INSIGHTS: IOM SHOULD HEED ITS OWN ADVICE TO SOLVE OUR NATION’S OBESITY PROBLEM
The Institute of Medicine (IOM) recently released a 560-page report titled “Evaluating Obesity Prevention Efforts: A Plan for Measuring Progress.” The Institute argues that the U.S. is lacking in monitoring obesity prevention data and in gauging effectiveness of government efforts to persuade citizens to lose weight.
Currently, one in three adults and one in six adolescents and children are considered obese, which means they have a body mass index (calculated by comparing weight to height) of 30 or greater.
The IOM correctly states that obesity prevention efforts should be evaluated “appropriately” so that “the results of these evaluations will inform and improve decision making in all sectors” and “the most promising approaches for accelerating the prevention of obesity will be disseminated widely.” Unfortunately IOM ignores its own advice when it comes to solutions.
Consider IOM’s recommendation to “increase the number of states that adopt a law imposing an excise tax on sugar-sweetened beverages and dedicating a portion of the revenue to obesity prevention programs.” It’s worth noting that the IOM’s case for raising taxes on sugar-sweetened beverages is weak to counterproductive. Recent studies make this point clearly.
A 2012 study in Health Affairs concluded that a tax of one penny per ounce on “liquid candy” could prevent as many as 26,000 premature deaths over ten years. However, the authors acknowledged that “our model-based calculations rely on several key assumptions for which empirical evidence is still lacking or inconclusive.” The authors nonetheless forged ahead, declaring: “This is probably because existing taxes on sales are too low to cause changes in calorie consumption that are substantial enough to change average body mass index.”
A 2010 study in Contemporary Economic Policy concluded that even an enormous 58 percent tax on soda would drop the average body mass by only a trivial 0.16 points. Cornell University researchers concluded in 2012 that a 10 percent tax resulted in a short-term (1-month) decrease in soft drink purchases, but there was no decrease in purchases over 3-months or 6-months.
The most ambitious study to date was published this year in the American Journal of Agricultural Economics. The authors took into consideration that taxes nudge consumers into altering their consumption of a wide array (23 categories) of food and beverages. A price increase of one half-cent per ounce for sugar sweetened beverages reduced caloric intake of those beverages. But subjects quickly compensated for the reduction of almost half of those calories. Some of the substitutes were laden with sodium and fat. The authors emphasized caution given the apparent “complexity of using targeted food and beverage taxes to improve nutrition outcomes.”
The eternal quest for tax revenue undoubtedly plays a role in this story. It is natural for public health advocates to believe their ambitions for us are not only effective, but they are eternally unfunded. But, in the pursuit of these ambitions, IOM and other tax advocates gloss over the fact that governments don’t yet understand how to devise programs that effectively encourage citizens to lose weight.
Simply spending taxpayer money on programs that may or may not work, or might even make the problem worse, is not the solution. I suggest we should actually heed the IOM advice and only promote public policies based on “appropriate” knowledge of interventions rather than promote policies such as taxes on the grounds that eventually they might actually lessen obesity prevalence.
ON THE ECONOMY: 2014 JDA PREDICTIONS
Greetings, my friends. We are all interested in the future, for that is where you and I are going to spend the rest of our lives. So began one of the great cult movie classics of all time, Ed Wood’s Plan 9 From Outer Space. The narrator of the film was a former radio announcer known as the Amazing Criswell. Criswell was famous for his bizarre predictions including a claim that the earth would be struck by a ray from space that would cause all metal to adopt the qualities of rubber, leading to horrific accidents at amusement parks. He also suggested that the end of the planet would happen on August 18, 1999. While Criswell never claimed to be a real psychic, and his bizarre prognostications were for entertainment only, many of those who make forecasts are not always so humble.
As usual, 2013 was full of predictions that were totally incorrect. The Atlantic hurricane season was one of the quietest on record with only 2 category 1 storms, even though the National Oceanic and Atmospheric Administration predicted an unusually active year with between seven and 11 hurricanes. The nothing if not consistent Nouriel Roubini predicted a US recession and other calamities that could shove most of the civilized world towards a complete collapse. Even short term economic predictions went south. Consider that S&P forecast that the partial government shutdown cost the economy $24 billion. This was a widely reported number and nobody suggested that a loss of 0.15 percent of the economy is statistical noise that is almost impossible to measure. Anyway, the OMB later reported that the cost to the economy of this dramatic event was a minimal $2 to $6 billion. CNN Contributor David Frum predicted a drop in the corn harvest and “higher grain prices,” creating social strife in 2013 over access to food – corn prices are down by nearly 50 percent over the year. And Al Gore’s prediction that the Arctic sea ice would disappear by the summer of 2013 was thwarted by Mother Nature.
