Scientists want ‘fat tax’ on soda
Posted in Health by George
Apparently, scientists would like to see a tax placed on soda. Soda, if you haven’t noticed, is a pretty darned big source of empty calories because of the high sugar content. The idea is a basic economic concept: upon market failure, government intervention can help eliminate the negative effects of an externality. In this case, the externality is that soda causes people to become fat and increases medical costs for everyone, and thus, the government can reduce the consumption of soda by raising its price, and thus eliminate the externality.
I don’t really think this is going to make much of a difference. An overall healthy lifestyle, which includes moderation in food, exercise, sleep, etcetera is the most important thing. You can avoid soda all you want and still be unhealthy. Perhaps the tax will reduce consumption of soda, but maybe then people will just start overconsuming diet coke and die of cancer, or start drinking water, but supplementing their sugar fix with candy bars.
It’s quite clear that the average American doesn’t care about long term health, or long term anything. A recent study came out that said the average savings rate in the country was NEGATIVE in 2005 (more on this later…). In terms of diets: people are more likely to listen to tabloids than a nutritionalist. Although staying healthy with exercise takes only 30 minutes per day, few people would do this rather than watch reruns on TV. Psychologically, this tells me that people would rather enjoy a coke now than feel good later.
Scientists want ‘fat tax’ on soda - Diet & Fitness - MSNBC.com
March 7th, 2006 at 2:11 pm
While, the scientists produce an interesting conjecture, economists should study what the public will substitute for higher priced soda. It seems that simple exchange would be soda for some fruit juice (5% juice anyone? Still heavy with high-fructose corn syrup). However, what if the general substitute was beer? The alcoholic beverage companies would be happy, but I’m sure this conflicts with the scientists idea of a healthier lifestyle.
March 7th, 2006 at 2:44 pm
Ha that’s true. On the other hand, isn’t it supposed to be healthy for people to have one drink per night?
I do agree though that possibly a substitute to juice or beer is likely, or some other form of sweets at least.
You da man, Chris.
March 8th, 2006 at 8:23 am
Does not caring about long-term health constitute a market failure? A Coke now over health later doesn’t seem much worse, in strictly economic terms, than spending money rather than saving it. Besides, it’s not as if manufacturers make the claim that soda is healthy, or that consumers don’t have plenty of alternatives already. Sure, you could say it’s for their own good, that people don’t know any better. I don’t mind the government making nutritional suggestions, but to tax specific food products for “my own good” is precisely the sort of thing that governments should not be doing. It’s a free country…give people information and let them make their own choices. I think Americans ought to be a bit more health conscious too, but some will freely choose to be fat buckets of lard. That’s just the way it goes.
March 8th, 2006 at 9:02 am
I think it’s a market failure in that it makes people fat, and those people cause an externality on others by making everyone have to pay higher medical bills since obesity is such a large percentage of medical costs these days.
March 8th, 2006 at 11:33 am
By that logic, George, drug users consitute a market failure (or at least a black market failure). I think you’ll agree that that’s a pretty ridiculous angle.
There is a big difference between what people can do and what people should do. That’s the price you pay for living in a free society.
You might be able to argue that obesity is the result of market failure if 1) people based their eating habits strictly on health with no consideration for taste and 2) diet was the sole cause of obesity rather than a major factor. But neither of these conditions are met. There is no shortage of low-fat/low-sugar/low-calorie/etc alternatives to most food products, no shortage of information about which foods are healthy, and no shortage of exercise options. In short, the market already provides the necessary ingredients for a healthy lifestyle. Externalities do not necessarily make a market failure.
Even if the proposed solution of a soda tax made sense in economic terms, you still can’t avoid the fact that it’s bad public policy.
March 8th, 2006 at 4:06 pm
Externalities are pretty much what market failure is all about. When people consume more of a good than is socially optimal, that’s market failure. People consume more soda than optimal, thus a tax will encourage them to consume less (even with all of the information out there, it’s not getting to anyone).
People consume more drugs (>0) than is optimal. If there were a way to tax these so no one would buy them, then they would be taxed.
I’ll agree it’s lame, but it makes perfect sense.
March 9th, 2006 at 2:22 pm
I haven’t had an econ class in the last year, so I’ll have to yield the high ground on this one. However, externalities are only one form of market failure, and I don’t think it’s appropriate to apply market failure to all cases. In my mind, a case where producers and consumers both have their preferences satisfied, there is no information gap, and pricing & competition are fair, I have a hard time concluding that intervention is necessary.
To the drugs example, taxes are irrelevant. Making a product illegal is a greater deterrent than an artificially-inflated price, yet people still buy and use drugs. Or, for a legal example, see how well cigarette taxes have worked. This is a reminder that some preferences are more elastic than others.
