It is really truly amazing what people are able to prove with this science stuff. Here, from the bods at Sheffield University, we’ve a proof of the basic law of demand. Raise the price of something and people will desire less of it – or, to be more accurate, their desire might stay the same but their actions upon that desire become rather less frequent. Raise the price of soda pop and people buy less soda pop. Amazing, eh?
Bumping up the prices of all sugary drinks by 20p cuts consumption by almost a third, a new study suggests.
The approach is different to the Government’s controversial levy, which charges manufacturers depending on sugar content.
Firms now have to pay a levy of 18p a litre if their drinks contain more than 5g of sugar per 100ml, or 24p a litre if more than 8g.
It has caused some beverages, including classic versions of Coca Cola, Red Bull and Pepsi, to have jumped in price by as much as 11 per cent.
But the new research, led by Sheffield University, found a flat 20p bump in prices for all sugary drinks is potentially more effective.
It is possible to be a little too scathing about this. For they have actually studied something we’d like to know – the elasticity of demand. That is, how much does consumption of something fall – or rise if prices move the other way – in reaction to a raise in the price? Elasticity is that “how much?” We know a few things about it. Long term elasticity is always higher than short – that is, the reaction to a change in price will be greater over time than immediately. We know that, for example, oil demand is inelastic in the short term. Things with close substitutes are highly elastic. It’s difficult to switch away from oil so we don’t do very much of it when the price changes. Brewery A’s best bitter is pretty similar to Brewery B’s best bitter (as long as neither are Watney’s) so a relative price change between the two can change consumption markedly.
But what we don’t know, and never really do in advance, is what that elasticity is for any specific product or price change. We’ve not actually got a decent theory nor proxy to tell us. It’s something we’ve got to observe. So, this is actually pretty good:
This means customers would be charged 90p for a can of Coca Cola, instead of the usual 70p before the Government’s levy – nearly a 30 per cent jump.
Major leisure centre operator SIV introduced the levy in their cafes and vending machines across South Yorkshire for the study.
Researchers discovered the higher price caused sales of sugary drinks to drop by 30 per cent and put parents off buying the drinks for their children.
Good in the sense that this is direct observation of something we’d like to know – what’s the price elasticity of soda pop?
It’s also ignoring the actual important question here. For we know very well that this will be used to demand that tax rise immediately. And our information here is only part of what we need to know. For here we’re being told the cost of getting people to drink less soda. What we also need to know is what is the benefit of people drinking less soda. Yes, we know what they say, that obesity is going to cause us all to pop and thus cost the NHS money. But that’s actually not true, obesity saves the NHS a fortune:
Someone who is the head of the NHS, someone responsible for spending £120 billion or so of our money, really should understand this following point. Fatties, boozers and gaspers save the NHS money, not cost it. We’ve mentioned this before around here:
The researchers found that from age 20 to 56, obese people racked up the most expensive health costs. But because both the smokers and the obese people died sooner than the healthy group, it cost less to treat them in the long run.
On average, healthy people lived 84 years. Smokers lived about 77 years and obese people lived about 80 years. Smokers and obese people tended to have more heart disease than the healthy people.
Cancer incidence, except for lung cancer, was the same in all three groups. Obese people had the most diabetes, and healthy people had the most strokes. Ultimately, the thin and healthy group cost the most, about $417,000, from age 20 on.
The cost of care for obese people was $371,000, and for smokers, about $326,000.
Here is a paper on that very point.
Having us all slim, svelte, sober and pure of lung into our 90s would cost the NHS very much more money than the current level of topers, smokers and lardbuckets does.
There might well be very good reasons to advise people that the private costs of their behaviour, the years of life they will lose through their habits, might well not be worth it. But the public costs of their actions are the other way around from what is being assumed here.
So, what is the benefit of having people drinking less soda pop? That is, what is the benefit to the public finances which might justify a tax to cause it? Nothing – in fact it’s a negative benefit, a cost. So, the logical set up here is that we should all be taxed on soda pop, so we drink less, thereby causing more public costs as the NHS treatment bill rises.
This is not a useful logical set up.
So, what we’ve actually found is something of interest, the price elasticity of demand for soda pop. And it’s of little to no use in public policy. Unless we’re about to suggest the sensible thing, which is that we should subsidise soda pop so as to save money for the NHS?