Taunter Media

The basic story is tragic if common: person eats food, person gets sick from food.  In this case, the person was a young Minnesota dance instructor named Stephanie Smith, and the food was ground beef processed by Cargill in Wisconsin from sources in Nebraska, Texas, South Dakota, and Uraguay and contaminated with the E.coli bacteria, and sold at the local Sam’s Club.

People have been getting sick from food for all of human history; no doubt we were getting sick from food before we could fairly be said to be a species.  Even with the best intentions, it will probably continue.  But the diseases of the modern food supply – E.coli, salmonella, etc – are not inevitable.  They wouldn’t exist at all – and Stephanie Smith wouldn’t be in a wheelchair – if our government functioned properly.  These microbes are the canaries in the coal mine of a dysfunctional bureaucracy.

Upton Sinclair wrote The Jungle in 1906, at the tail end of the first wave of the industrialization of the food supply.  Americans were only a generation or two from the farm; before that, there was neither the need nor the opportunity to involve large amounts of capital in centralized food processing.  With typical Gilded Age disregard for workers, the meatpackers in Chicago kept their employees in appalling conditions and released an appalling product.

Sinclair’s goal was the highlight the plight of the employees, but his readership had an easier time identifying with the consumers of the tainted food than the producers.  The reaction led to the Pure Food and Drug Act and ultimately to the creation of the FDA.  Meat quality was to be regulated in the public interest.  It is still there in the USDA inspection shield.

Unfortunately, the food industry took another lesson from the outcry.  People don’t want to know what’s in the food, and will generally assume the best.  So lie.  Hide.  Bribe, cajole, lurk in the shadows.  Whatever you do, don’t be honest.

As I mentioned here, with the exception of the tobacco industry it is difficult to think of a sector of the US economy that has been as resolutely anti-consumer as the food processing industry.  Every single measure dedicated to public safety has been imposed over the objection of the food producers and the congressional delegations of the flyover states.

Two things come to mind:

The first is that American business is staggeringly short-sighted.  It has nothing to do with the conventional wisdom that public companies can only think a quarter ahead; Cargill is private, as are many other meatpacking businesses.  The auto industry fought tooth and nail against seat belts and crash testing and fuel economy standards.  It defended its right to make lousy cars so passionately and effectively that the nation that defined the automobile for three quarters of a century is now famously unable to make quality automobiles and concedes “reliable” to the Japanese and “luxury” to the Germans without flinching.

The British played this game (both in autos and in food, as it turns out – wonder if there is something particularly Anglo-Saxon at work), and then at some point even the lying was inadequate and people found out about the BSE in British beef and the foot-and-mouth in the herds.  The losses from the mad cow outbreak alone would have paid for a robust screening process, not to mention that after the outbreak the government ended up needing to screen anyway.

The second is that the government cannot be both promoter and regulator at the same time.  The US Department of Agriculture takes its mission as the promotion of agricultural interests; apart from the fact that this is a curious mandate (as opposed to, say, consumer welfare), it is in direct opposition to the job of policing wrongdoing.

In all, the ingredients for Ms. Smith’s burger cost Cargill about $1 a pound, company records show, or about 30 cents less than industry experts say it would cost for ground beef made from whole cuts of meat.

If the USDA forced Cargill to use ingredients with a lower risk of contamination, it would cut into Cargill’s thirty cents.  Cargill would not like that.  Since the USDA sees itself as Cargill’s advocate, it does not press Cargill.  In fact, the USDA not only advocates for agriculture interests in general, it behaves like a union and advocates for the worst against the best.  It actually sued Creekstone Farms – a meatpacker that wanted to test its meat for BSE – to prevent it from testing meat because other operators might feel pressured to do the same.

Dr. Kenneth Petersen, an assistant administrator with the department’s Food Safety and Inspection Service, said that the department could mandate testing, but that it needed to consider the impact on companies as well as consumers. “I have to look at the entire industry, not just what is best for public health,” Dr. Petersen said.

Amazingly, Dr. Petersen did not resign in disgrace immediately after saying that.  He probably thinks it makes sense.

