Misleading Claim: “An unhealthy hamburger costs $1, but a healthy salad costs $5. Greedy capitalists are making our kids fat!”
Reality: Producers do not sell goods at arbitrary prices based on profitability or the desire to make people fat. In fact, prices are carefully calculated by consumer value/demand and external factors, such as subsidies. We can debunk this claim with thought experiments and an analysis of the U.S. farm price support programs.
Whenever production of something is heavily subsidized, producers shift their resources to said good because their costs are now artificially lower. As a result, there is a surplus of the good. Currently, taxpayers dole out $20 billion in subsidies to American farmers.
To use a specific example, corn is heavily subsidized. In 2012, corn producers received $2.7 billion in subsidies. This covers everything from federal crop insurance to production.
As I stated, the subsidy makes corn production more desirable regardless of demand. Thus, production capacity is utilized more so for corn than would otherwise be dictated by the market. The result is a CONSTRICTION of supply, which drives up prices for other farmed goods. According to a CBO report, corn subsidies meant to encourage ethanol production have driven up food prices by as much as 15%.
Furthermore, since there is a corn surplus, not all of the corn is utilized for ethanol production. Much of it is sold to farmers for feeding their livestock which, in comparison to other farmed goods, holds prices artificially low. We have two problems from this: 1) production capacity for other goods (i.e. lettuce) is reduced, driving up the price AND 2) production costs are artificially lower for beef.
However, beef prices recently hit an all-time high. This is not because of the subsidy, but rather who gets the subsidy and why. As part of the Farm Bill, many farmers are paid NOT TO FARM, even though they have farmable land. This further restricts supply for production inputs for beef and healthy alternatives, such as lettuce. When farmers are paid not to farm, the price of farm utilized land also increases and that increases prices even more. As a result, the relative price of beef is STILL higher than healthy alternatives.
While we have discussed mostly inputs and external factors, consumer taste also plays a significant role. Research shows that consumers will almost always pick the unhealthy food. Why? Taste! People love to eat things that taste good. Economics is not about making you healthy, but rather about giving you what you demand. It’s up to youthe consumer to make yourself happy. In fact, recent trends provide evidence that consumers are shifting that way.
That said, artificially low price of corn has arguably influenced consumers towards unhealthy foods because, like all things, there is an opportunity cost.