Wednesday, 19 October 2016

Sugary drinks & minimum wages



The drums are beating to tax sugary drinks to lower their consumption, just as they continue to beat to strangle smokers by the wallet using the same approach.

But I wonder if the many advocates of this approach – who also advocate taxes on carbon to lessen its use – ever wake up in the morning and wonder why, if raising costs with new taxes stifle these things, as they argue, then why wouldn’t it do the same to other things as well?

Or as Donald Boudreaux puts it, if the Law of Demand applies to sugary drinks, then why not to wages?

The World Health Organization recently endorsed a global hike in the tax on sugary drinks. The stated goal, of course, is to improve people’s health by raising their costs of consuming high-calorie drinks. 
    Let's ignore here the officiousness of bureaucrats who arrogantly fancy themselves to be entitled to recommend the forcible extraction of money from people who act in ways that those bureaucrats have divined are ‘bad’ for those people. 
    (I’m not one to propose taxes, but if – as is often asserted – we ‘must’ have taxes, I propose that stiff taxes be levied on all proposals to butt into the private affairs of others, and that stiff X 10 taxes be levied on all actual acts of butting into the private affairs of others.)
    Let's instead credit the WHO staff at least for correctly understanding basic economics: artificially raising the cost to buyers of acquiring drinks of kind X and Y will reduce (at least in above-ground markets) the number of drinks of kind X and Y that are purchased.
    Yet I wonder how many pundits, professors, politicians, and preachers who will favourably and self-righteously wave the WHO’s recent proposal as they support hiking taxes on sugary drinks because they predict that such taxes will reduce the quantity of such drinks demanded, and who also self-righteously support hiking minimum wages because they predict that such minimum-wage hikes will not reduce the quantity of low-skilled labour demanded.
    I’ll bet that the number of such inconsistent people is large.

I trust you, gentle reader, are not among their number.



1 comment:

  1. Hi Don,

    Another parallel to minimum wage discussions: debate over the elasticity. The big one in the soda tax stuff that most folks miss comes out of Deaton-style almost-ideal-demand estimation frameworks that estimate consumption out of budget share data where actual consumption is not known. So a lot of the household data sets have expenditure shares rather than, say "bottles of soda". When prices rise, you can get drops in budget share that come from people flipping to discount brands rather than name brand, but the technique sees it as a drop in consumption because they take budget share divided by average prices.

    John Gibson at Waikato University's done some work on this and finds demand elasticities for soda are somewhere around 4 times less elastic than folks reckon because of this. I talked about it a bit here:


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