McDonald’s CEO on Globalization and Eating Your Vegetables

In an age when most corporate CEOs shun controversy, it was refreshing to read a recent interview with McDonald’s Corp. CEO Jim Skinner.

In the August 2008 issue of the Wall Street Journal magazine Smart Money [sorry, the interview has yet to be posted online], Skinner was asked what responsibility his fast-food company has for combating the national “obesity epidemic.” Skinner replied: “We are not going to solve society’s problems. People have to do that on their own …[I]f you can’t get your kids to eat vegetables, why is it my job?”

Exactly. Why should parental responsibility be treated as such a radical idea?

Skinner does note that the restaurant chain has expanded its menu to meet demand for healthier foods beyond burgers and fries. For example, McDonald’s now buys 39 million pounds of apples a year, more than any other buyer in the country.

In the same interview, Skinner credited globalization as one of the reasons the company’s stock has roughly doubled in the past three years while the economy and the rest of the stock market have struggled.

You look at the proliferation of restaurants outside the U.S. since the last big recession, in 1990 to 1991. It’s an enormous offset. Half our sales come from abroad. And we are as well positioned today as at any other time in our opportunity to serve customers and not nick their pocketbook.

Which is just the point I made a few months ago in a Cato Free Trade Bulletin on how globalization and free trade have helped U.S. companies and the economy to better weather domestic downturns.

Turning Socialism Upside Down

Raúl Castro addressed the Cuban National Assembly this weekend for the first time since officially becoming head of state. There, he gave us this rhetorical jewel:

Socialism means social justice and equality, but equality of rights, of opportunities, not of income. Equality is not egalitarianism.

This is certainly not the brand of socialism I was taught by my college professors in Costa Rica. Otherwise, I might’ve ended up being a “socialist.”

However, I’m sure Raúl’s statement raised some eyebrows among the Communist Party officials gathered in the Assembly. So, in order to diffuse any misunderstanding, Raúl quickly added that he has “learned everything” from his brother Fidel.

Then, he received a standing ovation.

Barack Obama Walks the Walk

After telling a gathering of the American Federation of Teachers that he opposes school voucher programs over the weekend, Senator Obama added that: “We need to focus on fixing and improving our public schools; not throwing our hands up and walking away from them.”

Senator Obama sends his own two daughters to the private “Lab School” founded by John Dewey in 1896, which charged $20,000 in tuition at the middle school level last year. Though he says “we” should not be “throwing up our hands and walking away” from public schools, he has done precisely that.

That is his right, and, as a wealthy man, it is his prerogative under the current system of American education, which allows only the wealthy to easily choose between private and government schools. But instead of offering to extend that same choice to all families, Senator Obama wants the poor to wait for the public school system to be “fixed.”

I could editorialize about this, but I really don’t see the need. Readers of this blog are perfectly capable of drawing the obvious conclusions.

Dionne’s April Fool’s Column

Anybody can play an April Fool’s Joke in April, but E.J. Dionne deserves credit for pulling a fast one on gullible readers in July. And I’m brave enough to admit that I was briefly fooled by his column asserting that even conservatives now recognize that free markets don’t work. It was only after thinking about his column that I realized he surely must be engaging in some leg pulling if the first person he quotes is one of the most collectivist-minded members of Congress, Barney Frank. Dionne tries to trick readers by then citing the Chairman of the Federal Reserve, who (gee, what a surprise) is in favor of more regulatory power for the Federal Reserve, but he neatly avoids any explanation for why this is evidence that conservatives are abandoning markets (perhaps he is assuming that Bernanke is a conservative because he was appointed by Bush, but surely Dionne is not so naive):

Since the Reagan years, free-market cliches have passed for sophisticated economic analysis. But in the current crisis, these ideas are falling, one by one, as even conservatives recognize that capitalism is ailing. …The old script is in rewrite. “We are in a worldwide crisis now because of excessive deregulation,” Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, said in an interview. …While Frank is a liberal, the same cannot be said of Ben Bernanke, the chairman of the Federal Reserve. …Bernanke sounded like a born-again New Dealer in calling for “a more robust framework for the prudential supervision of investment banks and other large securities dealers.”

