Adam Smith Says Tax Soda Pop
William Saletan covers new bold, to him alarmingly extreme, frontiers of public policy. Here he shows he hasn’t quite figured out Smith’s insights on public finance and that he considers “On Liberty” by John Stuart Mill to flirt dangerously with paternalism. Saletan is unique (thank God).
New York City’s health commissioner, Thomas Frieden, … and Kelly Brownell, the director of Yale’s Rudd Center for Food Policy and Obesity, propose a penny-per-ounce excise tax on “sugared beverages.” That’s nearly $3 per case.
And who else is on board ? Any tax on sugar or beverages or beverages made with sugar ever been discussed in the history of economic analysis of public finance.
You guessed it, they quote Adam Smith “Sugar, rum, and tobacco are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.”
more after the jump.
Oh my taxation and “necessaries” remind me of something. Yep its from the same page which anticipated an idea which I considered heterodox 216 years later. Which comes after the page which, Sen noted, contained his idea of “functionings.” Doesn’t it make you want to read the whole book ?
In fact, Adam Smith’s thought on this subject is coincidentally contemporary. He advocates taxing rum, sugar and tobacco because taxing them will not reduce labor supply. Adam Smith assumed labor supply depended on demographics where fertility is fixed and increased infant and child mortality cause lower labor supply. A good is not a necessary if “sober industrious” people will reduce consumption of it rather than endanger their childrens’ lives. Smith had just noted that shirts and shoes were necessities for his purposes (he asserted that the poor of his day would rather skimp on food and increase the risk of a child dying that shame oneself by walking around without a shirt). Anyone who wouldn’t cut back on sugar and tobacco must be an unfit parent anyway and so their kids are doomed (or if they survive will be delinquents). Don’t get mad at me, I am just paraphrasing Smith.
Saletan adopts a skeptical tone. He considers the revenue a side benefit of a paternalistic policy. He compares the soft drink tax to no soft drink tax with no other tax or spending cuts to make up for the lost revenues. I think he considers this the philosophically correct way to focus on the issue. In sum, he seems to think the policy might improve welfare but is inconsistent with classical liberal principles of consumer sovereignty.
That is, he is not only more in favor of free markets than Smith but more of a classical liberal that Mill. I quote from “On Liberty”
It is hence the duty of the State to consider, in the imposition of taxes, what commodities the consumers can best spare; and a fortiori, to select in preference those of which it deems the use, beyond a very moderate quantity, to be positively injurious. Taxation, therefore, of stimulants, up to the point which produces the largest amount of revenue (supposing that the State needs all the revenue which it yields) is not only admissible, but to be approved of.
OK he was thinking of alchoholic not caffeinated beverages but only because he didn’t know that consumption of sugar (and high fructose corn syrup) beyond a … quantity are positively injurious. However, here we have it, Saletan considers the choice of taxing something which is positively injurious to be illiberal. He doesn’t seem to understand that his argument would ban all consideration of incentive effects of taxes.
Back to Smith and his concidental contemporary relevance.
Totally aside from his interesting thoughts on “necessaries,” his theory of labor supply seems bizarre to us now. However, it fits the data he was analyzing according to noted economic historian Greg Clarke.
Ok so now we have contraceptives and infant and child mortality rates which are tragic but not a major determinant of the number of working age adults. When we talk about the effect of taxes on labor supply we tend to mean the effect on the choice of working age adults to seek work. Oddly (coincidence really) the soda tax won’t affect labor supply on this dimension much either. Non employed people drink soda too. Many taxes on consumption goods might shift incentives away from paid work as non employed people don’t consume the good, but soda consumption is pretty flat all the way down the income scale.
Amusingly soft drinks are my one personal second favorite guess for foolish consumption choices (by parents) which leads to infant deaths in developing countries. Number 1 is baby formula mixed with unsafe drinking water of course. So I have a soft drinks and health hypothesis related to those pages by Smith. (Hey this is after the jump to so I don’t have to write comprehensibly).
Update: Smart guys think alike. Matthew Yglesias agrees with Adam Smith and John Stuart Mill.
I corrected the update from “Great minds think alike.” Such a judgment would be premature in the case of Yglesias. However, he is very very smart. Not original of course. I’m sure he’s read “On Liberty” (assigned reading for a course I’m sure he took which I took (pass/fail)). The argument is well known and, as yet, unrefuted. Salaten is noting it in passing and not engaging it because he is Salaten not because he is ignorant.
Many commenters on a post below criticizing a specific argument made by Yglesias (and Ezra Klein) made more general criticisms of them — noting for example their lack of credentials. So what ? Yglesias has a BA in philosophy and an excellent understanding of economics. Klein is half my age and knows 200 times as much about health care policy. Credentials are for people who don’t have the time energy or ability to look at the quality of arguments and the supporting evidence.
update II: Ezra Klein too.