Taxing fast food will lose us money, not make it


As Spencer pointed out, there are reasons why taxing fast food to prevent obesity might not work. There's a larger point to make as well though. If taxing fast food did reduce obesity it would not save us money on health care costs: quite the contrary, it would increase the amount that we have to pay out of tax revenues.

I've looked at the American numbers in more detail elsewhere but the basic outline is quite simple. Assume that we are living in something very much like any of the European welfare states. Health care and pensions are paid out of tax revenue (that is the case pretty much anywhere in Europe). Then let us agree with those who say that obese people (that is, with a BMI of over 30, not just those like yuo and I merely well padded) cost more each year of their life in medical costs.

It isn't exactly a wild leap of faith to assume that those who consume more in health care are likely to die younger: one of (not the only of course) functions of health care is to prevent early death so not to see a connection there would be odd. And it is indeed true: the obese on average die younger than the non-obese. Those years of life not enjoyed stuffing fast food into oneself as a result of stuffing fast food into oneself tend, as is the nature of these things, to come at the end of one's lifespan. When one is retired and in recepit of, even in the US, both government paid health care and a government paid pension. People who die after pensionable age but before the average age of death save us money on that health care and pension.

A brutal thought, yes, but one that is still worth thinking. What we want to know now is whether the extra health care costs paid over the years are lower than, higher or the same as, the savings in health care costs made by not having thin pensioners. As a rough guide it seems that the savings from those years of not providing health care are a little less than the extra costs during life: add in the pensions and obesity is a net gain for the public purse. Just like smoking in fact which also provides a net gain to The Treasury.

There are of course other reasons to think about obesity as a bad thing: those lost years of life for a start. But in a purely monetary calculation, obesity does not cost us money, it saves us money. Thus while there may be other arguments to be used in favour of corralling us all into "eating healthily" the saving of money simply isn't one of them.




It has emerged that the USA’s National Endowment of the Arts (a government agency) has been encouraging the arts community to create more ‘obamaganda’- although this time regarding contentious policy under legislative consideration. During a conference call, the NEA encouraged America’s creative elite “to help lay a new foundation for growth, focusing on core areas of the recovery agenda – health care, energy and environment, safety and security, education, community renewal."

This basically boils down to the fact that a government agency is asking artists to create work that gives a positive atmosphere towards proposed government policy- and in particular areas which are embroiled in fierce debate, such as health care reform and cap-and-trade legislation.

Given the fact that the NEA is the largest funder of the arts in America, its clout could be far-reaching. It is disturbing that the NEA is adapting its role of “supporting excellence in the arts" to “supporting government supporters in the arts", using artist’s work to mask genuine dislike for policy and actions with manufactured support, and quite simply, propaganda.

More worring still to consider what could happen should Gordon decide that a nice bit of artwork could revive his flagging popularity.

Defensive medicine


Support for ObamaCare is crumbling rapidly as people are getting more aware of its weaknesses. Yet one area in which the president Obama could curb costs is tort reform, which for many years has been a major driver of increasing health care expenditures. The fact is that American doctors have in recent decades increasingly resorted to defensive medicine (a recent study put the number at 87% of doctors) . These doctors are reckless in employing all available diagnostic procedures simply to escape claims of malpractice by their patients.

The price tag for this type of defensive medicine in the US amounts to somewhere between $100 and $200 billion per year. This considerable sum forms the livelihood of a group of well-heeled and specialized lawyers, who happen to be among the biggest sources of funding for the Democratic party. So for purely political reasons this is a no-go-zone for the Obama administration. In addition the rapidly increasing rates for malpractice insurance are invisible to patients:

- Nearly $2,000 a year in extra health expenses for an average family, according to the rate of defensive medicine found in a study by Daniel Kessler and Mark McClellan.

- Stuart Weinstein…has calculated that if a doctor delivers 100 babies a year and pays $200,000 for insurance (the rate in Florida), "$2,000 of the delivery cost for each baby goes to pay the cost of the medical liability premium."

If this money could be transferred into a patients health savings account about half of the yearly health budget for a middle income family of four would be provided for.

Mad and madder


Japan's new First Lady believes that she was once abducted by aliens. "I think my soul rode on a triangular-shaped UFO and went to Venus" Miyuki Hatoyama wrote in a book last year. She also claimed to know Tom Cruise in a former incarnation when he was Japanese.

Mind you, her husband, the Prime Minister-elect Yukio Hatoyama, believes that raising the minimum wage, banning temporary employment, subsidising famers, and a $76 billion social spending plan is going to save the Japanese economy.

Junksmith is not sure which is crazier...

Scrapped for cash


The SMMT (the motor industry’s lobbying group) has this week been selling the ‘success’ of the government’s scrappage scheme for old vehicles, with the news that sales are up 6% on a year ago.

