The menu labeling morass.

Brannon, Ike ; Batkins, Sam

Why are Americans so fat? The federal government has concluded that it is due largely to a lack of information. It's tried to fill that lacuna as best it can, updating its food pyramid several times and mandating that food sold in stores have a nutritional label with the amount of calories, saturated fats, sodium, and various other components deemed hazardous to eaters.

This has done nothing to slow the increase in American obesity rates. That, in turn, has led to people asking why the new information hasn't helped. Some have suggested that obesity's chief cause has been the poverty in inner-city neighborhoods, which deters green grocers from operating there and leaving those denizens without ready access to healthier food options. It has also been observed that smoking, which is a well-known appetite suppressant, has tailed off dramatically over the past three decades, suggesting that people may be trading one vice for another.

But the federal government isn't giving up on us. Its latest plan is to extend the Food and Drug Administration's food labeling requirements to cover restaurants, grocery stores' prepared foods, and vending machines. Given that we are spending an increasing amount of our food dollars at restaurants or for prepared food, this seems like a natural next step.

The government's concern about our well-being and determination to save us from ourselves is touching. But what if the FDA's labeling actions have actually contributed to obesity? By focusing so much attention on factors that the latest science indicates contribute little to obesity, the last several decades' labels may have pushed people to eat other foods that do contribute to weight gain instead of foods that satisfy hunger and cravings without expanding the waistline. The evolution of our understanding of diet and obesity, still far from perfect, has led some to conclude that this is an issue worth examining before we expand our labeling regime.

Undaunted, the Obama administration has signaled that it will go full speed ahead with the new labeling mandates. These regulations will impose more than $1.5 billion in costs, according to the administration's ever-conservative estimates, while requiring approximately two million paperwork burden hours for businesses to comply with the directive.

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We could excuse--somewhat--the urgency to complete this rule if there was good evidence that expanding food labeling would reduce obesity. However, that evidence is underwhelming.

Market failure? / Regulations, like taxes, are not borne by the companies on which they are imposed. Ultimately, they pass those costs along to consumers in some form. The administration, somewhat surprisingly, admits to this economic truth in its rulemaking, although not without the caveat that consumers "are generally willing to accept some degree of price increase in exchange for an increase in the nutrient content information." But if that caveat were the case, we would expect diners to be more willing to dine at restaurants providing such information, allowing them to charge a premium for the service and enticing their competitors to do the same.

It is unclear why the administration believes this lack of information is a market failure and not simply an example of a market failing to develop for something no one particularly values. The FDA's proposed rule offers no support or study proving that consumers willingly accept higher food costs in exchange for calorie information that is readily available for anyone who has access to the Internet. This is less of a "nudge" and more of an extraction of money for every consumer who purchases food.

Based on comment letters and anecdotal evidence, many stores will respond to the new labeling requirement by offering fewer choices for consumers. Salad bars and buffets will be replaced in some instances with standardized, pre-packaged food that already contains calorie information. In some instances, fresh items will probably no longer be offered. How this outcome will help reduce obesity has yet to be articulated.

Restaurants / Beyond the consumer impact lies the Rube Goldberg-like complexity of requiring something that, at first glance, would appear simple: include calorie labels for food. However, at 525 total pages, the two rules are anything but easy to understand. A pre-prepared sandwich must adhere to the rules, but a made-to-order sandwich that contains hundreds of different possible ingredients won't be covered explicitly--although retailers would still likely need to label all of the components. A daily special probably wouldn't be covered--unless the special occurs weekly or monthly, in which case it is shorn of its "special" status and covered by the rule.

For items that are covered, the rules are equally difficult. Covered establishments must provide:

* calorie information on menus and menu boards (including online)

* a statement on suggested daily calorie consumption

* a notice to customers that additional nutritional information is available

The Department of Health and Human Services, the FDA's parent agency, even mandates the font size, color, placement and wording ("calorie" or "cal") of the nutritional declarations.

