Wednesday 24 August 2016

Understanding the Basic Economics of Tobacco Harm Reduction

I'm delighted to have persuaded Carl Phillips to write a paper for the IEA about tobacco harm reduction. As many readers will know, Carl's knowledge and experience in this area is second to none and he is a rarity in the world of 'public health' in that he understands economics. As he said to City AM yesterday...

“Public health people are notoriously economically illiterate. Most of the nonsense in the policy discussion, on all sides, stems from ignoring economics,” said Phillips.

In his discussion paper Understanding the Basic Economics of Tobacco Harm Reduction, Carl looks at nicotine use from the perspective of welfare economics. This is how all other product use is normally looked at, but because most of the people involved in tobacco control have peculiar views, such as the belief that a billion people smoke as a result of some sort of demonic possession rather because they enjoy it, nicotine is usually excluded from conventional cost-benefit analysis.

'Public health' paternalists think that it's their job to assess costs and benefits for other people. However, being fanatics, they don't see any benefits from nicotine consumption and so, seeing only costs, assume that the optimal level of nicotine consumption is zero.

Using rigorous economic logic, Carl refutes that and concludes:

  • Substitution of a low risk product would be welfare-enhancing for most smokers. Some smokers will still prefer smoking to any available alternative, despite the much higher risk. But there are vanishingly few smokers for whom abstinence is a better choice than switching to a low-risk alternative. Thus there is no apparent ethical justification for anti-smoking measures that push for abstinence rather than switching.
  • The availability of low-risk tobacco / nicotine products will inevitably increase total consumption as compared to a world where cigarettes are the only option. This is the inevitable and rational effect of lowering the costs of a consumption choice. It is properly counted as an additional benefit, though it is widely derided as a cost. Public supporters of low-risk products who condition their support on those products not attracting any new users are either being naïve or cynically imposing conditions they know cannot be met.
  • For any remotely defensible goal, including minimising population health risk, the optimal level of excise tax on low-risk products is zero (assuming that is the lower bound; a subsidy would be better still). This is sometimes presented as if it were immediately evident from the comparative risk, but that is not actually a valid claim. However, simple economic analysis shows that it is the case.

You can download if for free here. Please do.

You can also read Carl's article for the City AM here.

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