Market Failure: The Case of Organic Food
By Bryan Caplan
Right-leaning people typically believe that (a) markets work, and (b) organic food is a scam. I definitely fit the profile. As a result, my every trip to the grocery store inspires cognitive dissonance. Organic food isn’t merely on the shelves; it’s growing by leaps and bounds. The organic industry itself claims that sales grew from $1B in 1990 to $27B in 2010, with 7.7% sales growth in 2010. What on earth is going on? How can my cognitive dissonance be resolved?
The ideologically easiest escape route is to drop (b). Maybe the health benefits of organic food really do justify a 30-50% price premium. But nothing high on Google Scholar inspires confidence in this position. Major literature reviews in 2009, 2003, and 2002 report that (a) there’s little solid evidence about the health benefits of organics, and (b) existing evidence reveals little health benefit of organics.
This is hardly surprising given the emotional, credulous cognitive style of organic consumers. Can you imagine the typical “all-natural” fan changing his mind in response to peer-reviewed nutritional research? That’s just not how they roll.
The second-easiest escape from cognitive dissonance is to water down the meaning of (a). Couldn’t you just say “Markets work”=”Markets give consumers what they want,” then add “Lots of consumers want organic food”? Sure, but this escape route overlooks a key distinction. Perhaps there are some consumers who simply want organic food, come hell or high water.* But many consumers of organic food want not organic food per se, but healthier food. As far as scientists can tell, the latter consumers aren’t getting the extra health they’re paying for.
At this point, you could water down the meaning of (a) even further: “Markets work=”Markets give consumers what they want given their beliefs.” This story seems OK as far as it goes. But doesn’t it damn markets with faint praise? In a world of fools, markets produce a great deal of folly. Sounds a lot like my critique of democracy, no?
Nevertheless, one big difference between markets and democracy remains. In democracy, if the median voter is a fool, everyone has to live under foolish policies. The great redeeming feature of markets is that anyone who figures out that, say, organic food is a waste of money can immediately stop wasting his money. This is far from a perfect system. But democracy, unlike markets, adds injury to insult. In the market, the rationalist suffers fools. In democracy, the rationalist doesn’t just suffer fools. He obeys them. Or else.
* As Saul Kripke might put it, these consumers treat “organic food” as a rigid designator.