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Showing posts with label Politics and policy. Show all posts
Showing posts with label Politics and policy. Show all posts
Thursday, August 12, 2010
Wednesday, August 4, 2010
The soda tax, and my 15 minutes of fame
The short version: The New York Times published my "letter to the editor!" It argues for a soda tax in response to Greg Mankiw's column arguing against one.
The long version:
Two months ago, Greg Mankiw (a top economist, researcher, and textbook author, and a very kind person) wrote a column in the New York Times exploring various arguments for imposing a tax on sugary beverages, which many public health experts advocate to fight the obesity epidemic.
http://www.nytimes.com/2010/06/06/business/06view.html
I like the column and I respect the logic of Mankiw's argument against the soda tax. However, I felt very strongly that there are very solid arguments for a soda tax that Mankiw's column did not discuss.
So I started writing them down. I spent a couple hours re-writing and editing, then I emailed it to the "Letters to the Editor" section of the New York Times.
I knew my letter was well-argued and I thought it had a chance of publication. Yet, the Times gets hundreds of letters every day, many from people much smarter than me, so I didn't have high expectations.
A few days later, one of the editors contacted me. They wanted to publish my letter but needed to shorten it (from 500 to about 150 words! Yikes!). It took about three rounds of emails between us to get the letter down to something that was short enough for them, but acceptable to me.
Here's the version of the letter they published:
http://www.nytimes.com/2010/06/13/business/13backpage.html
I strongly prefer the original, pre-butchered version:
Over the next week, I was surprised that the letter received some attention - I got some interesting emails from people I'd never met who read my letter and wanted to share their comments with me. I'd expect that a column like Mankiw's would generate such attention, but not a mere letter to the editor.
One such email came from the president of the Corn Refiners Association, extolling the virtues of high-fructose corn syrup and denying the receipt of any subsidy. "Corn refiners pay the market price for corn, like anyone else."
Yes, but the market price of corn is artificially low because the subsidies are paid directly to farmers (mostly corporations) who grow the corn.
SCORE CRONOVICH: 1, CORN REFINERS ASSOCIATION: 0.
The long version:
Two months ago, Greg Mankiw (a top economist, researcher, and textbook author, and a very kind person) wrote a column in the New York Times exploring various arguments for imposing a tax on sugary beverages, which many public health experts advocate to fight the obesity epidemic.
http://www.nytimes.com/2010/06/06/business/06view.html
I like the column and I respect the logic of Mankiw's argument against the soda tax. However, I felt very strongly that there are very solid arguments for a soda tax that Mankiw's column did not discuss.
So I started writing them down. I spent a couple hours re-writing and editing, then I emailed it to the "Letters to the Editor" section of the New York Times.
I knew my letter was well-argued and I thought it had a chance of publication. Yet, the Times gets hundreds of letters every day, many from people much smarter than me, so I didn't have high expectations.
A few days later, one of the editors contacted me. They wanted to publish my letter but needed to shorten it (from 500 to about 150 words! Yikes!). It took about three rounds of emails between us to get the letter down to something that was short enough for them, but acceptable to me.
Here's the version of the letter they published:
http://www.nytimes.com/2010/06/13/business/13backpage.html
I strongly prefer the original, pre-butchered version:
Greg Mankiw explains that the best argument for the soda tax, from the economist's viewpoint, is that the pull of instant gratification leads people to do things that aren't good for them in the long run, such as overconsuming sugary beverages. But this logic, he argues, suggests the government should tax other unhealthy things, like fast food, and subsidize things that are good for you, like gym memberships. The final question in his column, do you trust government enough to appoint it your guardian, seems to suggest that the government shouldn't be in the business of micro-managing what we eat and how we behave.
Fine. But there are plenty of other arguments for the soda tax. Here are five.
First, soda can do more harm than ice cream and fast food. It's more readily available: most high schools have vending machines, so it's easy to grab a Mountain Dew on the way to class. And people consume soda all day long, whereas people usually have fast food at specific, defined times, and a limited number of times per day.
Second, high fructose corn syrup, a main ingredient in sweetened beverages, is heavily subsidized by the federal government's agriculture program. So, the price of sugared beverages is artificially low, which encourages overconsumption. A tax would counter this effect. (Better would be to eliminate agriculture subsidies, but the food industrial complex would fight that to the death).
Third, soda is more easily defined than fast food. There's a variety of fast food menu items that vary in their nutritional value, so it'd be hard to determine which foods should be taxed. This would be much less a problem, if at all, for sugared sodas.
Fourth, soda and other junk foods are not good substitutes for one another, so taxing soda won't merely have the effect of making people eat more fried chicken. (On the other hand, if sugared sodas are taxed while other sugared beverages are not, then people will substitute toward these other sugared beverages, so the tax should apply to all sugary soft drinks, not just soda.)
Finally, it's better to do something than nothing. Every health expert will tell you the rise in obesity is a major problem, especially among young people (because developing a sugar addiction while young makes it much harder to control one's diet when adult). The soda tax is a huge step in the right direction.
