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Help! My City Is Turning Into Springfield, Soda Ban Edition…

September 23rd, 2010 · 7 Comments
Econ 101 · Policy · The Simpsons

If you’ve paid close attention in Econ 101, you may have noticed that economists mention two socially beneficial reasons for taxes- to collect money to pay for public goods and to internalize negative externalities. Sometimes, if we’re feeling frisky, we even talk about taxes in the context of income redistribution, but that is a normative grey area that we aren’t so comfortable with.

You may have also noticed that a ban is, in a way, an extreme form of a tax. Granted, a ban isn’t going to do much to raise money to pay for public goods, but they go a long way in curbing the production and consumption of goods that have large negative externalities. That said, I would like to understand how the proposed ban on sugary drinks in Boston government buildings fits into this framework:

To review, an externality is an effect of a market on a third party that is neither a producer nor a consumer in a market. Therefore, the fact that soda makes people who drink it fat is not in itself an externality and is instead just a cost of consuming that people can take into account when deciding whether or not to buy that next Coke. Consumers of soda can decide how much to consume, so the health effects are their issue. I, on the other hand, can’t control how much soda others drink, so when the soda drinkers start imposing costs on me that I can’t control, we get externalities. The fact that the health care system is set up such that healthy people subsidize unhealthy people could mean that drinking excessive amounts of soda could cause eventual externalities, but the evidence here is far from clear. (Even if a clear link between excessive soda consumption and societal costs were to be established, it would only justify restricting excessive consumption. Logistically speaking, this is a difficult policy to implement.)

Taxing goods which produce negative side effects (at a rate commensurate with the size of the side effect) can be socially beneficial because it stifles the production and consumption of those units of the good where the value to the producers and consumers doesn’t outweigh the costs to the rest of society. Call me crazy, but I somehow doubt that the cost to society outweighs the benefits received by the producer and consumer of that first bottle of soda sold on city property, so it’s seems instead that the city of Boston is reading the Marge Simpson playbook from the time she tried to get sugar outlawed in Springfield:

I Guess You Can’t Use the Law to Nag

“I guess you just can’t use the law to nag.” Well, at least Marge Simpson has come to terms with that. The point is that the only way this ban can be perceived as socially beneficial is if the benefits of sugary drinks to those who drink them and those who produce them are heavily discounted, and since when have we decided that such pleasures are not worth counting? Thanks, city of Boston, but I already have one mom, and I don’t need another. Especially since she lets me drink soda.

(For those of you who want to play devil’s advocate, I would be more supportive of a private workplace banning soda- I would still point out that it wasn’t a helpful policy, but private employers don’t have the same social duties as the government, which is explicitly supposed to function on behalf of its constituents. On that note, I guess I would also be less cranky if the city acknowledged that it was nagging and didn’t imply that it was in some way doing people a favor. You could also argue that this is more of a nudge than a ban, since people can still bring outside beverages into the buildings, but it’s at least worth noting that the ban increases people’s level of inconvenience.)

Tags: Econ 101 · Policy · The Simpsons

7 responses so far ↓

  • 1 Kirk // Sep 23, 2010 at 10:07 pm

    Obesity in general has a heavy societal cost, however soft drinks can hardly be faulted for all of it. This policy seems to determine that obesity is supply-side problem, if only it were harder to acquire soft drinks, maybe they would be used less. I would argue this is very much a demand-side problem; we are not going to achieve much limiting access to the soda, we would be better served determining what was the draw to the soda in the first place and devise an alternative that fills the same demand. Competition is the solution to this problem, not prohibition.

  • 2 Drew M // Sep 24, 2010 at 10:48 am

    To further play devil’s advocate to Kirk’s response, I believe there was a paper (maybe NBER?) recently that analyzed health costs associated with obesity. The net effect seemed unclear due to the fact that although health costs are higher for obese people, they live significantly shorter lives and thus the costs over their lifetime seem to roughly equal-out with those of a non-obese person who lives longer. While this is a somewhat macabre defense against soda-banning, the intuition seems right to me.

  • 3 Stephan // Sep 24, 2010 at 10:56 am

    Puhhh … You read too much Mankiw. I know: this sort of brainwashing helps a lot in regard to ones career in the profession.

    “to collect money to pay for public goods”? In the context of a FIAT currency tax payments fund nothing. The government simply spends by crediting bank reserve accounts.

    Taxes serve only 2 purposes: (1) to legitimate the FIAT currency by coercing you to pay your tax in this currency and (2) to drain nominal excess demand to prevent inflation.

    The government has no saving account for your tax payments. In fact US citizens can settle their tax liabilities in cash. The Federal Reserve has a special facility to handle this cash-tax-payments. It burns them.

  • 4 ray // Sep 24, 2010 at 10:05 pm

    today i took the gre and quoted Marge from this clip

  • 5 Leigh Caldwell // Sep 26, 2010 at 4:13 pm

    This could perhaps be justified by a hyperbolic discounting argument.

    It’s possible that consumers of soda don’t act in their own long-term interests when drinking it. More precisely, they put much less weight on the long-term costs than the short-term pleasures – more than is justified by normal exponential discounting. This hypothesis would be well supported by experimental evidence.

    If this is the case, then the nudge may be exactly the right policy: by creating an additional short-term cost (making people go outside to a store) the costs and benefits may come back into “correct” balance.

    Of course there’s still a normative question here, which is whether exponential discounting is “better” for the consumer than hyperbolic; an argument that in turn relies on the possibility of integrating an agent’s utility over time. But the standard economic assumption is that it is – so this nudge could be justified within purely classical economic theory.

    Alternatively, the city might just be worried about future lawsuits from its unhealthy employees. By making these products easily available to them, within a work context, the employer might imply an endorsement of the products and reduce the employee’s responsibility for their own behaviour. Somehow I wouldn’t be surprised by this.

  • 6 The Unqualified Economist // Sep 27, 2010 at 4:59 pm

    I’m constantly impressed by your encyclopedic knowledge/ability to reference the Simpsons. I’ve always wondered if some of the writers from the Simpsons early years had some form a economics background as there were a lot of subtle principles at play.

    South Park is also tolerable/at its best (depending on your tastes) when economic principles are at play, markets/politics, etc.

  • 7 econgirl // Sep 27, 2010 at 5:14 pm

    It’s not magic- I’ve watched every episode of The Simpsons (including the new one from yesterday, which coincidentally opened with Lisa watching the announcement of the winner of the Nobel Prize in Economics) and taken notes on every economic or economic-adjacent reference. (There are 464 episodes and a movie and I’ve noted about 1700 references, in case you’re curious.) As such, I get confused when my advisor implies that I am a bad researcher. =P

    I too am curious as to whether some of the more specific references are on purpose. I may have gone through course records to see if Conan O’Brien took any econ courses while at Harvard (and will deny this if anyone official asks), but as far as I can tell he did not. Perhaps I should stalk the other writers to see if I can find any econ in their backgrounds.

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