Tuesday, December 19, 2006

Market Failures in Everything: iodized salt

Marginal Revolution has a continuing series called "Markets in Everything" which highlights unusual markets. But for some reason they don't seem to have the opposite corollary, "Market Failures in Everything". I may not have their readership, but perhaps I can help anyhow.

MR pointed to an amazing NY Times article, In Raising the World’s I.Q., the Secret’s in the Salt.

The money quote is: "Worldwide, about two billion people — a third of the globe — get too little iodine, including hundreds of millions in India and China. Studies show that iodine deficiency is the leading preventable cause of mental retardation. Even moderate deficiency, especially in pregnant women and infants, lowers intelligence by 10 to 15 I.Q. points, shaving incalculable potential off a nation’s development."

And the solution is government regulation of private salt producers, forcing them to iodize the salt at a trivial cost, a little over a dollar a ton. The article details why this is necessary, but just on the surface it is obvious from the fact that universal iodization has never been market driven.


Trent said...

Just curious why the only solution is regulation of salt producers. Why the speciifc tax (essentially) that only they must pay? Why can't the costs be spread over everyone to pay the prodcuers to add iodine to their salt?

Mike Huben said...

Because some producers would defect, claiming iodine was harmful, and refuse to add it.

Adi said...

Who gets to decide the "right" dose? What if the government mandates a too higher dose? What about people who eat more or less salt? What about people who are more or less susceptible to iodine?

Why not just popularize iodine tablets in defficiency areas? Evil capitalists are always looking to make a buck. Why wouldn't they sell a cheap cancer prevention?

Slithe said...

I agree with Adi. I would think that parents (of any intellect) would want to make their kids smarter (at a small cost). Why do you think people bought that Baby Bach stuff?
Also, what do you think of this article?

Mike Huben said...

The article is stupid: by its logic, you cannot explain ANY maintenance by government.

The simple fact is that iodized salt has been known to solve goiter for decades, but that's not enough for markets to solve the problem. Why? well, we can speculate a whole bunch, but frankly I'd just point out that it's a historical fact that markets don't solve certain problems well, and that government solves those problems better. Defense, roads, iodization, social insurance, etc.

John said...

"Defense, roads, iodization, social insurance, etc..."

That pretty much sums up a collectivist logic that makes as little effort at delineating the proper boundaries of government's role in meeting social demands as the anarcho-capitalist.

Government is necessary to address certain collective-action problems -- where the demand exists (and may be quite high), but costs of coordination needed to materially satisfy that demand are simply too high within the traditional libertarian framework. Infastructure, police and national defense are the most obvious examples.

Yet, this most simple and obvious concept is invariably extrapolated in an effort to justify all sorts of redistributive ends, like "social insurance," - which has little to do with "solving problems" in a market sense, and everything to do with "solving" them in an egalitarian one.

As to salt-iodization, if it were such a phenomenal idea (and the cost of bringing its benefits to bear in a traditional marketplace are too high), why must the cost be borne by salt producers, as opposed to the taxpayers?

Mike Huben said...

It amazes me how libertarians in one breath whine about how business shouldn't unjustly bear any social cost, and in another breath smugly observe that they'll just pass the costs on to the customers. Likewise, in one breath they'll scream government tyranny for this mandate, and praise business benificence for the same result in the next breath.

But the pragmatic answer is that there is a huge market failure due to information costs. It's vastly cheaper to add iodide to the salt than to have a public information campaign that would be as effective. Government subsidy would run into the usual gamut of libertarian objections.

Public health programs frequently have payoffs that are dispersed, but hundreds of times greater than the investments. Fluoridation, Iodization, Vitamin D added to milk, vaccination: the list is large. No private enterprise would ignore such obvious payoffs. But libertarian ideologues would.

John said...

The question isn't whether business should or shouldn't "bear any social cost." They shouldn't, (and couldn't) since "any" social cost means anything and everything.

The question is which costs they should bear and why. And as you rightly point out, some of those costs will be distributed to others - in which case the question is whether or not the ultimate distribution is preferable to the alternative that would manifest itself in a market. In some cases, the distribution will be defensible - in some cases it wont.

Your biggest problem is that you have no real standard by which to distinguish between the two - which was my original point: Fluoridation has had great public health benefits, but is an obviously good candidate for government involvement because the medium in which it has been consumed (water) is both universally consumed and distributed principally through natural monopolies, usually state-owned. The same logic doesn't apply to milk supplements.

If, on the other hand, it can be convincingly shown that the benefits of vitamin enriched sea salt outweigh the tranaction costs necessary bring it to the consumer in a traditional market, then noone should have a problem with passing the costs of this "public good" onto the "public" at large.

Markets, like any medium of resource allocation, have "information costs." Democratically elected governments are a political medium, and have their own set of adminstrative costs. It can be sometimes be difficult at the margins, but it's also important to at least TRY and draw a distinction between the two, identify where one is appropriate, where one isn't, and where an admixture is preferable. Yet, when it comes routine goods and services, markets will generally win out. And in those instances in which it doesn't, the public should bear the costs of its political decisions as a whole.

Jeremy said...

It amazes me how libertarians in one breath whine about how business shouldn't unjustly bear any social cost, and in another breath smugly observe that they'll just pass the costs on to the customers. Likewise, in one breath they'll scream government tyranny for this mandate, and praise business benificence for the same result in the next breath.

I agree: as a libertarian, I see the modern multinational corporation as a bureaucracy on par with the State. The kick, though, is that all corporations are state-chartered and privileged entities. So by def'n big business = big government.

Mike Huben said...

Joh, your analysis makes about as much sense as your diagnosis of iodide as a "vitamin". You say I have no way of distinguishing which costs businesses should bear, yet provide two obvious criteria. Perhaps you should read up on public health economics to learn about what is really done in the real world.

Jeremy, if you claim that big business = big government, then government should get credit for the amazing increases in productivity of business in the past 150 years of modern incorporation.

John said...

Mike, I don't know what to make of your last note. How my providing you with a couple of reasons why state-organized resource allocation can be justified with respect to one product confirms that you yourself engage in the same anlysis with respect to others, I am at a loss to know. I can only assume that you simply haven't understand me or just didn't articulate your "rebuttal" very well.

Jeremy, if your objection is that government is too intertwined with business, then instead of throwing your hands in the air and simply complaining about how the two are one-and-the-same, why not advocate the eliminating of the massive regulatory and tax apparati that, for all intents and purposes, fuse the two together?