I am happy to deregulate industries.  When Congress finally got rid of the Civil Aeronautics Board, it was a good thing, even if it led to cramped seating and the elimination of food; it proved that what most passengers really wanted was a flying bus.  Markets teach us things.

What I am not happy with – and what began with the Reagan Revolution but engaged the hyperdrive in the Dubya Administration – is the gutting of the enforcement of the rules that remain.  E.coli, not to put too fine a point on it, gets in the food supply when shit gets in the food.  Shit is not supposed to be in food.  If the farm state congressional delegations want to stand up and amend the law so that shit is accepted in food, let’s have that debate, and then let’s allow some folks to test so that there can be a shit-free section.  But so long as there is a rule against contamination, it is incumbent on the government to make sure that there actually is no contamination.  To enforce the rule relentlessly.

To do otherwise penalizes the good guys to help the bad guys.  It lands Creekstone in court while others sell downer cattle into the chain.  It yields the perverse outcome that slaughterhouses will not sell to meat to grinders unless the grinders agree not to test:

Costco said it had found E. coli in foreign and domestic beef trimmings and pressured suppliers to fix the problem. But even Costco, with its huge buying power, said it had met resistance from some big slaughterhouses. “Tyson will not supply us,” Mr. Wilson said. “They don’t want us to test.”

That is a direct, on the record statement from a massive retailer.  What, might you ask, is Tyson’s response:

A Tyson spokesman, Gary Mickelson, would not respond to Costco’s accusation, but said, “We do not and cannot” prohibit grinders from testing ingredients. He added that since Tyson tests samples of its trimmings, “we don’t believe secondary testing by grinders is a necessity.”

That, boys and girls, is PhD level sleight of hand.  Notice how Gary answered a completely different question?  Of course Tyson cannot stop Costco or anyone else from testing Tyson meat.  That’s why Tyson won’t sell its mean to anyone who will test.

Instead of declaring this an immediate priority, we have Dr. Petersen wondering if testing might hurt the precious meatpackers, instead of Stephanie Smith or the next person who eats tainted meat that slipped through the lax regulatory system he oversees.

We are in the midst of what passes for national debate on the role and size of government as we decide how to administer health insurance.  We didn’t mean to get here – public intervention would reduce costs, throwing the entire model on its ear – but thanks to some uncharacteristically poor politics from the current administration, we did.  Just as well.  I think the government should provide the payment mechanism for basic health care and only intervene in the financial system to protect retail deposits of highly regulated firms.  I get the feeling the White House would like the opposite.  Serves me right for not being President.

If we are to have an effective government of any size, however, the functions that we delegate to it have to be carried out, and they have to be carried out even when inconvenient.  What is so disappointing about the Obama team is how quickly they have taken to the sort of wink and nudge regulation that defined Dubya’s time.

Remember when Vikram Pandit decided to tell the world that the first two months had been great, if you ignored all the write-downs?  It was March 10, just after Bernanke went on TV to try to stem the market declines that were worrying Obama.  Now, I would hope that a CEO who decided to announce non-GAAP results for an irregular reporting period (two months?) without leading with an 8-K would find himself on the business end of an immediate Reg FD problem.  But no one said a word as Citigroup stock began to claw its way back.  If you didn’t know before, that should have been the sign.  This stuff was merely more of the same.

There will be no meaningful financial reform, and it is even less likely that the administration takes on the agriculture lobby.  But there are existing rules governing financial services – plenty of them on every topic from capital adequacy to short sale settlement dates – and rules for agriculture as well.  Enforced vigorously, people would be helped, and perhaps we would have a better appreciation of what collective action can do.  Anything short of a single-payer system will require extensive regulation of health care; to achieve even our limited goals, we will need to enforce the rules.

Every fall Sunday I watch football, and I have yet to see a professional game without officials.  The players could call their own fouls and lines; it’s not as if they don’t know when they have been holding or the other guy has stepped out of bounds.  But they don’t – not even Friday night under the lights – because both teams recognize the value of calling the game cleanly.  They even review tough calls on video, just to make sure they got it exactly right.

It would be tough to bring that level of policing to another industry; seven of the 29 people on the field at any given time are officials.  In the meantime, though, let’s make sure that the folks we do get on the field know that their only mandate is the welfare of the consumer.