Demonizing, and/or Taxing, Soda

Should the government be telling people what to drink? ....Damon

By Edward L. Glaeser
New York City Department of
Health and Mental Hygiene
Today's Economist


Over the past 30 years, Americans have gotten a lot heavier thanks primarily to technological progress in the food industry, which has provided an abundance of tasty, caloric treats. The champions of public health are now fighting fat with the same tools that helped turn the smoky city of the Mad Men-era into the clean-aired boroughs of Bloomberg.

New York City is running anti-soda ads where a brown liquid streaming out of a bottle turns into fat in a glass. The New York Times editorial page wants sterner stuff. They suggest that these ads are distinctly inferior to “the best move when it comes to soft drinks — a tax on sodas and other sugary beverages.”

Many public interventions can be readily dismissed because they are costly and ineffective. Yet the battle against cigarettes has taught us that taxes and advertising can together dramatically reduce an unhealthy habit. The public sector could indeed dramatically drive down the consumption of sugary sodas, but should it? Is public paternalism appropriate? If the state wants to champion health, should it use stomach-churning public service messages or sin taxes?

The economist’s perspective differs from the perspective of the public health advocate.

Public health advocates champion health. Economists don’t exactly champion illness, but they don’t usually think that health trumps all. For die-hard cola lovers, the pleasure of sugary soda may just be more important than the health consequences of a few extra calories. That perspective, combined with a respect for individual decision-making, leads many economists to question the merits of public paternalism.

Cola taxes and unpleasant ads are only appropriate if soda sippers are making bad decisions and drinking when they shouldn’t. One reason why consumers might err is that they ignore the impact of their behavior on others. Advocates of a penny-per-ounce soda tax argue that “because of the contribution of the consumption of sugar-sweetened beverages to obesity, as well as the health consequences that are independent of weight, the consumption of sugar-sweetened beverages generates excess health care costs.”

But if soda is to be taxed because of the costs that obesity and diabetes impose on taxpayers, then the tax’s supporters should document that those costs are near a penny for each ounce of soda.

An alternative justification for paternalism is that out of ignorance or an absence of self-control, people don’t make decisions that are in their own best interest. Every cola can has so much dietary information that it is hard to imagine that anyone thinks that soda is slimming. Public information campaigns can provide knowledge without repulsive images. And if self-control is the problem, then soda-drinkers themselves should be leading the campaign for a soda tax. I haven’t seen much of that.

But if we are indeed convinced that soda consumption needs to fall, then should the government use taxes or psychologically savvy advertisements?

Both approaches try to reduce soda consumption by making it less pleasant to drink soda. One approach hits you in the wallet; the other hits you in the stomach.

Some fans of limited government think that public service advertisements represent a more modest, and hence preferable, intervention, but that rationale doesn’t seem right to me. A tiny tax can actually be far less intrusive than a constant barrage of disgusting ads. If these ads lead to warning pictures showing globules of fat on every can of Coke, then the intervention will have become enormously intrusive and probably effective as well.

The big difference between ads and taxes is not intrusiveness or effectiveness, but that taxes raise revenues and ads don’t.

Both interventions make it more costly to drink a glass of Coke, but in one case (the tax) this cost is transferred to the government. In the other case (the ad), the cost is just pure loss. An effective ad that makes drinking soda less psychologically pleasant is essentially a tax without revenues.

The case for taxes and against ads is that if we are going to impose costs on cola drinkers, it is better to get some revenue back. Of course, the problem with those revenues is that they create an incentive for the tax-hungry government to make taxes higher than they should be. Just as an inefficient Medicare system could make expanding public health care less politically appealing, an inefficient means of taxing soda makes it less appealing to excessively boost the tax.

Obesity is a serious problem and high calorie sodas contribute to that problem. But that doesn’t make the case for giving soda the same treatment that was earlier given to cigarettes. All soda drinkers, even the rail-thin ones, suffer when soda consumption is either taxed or vilified. The costs imposed on them need to be weighed against the benefits of reducing obesity.