All of this suggests that we should all be wary of predictions, and particularly of the computer models that all of us rely on to make them. The fact is, as mathematician Norbert Wiener said, “The best model of a cat is another cat,” suggesting that no model is a particularly true representation of what it is attempting to explain. With this in mind, how did JDA do in its predictions for 2013?
Well, we came away pretty good in general. We thought that the US economy would continue to track a normal – although depressed – business cycle and continue to grow slowly in 2013. In fact we have been pleasantly surprised by the resiliency of the American economy to the incredibly poor policy decisions coming out of Washington. Our forecast for US GDP growth over 2013 was 2.25 percent. As of the third quarter, the economy has grown by about 2.4 percent, and it is likely that the 4th quarter will not be as strong as the third. In spite of my own feelings about the inflationary pressures brought on by Federal Reserve’s loose monetary policy our forecast of CPI was close, 2.5 percent on the year compared to about 1.7 percent. The 30-year Treasury yield is at 3.9 percent, not far off of our 4th quarter prediction of 3.6 percent.
Like most economists, we did not foresee the fairly rapid drop in headline unemployment, forecasting that the rate would have fallen to just 7.6 percent by the end of the year. Even if unemployment picks up in December it is more than likely that the rate will be below 7.2 percent by the end of 2013. However, looking deeper into the numbers, much of the decrease has been due to continued reductions in the workforce, something that few economists were predicting at the start of 2013, since the labor force participation rate tends to pick up as the economy grows.
The other place where we came up short was in our forecast of short term interest rates. We do not generally believe the economic orthodoxy that the Federal Reserve sets interest rates. Rather the Fed tends to follow interest rates, raising the Federal Funds Rate after short term rates rise. The sheer amount of money being printed (the Fed has crammed money into the economy at twice the rate of real economic growth) has swamped short term demand for funds, keeping rates at artificially low levels, and bubbling other asset prices. We continue to believe that market demand will begin to stoke short term rates, forcing the Federal Reserve to act. It is very difficult to predict exactly when this will happen, but we will stick to our guns and once again forecast an increase in rates sooner rather than later.
Most of the same factors that impacted the US and the world economy in 2012 will continue through 2013. The world economy will continue to be weak, but will improve slightly with much of the growth coming from the developing world. Europe and Japan will continue to be stuck in neutral, and the US economy will enter its fifth year of expansion. This will likely be the peak of the current business cycle and unless the problems with the health care system, or something even crazier comes out of Washington, we could see annual growth hovering at around 3 percent. China continues to be a concern, as the country undergoes a restructuring, and the rest of the BRIC countries will continue to face challenges due to their dysfunctional regulatory and legal systems which are hampering business development.
While the US economy will grow, this recovery has been feeble at best and will begin to sputter in 2015 as the business cycle trends downward. The fact that so many major problems were not addressed when the opportunity presented itself – for example cheap money that could have enhanced infrastructure was funneled to transfer payments – means that we will be entering the next recession in a very bad position. It is unlikely that any consensus will be reached in Washington about the country’s broken tax and regulatory policies, and another Keynesian economist at the Fed will ensure that monetary policy continues to be driven by politics.
All of this will discourage business formation, hamper hiring, and continue to put extreme pressure on wage growth.
We continue to believe that inflation, be it asset price inflation or inflation via wage shrinkage, is still the biggest long-term risk facing the American economy. We do not see any recovery in Europe and weaknesses in both the European and American economies will keep pressure on prices, though we believe that price increases will outpace the Federal Reserve 2.0 percent target rate in 2014. The recent budget deal – or rather long drop kick past the next election – will not help the economy and will continue to put pressure on the dollar as investors realize that Congress is not going to address either the long term deficit or the country’s dysfunctional tax policy. We also believe that the debt ceiling limits will be raised to cover government borrowing through the 2014 election with little pushback other than political posturing. While the economy struggling, fiscal policy and continued regulatory pressure will dampen both growth and consumer spending. We also believe that the unemployment rate will begin to stabilize as reductions in labor force participation rates begin to mitigate.
Our most controversial projection is that the Federal Reserve will be forced to start to raise short term interest rates in response to the market. The instability in both financial markets and the real economy caused by monetary expansion, will lead to a quick and sudden reevaluation of the dollar which will push inflation up as commodity prices and the prices for imports surge. This will be offset some by continued reductions in income levels but not enough to hold inflation down. This will force a rapid reevaluation of both Quantitative Easing and the 0.25 percent Federal Funds rate. When this will happen is difficult to predict, but happen it will more likely sooner rather than later.
Based on these general findings, most recent forecasts for 2013 are presented in the following chart.
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