1 Economic Analysis on the Cost of Obesity, Government Intervention, & Policy Implication By Joseph Tsao 6/6/2007

2 Current & Relevant June Issue

3 Clear & Present Danger 67% (200 millions) of Americans overweight or obese = 5 billions lbs overweight 17 % of total U.S. medical expenditures in 2004 $12 billions (direct + indirect)

4 Objectives Q : What are the costs associated with obesity? Q: Should government intervene? Q: If so, what and how should be done?

5 Medical Cost of Obesity Type 2 diabetes: $63.1 billion direct cost: $32.4 billion Coronary Heart Disease (CHD): $7.0 billion (direct cost) Colon Cancer: $2.8 billion direct cost: $1 billion Post-menopausal Breast Cancer: $2.3 billion direct cost: $840 million indirect cost: $1.5 billion Endometrial cancer: $790 million direct cost: $286 million indirect cost: $504 million Hypertension: $3.2 billion (direct cost) Osteoarthritis: $17.2 billion direct cost: $4.3 billion indirect cost: $12.9 billion

6 Lost Earnings and addional Business Expanditure $52 billion of earnings lost in ,000 deaths annually are attributable to obesity 12,000 die before retirement age 45,000 working YEARS lost Obesity increases operating costs for some businesses

7 Discrimination No solid evidence but studies suggest: Lower chance in employment Less wage Social exclusion (not discussed)

8 Policy advice: choose your theories carefully Technological change - Fossil fuels are replacing human/animal motor power Economic transition - Lifestyle change is associated with development of a post-industrial consumerist society Nutrition transition - Fatty foods are relatively cheaper than health foods. There is oversupply of fats and sugars. (Cheap corn = cheap HFCS ) Genetic causation - The predisposition to lay down fat is an evolutionary legacy Cultural change - Marketing and advertising installs new cultural norms about what and how to eat, and how much to eat (McDonald’s and Coca-Cola’s $2 billion marketing budgets are each twice the WHO’s full-year budget!)

9 Areas of Interest These include but are not limited to: Agriculture (U.S. Farm Bill) – because policy affects what is produced; Manufacturing – for ingredients, portions and products; Retail – for planning, prices, availability and location; Education – for health knowledge and skills; Culture – for the shaping of consciousness around food and physical activity; Trade – for product pricing and terms of trade.

10 Justification for government intervention First, is to promote equity. Second, intervention may be required to uphold the law. Third, government intervention may correct market failure.

11 Three categories of market failure Externalities; Imperfect information; Vulnerable individuals and Demerit goods.

12 Should A Child Be Removed From His Family For Being Fat? Washington Post: Britain May Take Custody of Obese Boy Monday, February 26, 2007; 7:33 PM LONDON -- Authorities are considering taking an 8-year-old boy who weighs 218 pounds into protective custody unless his mother improves his diet, Connor McCreaddie, who weighs more than three times the average for his age.

13 Policy advice: choose your theories carefully Technological change - Fossil fuels are replacing human/animal motor power Economic transition - Lifestyle change is associated with development of a post-industrial consumerist society Nutrition transition - Fatty foods are relatively cheaper than health foods. There is oversupply of fats and sugars. (Cheap corn = cheap HFCS ) Genetic causation - The predisposition to lay down fat is an evolutionary legacy Cultural change - Marketing and advertising installs new cultural norms about what and how to eat, and how much to eat

14 Policy cacophony Models competing for policy attention, dominance and funds: Build in more physical energy use into daily life. Design technology to help keep intake in balance with expenditure. Once sufficiently affluent, people will be able to tackle obesity as consumers, choosing or not, as they wish. At the micro level, fiscal measures such as ‘fat taxes’ could be considered. Social marketing can emulate ‘business’ marketing.

15 Public Policy Frame Work A paradigm shift – change engaged with and delivered across government, society and supply chain Prevention is key! The policy should adopt long-term strategies that aim to reshape not only the physical and dietary environment but also the social and cultural environment Political priority

16 Conclusion A strong case for government intervention in order to protect children. Need better understanding of the psychological processes underlying individual behavior to better protect adults Only through better understanding in the true nature and size of these market failures can Government be expected to design policy interventions that are optimal or even desirable to the general public!