Friday, August 1, 2008

A Skeptical View of LA's Fast Food Ban

Earlier this week the Los Angeles City Council approved a ban on new fast food restaurants in South Los Angeles for a year - subject to the Los Angeles mayor signing the ban into law. The moratorium exempts fast food restaurants located in malls or strip shopping centers, and "fast food casual"- which are restaurants that do not have drive-through windows, heat lamps or restaurants that prepare fresh food to order. Additionally, the ban makes it difficult for existing fast food restaurants to expand or remodel. The California Restaurant Association is considering a legal challenge to the ban.

Some of the stats used to support this fast food entry ban are that South Los Angeles has an above average rate of obesity (30%) as compared to the metropolitan area (19%) and West Los Angeles (14%). Seventy-three percent of South Los Angeles restaurants are fast food compared to 42% in West Los Angeles.

Personally, I am skeptical that this fast food entry ban will make much of an intended difference, but rather have a negative effect on the people in South Los Angeles. Rather - it seems as if the Los Angeles City Council is making policy that is budget neutral (i.e. no new out of pocket expenses) and hoping this will lead to healthier citizens which will lower current and future public health expenditures.

By banning new fast food restaurants it seems the Los Angeles City Council believes a high percentage of fast food restaurants is making people obese. I have a slightly alternative explanation - low income consumers buy more restaurant meals at fast food restaurants since they are relatively cheaper than alternative restaurants and consuming high calorie/high fat meals leads to obesity. Also, people with low incomes are less likely to belong to a gym, own their own exercise equipment or have HEALTH INSURANCE than people with higher incomes - which is also likely to lead to higher rates of obesity. The Los Angeles City Council fast food entry ban is doing nothing about raising incomes or providing health insurance for South Los Angeles residents - and may make low income individuals worse off. How?

A ban on fast food restaurant's entry can lead to higher fast food prices. If the demand for fast food restaurant meal's in increasing, fast food restaurant owner's (or franchiser's) have a profit maximizing incentive to raise their prices, which in turn should increase their profits since they are now insulated against additional fast food competition. Higher prices makes South Los Angeles low income individuals worse off. Yet, if fast food meals become more expensive, some people may switch from buying fast food meals to more healthier restaurant meals, which would benefit existing "healthier" restaurants and likely result in new "healthier" restaurants to open. But I do not think there will be a lot of switching - keep in mind that many people go to fast food restaurants because it is cheaper and convenient, which is not the case for many "healthier" restaurants. So even if there are more "healthier" restaurants, this does not automatically means that people will switch if these restaurants are not as convenient as existing fast food restaurants.

Obesity is also about the choices people make. Remember there is a very good alternative (economists call these substitutes) to eating out - that is making your own meals. I realize that some people do not have transportation to go buy food at a grocery store and that food prices are rising, but for many low income individuals a home cooked meal is a very good alternative and also potentially cheaper. Andrew Pudzer, president and chief executive of the parent company of Carl's Jr. - a fast food restaurant ' said, "[i]t's not where you eat, it's what you eat." There are healthy alternatives even at fast food restaurants - so if South Los Angeles residents are not choosing them now, how will increasing the number of healthy restaurants change people's behavior?

2 comments:

Brian Burke said...

How about an alternate cause-effect relationship? There may be a common cause to both poverty and obesity. A lack of personal discipline would lead to both. Also, a very high personal discount rate leads to both outcomes. People who "think short-term" don't save, study, or make healthy decisions.

Eating a Big Mac makes me happy for a short time period, but it makes me feel bloated and fat over the long term. Someone not concerned with long term consequences would eat more Big Macs. I know I would.

In other words, I'd bet if you gave every South Los Angeleno a free membership to 24-Hour Fitness, they'd be just as fat and just as poor in 2 years. But if, somehow, they learned a more disciplined and long-term oriented lifestyle, they'd be healthier and wealthier.

Stacey said...

Brian,

You have an interesting hypothesis. Myopic decision making or high personal discount rates will lead to more obesity. Furthermore if your hypothesis is true, banning new fast food restaurants will not change the overall levels of obesity in South Los Angeles or anywhere else. Either way, the fast food entry deterrence policy proposed by the Los Angeles City Council will be ineffective - atleast that is my prediction.

As an empirically oriented economist, having some data on this would make an interesting policy research project.

Thanks for your thoughtful comment,and I hope you enjoy future posts. At the start of the academic year I will be posting on the revenues and expenses of selected NCAA Division I-A sports programs. I hope this will be of interest to those who are reading.