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1. Presented by: Eric Finkelstein, Ph.D. 3040 Cornwallis Road ■ P.O. Box 12194 ■ Research Triangle Park, NC 27709 Phone 919-541-8074 Fax 919-541-6683 e-mail finkelse@rti.org ■ www.rti.org RTI International is a trade name of Research Triangle Institute

2. Outline • Obesity Prevalence • Economic Causes • Why Should (or Shouldn’t) We Care About Obesity? • Proper Role of Government • Conclusion

3. 40 Below 100% of Poverty Level 35 100-200% of Poverty Level 200% of Poverty Level or More 30 25 20 Population % 15 10 5 0 1971-1974 1976-1980 1988-1994 2001-2004 Time Period National Obesity Rates Among Adults (ages 20-74), by Poverty Status Source: “Health, United States, 2006.” Centers for Disease Control and Prevention http://www.cdc.gov/nchs/data/hus/hus06.pdf#073

4. The Relationship Between Obesity and Income for Males Analyses based on data from the Medical Expenditure Panel Survey.

5. The Relationship Between Obesity and Income for Females Analyses based on data from the Medical Expenditure Panel Survey

6. The Relationship Between Obesity and Income for Boys Age 10-18 Analyses based on data from the Medical Expenditure Panel Survey.

7. The Relationship Between Obesity and Income for Girls Age 10-18 Analyses based on data from the Medical Expenditure Panel Survey

8. Trends Among Youth • 17 % of U.S. children are overweight and many more are at-risk • Over the last 30 years: • rate of overweight for 6-11 year olds tripled (from 4% to almost 19%) • rate of overweight for 12-19 year olds increased from 6% to over 17% • Since 1990, twice as many children aged 2-5 are overweight (13.9% vs. 7.2%) • Unlike for adults, large racial disparities in obesity trends for kids • Overweight prevalence rose by more than 120% among African American and Hispanic children compared with 50% among Caucasians from 1986 to 1998

9. But Why The Rise In Obesity Rates?

10. Calories In • Caloric intake changes from NHANES I (1971-74) to NHANES (1999-2000): • Men 2,450 to 2,618 kcal/day: 7% increase • Women 1,542 to 1,877 kcal/day: 22% increase • Boys: 2,550 to 2,800 kcal/day 10% increase • Girls: 1,780 to 1,900 kcal/day 7% increase • Consumption of food away from home increased from 18% to over 32% of total calories over the last three decades • Guess what’s the number one food in the American diet?

11. Calories In • Soft drinks • They account for 7% of all calories consumed. • In 2004, the average American consumed 52 gallons of soft drinks. • This represents a 50% increase from 1980. • Kids consume nearly 300% more soft drinks than in the 1970s (from 7oz. to 22oz. per day) • Children’s sugar consumption is twice what is recommended Why the increase in consumption?

12. Cheap Food Gets Cheaper • Food costs, in terms of money and time, have been steadily declining over the past few decades (until recently) • Between 1978 and 2005, food prices dropped by 38%. • Greatest drops are for calorie dense foods • Technology has made it easier (lowered the time cost) to consume food • Consider the microwave • 95% of homes have them today • 8% had them in 1978

13. Changes in Relative Prices Source: Author calculations based on the Consumer Price Index – All Urban Consumers (U.S. City Averages, 1983-2005)

14. Calories Out:Leisure Activity • The “benefits” of inactive leisure have gone up so we would expect leisure time physical activity to decrease Internet, computer games, cable TV, … • Between 1970 and 2000, the no. of homes with more than one TV rose from 35% to 75%. • Those with cable TV rose from 7% to 76%. • 55% of homes now have internet access • It has become costlier to exercise

15. Average Hours Per Day Spent in Leisure and Sports Activities Source: Bureau of Labor Statistics, Dept. of Labor, U.S. GovernmentAmerican Time Use Survey (ATUS) 2003 Released September 2004

16. Inactivity Among Youth • 1/4 of U.S. young people (ages 12-21 years) report no vigorous physical activity • About 14% of young people report no recent vigorous or light to moderate physical activity • Participation in all types of physical activity declines as grade in school increases

17. Percentage of Youth Who Watch 4hrs or More of Television on Weekdays Source: Child Trends original analysis of Monitoring the Future data, 2004.

