Taking a break from the usual political travesty better known as the “stimulus” bill working its way through Congress, I spent a bit of time today reading up on peanuts.  The salmonella mess is, by every reasonable account, a decidedly unfortunate event, and it is my sincere hope that anyone still suffering the effects of the disease recover quickly, and that the families of those who have not been so lucky recieve our greatest sympathy.  Time will tell if the folks at Peanut Corporation of America (PCA) violated any laws by their (in)action, and what outcome justice will require.  For advocates of the free market, the peanut case presents an interesting study of market failure, the limits of faith in government, and a demonstration of the way in which markets effectively police themselves.

It does not take a lot of looking to find the market failure in the tragedy of PCA.  According to a Reuters article, early indications are that decision makers at PCA conspired to cover up the existence of some salmonella in their product.  The reason stated is, of course, a familiar one: Peanuts which get trucked to a landfill are less profitable than peanuts which get shipped to a distributor.  All indications show that the company was not exercising due care to ensure the safety of consumers.  Significantly, there appear to have been very few red flags raised about PCA despite the company’s history of health violations.  If there were whistleblowers at all, they were apparently ineffective, and the media only began to care after people got sick.  There was, in short, very little public information about the risks of the product.

Of course, it would have been difficult to predict the need for a significant amount of public oversight, given the role that the Federal Government was supposed to have played in protecting the integrity of the food chain.  As we now know, the FDA was largely absent from its oversight role at PCA, citing budget constraints.  There is no reason to think that the peanut industry is uniquely underfunded, which means that throughout the food industry, a sufficient level of oversight is likely to be the exception rather than the rule.  However, in the perverse world of government, the FDA — which would probably be subject to lawsuit if it were a private entity — is already using the incident as a reason to ask for greater money and authority.  All the while, consumers are asked to simply trust that the government is doing its job.

Despite the bleakness of the failures which led to the peanut disaster, the current fallout has been a shining example of how the free market responds to poor decision making and the strong likelihood of misconduct.  Once it was determined that the salmonella outbreak was caused by peanuts, it took very little time for the health hazard to become national news.  Peanut sales also dropped sharply in the wake of the discovery, with a drop so severe that PCA will certainly lose more money from market effects alone than it could ever have saved by shipping tainted peanuts.  Indeed, market losses alone, including the damage to the company’s reputation, will make it extremely difficult for PCA to remain in business.

For those who believe in the virtues of free enterprise, the challenge now is to determine and explain how the market should have acted, and identify why things did not play out that way.  Without a solid counterpoint, calls to increase the invasiveness of the FDA will succeed without meaningful opposition, further eroding the already tenuous illusion that it is the people, rather than the government, who are responsible for ensuring the highest level of quality.

Tags: free markets