Big Government, Bad Policy, and Rising Health-Care Costs

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Call it the war on supersizing. Mayor Michael Bloomberg wants to restrict the size of New Yorkers' soft drinks. He's been on the vanguard of public health policy before, with a 2002 indoor smoking ban and a trans-fat fight in 2006. Later efforts -- including an attempt to restrict food stamp recipients' ability to buy sugary drinks and a failed soda tax -- have been decidedly less successful.

There are logical governance reasons for this nanny-state meddling. Obesity is a major health issue, and New York State has one of the costliest health-care burdens per person in the United States. Controlling obesity would help control out-of-control health-care spending, or so the argument goes. However, banning soda may be the wrong way to rein in rising obesity rates and control out-of-control health-care spending -- but not for the reasons you might think.

Don't tread on my waistline
Americans love their freedom of choice. Many were vocal on the issue after news broke of Bloomberg's soda crackdown. "How dare the government infringe on my right to suck down an entire toilet tank's worth of high fructose corn syrup?!" they cried. What most failed to realize is just how influential the government really is on its citizens' health choices, directly and indirectly. It's the indirect influence that I'd like to talk about. The source of our modern obesity epidemic, a plague of cheap corn, can largely be laid at the government's feet.

The cost of commodity corn ranged near $2 per bushel for decades before its recent spike, and about 10% of that cost was subsidized by direct government payments to farmers. From 1995 to 2009, corn farmers received an average of $5.3 billion a year in direct and indirect subsidies. That amounted to about $0.48 of total subsidies per bushel of corn in 2005. In this last "cheap" year for corn, subsidies made up a quarter of corn's total commodity price.

Michael Pollan explains the history and effects of the American government's role in corn production with far more depth and detail than I ever could. The best distillation of his why-we-eat-what-we-eat best-seller, The Omnivore's Dilemma, is this: "When food is abundant and cheap, people will eat more of it and get fat." And corn, easy to grow, easy to store, and extremely nutrient-dense, makes an ideal starting point for all manner of inexpensive byproducts.

Amber waves of really cheap grain
Modern American agricultural policy goes back to the early '80s, when major grain buyers Cargill and Archer Daniels Midland (NYSE: ADM  ) began to directly influence the language of congressional farm bills. Commodity corn has been sold at the same low levels, roughly $2 per bushel, ever since, with the exception of a wide-ranging commodity price spike that began in 2007. The primary reason for this recent price increase is a massive surge in exports to China, which means we're now effectively subsidizing a future Chinese obesity crisis, too. Still, the cost of commodity corn remains only a small part of our final food costs.

Cheap corn has made its way into about a quarter of the groceries found in most supermarkets, almost all of it processed. A box of cereal is worth about $0.08 to farmers. It's "magically delicious" thanks to science, not farm labor. The industrial-scale mass production of cheap meat is possible because there is always enough cheap corn for feed -- over a hundred million tons of the stuff is gobbled up by farm animals each year.

The hidden health costs of corn
American waistlines were largely under control before the plague of cheap corn. Obesity trends changed very little from 1960 to 1980, but from 1980 to 2000, American obesity rates doubled. In 2010, more than 78 million adults, and 12.5 million children, were obese. This obesity epidemic costs the country about $190 billion a year, or 21% of all health-care spending, according to a Cornell University study released earlier this year.

People who choose to drink that jumbo Slurpee do affect you when you pay higher taxes for Medicare and Medicaid. These programs combined to cover 93 million people in 2010, and it's worth noting that the poor and elderly are more likely to be obese than the general populace.

A chart put together by my colleague Morgan Housel shows the impact cheap corn has had on the nation's youth, though he might not have intended it to:

Source: Morgan Housel.

It costs more to raise a kid today than it used to, but that money is spent in different ways. A typical child of the '60s cost his parents $44,600 in 2010 dollars to feed over the course of his youth, and $7,400 to keep healthy. Today's child costs his parents $36,300 to feed, but $18,200 to keep healthy. The prevalence of childhood obesity has more than tripled over this time frame, with most of that increase coming after 1980.

Time to shape up
Obesity clearly has an impact on America's health-care spending. We spend more on health care per person than any other country by a wide margin, but we also happen to be the fattest industrialized country in the world by a wide margin. There are certainly many other factors behind rising health-care costs, but obesity is such a big part of the picture that ignoring its impact can only result in an incomplete response to the problem.

So what's the solution? Bloomberg would outlaw unhealthy food to force healthier behavior. The U.S. tobacco industry's long battle with the government is proof that government pressure can work. In the decades after the landmark 1964 surgeon general's report on smoking created widespread public awareness of smoking's health costs, cigarette use has been cut in half. Overall rates of lung cancer have been in decline since the early '90s.

The benefits of corn subsidies ultimately flow to hundreds of powerful food companies, whose continued success rests largely on their ability to get the public to eat more cheap corn byproducts each year. McDonald's (NYSE: MCD  ) wouldn't have gotten far without cheap corn. Even its french fries, when fried in corn oil, owe much of their final calorie content to corn. Pepsi (NYSE: PEP  ) and Yum! Brands (NYSE: YUM  ) couldn't have teamed up to bring you the Doritos taco, which can barely be called "food" except for its small amounts of unprocessed vegetable toppings.

