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The spectre of prohibition looms ever larger

13/08/2008

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There is an article by Christopher Caldwell in the FT on the issue of taxing or banning trans fats.

Fat people and over-eaters are taking money that rightfully belongs to their svelte fellow citizens, or so it is argued. A figure commonly bandied about in the UK is that this excess fat costs the economy £7bn in obesity-related medical costs and lost productivity. Sentiment is spreading in bureaucratic circles that governments not only can but also should do something about it. In recent days California passed a ban, to come into effect in 2010, on so-called “trans fats” (partially hydrogenated vegetable oils), which have been shown to increase the risk of heart attacks dramatically. While such cities as Baltimore, Boston, Philadelphia and Seattle already ban trans fats (as does Denmark on a national level), California is the first US state to do so.

Meanwhile, a report from the French budget ministry laid out several ways to tax le snacking, and in the UK, which already has special taxes for fatty and salty foods, the Department of Health announced a new programme to notify and counsel the parents of children who are “very overweight”. We have come a long way from September 1993, when Hillary Clinton responded to a House committee member who had asked her, incredulously, if she proposed taxing caffeine, cholesterol and salt. “If there is a way that you can ever come up with to tax substances like the ones you just named, we’ll be glad to look at it,” she said.

There are all sorts of reasons advanced. Adam can understand some of them, but increasingly we seem to see governments moving more and more into the regulation of the minutiae of people’s lives. Deciding what people can and cannot eat, even if for beneficial reasons is it seems coming very close to being too much. We are moving beyond exhortation to taxes or bans.

Today trans fats, tomorrow caffeine? pasta? butter?

We need to take control of our lives, not let government become our effective parent and provider.

We all know what happened when the USA tried prohibition.

12 Comments
  1. 15/08/2008 08:23

    “Where does this sit in the context of an externality? If at all?”

    Good question. The externality in this case stems from our nations Kyoto liability. Forget about the environment – we have said we will ship money overseas if we produce more carbon then we stated.

    In this case, the externality is like the health externality. If industry doesn’t face the cost of the carbon, they will produce too much (in a socially optimal sense), and the tax payer will have to pick up the tab.

    However, that is one of the reasons why a straight carbon tax would be preferable to an ETS – a tax would be transparent and we could tell if the government is charging to right tax, or too much. The ETS does a similar thing, but the cost of the emissions is uncertain – which I imagine will be more of a pain for industry.

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  2. 14/08/2008 17:59

    As a discussion point is not possible that the variant of an ETS as proposed by the current government may well result in an excessive revenue flow to the government far in excess of what might be justifiable some commentators have suggested billions, yet at the same time many business may well be impoverished.

    We the people did not choose an ETS it has been foisted upon us to ‘correct’ an ‘ill’ which may not eventuate.

    Where does this sit in the context of an externality? If at all?

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  3. 14/08/2008 17:12

    “On Matt’s point about tax offsetting health costs is it not the case that smokers pay more in ’sin tax’ than the health system pays out?”

    Indeed they do – this can’t be justified as an exterality tax once it gets to this level, as it is too big. I believe it is the same in the UK with petrol taxes, the “green” tax there is actually greater than an economist would suggest.

    In those cases, taxes are either being used to generate revenue because demand for the good is inelastic (so the “dead-weight loss” is low) or because the government doesn’t like the activity. The first point is ok (it depends where the tax money goes), but the second point is bad in the same way that regulation is bad.

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  4. adamsmith1922 permalink*
    14/08/2008 17:02

    Whilst preferring neither tax nor regulation, especially where regulation means prohibition, then given a choice tax is the more rational decision.

    On Matt’s point about tax offsetting health costs is it not the case that smokers pay more in ‘sin tax’ than the health system pays out? Further smoking is highly regulated also

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  5. 14/08/2008 14:52

    Part of the Nanny state approach comes from us not directly paying for our own health care.. it’s simply part of a big tax bucket. If we don’t directly pay for our health care but still get accepted for “free” hospitals and subsidized medicines then we may not value our health as much, particularly when we also get “free” after care and the sickness benefit. It’s a great way to build an expectation that health care is a Govt responsibility.

    So it’s small wonder that the Govt.. very likely elected on the basis of continuing free health care will want to regulate those aspects of food or behavior that make us unwell.

    We won’t do it, but a possible long term solution is to progressively shift the responsibility for health care back to individuals… and change the nannying to education.