But there's more: Calorie labels must be declared "to the nearest 5-calorie increment up to and including 50 calories and to the nearest 10-calorie increments above 50 calories, except that amounts less than 5 calories may be expressed as zero." They must still provide any relevant "additional information," including data on calories from fat, saturated fat, trans fat, cholesterol, sodium, sugars, and protein.

This morass was explained in a 105-page rule, with an accompanying 133-page regulatory impact analysis. Regulators are likely to issue additional guidance documents as the final compliance date nears.

For retailers who fail to follow the new rules, there are stiff penalties--including the possibility of jail time. Under the Food, Drug, and Cosmetic Act, "misbranded" items carry a penalty of up to one year in prison or up to a $1,000 fine. For repeat offenders, the punishment of incorrectly displaying calorie information increases to three years in prison or $10,000. In addition, federal regulators can actually seize misbranded food in the stream of interstate commerce.

Small business / Like most regulations, this one will affect small businesses more than their larger competitors. The HHS concedes the measures will have a "significant economic impact on a substantial number of small entities," and noted that approximately two-thirds of the regulated entities are small businesses, largely because of the prevalence of franchised entities in food service.

Based on the HHS's estimates, the menu labeling rule will impose per-entity costs ranging from $49,000 to $77,000. According to data from the Bureau of Labor Statistics, the typical food service employee earns $22,000 annually. Thus, the new rule essentially costs a business the equivalent of two to 3.5 employees, without doing a thing to increase sales or boost productivity.

Considering that half of all food service establishments employ fewer than 10 employees, and the historically low profit margins in the industry, the economic effect becomes clear. The food industry, which knows a bit more about its business than the HHS, projects costs eclipsing $120,000 per store, exclusive of levies for paperwork (for which the administration does not provide any cost estimate whatsoever). That implies an aggregate first-year cost approaching $1 billion.

Extending reach / The propagators of the regulatory state often appeal to the Precautionary Principle to defend their actions. This says that when there's even a small chance of an outcome that could potentially have a very large effect on the economy or some population in society, then the government should act out of an abundance of caution to reduce even this small risk.

There is a real possibility that the federal government, through its food labeling system, shares the blame for the rise in obesity over the last two decades. The current label nudges us to stay away from cholesterol by providing us with the proportion of the recommended daily allowance contained in each serving, and various edicts from the FDA have warned Americans to limit their intake of eggs for decades. We have listened; egg consumption has been falling since the 1940s and dipped sharply around the time we began food labeling.

Nutritionists have come to conclude that this effort has been mistaken. The relationship between cholesterol consumption and heart disease, never strong to begin with, now looks as if it doesn't exist. The Dietary Guidelines Advisory committee recently dropped its admonition that Americans limit their intake of eggs or other foods that are high in cholesterol.

It turns out we don't know nearly as much as we thought we did about how diet affects obesity. By encouraging people to eat less saturated fats, Americans have instead increased their consumption of sugars and carbohydrates, which is looking like precisely the wrong thing to do if the goal is to control weight. Perhaps we should spend some more time researching what it is that we ought to be telling people about a healthy diet before we extend our nudging further.

The Peoria (Ill.) Journal Star recently published a photograph of the hosts of a local daytime children's television show from the 1970s, surrounded by a legion of erstwhile fans. The TV personalities--who went by the stage names of Captain Jinks and Salty Sam--were and remain icons throughout Central Illinois, and the article generated hundreds of online comments. Besides the plethora of wistful recollections about a show that was enormously popular was the simple observation that the Captain and his first mate--as well as the rest of the people in the picture--were so skinny compared to people today. What happened?

We don't fully know what happened is the short answer. But there are most likely multiple culprits to blame, and there's not a lot of evidence that the government's most prominent attempt to arrest this growth--putting calorie labels on food--had even a negligible positive effect in arresting the increase. In fact, there's reason to believe that labeling may have made matters worse. Expanding food labeling now, given our level of ignorance, is pure folly.

IKE BRANNON is a senior fellow with the George W. Bush Institute and president of Capitol Policy Analytics in Washington, D.C. SAM BATKINS is director of regulatory policy at the American Action Forum.