The plain truth about plain packaging

I suppose you have to try policies out before you conclude whether they’ve worked or not. But now we’ve tried out plain packaging and it didn’t work according to its own aims, can we maybe give up on it? A new paper from scholars at the Australian National University, aptly entitled “The Plain Truth about Plain Packaging: An Econometric Analysis of the Australian 2011 Tobacco Plain Packaging Act”, and the first proper study of the scheme, brings the news.

Ronald Coase famously argued that if you tortured the data long enough they would confess. In this paper we have tortured the data, but there has been no confession. At best, we can determine the plain packaging policy introduced in December 2012 has not reduced household expenditure of tobacco once we control for price effects, or the long-term decline of tobacco expenditure, or even the latent attributes of the data.

To the contrary, we are able to find a suggestion that household expenditure of tobacco has, ceteris paribus, increased. In our forecasting exercise the actual data come close to breaking through the 80 per cent confidence interval. While we do not want to over-emphasise these results, we do conclude that any evidence to suggest that the plain packaging policy has reduced household expenditure on tobacco is simply lacking.

Of course, the ASI had already been suggesting this is the result we would find based on simpler analyses; and don’t forget that it is not a costless policy. If smokers derive extra pleasure when they smoke from getting their cigarettes from attractive branded packets then this is a benefit of branded packets, not a cost. And note that underage or young smokers, typically short of cash, tend to smoke cheaper cigarettes—Richmonds and Mayfair were my friends’ choices when they were 14.

Funnily enough, this paper’s release coincides with new evidence from the Office for National Statistics that e-cigs do not bring non-smokers into the tobacco fold.

E-cigarettes are almost exclusively used by smokers and ex-smokers. Almost none of those who had never smoked cigarettes were e-cigarette users.

Not really a surprise. But then even if e-cig users did include some who had never smoked before, this doesn’t imply that they moved from (safe) e-cigs to (dangerous) cigarettes. What’s more e-cigs have a number of benefits, that I tried to sum up when the EU tobacco directive came up in April, as part of a case that the anti-smoking crackdown has gone too far.

1.  Nicotine has many substantial positive effects

2. Smokers overestimate the dangers of smoking

3. Passive smoking may not be dangerous (at least to women)

4. Smoking is social, enjoyable, creates identity and meaning, and relieves boredom

5. Lifetime health expenditure is lowest for smokers

(If I was writing today I might add 6. Smoking substantially reduces Parkinson’s Disease risk, especially if you do it lots and don’t stop and this is true for other diseases as well).

The point is not that we should all start smoking, although there is actually a good case that nicotine is a nootropic—see the first link above—it is more that smoking has substantial benefits to the individual (as well as the noted health costs), and relatively low net costs to society, especially when you factor in the huge amount smokers pay through tobacco taxes. When we turn ‘smoking’ into ‘smoking e-cigs’ the costs evaporate, probably entirely, and the benefits remain.

Cracking down on traditional tobacco may have gone too far—but cracking down on ecigs is crazy.

The problem with Pigou Taxes

As regular readers will know (often to their great annoyance) I am a great supporter of Pigou Taxes to deal with externalities: most especially a carbon tax to deal with climate change. More generally around here at the ASI we’re all agreed that they’re a very useful tool if not quite the perfect one stop solution economists sometimes portray them as. the problem being, well, it’s the problem with so many things actually: politics.

As an example, here’s the latest little populist campaign being floated:

More than 30 MPs of all parties are backing a motion to stop charging Air Passenger Duty on flights for children who are between the ages of two and 11.

They say that families with school-age children already pay a premium for having to travel in the school holidays, and should not have to pay extra punitive taxes.

It’s true that APD is set at too high a level which is one problem. The existence of an externality (in this case, emissions from flying) does not mean that that activity should be taxed at some punitive rate. It means that there is a correct level of taxation to apply to it. And it was several rises in APD ago that it was at that correct (Stern Review derived, $80 per tonne CO2-e) level.

So that’s the first problem with a Pigou Tax. Give a politician an excuse to tax and he’ll over-tax.

But the second problem is illustrated neatly by this current campaign. Assuming that emissions are a problem are those made by children flying any less damaging than those made by adults doing so? Not for any reason that we can see, no. Therefore there shouldn’t be an exemption. But it’s all too easy for a politician in the run up to an election to miss the point and purpose of such taxation and promise sweeties to the electors.

Politics really is a problem with Pigou Taxes.

However, this doesn’t mean that they’re contra-indicated, only that we’ve got to be both careful and precise with them. After all, all other taxes are subject to exactly the same political interference. But providing that we’ve identified an externality accurately we’re at least doing some good with a Pigou Tax: which is more than can be said about taxes upon capital, corporations, incomes or general consumption. And yes, we do need to get the revenue from somewhere.

Do we really want Theresa May to decide who speaks at universities?

We already have a burgeoning anti-free speech movement coming organically from politically active students so perhaps it shouldn’t be surprising that Theresa May wants to chip in as well, seeking the power to pick and choose who gets to speak at UK universities.

New powers for the home secretary to order universities to ban extremist speakers from their campuses are to be included in the counter-terrorism bill to be published on Wednesday, Theresa May has announced.

The bill will also place a statutory duty on schools, colleges, prisons and local councils to help prevent people from being drawn into terrorism, the home secretary said.

She said universities would have to show that they have put in place policies to deal with extremist speakers.

“The organisations subject to the duty will have to take into account guidance issued by the home secretary. Where organisations consistently fail, ministers will be able to issue directions to them “which will be enforceable by court orders”, May announced.

