No Junk Food, No School Programs

In a modern example of Frederic Bastiat’s “The Seen and the Unseen,” in Seattle, school adiminstrators are finding out that their ban on junk food has actually hurt student activities:

The Seattle School Board is considering relaxing its ban on unhealthful food in high schools amid complaints from student governments that the policy has cost them hundreds of thousands of dollars in vending-machine profits over the past seven years.

The policy, approved in 2004 — before any state or federal regulations on school nutrition had been established — put Seattle on the cutting edge of the fight against childhood obesity.

But board members now acknowledge they probably went too far. The restrictions, which are more strict than the now-crafted state and federal nutrition guidelines, allow only products such as milk, natural fruit juice, baked chips and oat-based granola bars.

Perhaps not surprisingly, many students are not particularly interested in those items.

(I just want to insert a “Duh!” in here. Like, seriously?)

In 2001, before the junk-food ban was passed, high-school associated student body (ASB) governments across the city made $214,000 in profits from vending machines, according to district data. This year, they’ve made $17,000.

The district promised in 2006 to repay ASBs for the revenue they lost because of the policy. But it never did. So the ASB organizations — which subsidize athletic uniform and transportation costs, support student clubs, hold school dances and fund the yearbook and newspaper, among other expenses — have had to cancel programs and ask students to pay significantly more to participate on athletic teams and in school clubs.

The impact has been especially hard on South End schools because most don’t have wealthy parent groups to support activities and many students can’t afford higher costs to participate.

So a ban that the ovezealous school board passed “for the children” actually hurt the children. Once again, they did not stop and think about the consequences, and even if they did so, they could not predict what would happen. We simply don’t have that kind of processing power, and I would sincerely doubt that even artificial intelligences would have that kind of processing power, a la the Heisenberg Uncertainty Principle.

The sad thing is, this is not a problem restricted to just school districts. When we pass higher minimum wage laws in the hope of giving the poor a higher wage, we actually price them out of the market and reduce their wages to zero. When we pass protectionist legislation, we make the goods and services we consume more expensive, and thus have less money to go around. When we pass occupational licensing laws, we don’t actually improve services, we just lower the number of people who can provide them, thus driving prices up and hurting the poor most. And on and on and on, ad nauseum.

While I doubt Seattle students will take this lesson away from it, I hope the rest of us do. We need to put the brakes on regulation, because regulators have no idea what they’re doing. Arnold Kling, writing for The American, over at AEI, points this out:

Regulators, too, fell victim to the combination of cognitive hubris and radical ignorance. They believed in the quality of bank risk management using the new tools.4 They also believed in the effectiveness of their own rules and practices.

A common post-crisis narrative is that banking was de-regulated in the Reagan-Greenspan era. Some pundits make it sound as if regulators behaved like parents who hand their teenagers the keys to the liquor cabinet, leave for the weekend, and say “Have a good time.” In fact, regulators believed that they had stronger regulations in place in 2005 than they did in the pre-Reagan era.

—Before 1980, mortgage loans held by banks were illiquid assets subject to considerable interest-rate risk. These problems were alleviated by the shift toward securitization.

—Before 1980, insolvent institutions were opaque because of book-value accounting. This problem was addressed with market-value accounting, enabling regulators to take more timely corrective action to address troubled institutions.

—Before 1980, banks had no formal capital requirements and there were no mechanisms in place to steer banks away from risky assets. This problem was addressed with the Basel capital accords (formally adopted in 1988), which incorporated a risk-weighted measure of assets to determine required minimum capital. In the 2000s, these risk weightings were altered to penalize banks that did not invest in highly rated, asset-backed securities.

Thus, it was not the intent of regulators to loosen the reins on banks. On the contrary, from the regulators’ point of view, it was the environment prior to 1980 that amounted to leaving the teenagers with the keys to the liquor cabinet. The post-1980 regulatory changes were believed to be in the direction of tighter supervision and more rational controls.

It turned out that the regulators were radically ignorant of the consequences of their decisions. Securitization introduces principal-agent problems into mortgage lending, as the loan originator’s interest in obtaining a fee for underwriting a closed loan conflicts with the interest of investors in ensuring that borrowers are properly screened. These conflicts proved to be more powerful than imagined. Market-value accounting makes financial markets steeply procyclical, because in a crisis a drop in market values forces beleaguered banks to sell assets, creating a vicious downward spiral. Finally, the risk-based capital rules helped drive the craze for financial engineering and misleading AAA ratings.

Okay, so maybe it’s not “have no idea what they’re doing,” but they are blind to their own cognitive failings.

In short, school administrators banned junk food because they wanted to help the students, but no junk food means no school programs, and that hurts the students far more than a candybar. It’s the same with do-gooding government officials, who want to regulate the economy to protect us. Only this time, it’s not school programs, it’s jobs, our freedoms, and our very livelihood.

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