning people typically believe that (a) markets work, and (b) organic food is a scam.  I definitely fit the profile.  As a result, my every trip to the grocery store inspires cognitive dissonance.  Organic food isn't merely on the shelves; it's growing by leaps and bounds.  The organic industry itself claims that sales grew from $1B in 1990 to $27B in 2010, with 7.7% sales growth in 2010.  What on earth is going on?  How can my cognitive dissonance be resolved?

The ideologically easiest escape route is to drop (b).  Maybe the health benefits of organic food really do justify a 30-50% price premium.  But nothing
high on Google Scholar inspires confidence in this position.  Major literature reviews in 2009, 2003, and 2002 report that (a) there's little solid evidence about the health benefits of organics, and (b) existing evidence reveals little health benefit of organics. 

This is hardly surprising given the emotional, credulous cognitive style of organic consumers.  Can you imagine the typical "all-natural" fan changing his mind in response to peer-reviewed nutritional research?  That's just not how they roll.

The second-easiest escape from cognitive dissonance is to water down the meaning of (a).  Couldn't you just say "Markets work"="Markets give consumers what they want," then add "Lots of consumers want organic food"?  Sure, but this escape route overlooks a key distinction.  Perhaps there are some consumers who simply want organic food, come hell or high water.*  But many consumers of organic food want not organic food per se, but healthier food.  As far as scientists can tell, the latter consumers aren't getting the extra health they're paying for.

At this point, you could water down the meaning of (a) even further: "Markets work="Markets give consumers what they want given their beliefs."  This story seems OK as far as it goes.  But doesn't it damn markets with faint praise?  In a world of fools, markets produce a great deal of folly.  Sounds a lot like
my critique of democracy, no?

Nevertheless, one big difference between markets and democracy remains.  In democracy, if the median voter is a fool, everyone has to live under foolish policies.  The great redeeming feature of markets is that anyone who figures out that, say, organic food is a waste of money can immediately stop wasting his money.  This is far from a perfect system.  But democracy, unlike markets, adds injury to insult.  In the market, the rationalist suffers fools.  In democracy, the rationalist doesn't just suffer fools.  He obeys them.  Or else

Let me just say I think almost all of what Bryan says here is part of the answer - nothing is wrong with any of this. But my first reaction is to go to Veblen. There is on scientific study saying fur coats keep you warmer than faux fur coats either. So? This is largely a status thing.

I also think it's an altruism thing. It's not necessarily themselves that people want to keep healthy - it's the environment. Whether organic foods do the trick there or not is not something I'm qualified to answer, but I don't get the impression that organic food consumers are just engaging in healthy eating.


  1. Unsurprisingly Caplan frames the entire desire for organic food along the single aspect he can refute. Organic food is of higher quality and produced in a marginally more sustainable way.

    also in a world where lucky charms are fortified with vitamins it seems ridiculous to single out organic food because it is irrationally demanded/marketed as healthy.

  2. Not a debate that I have time to wade into, but I did spot this on my Twitter feed a few minutes ago:

  3. "It's not necessarily themselves that people want to keep healthy - it's the environment."

    Yes, free range chicken might be better for me, but it is definitely better for the chicken.

  4. Bryan's studies speak only of the nutritional content of the foods. Nothing about the primary qualification of organic: no newly developed pesticides or fertilizers with unknown health effects.

  5. sensible people believe that markets don't work and that organic food is a scam, exploiting many of reasons why markets don't work

    If markets did work, the "scam," would not be possible. Producers of non-organic foods would raise their prices, telling consumers, we are good or better and look at all the money you are saving

  6. I think Gene points out the principle reason people buy organic food that Bryan omitted.

    Those who believe that "markets don't work"... How is socialism supposed to alleviate this problem? Surely in a socialist democracy people would vote for more organic food instead of buying it?

    Markets do work.... They work precisely because they take important decisions away from the vast masses of not very bright people and put them into more competent hands. The details of consumer demand may well be "irrational" in many ways, but that doesn't matter too much. What matters in the long run is capital allocation.

    1. I get so tired of people, like this commenter, who are just totally disingenuous.

      Recognizing that markets don't work is not socialism.

      For example, when we had some wisdom in this place we wisely prohibited gambling.

      Much, if not most of the regulation we need is just that, saying No.

      Look at how much better off we would all be if we had followed the very wise counsel of Munger and Buffett and said "No" to all the derivatives that blew up causing the Lesser Depression.

    2. If your for regulation that's fine. But the balls in your court for justifying why regulation is a good idea in particular cases. For example:

      What's your justification for prohibiting gambling?

      Why do you think derivatives caused the "lesser depression"? The UK and Ireland had the same housing bust that the US had. But there was very little use of derivatives here. There are certainly lots of people out there blaming derivatives, but there are plenty of other potential culprits too.

    3. Current,

      You are so badly uninformed that I probably should take Mark Twain's counsel and not reply.

      What's your justification for letting people gamble?

      The law, in its wisdom, doesn't let me buy life insurance on your life, betting whether you will live or die. Why should the law let me bet on whether you can roll a die or turn a card or don't pull back on the reins of a horse?

      As for the Irish and UK, I believe, if you checked, you will find that the loan losses of their banks were on our loans and derivatives.

    4. Current: Capitalism =/= markets.

      To take a quick example, trade in medieval China flourished, even though the state was actively stymieing the profit motive for a long time.

  7. "badly uninformed"


    "The law, in its wisdom, doesn't let me buy life insurance on your life, betting whether you will live or die. Why should the law let me bet on whether you can roll a die or turn a card or don't pull back on the reins of a horse?"

    The law doesn't permit me to buy life insurance on your life because that way I could profit from ending it. In that case you would be betting on my life ending, then taking steps to make that happen. The gambling cases you give are different, in that case you are betting on a situation that you don't have any realistic power over. You may be betting on whether I don't pull back the reins of a horse and I may have an interest in that one way or the other. That's your problem, you don't have to bet.

    It could be argued that in some cases some gamblers do have power over the outcome. In horse racing the introduction of betting on horses to lose in the UK was very controversial. It hasn't led to loads of cases knobbling though.

    "As for the Irish and UK, I believe, if you checked, you will find that the loan losses of their banks were on our loans and derivatives."

    I have checked, and that isn't true. Though some banks certainly lost a lot that way.

  8. Current

    You just admitted why we shouldn't let banks bet short on the economy or firms. It gives them an incentive to profit by not performing their purpose, which is to provide capital.

    Do you think we would have more murders in this Country if we let people buy life insurance no others. No. We don't permit such because it is not a healthy or productive activity.

    1. I have no problem with banks shorting "the economy" or other firms. There is little an individual bank can do to harm those other firms, let alone the economy as a whole. Just like if you bet against a horse there is little in practice you can do to make that horse lose.

      What evidence do you have the banks are doing this? I say you're just scaremongering against bankers.


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