Harry Clarke » smoking

Smoking & booze policy proposals

hc — Tue, 01 Sep 2009 23:46:05 +0000

The proposals for increasing the tax on cigarettes by 17.5 cents per stick and for introducing a minimum price on booze are worthy of analysis. Proposals are also developed for dealing with obesity but I will not discuss those here.

The report by the National Preventative Health Strategy is here.

Let me do some rough back-of-envelope calculations that follow an earlier approach.

The current tax on a stick of tobacco is 24.3 cents or $4-86 on a packet of 20 so that a 17.5 cent hike would raise this to 41.8 cents per packet so, on a packet of 20, the tax take would rise to $8-36 a 72% increase or about a 35% increase in the cost of a packet of cigarettes. Cigarette price elasticities of demand are around -0.25 to -0.5 so such a price hike would reduce consumption by between 8.75 and 17.5%. Quit elasticities (the percentage of those who quit smoking altogether for a given percentage change in price) are probably around half the demand elasticities so that of Australia’s 2.8 million smokers between 122,000 and 245,000 would quit due to this tax. If I had to guess I would suppose the number of quits would be close to the upper end of this range as it is a large price increase and demand elasticities are likely, if anything, to be high.

This is a considerable gain in terms of reduced health costs. About half of smokers face a death that is directly attributable to their habit. As I set out in the earlier study one seeks quits rather than smoking intensity reductions since the latter are less effective in reducing health risks – it is the compensation phenomenon – people ‘smoke harder’ to get the same nicotine levels. In addition ex smokers face a much higher risk of lung cancer than those who have never smoked so that overall health benefits are difficult to compute. But the gains are obvious.

Setting a minimum price on booze was originally to be studied by NCETA and I commented on that then. The proposal was subsequently revived for discussion by PM Brown in the US and again I commented. The proposal is a rough attempt to implement volumetric pricing – pricing booze on the basis of ethyl alcohol content. The idea is to force inexpensive booze that contains much ethyl alcohol to be sold at a large price. Volumetric pricing is a better approach since then a hefty tax is placed on the inexpensive alcohol and this tax accrues to the government not to the liquor producers.

A minimum price tends to increase the price of alcohol overall. Suppose, for simplicity, that wines fall into two categories $10 (cheap) and $20 (pricey) with equal alcohol content and a regulator sets a minimum price of $20 on all the cheap wine. Then cheap wine consumption will fall a bit but there will be a switch also into pricey wines by those who previously drank the cheap stuff. This shift in demand will raise the prices of the pricey wines. Regretably however there will be a shift into easily produced home brews and petroleum products – this will be a very dangerous substitution that is already occurring.

Economists don’t like minimum price regulations for ordinary sorts of goods because they impose deadweight losses. This case is valid here too but the objective is to re3duce smoking and problem drinking not to maximise the social surplus delivered in these markets.

The argument put in The Australian by Adam Cresswell that these moves are regressive is trotted out every time a price increase on smokes and booze is proposed. It is rebutted each time it pops up but always rebounds. Poor people do tend to be smokers and to drink a lot so the impact of these individual proposals are regressive but the tax-transfer system should be judged by its overall impact not that of individual charges. Revenues gained from such things as cigarette taxes can even be redistributed back to the poor if this is sought. And poor people gain in any event from these types of policies by having lower incidence of cirrhosis, lung cancer and emphysema.

Refusing to consult foxes on welfare of chickens

hc — Thu, 27 Nov 2008 20:57:00 +0000

160 countries have refused to admit cancer producers into discussions on limiting the global spread of cigarettes. The countries argued there is a fundamental conflict between the interests of public health and those of cigarette producers. That is obviously true.

Meanwhile, the Lancet reports that, at current smoking rates, 100 million Chinese men will die as a consequence of smoking between 2000-2050. Many will destroy family finances vainly seeking a cure for their ailments.

Cigarette producers generate far more human misery than international terrorism.

More deceit from big tobacco

hc — Sun, 07 Sep 2008 07:28:00 +0000

This article in The Age suggesting that tobacco companies knew that ciarettes contain a pollonium isotope that makes smoking a packet and a half of cigarettes equivalent in radiation exposure to 300 chest X-rays per year. They kept quiet about it as they have with some many of the other deadly features of this habit. The more I look at the evidence the more I back my radical plan to get really tough on smoking – let’s end this outrageously dangerous and stupid practice within one generation.

Thanks for The Age reference Damien Eldridge

A break from blogging

hc — Tue, 29 Jul 2008 22:55:00 +0000

Apologies to readers for the recent lack of posting. I have been busy lately with preparations for forthcoming teaching and have been travelling. Hopefully things will normalise over the next week or so.

On Friday this week I am presenting a seminar on ‘Policies for Reducing the Costs of Cigarette Smoking in Australia’ (a much earlier version here) at the University of Queensland from 11-12pm in the Colin Clark Building Room Level 6. I’ll be in Brisbane Thursday-Saturday morning and would like to meet blog readers in Queensland. I’ll be staying at Hotel Ibis on Turbot Street.