Over the next week, I was surprised that the letter received some attention - I got some interesting emails from people I'd never met who read my letter and wanted to share their comments with me. I'd expect that a column like Mankiw's would generate such attention, but not a mere letter to the editor.
One such email came from the president of the Corn Refiners Association, extolling the virtues of high-fructose corn syrup and denying the receipt of any subsidy. "Corn refiners pay the market price for corn, like anyone else."
Yes, but the market price of corn is artificially low because the subsidies are paid directly to farmers (mostly corporations) who grow the corn.
SCORE CRONOVICH: 1, CORN REFINERS ASSOCIATION: 0.
My letter to the President's Commission on Fiscal Responsibility
To Members of the National Commission on Fiscal Responsibility and Reform:
I am writing to urge you to include in your final recommendations to Congress and the Administration a significant and permanent increase in the federal tax on gasoline, or the imposition of a more broad-based carbon tax. I recommend using half of the revenue raised by this tax for deficit reduction, the other half to fund across-the-board income tax cuts.
You are surely familiar with the arguments for reducing America's dependence on oil, which in the coming decades will have to come from increasingly difficult places; by "difficult" I mean places that are either hostile to our values and way of life, or places where drilling is very risky to the environment. In short, reducing oil consumption helps the environment and strengthens national security.
You are also surely familiar with the economic, environmental, and national security arguments for a carbon tax. There are substantial external costs to the environment and national security associated with the consumption of carbon-based fuels, and as we have so dramatically seen in the Gulf, with their production. People respond to price incentives far more than they respond to impassioned pleas for conservation, no matter how well-reasoned and factually supported those pleas are. A sufficiently large carbon tax would give consumers a strong incentive to car pool and shop for fuel-efficient cars. Shifting consumer demand toward fuel-efficient vehicles would give profit-seeking auto manufacturers a strong incentive to build more fuel-efficient cars. A large enough carbon tax, that is known to be permanent, would unleash a flood of entrepreneurial activity aimed at developing commercially viable renewable energy sources as well as more energy-efficient autos, furnaces, and other appliances and machinery.
The carbon tax is superior to subsidies for the development of alternative energy sources. Subsidies increase the budget deficit and are very weakly effective: Developing alternative energies requires substantial long-term investments; entrepreneurs making these investments generally do not know whether the subsidies will be renewed by future Congresses. This kind of uncertainty depresses investment.
The carbon tax is also superior to CAFE-type fuel efficiency standards. Imposing these regulations costs the government nothing, but the regulations are an inefficient way of achieving conservation goals: forcing American automakers to produce small cars hurts them if consumers want big cars. Moreover, fuel efficiency standards do not generate revenue for deficit reduction. A carbon tax would.
Some interest groups substantially worse off under a carbon tax. The oil industry and shipping/trucking industries would surely devote substantial lobbying resources to oppose this tax. A carbon tax would also result in significant job losses in these industries. History provides many examples of structural change with painful transition periods, where significant job losses occurred in some industries while job gains occurred in others. But our resilient nation with its flexible labor market has never failed to manage these changes, and in every instance, the country has emerged stronger than before. Nobody would argue that the development of autos or word processing software should have been repressed to prevent job losses in the horse-and-buggy or typewriter manufacturing industries.
Opponents of a carbon tax argue that now is a bad time to impose a new tax, due to the weak economy. This argument rests on the idea that a tax is a contractionary fiscal policy and reduces aggregate demand. In fact, though, anything that reduces the budget deficit will be contractionary in this way.
Indeed, the cyclical effects of deficit reduction are tricky. One approach would be to couple deficit reduction with further monetary easing. It's hard for me to imagine that the Bernanke Fed would not be very sympathetic to the idea of loosening monetary policy to offset any contractionary effects from new deficit reduction measures.
Another approach is to simply accept that deficit reduction is painful and contractionary, but necessary for long-run prosperity, and this approach goes to the structural aspect of the deficit. The argument here is that we as a nation have become accustomed to receiving more public services than our government can afford to provide - that is, we get more public services than we are willing to pay for - with the result that our government has mortgaged our children's future and severely constrained its ability to respond to future crises. The budget is unsustainable; we simply must adjust to life with fewer public services and/or higher taxes, even though this adjustment will inflict pain in the short and medium term. An income tax increase would reduce economic activity without any corresponding benefits. A permanent carbon tax, used partly to cut the deficit and partly to cut income taxes, would not only reduce the structural deficit and alleviate the burden on future generations; it would also spur growth, help the environment, and enhance national security.
People must be made to understand that solving huge problems is not costless, that we all have contributed to the problem, and we all must share in the cost of treating it. With a carbon tax, we will all share in this cost, and those of us who continue to contribute the most to the problem (interest groups that produce or intensively consume oil) will bear a larger share than others. I think most would agree this is fair.
As recommended by many others, I support the gradual implementation of a carbon tax to allow people time to make adjustments. However, the carbon tax, once fully implemented, must be large enough to induce changes in consumption patterns. A $1 per gallon gas tax increase would make people grumble but probably not change their behavior - it would raise the cost of a fill-up by $14-18 for most people. But raise the gas tax, say, 10 cents a month for 24 months and you'll see people get very creative about finding ways to conserve, and very serious about fuel efficiency the next time they're in the market for a new car.
