Wednesday, April 02, 2008

A Little is Enough

Well, now if I were the president of this land
You know, I'd declare total war on The Pusher man
I'd cut him if he stands, and I'd shoot him if he'd run
Yes I'd kill him with my Bible and my razor and my gun

- Steppenwolf, “The Pusher”

Ah, but what if the president is the pusher man? We are forced to confront this question with the growing momentum for legislation to give the FDA the power to regulate tobacco products in the same way it oversees food and medicine. The natural reaction of the average citizen is to view this as an attempt by the government to enforce the common good by restricting and controlling, perhaps to extinction, a pernicious vice. And I do not doubt that there are many earnest people in the bureaucracy and the anti-tobacco movement who honestly see it this way. But I predict that this is not what will happen. If anything, bringing tobacco further under the government umbrella will end any further improvement in the long struggle against this particular addiction, which has substantially (though not entirely - think bans on restaurant smoking) been accomplished through private stigma as much as public sanctions.

The reasons are twofold. First, the government has itself become addicted to tobacco revenues. Tobacco taxes are a significant portion of state and a smaller portion of federal revenues. While demand for tobacco in the short run is relatively inelastic – i.e., big price increases (from higher taxes or otherwise) lead to small decreases in consumption - this is not necessarily true in the long run, as Gary Becker famously noted years ago. A big increase in tobacco taxes may not have much impact on current smokers (save perhaps to cause them to resort to the black market), but it may have a huge impact on the decision to smoke in the first place. Government, needing this revenue, cannot afford to let smoking fall too much. (There is an offsetting effect, in that smoking leads to Medicare and Medicaid expenses, but it is not clear that government opposes expanding the scope of government spending. And offsetting this is the lower spending on Social Security as smokers die young.)

Second, some tobacco companies themselves take advantage of this government addiction to protect themselves from competition, a standard case of regulatory capture. Philip Morris, the dominant producer at roughly 50%, in the American market, supports the proposal, while R.J. Reynolds, a distant second, does not. I predict, however, that the bill will be modified so as to draw Reynolds’ support, by reinforcing their position against smaller and overseas cigarette makers. If you have any doubt that regulatory capture has happened in tobacco, note that at the request of Philip Morris the International Trade Commission is ”investigating”, with an eye to doing something about, cheap cigarette imports.

The CDC publishes data on the extent to which Americans have smoked since 1965. Here is how that figure has changed over time, for all adults and for those aged 18-24:

While overall smoking has declined substantially and more or less linearly over this period, as has smoking among young people, the progress with respect to the latter appears to have ground to a halt after, a period that dramatically upped the ante for government need for tobacco cash. In 1998 a landmark settlement was signed between the major U.S. tobacco producers and first the federal and then state governments, which resulted in the payment of tens of billions of dollars into government treasuries, much of which was spent not on public health but workaday vote-buying government programs. Today's young smokers, who are tomorrow's cash cows, are now smoking at about the same rate over time. The overall decline in smoking appears to be linked to the aging of the population, and perhaps to other demographic changes, particularly the increase in the Hispanic population; Hispanics historically have smoked less than other ethnoracial groups. But if my theory that the government can’t afford to have too little smoking is correct, I would expect it to wink at more aggressive marketing efforts in the coming years in the Hispanic community, and for Hispanic smoking rates to then approach those of other groups.



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