    JC

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  6. 14/08/2008 13:16

    “Matt, I disagree, selective taxation is almost always a political decision based on avarice and hubris”

    Indeed – the idea of taxing an externality relies on both information (which is sketchy) and the objectiveness of policy (which is debatable). I completely agree that these issues are more than large enough to prevent a tax on unhealthy foods happening.

    However, that does not imply that a externality tax is the same as direct regulation – it merely implies that the issue is more complicated than “slapping a tax on it”.

    Note also that the externality is actually the result of policy – as we have a public health system, this creates an externality. It seems fair to assume that if we, as a society, chose this health system in the first place then an externality tax is unnecessary – as this is a cost we explicitly took on.

    “I am prepared to accept that ‘trans fats’ are not good, but it is the thin end of the wedge as we are then likely to see taxes on things and maybe even people that others disapprove of”

    Indeed, the fact that someone doesn’t like something someone else does creates an externality doesn’t it – ultimately as a society we have to ask ourselves what is a fair “externality” to deal with, and in what other cases are people being unreasonable.

    The tax on unhealthy food has a more objective basis though, as it stems from the fact that my choice to eat lots of chocolate will make me need to go to the hospital more in the future, which has a cost on the tax payer.

    This type of free-riding behavoiur is a cost we explicitly face in a lot of government policy.

    However, in terms of freedom of choice I don’t believe that the imposition of a tax on the basis of an externality is the same as regulation. Regulation takes away peoples choices, while taxes realign incentives, such that peoples choices may change. The difference is subtle – but essential.

    In practical terms I do not believe in a sin tax on food either (I know it would cost me!) – however, I find the idea of direct regulation on what we can and can’t buy a lot more concerning.

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  7. adamsmith1922 permalink*
    14/08/2008 12:15

    I favour education over bans. I dislike the idea of a ‘sin tax’ on food. I am prepared to accept that ‘trans fats’ are not good, but it is the thin end of the wedge as we are then likely to see taxes on things and maybe even people that others disapprove of.

    I am a large person, even if I lost weight I would still be a large person as am nearly 2 metres tall, yet some would say I should pay more for a plane ticket.

    On that basis small people should only occupy smaller seats so that all are equally uncomfortable.

    It is the increasingly prescriptive nature of society that irks

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  8. Ed Snack permalink
    14/08/2008 09:00

    And Salt ? One of the biggest straight out cons in the medical business. The evidence against anything other than absurd amounts of salt having a detrimental effect on normal people (there are certain people for whom salt can be an issue) is extremely weak. Doesn’t stop the propaganda though.

    Matt, I disagree, selective taxation is almost always a political decision based on avarice and hubris. Individuals facing the true cost…of course politicians and their acolytes are the dispensers of the one true knowledge and are reliable advisors of the truth. (/sarcasm). I can agree with the information being made readily available, but one must be aware of the fallibility of the current understanding. Remember the old food pyramid, emphasizing carbohydrates ? Largely responsible for the current diabetes incidence levels, and yet something the medical profession as a whole will not take responsibility for. Perhaps we should tax them for their “externality”.

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  9. 14/08/2008 08:55

    Oops, that should have been ban trans fats to Maori.

    JC

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  10. 14/08/2008 08:14

    “but increasingly we seem to see governments moving more and more into the regulation of the minutiae of people’s lives”

    The difference between a tax and regulation is that a tax still allows people the choice to pay for the product.

    If the tax is equivalent to the externality that it created from its consumption (eg the tax dollars that have to be spent looking after someone who has gotten ill from over-eating certain foods), then I don’t see the problem – as the government is just ensuring that the individual faces the true cost of their own actions.

    “favour a simple addition to the food label showing, in red, the amount of trans fats in the food”

    Information and education are powerful things 🙂

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  11. 13/08/2008 22:44

    Trans fats are the food industry equivalent of syphilis. The original experience is fun but the consequences are nasty. 🙂
    Banning is usually not successful and taxing less so. I favour a simple addition to the food label showing, in red, the amount of trans fats in the food. Then people can make up their own minds and the food companies will be encouraged to look for something other than cheap hydrogenated oils to cook with.

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  12. 13/08/2008 16:46

    The arguments get a bit FATuous after a while. For example, Maori point out that raising the entitlement rate for superannuation discriminates against them because they don’t live as long to enjoy it. On the other hand, encouraging all of us to live on super for longer is tough on the national accounts.

    Perhaps the answer is to only ban trans fats to Europeans.

    JC

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