Readers (and the BBC which reports the story) should cast a more critical eye over the scheme. Setting aside the senseless waste of destroying tens of thousands of roadworthy cars and the catastrophic damage to the used car market, the real outrage is that the vast majority of the £300m allocated to the scheme ends up in the hands of foreign firms and workers. Of the top ten cars sold in Britain in August, only the Vauxhall Astra (in 7th place) is built here. None of the manufacturers are British.

As we struggle through the recession, Brown and Darling are happily dancing to the tune of the lobbyists, taking money from British firms and workers and dishing it out abroad. More of their stimulus? No thank you.

Forget Tobin taxes – we need more competition in the banking sector


As G20 finance ministers meet in London to discuss the economy, a new briefing paper from leading think-tank the Adam Smith Institute has attacked Financial Services Authority chairman Lord Turner for suggesting of a new tax on financial institutions, calling his plan "misguided", "unfounded" and "incoherent".

Miles Saltiel, author of the paper and the Institute's senior fellow in finance, accused Turner of playing politics, and said he was attempting to harness anti-City populism to shore up his position, as well as that of the FSA – which the Tories now say they will abolish.

The paper takes apart Turner's case for the so-called 'Tobin tax', arguing that there is no objective way of knowing whether the UK financial services sector has become disproportionately large. Since it operates internationally, comparisons with UK GDP are irrelevant. On a practical level, moreover, Turner's scheme is a no-go: such a tax could not be implemented domestically without driving business overseas, and reaching any international agreement would take a generation.

However, Saltiel's most damning criticism of the 'Tobin tax' is that it is a lazy alternative to undertaking the reforms the financial sector really needs. By guaranteeing them a bigger slice of the profits, it would encourage politicians to accept the too-big-to-fail, near-monopolies that have emerged in the banking sector over the last economic cycle. "This is nothing less than a corporatist Faustian pact", Saltiel added.

Tom Clougherty, the executive director of the Institute, said: "Turner is advocating precisely the wrong approach. What we need are smaller banks and more competition in the banking sector. That would reduce systemic risk and help prevent future crises, but it would also be good news for consumers. The government ought to start by breaking up RBS and Lloyds TSB - HBOS, before returning them to the private sector."

A PDF of Regulatory Corporatism: Lord Turner and the Tobin Tax can be downloaded here.

Living wills


Lord Turner of Makebelieve is at it again. In contrast to the sensible proposals for Basel III from the Americans (higher capital requirement for riskier businesses and real world bonuses), Lord Turner wants banks to make “living wills" which would cost them serious money in the short term and have no benefit in the long term. Turner wants them to volunteer to pay more tax. Whatever banks may say now, the “living wills" would only come into effect after they were dead which tends to limit decision making capacity and those coping with the then situation would not be bound by the wishes of a board stupid enough to bankrupt the business. More likely the then government would have rescued any major bank from death anyway.

Unsurprisingly, the banking industry and their advisors are refusing to swallow Turner’s medicine.

Lord Turner is, once again, leading the way to the asylum and no one else will follow. He is simply delaying progress on Basel III, something that his boss, our PM, is already grumping about.

The American proposals for variable levels of capital requirements would be simplified by breaking up our largest banks, something we should do anyway to let competition back into the system. That would also achieve Turner’s objective for simpler legal structures in a sane and practical manner.

A fast food tax? Not so fast


The possibility of a new tax on fatty and unhealthy foods may be very real in the United States and other European countries. The idea behind the new tax is twofold: firstly, countries hope to regain additional costs in healthcare caused by obesity related diseases, and secondly to affect behavior so as to discourage the consumption of fatty foods. More specifically, in the United States the tax would be put into place to fund public healthcare expansion. Is the tax justifiable or is it simply a way increasing government control in the private sector?

Although it may be easy for government officials to sell this idea to the general public by claiming that if fast food is more expensive you will eat less of it, in reality it is a but more complicated. The idea that fast food is a normal good is false. In fact, it has been found in almost all circumstances to be an inferior good, meaning that if the price of that good increases so will the demand for that same good. Inferior goods are unique in that they appeal more to low-income individuals because of how easy they are to access and also because of their price. As low-income individuals are able to increase their income they are therefore able to substitute out of fast food and into better types of food which are more expensive. If the price of healthier foods increases they will be forced to substitute back into fast food; however, if an individual is currently dividing his or her disposable income between both healthy and unhealthy foods and the price of unhealthy foods increases then in order to maintain their current overall consumption they must shift exclusively into fast food and spend no money on healthy foods, therefore increasing demand and consumption of unhealthy foods which are still comparatively cheaper than their healthy counterparts.

A study out of Tulane University confirmed the fact that fast and fatty foods are indeed correlated with low-income areas. The government also knows about the ineffectiveness of altering behavior by taxing inferior goods, but they are easy targets to line their pockets. Attacking a product that everyone knows is unhealthy is politically easy, and it is also useful in pulling the wool over the public’s eyes while government programs continue to creep more and more into the private lives of its citizens.