As a fan of free markets, I recognize that sometimes intelligent government regulations (not always an oxymoron!) can improve markets by requiring companies to provide consumers with information that will help them make better choices. Informed consumers, after all, are a central ingredient of a successful free market. That’s why even most libertarians support regulations that ban fraudulent advertising.
That’s also why, at first glance, the federal government seemed to be promoting better markets when it passed rules requiring chain restaurants to post calorie counts next to their menu items. Research has shown that many consumers are horribly uninformed about the number of calories in most menu options, often significantly underestimating the amount in their favorite meals. Calorie count information should help these consumers make more informed, and therefore better, decisions.
But recent push-back from groups like pizza companies raises important questions about the proper size and scope of such regulations. More importantly, this controversy should remind all of us that, when debating government regulations, we should be humble, because it is often difficult to set a proper balance between helping consumers while at the same time allowing businesses to prosper.
To understand the push-back, it helps to take a guess – your best shot – at estimating the number of calories in a large Little Caesars pizza.
Stumped? You should be. There is no right answer to this question, because there is no such thing as a generic large Little Caesars pizza. Instead, there are hundreds of possible large pizzas one could buy from this company – cheese pizzas, pepperoni and sausage pizzas, mushroom green pepper and extra sauce pizzas . . . you get the idea. The number of calories in a large Little Caesars pizza depends on how many toppings consumers choose to put on top of their pies. This variability makes it hard for Little Caesars to post calorie counts on its menu.
The push-back also comes from the recognition that most large pizzas are not consumed in one sitting by one person. They are shared across several people or across several sittings. (Nothing like the smell of cold pizza in the morning!) Does posting the number of calories in a large pizza, alongside the number of calories in a dinner salad, really help consumers make better choices? Or does it simply distort people’s perceptions of how many calories they will consume if they order a pizza? The latter is a real possibility, because many consumers are notoriously bad at math.
Due in part to industry lobbying, a bipartisan group of legislators have proposed a “common sense nutrition disclosure act.” (Who would be against common sense? Wait: don’t answer that question.) The act proposes to replace the idea of posting the number of calories contained in a standard menu item with the following:
The number of calories contained in:
- the whole product or
- the number of servings and number of calories per serving or
- the number of calories per common unit division of the product, such as for a multi-serving item that is typically divided before presenting to the consumer.
Seems like good common sense. But on the other hand, this approach raises problems of its own. How many servings, for example, in a large pizza? Could a company game the system by dividing its pizza into more slices, and thereby making every individual slice look healthier? Lacking an exact definition of serving size, this rule could be easily manipulated.
What’s more, even though pizza companies could not post the number of calories in every possible combination of ingredients, it would be easy for them to provide a few examples to give consumers a feel for the range of calories in such foods. For example, they could list the number of calories in a cheese pizza, and in “the works” and maybe a couple examples in between.
What is the best approach? I don’t know and, frankly, neither do any of you. I don’t mean this as any sign of disrespect, either to you or to me. None of us know because there is no win-win solution here.
All government regulations come at a cost. Calorie mandates cost businesses money, and that is a shame. But calorie count regulations also create benefits, by informing consumers about their choices. The trick here, then, is to find the right balance of costs and benefits.
Deciding how or whether to regulate markets inevitably forces us to trade off the costs and benefits of our regulatory alternatives. Ideology doesn’t always provide us with easy answers. For example, libertarians typically view government regulations skeptically. But in the case of calorie count mandates, most libertarians should also recognize the benefits of such regulations – the benefits to liberty!–because these rules help inform consumers, and thereby help markets perform more efficiently, like free markets ought to.
We live in polarized times. But much of that polarization resides in the realm of generalities. Conservatives denigrate the government and liberals denigrate corporations, but they do this in generalities. When it comes down to specifics, every conservative recognizes good aspects of government, and every liberal knows about specific corporations that do well by doing good.
Controversy over calorie count mandates should remind us that when the rubber of regulations meets the road of the marketplace, ideological generalities do not point us toward obvious solutions. We should all find that realization humbling.
Peter Ubel is a physician, behavioral scientist and author of Pricing Life: Why It’s Time for Health Care Rationing and Free Market Madness. He teaches business and public policy at Duke University. Peter’s new book, Critical Decisions will be available in the fall of 2012. You can follow him on his personal blog.