Lately I have seen many discussions about the government forcing food companies to provide labeling informing the consumer of whether their food contains GMOs or not. To my surprise, many of the people in favor of this government regulation seem to be hardcore free market libertarians. These are the type of people that will scoff at the roads argument liberals make ( and rightfully so). So why are they in favor of these food labeling regulations? Maybe it is because they don’t fully understand how the free market works, or maybe it is because they are not as libertarian as they claim. Another possibility is that they have not heard the proper argument for why these regulations are unnecessary.
Here is my take on food labeling and GMOs:
As the public becomes aware of GMOs as they currently are, demand for non-GMO food will increase. This means that companies not using GMOs will begin to use labels indicating that their food does not contain any GMOs in order to increase their sales and increase their profits. Other companies, based on pressure from the market, will be forced to follow along and label their food as non-GMO in order to not lose their market share. If you look at this through a game theoretical approach, it is easy to see that the equilibrium will be to label their food. Hence, we will attain higher probability of knowing which food contains GMOs because of the absence of a label.
One possible response to this is how do you know the company won’t lie? Well, for one thing, fraud is illegal. No one is advocating fraud. In reality, what would happen is that with the fear of fraud there would be a demand for a company to test these foods for GMOs, and without the approval of the company the label of non-GMO would be meaningless. If this scenario were to obtain, we would have companies informing us via labeling that their food does not contain GMOs and a third party company will be approving which food can carry this label.
Another possible argument, is that allowing the free market to handle food labels will result in hurting “mom ‘n’ pop” stores. They claim that they won’t be able to afford the labeling. I don’t see how this follows. Why would a “mom ‘n’ pop store” even need the labels? Usually, these smaller more local stores, are in business due to a loyal customer following where the owners know the customers. If they are selling their own food, I think a simple sign above their door about non-GMOs would suffice to convince loyal customers, and if they are selling others foods they don’t have to pay for the labeling at all. Furthermore, the way the free market handles this doesn’t force them to label anything if by chance their food does contain GMOs.
In conclusion, whenever someone is arguing for more government regulation, try to think like an economist and go beyond stage 1. The solution will often arise from within the market mechanism.