Wait a minute. Perhaps Dionne is writing a serious column. He quotes Irwin Stelzer of the Hudson Institute, who reasonably can be considered a conservative:

What’s striking is that conservatives who revere capitalism are offering their own criticisms of the way the system is working. Irwin Stelzer, director of the Center for Economic Policy Studies at the Hudson Institute, says the subprime crisis arose in part because lenders quickly sold their mortgages to others and bore no risk if the loans went bad. “You have to have the person who’s writing the risk bearing the risk,” he says. “That means a whole host of regulations. There’s no way around that.”

Dionne seems impressed that Stelzer says that markets don’t work perfectly. But that is a reflection of Dionne’s unfamiliarity with economics. After all, failure, like success, is a part of the market process. Dionne does note, however, that Stelzer is endorsing more regulation, so there is a tiny shred of evidence for his hypothesis that conservatives want more government intervention. But if this is the evidentiary bar that has to be cleared for such assertions, I’m going to write a column saying that all socialists now support a flat tax. And I won’t even have to find one left-leaning writer to “prove” my point. I can just point to the various socialist-led governments in Eastern Europe that have adopted single-rate tax systems.

Before signing off, I feel compelled to point out that Stelzer has a fair diagnosis but a misguided prescription. Yes, hindsight shows that lenders were cavalier about loans since they knew other investors would be the ones bearing the risk. But after absorbing billions of dollars in losses, investors obviously have a huge incentive to avoid the same mistake. Indeed, that is why failure plays a crucial role in a market economy; people learn from mistakes. Additional government regulation, by contrast, is at best a case of closing the barn door after the horse has escaped. In the vast majority of cases, however, regulations throw sand in the gears and/or distort incentives for the efficient allocation of resources.

Gasoline Affordability Index: Sliding Back to the 1960s

For some time now, the real price of gasoline has exceeded the heights it reached during the 1980s. But what about its affordability?

The following figure, which assumes a current price of regular gasoline of $4.10 a gallon, plots trends in the U.S. gasoline price from 1949 through mid-2008, using three different measures: (a) nominal (or current) dollars, (b) real (i.e., inflation-adjusted) dollars, and (c) a “gasoline affordability index” (GAI) which is the ratio of the real disposable personal income per capita to the real gasoline price, indexed to 1960 (that is, 1960 affordability =1). [See Notes 1-3 for data sources.] The higher the Index, the more affordable the gasoline.

This figure shows that:

  1. Both the real and nominal price of regular gasoline are the highest they’ve been since at least 1949.
  2. Gasoline affordability peaked in 1998 at 3.32, relative to 1960 (=1).
  3. Today the gasoline affordability index is at 1.35, lowest since 1982 when it was 1.31.
  4. Today gasoline affordability is down to levels of the mid- to late-1960s.
  5. Relative to 1998, the price of regular gasoline increased by 287 percent in nominal terms and 208 percent in real terms. However the affordability index declined 59 percent.

The disposable personal income per capita between 2007 (average) and May 2008 increased by $1,627 (in real 2000 $) according to the BEA, while the average person’s real expenditures on gasoline increased by $493 (or less). See Note 4.

Unfortunately, gasoline prices aren’t the only ones to have gone up. Energy prices are all up, as is food. So it won’t be surprising if these increases more than eat up any advance in disposal personal income. I’ll check this out one of these days.

Notes

  1. The figure uses the price of regular leaded gasoline from 1949-1975, the arithmetical average of average of regular leaded and regular unleaded gasoline for 1976-1990, and regular unleaded for 1991-2008. For 2008, I have assumed a gasoline price of $4.10 per gallon. Gasoline price data are from the Department of Energy (DOE), Motor Gasoline Retail Prices, U.S. City Average, available at http://www.eia.doe.gov/emeu/mer/prices.html.
  2. For estimating the real price, I used the implicit price deflator for GDP from the Bureau of Economic Affairs (BEA), available at http://www.bea.gov/bea/dn/nipaweb/SelectTable.asp, Table 1.1.9 (for 1949-2007) and Table 2.6 (for May 2008).
  3. Data on real disposable income per capita are also from BEA, available at http://www.bea.gov/bea/dn/nipaweb/SelectTable.asp, Tables 2.1 (for 1949-2007) and Table 2.6 (for May 2008).
  4. Average annual motor gasoline consumption was 475 gallons per year in 2007, and the real gasoline price over this period increased $1.04 (in real 2000 $). Average consumption has probably declined somewhat from last year.