18. Non-Leisure Time Physical Activity • Due to technology, you can accomplish more by doing less • ‘Accidental exercise’ is almost non-existent • More physical activity would decrease productivity, lower wages, and increase prices (who wants that?) • After 18 years, a male worker will weigh 25 pounds more if he works in the lowest (as opposed to highest) fitness demanding jobs. • We used to get paid to exercise, we now have to pay to exercise (Lakdawalla & Phillipson, 2007) • Note: a 30-minute jog followed by 8 hours on the computer falls short of the ‘10,000 Steps’ recommendation

19. Moral Hazard • There has been a tremendous increase in medical/surgical and pharmacological treatments for the diseases that obesity promotes • Among today’s obese population, the prevalence of high cholesterol and high blood pressure are now 21, and 18 percentage points lower, respectively, than among obese persons 30 to 40 years ago (Gregg et al) • Today’s obese population has better BP and Cholesterol values than normal weight adults had a few decades ago (Gregg et al) • Maybe being obese is not so costly anymore

20. Recap: It’s the Economy, Stupid • Obesity is the result of technological advancements that have changed relative costs of food consumption, physical activity, and obesity: • Decreased cost of food consumption • Increased cost of physical activity • Decreased health costs of being obese • Technology (or a growing economy) is responsible for (or at least exacerbates) rising rates of obesity • Obesity is a side-effect of our own success • These changes reflect consumer preferences

21. We may be fatter, but are we worse off?

22. We may be fatter, but are we worse off? • Substantial excess weight reduces life expectancy, but most notably for BMI’s > 35 • Excess weight causes 70% of diabetes cases in the United States • Excess weight greatly increases the risks of developing hypertension and high cholesterol • Obesity adversely affects nearly every system of the human body • But Diet and Exercise have their own costs

23. Utility Maximizing • Classical Economic Theory: Utility Maximization • Given all the choices we could be making, we choose the options that make us best off (i.e., the ones that give us the most utility) • Subject to constraints: time, money, biology • Increasing weight over time can be explained by changes in the constraints (i.e., it’s harder to be thin in today’s environment) • Preferences for thinness (or fatness) have not changed • For many, including my Uncle Al, weight gain is the utility maximizing outcome given the changing environment

24. So, if I’m right, what is the role of government?

25. Role of Gov. as Seen by Economists • Government should intervene only in the case of market failures (or undo past government failures) • Market Failure occurs when resources are not being allocated efficiently by the private sector • Externalities • Market Power • Public Goods • Imperfect (Asymmetric) Information • Consumer Irrationality Where are the market (or government) failures?

26. Imperfect (Asymmetric) Information • Lots of markets function fine with asymmetric information • Key Question - Can the market solve this issue without gov. intervention (i.e., is there a market failure)? • Should gov. force mandatory labeling for restaurant foods? • FDA advisory panel says no • NYC and others say yes • Another good ‘natural’ experiment

27. Are Consumer Irrational? • We conducted a national telephone survey in Fall 2004 • Tested if overweight and obese adults recognize their own risks • Asked disease free individuals their risk for stroke, heart disease, cancer and diabetes • Risk rated as: “high,” “moderate,” “low,” or “no risk” • All respondents were also asked to predict their life expectancy • Regression analyses tested association between responses and BMI

28. Evidence of Rationality? • Results • Overweight associated with significantly greater self-perceived risk of diabetes, stroke, heart disease and cancer • Obesity associated with significantly greater self-perceived risk of all four diseases • Perceived risk increases with increasing BMI • Self-reported life expectancies • Normal weight: 78.2 years • Overweight: 75.8 years (p=.001) • Obese: 74.3 years (p<.001) • What are the implications?

29. Is government intervention warranted to save money? • Overweight and obesity increase the annual medical bill by $90 billion per year • In the absence of overweight and obesity, health insurance expenditures would be 9% lower • Medicare expenditures would be 11% lower • The government finances half of the total annual medical costs attributable to obesity, or more than $45 billion per year • The average taxpayer spends $175 per year to finance obesity-related medical expenditures among Medicare and Medicaid recipients But is this a reasonable justification for gov. intervention?

30. Financial Externality (cont.) • Aren’t Medicare and Medicaid entitlement programs by design? • Hard to use these costs to justify government intervention • If unhappy about these costs, solution is easy • Experience rate or cut the programs • Resolving the financial externality would suggest that only cost-saving interventions are warranted • These don’t exist to my knowledge • Would also suggest giving away free cigarettes!

31. So Is There a Role for Government? • Government imposes laws and regulations that influence food consumption and physical activity decisions • This ultimately influences rates of obesity • An appropriate role of gov. may not be to solve existing market failures, but to revisit past policies to determine whether they may be doing more harm than good • Farm bill, zoning, publicly provided health insurance, … • Provision of public goods is also a classic role of government, but unlikely to be cost saving • Best case for government intervention concerns youth

32. So Is There a Role for Government? • Addressing childhood obesity should be a top priority for government • The utility maximization argument clearly fails for them • Bad decisions as youth are especially hard to undo • That is why we mandate schooling and ban alcohol and cigarettes for youth • But be warned, don’t try to sell the benefits of these programs in terms of dollars savings

33. Annual Medical Expenditure for Normal Weight and Obese Adults Source: Finkelstein, E.A. and D.S. Brown. 2006. “Why Does the Private Sector Underinvest in Obesity Prevention and Treatment?” North Carolina Medical Journal 67(4):310-312

34. Conclusion • Obesity is a side-effect of our own success • As a result of a changing environment, many adults optimally choose to weigh more than public health officials would like • Government should focus on youth and revisiting past policies that may have promoted obesity • May need to target adults to get there • Information provision is a necessary but not sufficient condition

35. Stop here