How much is that funnel cake or that KFCÂ Double Down really worth to you? When the U.S. Food and Drug Administration rolled out new calorie count label rules late last year, the agency took a stab at estimating the value that a consumer loses when they choose healthy, lower-calorie meals and snacks over energy-packed foods like sausage-stuffed takeout pizza orÂ popcorn at the bijou. The estimated deficit adds upÂ to more than $5 billion.
Ok, here's how it's supposed to work. When a consumer pays for something, they get some kind of benefit.
The buyer might wantÂ the product enough to pay a higher price for it.Â The difference between the actual price and what they would be willing to pay is called a consumer surplus. Buried somewhere in that difference are lots of subjective factors like convenience, trendiness, taste, texture -- and the overall pleasure that the product delivers.
It's guesswork, but the estimated dollar amounts from this subjective surplus stems from real economic data. When the FDA wanted to weigh costs and benefits ofÂ the calorie labelÂ rule, it used a new model that compares health benefits from labeling to lost consumer surplus from choosing healthier foods.
But public health advocates have blasted the FDA's move. Amit Narang, an attorney and policy advocate for Public Citizen, said using this type of analysis for labeling is "problematic" and requires making big assumptions about a consumer's choices.
"This is not real money that consumers are losing," Narang said. "It would be more appropriate in a situation where something was being banned versus just giving people more options."
Narang and other label advocates worry that factoring inÂ consumer surplus losses could undermine the justification for the rule and open the door for legal challenges from companies or trade organizations who have long fought against calorie count requirements. In the past, the FDA used consumer surplus to estimate costs to consumers who were addicted to tobacco.Â He said since labels don't coerce people into eating healthier, the idea of lost of consumer surplus shouldn't come into play.
"If they're giving up pleasure, it's of their own free volition," he said.
TheÂ Guy Who Started It
To arrive at its $5 billion figure, the FDA used a simplified version of a model developed by economist Jason Abaluck.
Abaluck, who teaches at the Yale University School of Management, said he agrees with the FDA's use of lost value factors.
He said it's not realistic to focus just onÂ public health benefits when drafting policies. By ignoring consumer surplus, he said, public health advocates overestimate the welfare gain of labeling "by a factor of three." But he said economists also miss the boat when they only look at the lost consumer surplus.
"What my paper is actually saying is that compared to a traditional economic analysis of labeling, in fact the benefits are about four times greater" thanÂ economists would estimate, Abaluck said.
He notes that his research does not tackle factors like how the food industry might respond to an increased desire for healthy food.
"That's a potentially important response that I can't get at in my paper that might make labeling even better," he said. "[My research is]Â never going to say âoh, look. Labeling is making people worse off because it reduces their pleasure.' It's just going to say it's making them better off by less than we thought."
- Exclusive: FDA Prices 'Lost Pleasure' of Junk Food Into Calorie Count Rule (Reuters)
- Menu Calorie Count Mandate Adds Up To $5 Billion In âLost Pleasure' (WBUR's Here & Now)
- What Would We Eat if We Knew More (Jason Abaluck)