Thank you for your consideration.
Sincerely,
Ron Cronovich
Associate Professor of Economics
Economics Department Chair
Carthage College
I am writing to urge you to include in your final recommendations to Congress and the Administration a significant and permanent increase in the federal tax on gasoline, or the imposition of a more broad-based carbon tax. I recommend using half of the revenue raised by this tax for deficit reduction, the other half to fund across-the-board income tax cuts.
You are surely familiar with the arguments for reducing America's dependence on oil, which in the coming decades will have to come from increasingly difficult places; by "difficult" I mean places that are either hostile to our values and way of life, or places where drilling is very risky to the environment. In short, reducing oil consumption helps the environment and strengthens national security.
You are also surely familiar with the economic, environmental, and national security arguments for a carbon tax. There are substantial external costs to the environment and national security associated with the consumption of carbon-based fuels, and as we have so dramatically seen in the Gulf, with their production. People respond to price incentives far more than they respond to impassioned pleas for conservation, no matter how well-reasoned and factually supported those pleas are. A sufficiently large carbon tax would give consumers a strong incentive to car pool and shop for fuel-efficient cars. Shifting consumer demand toward fuel-efficient vehicles would give profit-seeking auto manufacturers a strong incentive to build more fuel-efficient cars. A large enough carbon tax, that is known to be permanent, would unleash a flood of entrepreneurial activity aimed at developing commercially viable renewable energy sources as well as more energy-efficient autos, furnaces, and other appliances and machinery.
The carbon tax is superior to subsidies for the development of alternative energy sources. Subsidies increase the budget deficit and are very weakly effective: Developing alternative energies requires substantial long-term investments; entrepreneurs making these investments generally do not know whether the subsidies will be renewed by future Congresses. This kind of uncertainty depresses investment.
The carbon tax is also superior to CAFE-type fuel efficiency standards. Imposing these regulations costs the government nothing, but the regulations are an inefficient way of achieving conservation goals: forcing American automakers to produce small cars hurts them if consumers want big cars. Moreover, fuel efficiency standards do not generate revenue for deficit reduction. A carbon tax would.
Some interest groups substantially worse off under a carbon tax. The oil industry and shipping/trucking industries would surely devote substantial lobbying resources to oppose this tax. A carbon tax would also result in significant job losses in these industries. History provides many examples of structural change with painful transition periods, where significant job losses occurred in some industries while job gains occurred in others. But our resilient nation with its flexible labor market has never failed to manage these changes, and in every instance, the country has emerged stronger than before. Nobody would argue that the development of autos or word processing software should have been repressed to prevent job losses in the horse-and-buggy or typewriter manufacturing industries.
Opponents of a carbon tax argue that now is a bad time to impose a new tax, due to the weak economy. This argument rests on the idea that a tax is a contractionary fiscal policy and reduces aggregate demand. In fact, though, anything that reduces the budget deficit will be contractionary in this way.
Indeed, the cyclical effects of deficit reduction are tricky. One approach would be to couple deficit reduction with further monetary easing. It's hard for me to imagine that the Bernanke Fed would not be very sympathetic to the idea of loosening monetary policy to offset any contractionary effects from new deficit reduction measures.
Another approach is to simply accept that deficit reduction is painful and contractionary, but necessary for long-run prosperity, and this approach goes to the structural aspect of the deficit. The argument here is that we as a nation have become accustomed to receiving more public services than our government can afford to provide - that is, we get more public services than we are willing to pay for - with the result that our government has mortgaged our children's future and severely constrained its ability to respond to future crises. The budget is unsustainable; we simply must adjust to life with fewer public services and/or higher taxes, even though this adjustment will inflict pain in the short and medium term. An income tax increase would reduce economic activity without any corresponding benefits. A permanent carbon tax, used partly to cut the deficit and partly to cut income taxes, would not only reduce the structural deficit and alleviate the burden on future generations; it would also spur growth, help the environment, and enhance national security.
People must be made to understand that solving huge problems is not costless, that we all have contributed to the problem, and we all must share in the cost of treating it. With a carbon tax, we will all share in this cost, and those of us who continue to contribute the most to the problem (interest groups that produce or intensively consume oil) will bear a larger share than others. I think most would agree this is fair.
As recommended by many others, I support the gradual implementation of a carbon tax to allow people time to make adjustments. However, the carbon tax, once fully implemented, must be large enough to induce changes in consumption patterns. A $1 per gallon gas tax increase would make people grumble but probably not change their behavior - it would raise the cost of a fill-up by $14-18 for most people. But raise the gas tax, say, 10 cents a month for 24 months and you'll see people get very creative about finding ways to conserve, and very serious about fuel efficiency the next time they're in the market for a new car.
Thank you for your consideration.
Sincerely,
Ron Cronovich
Associate Professor of Economics
Economics Department Chair
Carthage College
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