David R. Henderson  

Economies of Scale in Compliance

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This morning, after a highly-productive Liberty Fund seminar in Santa Fe, I went over to Pasquale's for breakfast. I sat with a woman who runs a Mexican restaurant in a small town in Colorado. We talked about various things, including her criticism of "factory farms" that, in her view and that of many others, are producing unhealthy food. I haven't been sympathetic to that view because I figure people should be free to put whatever they want in their own bodies and I've generally seen the attack on "factory food" as an attack on that freedom. But then she told me something that stunned me.

She was telling me about some chickens she had cooked that are from a small farm near Durango. People had commented on the wonderful aroma and flavor and asked what was special about the dish. She answered that it was simply healthily grown chicken. So I asked the woman, "Didn't it cost a lot more?"

"Yes," she said, and I was willing to pay that price they were charging, but here's the problem. It's illegal for me to use those chickens."

"Why is it illegal?", I asked.

"Because," she answered, "The chicken farmers raise only a few hundred chickens at a time and they have to get USDA certification. Getting that certification is very expensive and it isn't worth it for them."

The light bulb went on for me. I pointed out to her that this is an example of what I called, in my 1976 Ph.D. dissertation on why safety legislation for coal mines did little for safety but wiped out thousands of small mines, "economies of scale in compliance."

She got it and we both agreed that there are market mechanisms for certification and that the USDA is not needed.


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CATEGORIES: Regulation



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The author at Roth & Company, P.C. in a related article titled How tax preparer regulation tastes like chicken writes:
    To see the future of the tax prep industry if the IRS imposes a new testing and certification regime, go... [Tracked on October 11, 2009 2:41 PM]
COMMENTS (9 to date)
Matt C writes:

I have heard old people say that "basic" food simply tasted better in the old days. You can attribute this to old-person crankiness, but I'm inclined to believe it.

Sometime you should read In Defense of Food by Michael Pollan. It was better and more interesting than I expected. I particularly enjoyed the story of the Christian libertarian organic farmer (quite a character, and vocal about USDA regs messing up his business in dumb ways).

David E writes:

Are you familiar with Joel Salatin? He was one of the main characters in Ominvore's Dilemma, and talks a lot about how the USDA/government limits alternatives to factory farming.

From a personal perspective, I have a certain amount of respect for the industrialized farming system that can feed so many people cheaply. I recognize that is something that's only been true for a short period of time in human history, and not something that should be taken for granted. But I strongly believe that factory food is much less nourishing that traditionally grown foods (grass-fed, etc), and that is leading to much of our overeating health issues.

Here's a link to Salatin's book Everything I want to do is illegal.

Dan Hill writes:

Or as they say, with factory farming everything tastes like chicken. Except chicken!

Seriously, whatever my personal food preferences (and I'm well off and fussy enough to willingly pay extra for food that tastes better), the market ought to be left to sort this out, so that every preferred combination of taste and price is accommodated.

I would bet, even though I don't know the history of the USDA regulations with respect to chicken farming, that the big chicken firms lobbied (and still lobby) for these regulations, so that the only real choice we have is cheap and tasteless chicken or tasty but illegal chicken...

dennis tuchler writes:

The respondent said that she paid a little more for more quality. The USDA is supposed to set a floor on that quality, so that those who can't pay a little more can still get safe poultry. Of course, informing people of the quality differences also costs money, for which those who purchase that information would pay. That still freezes out the poor. So,despite the sordid history of the USDA, I suspect it is still needed to protect those who cannot afford to pay a little more for better stuff or who cannot purchase the information that tells them what to buy.

Of course there is the darwinnian/spencerian argument about culling ...

greenish writes:

... which neither Darwin nor Spencer would have approved of.

Eric H writes:

I'm partial to the cocktail party anecdote on lawnmower safety regs that Bruce Yandle mentions in this Econtalk podcast.

The schemes Big Gov and Big Biz will concoct to limit the extent of the market...

Matt C writes:

The Michael Pollan book I was thinking of was probably the Omnivore's Dilemma. Thanks David E.

Jeremy, Alabama writes:

I've known this for years.

Check out New Jersey dairy farming regs. Over several years they instituted various, and hideously expensive, sanitary regulations to do with pipes made of metals of various kinds, or plastic, or metals again; various kinds of suction pump, various other arbitrary and always temporary regulations. The cost of compliance puts small farmers out of the business.

The real killer for the small farmer, though, is requiring homogenized and pasteurized milk, which makes all milk taste remarkably similar.

Happily for big corporations, there are lots of high-minded and well-intentioned ways to put the small guy out of your business. Personally, I would prefer it if the government did NOT have the power to dictate what kind of pipe milk is pumped through.

Stephen Smith writes:

Factory farming is also encouraged by farm subsidies. (Essentially, farmers used to be able to use corn stalks, etc. to feed their pigs more cheaply than store-bought feed, but only up to a certain point...nowadays, with corn and soy subsidized, feed bought from the store is cheaper than using corn stalks and what-not, so farmers don't keep pigs anymore.) Bottom line is, factory farming is NOT a free market equilibrium.

http://ase.tufts.edu/gdae/Pubs/wp/07-04LivingHighOnHog.pdf

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