There are billions -- perhaps trillions -- of dollars at stake on both sides. If the government wants to reduce health-care costs, hindering our access to unhealthy food is weak and hypocritical as long as public money supports big corn. A much better option would be to attack the problem at its source, changing and removing wrongheaded subsidies so that American farmers have reason to produce healthier foods at costs the American public can handle. Let's admit that government can and often does influence consumer behavior, and use that knowledge to craft better policy.

Will that ever happen? Somehow I'm doubtful. But it may be the only way that works.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services have recommended buying shares of McDonald's and PepsiCo. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (17) | Recommend This Article (29)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 06, 2012, at 4:52 PM, whereaminow wrote:

    You're just scratching the surface, but I applaud your effort to understand the influence of government on food choices. Once you start to unravel it, maybe you'll come to the same conclusion that many of us have. This is Food Tyranny, not Health Policy.

    Take the food pyramid promoted by the USDA. Not only is the idea of grains being a major source of consumption for a healthy diet based on flawed studies and overturned by significant recent scientific research, the grain industry spends much of their energy fleecing the taxpayer and attacking any scientist who dares disagree with its sacred position in the SAD (Standard American Diet).

    And that's just the tip of the iceberg.

    David in Liberty

  • Report this Comment On June 06, 2012, at 9:55 PM, lowmaple wrote:

    Sorry Dave, Corn is not a grain.

  • Report this Comment On June 06, 2012, at 9:55 PM, bbell46356 wrote:

    I'm not a fan of corn subsidies but your article seems to make the case for returning to the days of hunger in America. This is a ridiculous argument. Hey poor people are among the most obese people on the planet. Let's eliminate food stamps so they can't afford food anymore. Let's have a weight limit for food stamps. If you are too fat, starve a while and then come back.

  • Report this Comment On June 06, 2012, at 9:55 PM, bbell46356 wrote:

    Yes corn is a grain.

  • Report this Comment On June 06, 2012, at 10:16 PM, eddietheinvestor wrote:

    I wish the government would stop picking on McDonald's as its whipping boy--as if Burger King is better. Yes, obesity is a problem, but why link it solely to food and beverages? The food selections at McDonald's are healthier than 20 years ago (salads, for instance), but obesity is much worse now. Why not blame Apple as well? 20 years ago kids played outside, ran around and played tag or basketball. Now kids--and adults--sit around idly and play on their ipods and ipad and iphones. And studies can be flawed: studies showed that pomegranates have the most antioxidants and are the healthiest of all fruits--in studies financed with millions of dollars from the pomegranate industry,

  • Report this Comment On June 06, 2012, at 10:17 PM, XMFBiggles wrote:

    @ David -

    Space constraints prevent me from going into Pollan-esque detail on the many factors influencing American food choices, but that doesn't mean I'm unaware of them. I would encourage anyone interested in such detail to seek out Pollan's books as a starting point.

    @ bbell -

    I'm not sure how you draw that conclusion, but that wasn't the intent of the article at all. Food stamps weren't mentioned here, although they could have been. The most recent farm bill attempts to slash food stamp funding (food stamps are actually the single largest part of the "farm bill") while leaving corn subsidies unchanged. I disagree with this approach.

    I never said "let's eliminate food stamps" or "let's punish poor people." The conclusion specifically states my ideal approach: "A much better option would be to attack the problem at its source, changing and removing wrongheaded subsidies so that American farmers have reason to produce healthier foods at costs the American public can handle."

    What part of the article led you to the conclusion that I want to punish poor people?

    - Alex

  • Report this Comment On June 07, 2012, at 8:08 AM, jimmybox wrote:

    Interesting data, but the conclusions are the perfect illustration of the cum hoc, ergo propter hoc fallacy: "When food is abundant and cheap, people will eat more of it and get fat." While it's true that, like other commodities, the demand curve for corn (and other food) is downward-sloping, it's also highly inelastic. A much more robust explanation for expanding waistlines since 1980 isn't cheap food- it's the advent of cable, personal computing, social networking, and video games.

  • Report this Comment On June 07, 2012, at 11:32 AM, whereaminow wrote:

    @ bbell46356,

    If you come back to this, Americans are fat primarily because they can't control their insulin level. That is the result of excess fructose in their diet. It was thought for a long time that it was because of high fat diets, but scientific evidence has overturned that theory.

    Grains contribute to American obesity because on the scale of evolution, the amount of time humans have been consuming them is extremely small. Humans are not designed to efficiently digest even small amounts of grains, meaning whatever nutrient contents they contain are not absorbed into the body. Grains also contain several toxins known to be harmful to the digestive process.

    This why so many people (not all) have the feeling of bloatedness and malnourishment from a high grain diet.

    The SAD of high fructose and high grain consumption is the primary cause of modern heart disease (and possibly cancers).