It is likely that consumers will grudgingly accept the higher prices and continue drinking soda at or near current levels. Even if the policy was effective in reducing soda consumption, Chris points out that many of the alternatives are also unhealthy. And of course, curbing soda consumption would not necessarily have a significant impact on obesity. There’s still exercise and the entire range of diet to consider.
So aside from the reasons that a soda tax would be ineffective, let’s consider the other ways in which this is a bad policy.
Assuming that a soda tax would be effective in curbing obesity, the whole thing reeks of a nanny-state. In a free society, the individual and not the government must be responsible for making his or her own lifestyle choices. The government already provides defense, education, a transportation network, postal service, social services, and pretty much anything else you can think of. The government even issues nutritional guidelines. In other words, the government does enough already. Taxing a specific product, in effect, is an attempt to dictate an individual’s personal choices.
March 9th, 2006 at 4:39 pm
Ben,
I will agree that it does, precisely in your words, reek of a “nanny-state.”
I don’t think it should be necessary, the problem I see is just that people are not taking advantage of the information right in front of them.
Interestingly enough, I was listening to the radio and I heard that soda consumption dropped in 2005 for the first time ever, or something like that. Kind of strange, maybe people are listening to the information.
I will agree that we would be a lot better off getting people off their butts and exercising, or just making everybody drink diet sodas. However, I still think a soda tax would, to some extent, help, even if it is a really lame, nanny-like policy.
March 10th, 2006 at 8:45 am
Whether it would work is irrelevant, though I’ve already outlined the many ways in which such a policy would fail. The more important point is what the policy represents–a market intervention intended to limit consumer choices. Regardless of the benefits to individuals or society, the government has no business doing this sort of thing in a free society. When the government must intervene in the marketplace, it should create more options for consumers, not fewer.
March 11th, 2006 at 7:49 am
I’ve enjoyed reading the comments posted on this topic, but I too think that this is ridiculous. Obese people are puttting a strain on health care costs, but if you’re going to tax soda, you might as well tax candy, cake, etc. I bet if there was a tax on soda, fruit juice companies would begin carbonating their “fruit juices” (many of which are pretty much just sugar anyways), to see if they could capitalize on that opening in the market. And if that happened, we’d have the same freakin’ problem.
I resent what a lot of food companies do to get people to overuse their products, and I certainly do not and will not like paying higher prices for health care in the future, but right now I don’t see a quick fix to this problem. People aren’t going to stop smoking because the price of cigarettes went up $.50 a pack; people aren’t going to stop their eating and drinking habits because the same happens in the food industry. I think the best thing to do is to promote making good choices and daily exercise (hence one of the reasons I’m a PE teacher). I’m going out for a run now.
March 11th, 2006 at 7:51 am
Sorry, that post above was mone
March 11th, 2006 at 7:51 am
Or mine
March 11th, 2006 at 10:05 am
In regard to cigarettes, since people are addicted to them, demand is really inelastic, and people will pretty much consume them as long as they are available, no matter how much the price goes up. That’s why a cigarette tax raises a lot of money but really isn’t a good idea.
I still don’t think this is ridiculous, but now I have a new, even more ridiculous idea. Why don’t all “sweet” beverages get taxed proportionally to the amount of sugars they have per fluid ounce? That way, the healthier drinks would be cheaper and the not-so-healthy ones, including fruit juices, would be expensive. The reason this should occur to beverages and not candy bars and stuff, is because (many) people do get a disproportionate amount of calories from beverages, and this is why we’re trying to wean them away.
I will always agree with you though, the best solution is exercise and good choices, but people are just so darned stupid and lazy that we can’t get them moving. I’m going out for a run now too.
March 11th, 2006 at 2:26 pm
I’m going to quote back some of the phrases in your post that highlight what a bad idea this is:
“healthier drinks would be cheaper”
Only relative to your overtaxed sugary beverages. What you propose would artificially inflate the price of the cheapest drinks, resulting in higher prices all around.
“we’re trying to wean them away”
In other words, make decisions for them. The government has no business interfering in the market to force a healthier lifestyle on citizens. That’s too much intrusion on individual freedom for a free society.
“people are just so darned stupid and lazy that we can’t get them moving”
If stupidity and laziness are the problem, then your solution should target stupidity and laziness, not prices. You also overlook the possibility that there’s more than stupidity and laziness at work–taste preferences, for example. Not everyone with an unhealthy diet is stupid or lazy.
It’s an ends-means thing, George. I’m not saying that people shouldn’t make better choices. It’s just that individuals need to make these choices, not the government. And not you.