Since we already have laws against inciting violence, presumably these laws will not really help crack down on terrorism advocacy which says ‘go and blow people up’; to be useful at all to courts and the government it must have a wider remit. Thus, it seems like more marginal ‘extremist’ figures will be targeted; not just Muslim clerics the government doesn’t like, but perhaps pick up artists deemed to advocate violence against women, or perhaps anti-abortion campaigners (note what the UCSB professor called the poster-holding campaigner).

Practically every political viewpoint of today would have been judged inconceivably radical and/or extremist to almost anyone from 17th Century England. The benefits of free speech come from the free exchange of ideas, a process which often weeds out bad ideas and leaves good ones alive. To guarantee we enjoy their continued benefits we have to stand against even the smallest, least objectionable infringements made—wherever they come from. Even ugly speech must be protected if we are to enjoy these prudential benefits.

Even if free speech ought sometimes to be curtailed in general, to make some areas ‘safe spaces’ for unprivileged groups who would otherwise be made very uncomfortable, it seems like universities are one place where we are best placed to let it run wild—you would think that they are bastions of smart, open-minded free inquiry.

Theresa May surely realises from her struggles with the European Court of Human Rights that laws can have unintended consequences. It is surprising that she seems so unworried about handing future Home Secretaries the right to decide what speech goes on in our universities.

It’s the minimum wage that’s keeping youngsters out of work

From the Independent: 

The young are the new poor

The Independent – Cahal Milmo
A study by the Joseph Rowntree Foundation has warned that young adults and employed people are now more likely than pensioners to be living in poverty in Britain because of the surge in insecure work and zero hours contracts.

The reason for this is the minimum wage, which also explains why we have nearly 1m youngsters out of work entirely.

While the minimum wage for young people does not seem high – £5.13 an hour for 18-20-year-olds, and £3.79 for under-18s – the fact is that many young people do not provide that much value to an employer. Indeed, when National Insurance and other costs are added, the value of an unskilled young person is often negative. Young people have to learn the habits of work, turning up on time each day, the skills needed in the job, and ‘soft’ skills such as how to get along in a team with colleagues, how to deal with customers, how to react when things go wrong, and so on. It may take many years of training and job experience to lean these skills.

That is why for centuries we have had apprenticeships in which young people earn very little but learn a trade. But minimum wages – plus the heavy burden of workplace regulation which makes it very difficult to let someone go once they have been hired, however inappropriate they turn out to be – make employers more reluctant to take on people with few or no skills and experience.

The result is that minimum wages hurt those they are supposed to help. Employers do not take on young people, or those without skills, or those nearing retirement, or people with poor social or language skills, or ex-prisoners, or people with mental health issues, because their business cannot carry the cost of giving them the support and training they need to become more productive than the cost of employing them.

Welcome Sophie and Nick!

Sophie Sandor and Nick Partington are joining the ASI as gap-year employees for six months. We asked them to write this post to introduce themselves to our readers.

Sophie:

As I almost enter my third week with the Adam Smith Institute, I welcome myself as one of two new gap year students evolving in a world-leading think tank. And how thrilling it is to be here; immersed in the works of my favourite thinkers and a family of ambitious, intelligent minds. It really is the dream.

Crafting ideas that have changed our world before and will change it again. And if you love a challenge – even greater is the fun for the views we advocate are not the most popular or acceptable. Like our relationship with what we consume: we are not always attracted to the healthiest options. We are a consistent rebellion against common thought.

In my time so far I’ve witnessed eager 6th form students gather for our annual Independent Seminar on the Open Society, celebrated the 25th Anniversary of the Fall of the Berlin Wall with former European leaders and met and worked with a plethora of inspiring, hard-working individuals. I could not be more excited for my imminent future here and look forward to writing more about my educational and economy ideas.

Nick:

Having finished my A Levels in History, Politics, and Economics, not excited by the prospect of ‘finding myself’ while pretending to help build an orphanage in Mongolia, I decided to eschew ‘gap yah’ clichés and apply for the Adam Smith Institute’s gap year internship programme. Few places are as keen to engage with pre-undergraduate students as the ASI, and I am delighted to have been selected.

Being sceptical of what Jeremy Bentham called the “rhetorical nonsense” of natural rights theory, I admire places like the ASI which provide compelling justifications for a wide-ranging liberal programme quite apart from the vague philosophical assertions so often invoked by others. More than anything, I admire the ASI for so often saying the unpopular thing and holding the counterintuitive line against public opinion on so many issues. There are few institutions with the status of the ASI which approach consensus with such irreverence.

At the same time, the ASI makes prominent what I see as another powerful justification for free markets and the minimal state. For me, that classically liberal social and economic policy benefits those worst off in society is extremely important, and too rarely emphasised in circles on the liberal right (with one notable exception being Matt Zwolinski and the other Bleeding Heart Libertarians). Framed in this way, proposals such as freedom of movement across borders, sometimes dismissed by those otherwise passionate about reducing the coercion of the state, become powerful tools for ameliorating suffering in the most deprived areas of the world.

Working with and learning from the ASI’s employees, all of whom do fascinating work on policy, is a rare opportunity. Added to that are the various things which come about from working in Westminster and being able to live in London for the duration of the position. I am looking forward to taking advantage of these while I am here because, perhaps unsurprisingly, there aren’t many Institute for Economic Affairs events on the flat tax in rural Northumberland.

Also, during my time at the ASI, I am hoping to write further about how and when ideas of meritocracy, debates in libertarian political philosophy, and utilitarianism can (and should) affect politics and policy research.