A bitter pill from sweeteners 

 

Sugar“Corn syrup, sugar battle in L.A.” read the headline. The story focused on legal wrangling between competing enablers of America’s sweet tooth. The sugar industry accused high fructose corn syrup makers of misleading the public with an ad campaign that it is “nutritionally the same as sugar,” asking for $1.5 billion in damages in a Los Angeles federal courtroom. Corn syrup producers had already filed suit for $530 million in damages, alleging that big sugar falsely depicted corn syrup as less healthy than sugar. And both claimed to be on consumers’ side.

It is instructive, however, that while the story treats sugar and corn syrup as intensely competing “Rock ‘em Sock ‘em” robots, the producers involved back each other’s pet government special interest supports. Corn and corn syrup producers back import quotas on sugar that restrict sugar supplies and increases its price; sugar producers are on board with U.S. methanol mandates that absorb much of the corn crop, increasing the price of corn products. And consumers lose from both.

How can we understand these seemingly inconsistent actions? One fact explains both the false advertising rumble and the political alliances. Sugar and corn syrup are substitutes for one another. That is why advertising tarnishing just one harms one set of producers and benefits the other. But because they are substitutes, anything that artificially boosts the price of one benefits the other by increasing its demand, regardless of adverse effects on other groups.

Consider an analogy to ice cream and frozen yogurt. Assume the products are made by different firms. If some protectionist policy raised the price of ice cream, producers of frozen yogurt, a substitute for ice cream, will benefit, because a higher price of ice cream will increase demand for frozen yogurt. And if some government mandate forced up the price of frozen yogurt, producers of ice cream will benefit, because a higher price of frozen yogurt will increase the demand for ice cream. At the same time, ice cream makers would like to tarnish frozen yogurt’s health effects and frozen yogurt makers would like to tarnish ice cream’s health effects, as long as the stain didn’t extend to their competing products.

Replace ice cream protectionism with import quotas that drive up U.S. sugar prices and frozen yogurt mandates with ethanol mandates, and you have the sweetener marketplace.

Those government intrusions have increased U.S. prices of both sugar and corn syrup, raising profits artificially for both groups at the expense of consumers. But those hikes have also driven many candy makers and the jobs they entail out of the U.S., harming those workers and their communities, with parallel effects for other major sweetener users.

Consequently, if we were interested in consumer well-being, we might pay more attention to policies that benefit both sugar and corn syrup producers, at the expense of consumers who must pay substantially higher prices, rather than their false advertising bickering. After all, whether we are talking about sugar or corn syrup, everyone already knows that too much can harm them.

In this, case, we could benefit from Adam Smith’s insight:

The interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. …But … the interest of the consumer is almost constantly sacrificed to that of the producer … who [has] generally an interest to deceive and even oppress the public … to narrow the competition … can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.

Gary M. Galles is a professor of economics at Pepperdine University and a research fellow at the  Independent Institute. His books include “Lines of Liberty” (2015), “Faulty Premises, Faulty Policies” (2014) and “Apostle of Peace” (2013).