Covering All Possibilities, From A to B

"My response is (1) that's complicated and thus subject to abuse and consumer confusion,..." - Chris

What makes you think that government health inspectors are above abusing their position? The NYC health department was legendary for bribery. Government inspectors are the most easy targets for such corruption; they're usually union members, which means it's almost impossible to fire them, and they have no one in their organization who has to please a customer.

"I suspect it would lead to a race-to-the-bottom..."

Why hasn't that happened with UL and Consumer's Union? I'll answer my own question:

Because UL has a reputation as a tough-but-honest testing laboratory, and because of that reputation, consumers trust the UL Seal and businesses are willing to pay UL to test their equipment because... consumers trust the UL Seal.

The pressure is on UL to maintain their high standards and thus keep the consumer's confidence because it's their reputation and their liability on the line.

Jones Lamp Company is also under pressure to subject its products to UL testing, because Smith Lamp Company does, and Smith's will gleefully point out to consumers that Jones must be worried about meeting the tough standards that Smith is voluntarily meeting.

There is no reason that restaurateurs wouldn't voluntarily subject themselves to the same type of private labs that the electronics industry submits to, and no reason why it would be confusing to customers if the sign read "AJAX-Approved" instead of "CA Health Dept-Approved". It would probably be cheaper, and restaurants wouldn't face the whims of unionized government employees having a bad day.

Hammer/Hans --

I agree that the government is not the only agency capable of inspecting restaurants. There are private mechanisms for evaluating restaurants (AAA/Michelin come to mind). And, you can imagine a system where restaurants contract with private inspectors, some of which do good jobs and some do lousy jobs. In that system, consumers identify which inspectors were legitimate and tough, and which were overly lenient, and then would use that information to figure out where to eat. Clean restaurants would flock to those inspectors to get a competitive advantage.

My response is (1) that's complicated and thus subject to abuse and consumer confusion, (2) it has no mechanism to shut down restaurants, (3) I suspect it would lead to a race-to-the-bottom, which would lead to (4) regulation of the restaurant inspection industry.

Are there places in the world with a private system of inspections? There are certainly places without any inspections, but my impression is that locals have become accustomed to filth. (Like "Montezuma's revenge" in Mexican water.")

Chris,

As you pointed out, the regulations do little to prevent death. It is usually after the fact that people look into such things. As Hans astutely points out, there is no reason why the government alone has to do this, or any particular reason why they would even be the best at it.

As to your wife's incident, why was she eating in a restaurant with dirty bathrooms if such a feature is so important to her? If the state of the john were very important to me as a basis for chosing a restaurant, I would check that first before ordering.

And as Sam rightly points out, there is often nothing to be done about vermin, particularly if you live in a city, or even near places that store large amounts of food. It is just a fact of life that you can't keep mice and the like out of anywhere they want to be 100% of the time. Strange that the little bugger was in the toilet though... isn't there a saying about that sort of thing?

The analogy Boudreaux uses is not of restaurants hindered by INSPECTORS posting notices af compliance with a set of standards. This represents market transparency and is a valid oversight function of representative government- the people's eyes informing the marketplace.

The analogy is of a kitchen beset by REGULATORS, government meddling in the actual process of production. Here a regulator may demand that so much oregano be used in every recipe, though the shop produces ice cream. There the regulator may demand that the busboy have an equal say in the menu items for the day. At a third station the regulator may require that ingredients only be purchased from specific, oppressed, vendors on specific days of the week.

This stuff is the meat and pota- Oh, I'm sorry, that's radishes today- of government interferance in market economics.

The chief question is to what extent are today's problems caused by market forces, and to what extent by government interference with these forces.

Contrary to your pose of presenting all relevant possibilities, you miss the main debate entirely. The chief questions are 1) to what extent an unprecedentedly large group of people can expect to accumulate entitlements to rent, in a capital market, for an unprecedentedly large period of retirement and 2) to what extent are today's problems caused by the attempt? How will governments establish the entitlements? How will markets arrange them?

Capital markets, particularly, don't exist at all without governments regulating. They never have, and they never could. Baby boomers expecting the retirement their parents experienced don't simply arrange entitlements to rent in neat little packages with each boomer possessing a proper allotment. Expecting this outcome from "freest" capital market imaginable is incredible, regardless of the wisdom of the market participants or the folly of their regulatory masters. I rather expect something like what we're experiencing, and I have no idea why Don expects anything else.

I expect capital markets to concentrate the entitlements into relatively few hands, and I expect market participants in this scenario first to lower their risk-aversion (increasing the volatility parameter in the Geometric Brownian Motion process concentrating the entitlements), thus accelerating the concentration, and then to raise their risk-aversion, thus demanding greater "security" from their protectors in the state, like John McCain's explicit call to "protect the investors".

Does Don expect something else, aside from his state employee's pension and Social Security benefits? If so, what and why?

Why do people assume the government is the only entity who can inspect a restaurant? Why do people always assume that if the state didn't do it, it won't be done?

Where does regulatory capture fit into Don's scenario? Perhaps the lousy food wasn't on the regulator's checklist because the restaurant owner's association persuaded the regulators that the important items to regulate were fire safety and handicapped access, not food quality. A kitchen crammed with regulators may malfunction even though they really are doing their "job" as defined by the regulations. We surely don't want regulators to regulate more than the mandates require do we?

The irony is that in my own professional life, I have had USDA regulators tell me what they'd like me to do, and to call them if I have questions, but they also ask me not to put those questions in writing, because it's so much better and easier to deal with problems using common sense than for the regulator to have to deal with a paper trail that he is answerable to under Freedom of Information law. Even some regulators are human and just trying to do the best they know how!

