A gentleman who is soon to be unemployed as an economics professor tells us that the production and sale of Coca Cola is a sin:
If sin such a terrible thing when it comes in the form a can of Coke? Well, yes it is when the planet cannot afford that waste of resources, the product is laden with anti-competitive protections and potential tax loopholes, and it happens to have contributed to substantial increases in childhood (and other) obesity.
There are no anti-competitive protections against selling a can of “coke”. There are of selling a can of Coca Cola of course. The complaint here being about coke, not Coca Cola. Quite why the planet cannot afford sugary drinks is unknown and, as Chris Snowdon has been pointing out, there is no epidemic of childhood obesity. As to tax loopholes this is from a man who insists that doing what is absolutely legal, as the people passing the law intended you do, is tax abuse. As with his comments about Vodafone, Boots and so on.
But none of that is actually economics, even if it is about the framing of the question we might ask economics to answer. However, someone taking a salary off the taxpayer to be teaching the young about economics really ought to be able to do better than this:
I have some sympathy with Johnosn’s questions, for a change. What we know about these products, and others like tobacco and alcohol, is that they are addictive and so have a high inelasticity of demand with regard to price because people might seek to but them, whatever the charge. If that is true then they might be good sources of revenue but they might not do much for changing behaviour. And nor does the argument that we need the revenue stack in a world where we know that modern monetary theory holds true: treatment of obesity is not dependent upon our ability to raise revenue for that treatment. It is, instead, dependent upon political willing to address the issue. I have long argued that taxes can have the role of addressing market failure. I stand by that. That is one of my six reasons for taxation. But, whilst tax is a powerful social instrument I do not suggest its use if there is a better tool to use to achieve the goal.
In this case I fear that Johnson might be right. I suspect that taxes on sugary drinks do not change behaviour as much as is necessary. And I do suspect that they are regressive in their impact. In that case, and noting my MMT point, I hate to admit it, but he may have a point.
The entire structure being built upon an ignorance of economics. Sure, tabs and booze are inelastic with respect to price. Not so soda pop:
We found an own price-elasticity of −1.37 for soft drinks. This implies that a price increase of 10% is associated with a reduction in consumption of 13.7%. We found that the rest of food and beverages included in the demand system behave as substitutes for soft drinks. For instance, plain water showed a cross-price elasticity of 0.63: a 10% increase in price of soft drinks could lead to an increase of 6.3% of plain water. Own and cross price elasticities were similar between models.
That is what is known as elastic with respect to price.
A 10% increase in the price of sweetened sugar beverages was associated with a 11.6% decrease in quantity consumed.
Elastic with respect to price.
Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to ambiguity. Only goods which do not conform to the law of demand, such as Veblen and Giffen goods, have a positive PED. In general, the demand for a good is said to be inelastic (or relatively inelastic) when the PED is less than one (in absolute value): that is, changes in price have a relatively small effect on the quantity of the good demanded. The demand for a good is said to be elastic (or relatively elastic) when its PED is greater than one.
Coke is elastic with respect to price, not inelastic.
But please do not think I actually agree with Johnson. His argument is that the state should not intervene on such issues. He is opposed to the ‘nanny state’, which requires that he ignore the impact of market power in this relationship, all of which lies with the likes of Coca Cola. The product that they sell is abusive. They expend considerable sums ensuring that people do become addicted to it. And the result is significantly socially damaging, creating harm for vast numbers of people whose lives are blighted by obesity. Tax may not stop this abuse, but that is not reason to ignore the issue. Direct intervention is required instead. Sugar, salt and other harmful additives must be tackled by law, and their use be severely restricted. Tax is a fantastic tool. All I am saying is that it is not the answer to every problem, and that this may be one of them.
Tax is effective at reducing soda pop consumption.
And so does the analysis founder on that rock of ignorance. The employment of people who get this sort of thing wrong to teach economics is one of those pieces of evidence that the expansion of the universities out as far as Islington Technical College might not have been all that good an idea.