The good news this morning is that the much-maligned Premier Iemma has moved decisively in NSW to ban the public display of cigarettes in stores and to fine the 10% of smokers who insist on smoking while driving when there are young children in the car. This follows similar moves in other states such as South Australia.

Passive smoking is particularly injurious to kids and lurid displays of cigarette products are primarily designed to attract young kids into this disgusting habit (a source of Phillip Morris’ disgraceful opposition to this move).

Well done Morris and brickbats to those hideous corporates who continue encouraging our kids into making a premature visit to the morgue.

Update Sunday: Brisbane was sunny and University of Queensland a pleasant destination. Saw old friends and had a great few days. Now back in freezing Melbourne.

Last words: Environmental tobacco smoke

hc — Wed, 02 Jul 2008 12:00:00 +0000

‘Last twinges of a coffin posting this book where the awning flaps a distant thank-you’. (William S. Burroughs)

The US Surgeon General’s ‘Health Consequences of Involuntary Exposure to Tobacco Smoking’ is a massive 19MB document with a reasonably accessible Executive Summary. The evidence is mainly for the US but many arguments apply to Australia. It is a 2006 report but I have only just had the chance to pour through it with care.

Forget about the lies the tobacco companies (and their allies in the libertarian movement) tell you about the freedom you have to kill yourself and those about you.

Life itself is a somewhat sick joke. We survive for 3 score years (and perhaps ten or twenty) then our bodies and our frantic concerns about income and status turn into dust. But we want to live – or at least I do! That’s the funny bit.

Exposure to environmental tobacco smoke (ETS) has fallen dramatically in the US mainly because of near total restrictions on smoking in the workplace – cotinine concentrations (a metabolite of nicotine) have fallen 75% in 10 years.

Still in 2005 ETS in the US killed more than 3,000 people from lung cancer, approximately 46,000 from heart disease and 430 newborns from SIDs. And still about 60% of non-smokers in the US show exposure to ETS.

The argument that cigarettes mainly cause internalities (market failures due to ignorance, youthful impulsivity) rather than externalities is true. A wonderful paper on internalities by Gruber – that demolishes the ludicrous ‘rational addiction’ model – is here.

Smokers reward non-smokers by paying more in taxes than they recoup in medical benefits simply because they die earlier. Perhaps non-smoking spouses who marry spouses cannot complain of 20-30% higher lung cancer death rates and 20-30% higher risk of heart disease. Perhaps too you can stretch it and say that workers in bars get better salaries that compensate them for higher heath risks. But what do you say about kids who suffer respiratory problems, slower lung development, higher rates of asthma and much higher rates of mid-ear infections because their parents smoke.

There are externalities from ETS and no-one should be forced to experience them.

No need for moral panic over drugs

hc — Sun, 15 Jun 2008 21:51:00 +0000

I have pointed out repeatedly that drug use in Australia is under control. Cigarette, heroin, amphetamine and cannabis consumption are declining and alcohol consumption is roughly stable. It is the reason I don’t support moves to reform drug laws on the grounds that current laws have failed – they have not failed at all.

An article in today’s Age makes the same points about alcohol.
Alcohol consumption has costs and benefits – to an economist this suggests trying to get the balance right in consumption and to persuade consumers not to drink in risky situations – such as prior to driving a car.

Proposals to redefine ‘binge drinking’ (meaning socially excessive drinking) to mean the consumption of half a bottle of wine (3 standard drinks) do not seem wise. All activities involve some level of risk but this risk must be balanced against benefits. Telling people who are not driving that they should not enjoy a half bottle of wine is destroying too much enjoyment and not addressing dangerously high levels of drinking and situations of drinking before driving or operating machinery.

The moral panic that is developing needs to subside a bit and the very real problems of drinking that do exist should continue to be addressed. As usage of dangerous illicit and licit drugs decreases then efforts to further reduce harm will need to become more focused – targeting indigenous Australians makes much sense – but this does not mean further coercion across the whole community.

Do higher cigarette prices make smokers better off?

hc — Tue, 20 May 2008 13:04:00 +0000

Economists have long searched for goods they can tax which impose no deadweight losses (DWLs) on society. Henry George supposed that assets like land which are in fixed supply can be taxed without social costs since customer demands will not change and supply will not change – the only effect of a tax on rents would be to shift rental income from land owners into the pockets of government. Such taxes produce large transfers but impose no DWLs. George in fact argued that all taxes should be based on taxing land. He wasn’t quite right because he ignored quality improvements in land – these are less likely to be made with hefty land taxes – and anyway a tax base that was based on land would be too small to fund Labor Party wish lists. (George’s idea was quite smart however and led later economists, such as that legendary genius Frank Plumpton Ramsay, to suggest focusing taxes on goods in inelastic supply and demand to avoid allocative losses).

My colleague at Monash University, and by far the best welfare economist in Australia, Professor Yew-Kwang Ng, has suggested taxing diamond-like goods whose value is seen to be higher in the eyes of consumers when they are more expensive. Again the basic idea is that noone loses with such an excise tax. The government gets revenue and diamond consumers get more satisfaction by being able to display even more expensive diamonds.