Sam Grove --

Sorry; should have made the Missus' complaint a bit clearer. She was annoyed because the manager acted like it was no big deal -- it seemed too much like "Oh, another mouse? Oh, here's how we deal with that." The restroom was also just filthy, so obviously the management just didn't care. The restaurant was closed by the health department; I can't prove it was because of her call, but it seems like a big coincidence.

With restaurants, proving liability is hard because people generally eat the evidence.

John Smith --

Well, it depends on your definition of "working." There are two parts to the regulations: (1) an information requirement -- the "A"-"C" and numeric grade, (2) the prevention of health issues caused by poor practices of the restaurant.

It seems to me that (1) works whenever my neighbor (whose family owns several KFC's and Taco Bells) walks out of any restaurant scoring less than a 96. She knows what you can get away with when you have, say, a 92, and refuses to eat there.

As for (2), that's a difficult question, but my answer would be like this: I assume you had your measles, mumps, rubella vaccine when you were a child. How do you know that's working? The only way you can do it is via a broad-based statistical study.

The other answer to (2) is that the inspection program (especially if there is a surprise component) provides an additional incentive beyond that provided directly by the market to keep the place clean. A rule that says "don't have rodent feces in the rice or you will be shutdown" is a great incentive to keep rodent feces out of the rice. Sure, they already have an incentive, but with the rules, they have MORE of an incentive.

This is what markets can do, and regulation or lack thereof, will not necessarily effect outcomes.

Chris,

Because restaurants notice when other restaurants close, and why.

Restaurants are also aware of liability issues, and but not for the health department, perhaps the insurance company would attend to the matter of requiring proper hygiene practices of their clients.

So the restaurant was shuttered. Was a determination made that the restaurant was not employing proper hygiene?

A rat got into our house. I used a trap.

Is it our fault a rat got into our house?


It's not like I wanted it there.

What did she want the manager to do right there and then? Call an exterminator to come right out?

One thin she can do it tell everyone she saw in the restaurant what she saw and tell everyone she knows about the incident and they can decide if they want patronize the place.

Chris---

How do you know if the health regulations are working? What criteria would one use?

Hammer --

I agree that any restaurant that regularly serves bad food goes out of business quickly. But, what about the restaurant that kills somebody by, for example, leaving rodent droppings in their soup? Or where the employees pass hepatitis on to their customers? In those situations, the signal "Oh. Mom died. It must be because she ate at 'Bob's Roadkill Diner'" doesn't necessarily happen. And, even if it does happen, Mom is still dead.

In these situations, I would rather have the government inspecting ex ante than having to deal with the ex post consequences.

A few years back, my wife went to a pizza place and, after eating, went to the restroom where she looked down and saw a mouse looking back up at her from inside the toilet. She got the manager, who simply flushed the mouse and went on his way. The next morning, she called the health department and within a day, the restaurant was shuttered. How would this have been handled without a health department regulating restaurants and how long would it have taken for the place to go out of business?

Trumpit,

People die, all of them do. It is extremely unlikely that any of us would get an advanced notice, whether we are rich or poor.

The fatcats on wall street die too, But new ones are born. Just like new parasites are born every day, who wants to live off other people's work.

The "handcuffed" sentiment worries me the most. If regulators can just make up the game as they go along with no accountability, oversight, or direction, everyone will end up a criminal and the regulated class will simply turn to the regulators to pummel their competitors.

Arnold Kling has been making the point the problem likely emerged from regulatory arbitrage. It could reasonably be argued that regulations were so entrenched by politics that they could not be tweaked to get rid of the arbitrage opportunities, but may at the same time been so complicated that nobody really knew what the arbitrage opportunity was. People just stumbled on their roles and took advantage of where they found themselves.

By the way, it is not just mean, idle, wishful thinking, that a group of CEO's die from food poisoning. They could all be eating at the same fancy restaurant, discussing how they can get an even fatter "compensation" package, ordering the same tainted filet mignon, and all get sick and subsequently die. The bad meat may have orginated from factory farming practices that the government can't properly police or that Agri-business has successfully lobbied against. Canada had a recent recall/incident of deadly beef killing people. Or the meat may have been poisoned by improper food handling at the gourmet, 5-star restaurant that the Wall St. titans were lunching at. In any case, the best health care that money can buy, may not be able to save them. I'm sorry if I wouldn't feel sorry for them. They can have a lovely burial with all the finest headstones, a buffet for the mourners, etc.

Vidyohs, he's just a troll. Ignore him.

Especially considering most people's home kitchens would never pass inspections, and restaurants are given prior notice of the inspections, resulting in them going through a whirlwind cleaning right before the inspectors arrive, which is of course not their day to day routine.

Further, any restaurant who serves bad food is likely to go under due to market forces. See the fate of Chi Chi's, which fell apart after people contracted some nasty food born illness from chives they had bought. As fas as I know, no government action was brought against them, but no one ate there anymore, and there aren't any around, at least in these parts.

So yea, definitely not worth the characters of data, Trumpit.

Posted by: Trumpit | Oct 15, 2008 12:21:25 PM

Another example of mean, venal, irrelevant, and worthless driveby stupidity.

That may be your worst analogy ever. Here in L.A., we have a health dept. rating placed on the windows of restaurants that goes from A to C to a "you don't want to eat here" low number. I like the rating system and the health dept. I don't want to get sick and die from the food I eat. I feel the same way about self-policing of Wall St. Why can't the greedy pigs on Wall St. all die from food poisoning? That would be nice.