EPA: Your Life is Worthless

Splashed across the front pages today — well, at least one paper I saw — are headlines about the EPA slashing the value of life revising the value of a statistical life downward. This is highly newsworthy, but only because most people haven’t been paying attention to economics or regulatory policy. (One can’t really blame them …)

There are two things that make the news juicy: the fact that regulators are placing a value on life, and the fact that they’re revising the value down.

Most people don’t know that you can put a value on human life. Most people don’t know that they put a value on their own lives all day every day. The slogans that we grow up with - “life is precious” - dominate their thinking. Our parents value our lives very highly and teach us to at least talk about the value of life in exaggerated terms.

This kind of talk and thinking isn’t universal, of course — in our culture and others, sacrificing one’s life for a high ideal is well regarded, as is sacrificing one’s life for science, or for fun. That said, being cavalier or anti-life is generally not a good idea. No, there’s some balance between prizing life and prizing fun, the greater good, ideology, religion, or what-have-you.

We do strike those balances every day. When we go to cross the street, we make judgments about the threat to our life and health from oncoming cars and decide whether to cross in the middle of the block, at a cross-walk, at a controlled intersection, or at a pedestrian footbridge. Most of us have had occassion at least once to think about crossing a freeway — and we haven’t done it.

All this is because we are weighing the value of getting to the other side against the risk of costing ourselves our own lives. To articulate this balancing, what economists are doing is using a dollar value to measure the relative importance of life versus other things.

Think about the alternative: What if you had no way of balancing the value of life against the value of going to the movie theater? People might step into six lanes of onrushing traffic just to be first in the popcorn line. People might cower at the side of an empty two-lane road, passing up a small-town-theater showing of Fun in Acacpulco for fear of setting foot on macadam where a car tire has been. You’ve got to have some measure of the value of life, and you’ve got to use it.

Now, what about the second issue: revising the value of life downward? Under the “life is precious” presumption, that sounds horrible. It should always be revised upwards, right? Well, guess what. If you do, you’re gonna miss the movie.

If you value life too highly, you will take steps to protect life and health that undermine the value of living. Why is life “precious”? Some say for it’s own sake. But most people believe it’s because of the wonderful range of experiences, adventures, tastes, emotions, and relationships we get to enjoy in life. The freedom. If we give up too much of that, focusing strictly on keeping our hearts pumping and air flowing in and out of the lungs, we’ve lost track of the reason for living. Simply maintaining bodies in a state of sentience is not what it’s all about. So regulatory policy must do what we must do as individuals: strike a balance between life and living. Fall too far out of balance in either direction and you’re either prematurely dead or living a life without meaning.

I know nothing about the methodology that the EPA is using to calculate the value of a human life. They came up with $6.9 million. Frankly, that sounds fair to me. (So would $10.2 million, though, or $5.5 million.) There is one problem with it, though. It’s not the value I place on my life. It’s their estimate of the average value that the average American places on his life. Coming up with a single number is a gross collective judgment about how much risk and how much safety each of us should have. It’s incredibly dehumanizing to be lumped together with everyone else this way.

If you disagree with placing a dollar value on human life, well, you disagree with the idea of describing human action in a standardized way. You might as well disagree with giving names to colors.

But if you disagree with the value the EPA is placing on human life, there might be something to that. The regulatory process makes a huge collective judgments about the value of life, lumping us all together into one big average.

We should be as free as possible to make our own judgments about risk and the value of life. It’s difficult with things like air pollution, but even those kinds of risks can often be controlled through individual judgments.

Whatever the case, get over your concerns about placing a dollar value on human life. And revising the value down? — that’s a good thing. It means that we get to have more freedom and more fun!

Teaching to the Test

A lot of people dislike No Child Left Behind–style test-driven reforms because they fear that schools will “teach to the tests.” That is, the schools will focus on content that will likely appear on tests, as well as teach strategies to game specific assessment tools, rather than effectively teach the broad content and understanding that tests, ideally, should merely sample in order to gauge student mastery. If this were the case, it would both severely constrict how much of educational value kids actually learn and call into serious question whether improved test scores really signify improved learning.

Whether or not this “teaching to the test” regularly happens is a highly debatable — and debated — matter. Reading today’s Washington Post article about considerable one-year improvements in D.C. test scores, however, certainly gives you pause to think that when test results are almost all that schools are judged on, mastery of the tests — not the subjects — could truly end up being all that really matters.