Now I have found a third twist to the possibility of taxes without DWLs that involves taxing naughty or sinful goods that consumers really know they should not consume. FXH sent me a link to this attractive piece in Slate that reviews a relatively old paper by Jonathon Gruber and Sendhil Mullainathan arguing that excises on tobacco products made consumers better-off in both the US and Canada by increasing their ability to resist the temptation to indulge in the filthy habit of cigarette smoking.

Its a fairly complex argument but basically this paper argues that higher taxes and hence higher prices give consumers greater motivation for self-control. Higher prices reingage the cognitive parts of the brain and make it easier for smokers to cut back or stop smoking

It is worth noting that this argument augments traditional Ramsay-George arguments for levying hefty taxes on cigarettes because their demands are relatively inelastic. From these perspective taxing cigarettes both punishes a sinful activity and delivers loads of dough to the Treasury.

Thanks FXH for the Slate reference.

Smoking bans deter the initiation of smoking

hc — Thu, 15 May 2008 21:30:00 +0000

I have posted many times on the value of smoking bans. These stop passive smoking externalities but also increase the user costs of smoking which encourages quitting. They also improve financial returns in businesses subject to the bans. They also provide libertarians with a no-brainer way of padding out their blogsites with attacks on ‘nanny-staters’ which is probably a socially safer activity than advocating legal gun ownership or the legalisation of herpoin for toddlers. This piece from NewScientist suggests they also deter teenagers from taking up the habit.

Restaurant smoking bans don’t just protect diners and staff from other people’s smoke, they help stop young people becoming habitual smokers.

‘In 2001, Michael Siegel* and colleagues at Boston University surveyed 3834 Massachusetts youths, with follow-ups two and four years later. In towns where restaurants had no smoking bans or kept smoking areas, 9.8% had smoked over 100 cigarettes in their lifetimes, compared with 7.9% in towns with smoking bans.

Once the researchers corrected for factors such as whether their parents smoked, those in towns with bans were 35% less likely to be habitual smokers (Archives of Pediatric and Adolescent Medicine, vol 162, p 477).

Bans don’t make teenagers less likely to try cigarettes, but seem to stop them making it a habit, perhaps due to less contact with smokers or because smoking seems less socially acceptable.’

The full article by Siegel is available free at the link. BTW Michael Siegel has a very active and interesting blogsite here. Via it I came to this interesting report on tobacco control in Canada – one of those countries most successful in encouraging less smoking.

Putting your money where your butt is

hc — Mon, 05 May 2008 01:52:00 +0000

This paper (that I learned about indirectly by reading an Andrew Leigh post) by Xavier Gine, Dean Karlan & Jonathon Zinman uses short-term incentives to deter people from smoking. It is an intriguing idea:

Abstract: We designed and tested a voluntary commitment product to help smokers quit smoking in the Philippines. Individuals who sign a Committed Action to Reduce and End Smoking (CARES) contract deposit money into a savings account and agree to let the bank forfeit their entire balance to charity if they fail a urine test for nicotine and cotinine six months later. Bank marketers offered the product by approaching smokers in public places. Marketers administered a short survey, provided a standard pamphlet with information on smoking’s harmful effects and how to quit, and then made one of three randomly assigned offers: (i) CARES; (ii) aversive “cues”: graphic, pocket-sized pictures of the deleterious health effects of smoking, modeled on Canada’s cigarette packaging mandate; (iii) no intervention (control group). 11 percent of individuals offered CARES accepted. 6 months after marketing, the bank marketing team returned and administered urine tests to participants from all three groups. Subjects offered CARES were 3.1 percentage points more likely to pass the test than the control group (a 38.8% increase); this intent-to-treat effect rises to 4.3 percentage points for those who reported in the baseline survey that they wanted to quit smoking at some point in their lives. Treatment-on-the treated estimates suggest that those who signed a CARES commitment were 29 and 33 percentage points more likely to pass the test than the control group.

This proposal has advantages over the one I analysed a few weeks ago which simply gave rewards to those who abstained from smoking. This scheme isolates those with specific incentives to quit. It is less open to manipulation.

Social interactions & smoking

hc — Fri, 02 May 2008 06:39:00 +0000

This paper by David Cutler and Edward Glaeser is worth a look.

Abstract: Are individuals more likely to smoke when they are surrounded by smokers? In this paper, we examine the evidence for peer effects in smoking. We address the endogeneity of peers by looking at the impact of workplace smoking bans on spousal and peer group smoking. Using these bans as an instrument, we find that individuals whose spouses smoke are 40% more likely to smoke themselves. We also find evidence for the existence of a social multiplier in that the impact of smoking bans and individual income becomes stronger at higher levels of aggregation. This social multiplier could explain the large time series drop in smoking among some demographic groups.

The basic idea is that smoking is a social activity – people like to smoke with others. It confirms other work already cited on this blog that eliminating smoking by individuals has positive direct effects and positive indirect effects of stopping others to smoker.

Incidentally I find it strange that the Cutler/Glaeser study does not refer to earlier work published in a widely-respected journal. I have noticed this before among US economists.