    No person should attempt to tackle the problem of healing American sick without understanding the root cause. It's the diet.

    David in Liberty

  • Report this Comment On June 07, 2012, at 7:37 PM, ynotc wrote:

    Perhaps New York's higher than average health care costs has something to do with the regulatory environment and taxes of their city.

    Hypocrisy alert!! Liberals like Bloomberg are so funny. They are "pro choice" until they can use it to further their agenda.

  • Report this Comment On June 08, 2012, at 2:59 PM, mtf00l wrote:

    Words of Wisdom...

    Wheat for people, corn for ox, oats for horses, rye for fowls and swine and all beast of the field and barley for all useful animals...

  • Report this Comment On June 08, 2012, at 3:16 PM, wan2bretired wrote:

    The law of unintended consiquences is always at work when the goverment is involved in regulating food at the commodity level or the final product level. Regulating drink size will do nothing for the obesity epidemic. Banning cars, busses, smart phones, facebook etc. would do more by getting people out off their sedentary live styles. The food pyramid as mentioned (from the Gov) did not help as well. Eating and exercise is a personal responsibility, and you can no more to regulate exercise, than you can what one eats in the privacy of there own home. Speaking of health, the Gov. is doing its best to legitimize weed, but ban smoking cigarettes? I cannot wait for the long term health issues related to the former to start cropping up. Then what a ban on weed?

  • Report this Comment On June 08, 2012, at 4:23 PM, wolfman225 wrote:

    Does anyone else find it curious that Nanny Bloomberg wants to control NYC'ers consumption of junk food & drink, but says that possession and/or use of "small amounts" of pot is ok?

    Ban the junk food, but ok use of the weed that contributes to the munchies?

  • Report this Comment On June 08, 2012, at 5:18 PM, Beckie01 wrote:

    Sorry Lowmaple, corn is a grain, you should do more research on grains before making your comment. I think the Government is heading in the wrong direction. They need to get more involved in the fast food production and the resturantes to see what goes on behind the seen. America is a free country and we don't need anyone to tell us what to eat, drink, sleep or wear. What the Govt needs to do is create more jobs, make funds accessible to Entrepreneurs. The more business we have out there the higher the employment rate, the volume of welfare will go down. Some of the people on welfare are unemployed,willing to work but NO JOBS, some have disabilities and some are naturally lazy and taking the Govt for a ride. If we have more jobs of all level they will be no excuse. When they apply for Welfare find them jobs, or put them in work study program. I think cutting down on the volume of soda will put more people out of jobs. Our unemployment rate is already hitting the roof. Stop trying to put small business out of business and think of ways to add more businesses to the market that will increase jobs. If NY cuts back on soda the people coud go to NJ and bring it back in large quanties. u can't stop the freedom we are too open and free. I'm struggling to get my business up and rooling. I've a HHA business and struggling to get clients because of the lack of funds. I need funds to grow my business, I've lots of hardworking and caring people that needs work, I need to put people back to work..

  • Report this Comment On June 09, 2012, at 8:41 AM, michaelmar wrote:

    A main underlying point of the article is that gov't intervention always has unintended consequences, and they are usually not good. And gov't will never acknowledge their own role in causing the problem and finds new "solutions" to fix the symptoms, not the problem they caused in the first place.

    Also, once gov't intervenes and provides a subsidy or other benefit to one group, that group will never allow the benefit to end through political influence, regardless of changing conditions or if the original reason for the benefit is no longer valid. I wouldn't doubt if there is still a subsidy to buggy whip manufacturers to alleviate the problems caused them by that newfangled invention called the automobile lol.

  • Report this Comment On June 09, 2012, at 4:59 PM, keninden wrote:

    Corn is a vegetable, a grain, a grass and a fruit, depending on how you look at it:

  • Report this Comment On June 21, 2012, at 4:07 AM, thidmark wrote:

    Thanks to the idiocy of government, corn is also a fuel.

  • Report this Comment On June 21, 2012, at 9:30 AM, Zankudo wrote:

    The American diet is poison, unless of course you are wealthy and don't have to eat it. The FDA food pyramid is bought and paid for by agro-business. Milk is for calves, not humans. High fructose corn syrup is in everything. Read a label. Watch Food Inc to see that hogs, cattle, chickens live miserable lives and die horrible deaths. Fat is injected into chicken breasts. Red slime, meat glue are other gimmicks big Food use or used. One of the causes of the obesity epidemic is the fact that women, once home-makers and food preparers, are in short supply in that role now. The feminist movement was a double-edged sword. The trickle up policies of 35 years of Republican economics along with globalization requires both spouses to work which results in no time for diet consideration and a lot of fast food. Food inflation in case you haven't noticed because you don't do the shopping increases daily. There is no easy answer but ending all agricultural subsidies would be a start, along with a serious labeling program and a government not enthralled to corporate agriculture and food interests. Fat chance of that happening since both parties are in bed and can not agree on the time of day which brings to mind another need: a new constitution.

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