The Wild West ... the outback ... The new world of the 1800s was a time of true liberty. People stood on their own merits. They won or they lost and they reaped the rewards or swallowed the consequences. There were no cubicle dwelling civil servants hell bent on saving you from yourself. No planning permits no licenses no permissions no heritage overlay no bylaw no regulators no inspectors. And guess what ... it worked

This site is set up to provide a forum for a number of like minded professional economists to post and comment on contemporary issues. There are a number of regular contributors whose bios are made available on the site. Most if not all of these contributors use a pseudonym for the simple reason that they are practicing economists who must take into consideration the commercial implications of posting their opinions.

While some may feel that this is a bit of a gutless approach it is the only way we can ensure free and open discussion without jeopardising our paycheques.

Sunday, September 20, 2009

wowser, wowser, wowser (Roy Rodgers)

Skull puff n chew .... sounds pathetically like a new kids tv show, but its not.

Alcohol, cigarettes and mcdonalds. These are the sins that the new generation of wowsers have dedicated their lives to saving us from. All those little salvation army soldiers are out there right now doing push ups and polishing their tambourines ready to save us from too much of a good thing.

Only this time they're a little smarter than previous generations. They know that prohibition doesn't work, they know that no matter how hard they shake their little tambourines, they just cant deny al capone and mr asia.

So this time round they're going to be a bit smarter, they are going to try and use economics .. they are going to get government to tax us into salvation.

The rant

The preventative health taskforce has just released another report. The taskforce has a mandate to address three main evils: tobacco, alcohol and obesity. And how do they suggest we address these supposed evils, well mainly through increasing taxation on durries, stubbies and big macs.

No doubt they are also going to suggest the community also be educated ie. ban product advertising, spend heaps of tax dollars on gross television campaigns which try to shock and awe but do little more than turn you off your dinner (its amazing how the only time these bastards force me to watch a doctor squeeze fatty deposits out of someones artery is right around dinner time).

They will also undoubtedly push for the mandatory display of diseased and rotting body bits on packaging. Don't laugh but in a couple of years time i wouldn't be surprised if your big mac came in a burger box covered by a glossy graphic of someones anus being eaten out by cancer.

Do they have a point?

God knows why they are still making such a kerfuffle over cigarettes. I'm starting to feel nothing but pity for that small handful of poor bastards who have been reduced to standing out the front of the office in the rain and snow puffing away. Surely they'll all be dead within the next 10 years either from cancer or exposure. Surely we've won the war on fags so why the fuss?

As to alcohol. Could the wowsers please just piss off and leave us alone.

And then to obesity, I'm less than convinced were drowning in a wave of fatties. And if there are more than there used to be I'm less than convinced its down to fast food as the candidate. We all saw that movie a couple of years ago where the guy ate nothing but maccas for a month and surprise surprise got sick. Well so what? if you dined at Vue De Monde every day for a month you would also get sick. If you ate nothing but lentils all day for a month you would also get sick ... so what. We've also sat through countless hours of jamie oliver craping on about fast food. This is the guy i once saw fry a sausage, a handfull of fatty bacon (cause the fats where the flavour is) and a tomato in nearly a whole stick of butter and then crack eggs into it .... this guy thinks fast food is unhealthy?

If the general public is statistically putting on weight then i suggest it has something to do with some pretty basic economics ... the overall price of all food being lower than it was in previous generations coupled with a general increase in the peoples disposable income. Its not that we're eating more fast food, its most likely that we are simply eating more food, in which case targeting fast food will be ineffectual. This contention is also supported by the differential taxation thats been placed on fast food since the implementation of GST. Fast food already gets treated differentially than fresh food and we're still all apparently fat (although in my case i definitely am fat, and it should be noted I don't eat mcdonalds).

The dodgy economics

Putting aside these general high level concerns. Any analysis produced by the task force must be heavily qualified. The thing is (and theres always a thing and in this case its a biggie) is that basic logic of the preventative health argument is largely an economic myth.

Their argument goes something like this.

The preventative health body produces an economic study that estimates the costs of disease. This cost is then spun into a benefit by means of a counter factual. They become the costs that could be avoided if the rates of disease were decreased. For example, the report may find that obesity costs the Australian economy $10 billion per annum (note ... i made this number up), the reports then go on to say if the proposed measure is successful and reduces rates of disease by say 10% per annum then we should see an approximate benefit a $1 billion per annum in avoided costs.

Without fail the avoided costs are going to be greater than the anticipated cost of the program or proposal. So it then becomes a no brainier ... everyone wins.

In this case skull puff n chew, its even more insidious as the programs themselves will most likely be self funding as they include new taxes. I suggest you would probably find that they produce massive windfall gains to government. If cigarettes are anything to go by, the latest studies have found that the revenue generated by excise taxation on durries exceeds the associated cost of health impacts by a factor of ten. You wont find this mentioned in any reports but don't kid yourself it will most definitely be taken into consideration in the hallowed halls of treasury.

These preventative health studies are seriously flawed and ultimately fallacious. Apart from the usual dodgy statistical assumptions, they all make the mistake of ignoring a couple of major considerations:
  1. extending someones life isn't isn't all good.... old age is in and of itself a major driver of health related costs.
  2. all these studies universally ignore the benefits associated with consuming these goods
By ignoring the health cost associated with extending peoples lives you seriously bias any cost benefit study. One of the primary drivers of health related costs and publicly funded health related costs is age, or to be more precise, old age. As a result, extending longevity tends to increase overall health spending. The costs associated with diseases such as Alzheimer's, dementia, cardiovascular disease, osteoarthritis and osteoporosis far outweighs those associated with durries, stubbies and big macs. The above may sound heartless, but its not, its just economics, to ignore it is bad science.

These studies also routinely ignore the value of the benefits associated with whatever substance abuse led to the disease in the first place. I like alcohol, I'm not an alcoholic but i do enjoy the odd drink and the odd incident of inebriation. These things provide a definite benefit for me. So much so that i have been known to fork out a couple of hundred on a good bottle of wine or heaven forbid a good bottle of scotch. Stated explicitly, I enjoy booze and if anyone taxes it such that my consumption decreases below a level i would ordinarily consume then there will be an associated loss of utility which should be included in any good economic study, this is also true for cigarettes and big macs (although to be honest I'm more partial to a souvlaki).

Apart from these two, such studies are also subject to a number of less obvious methodological problems. In particular the relationships between disease, labour and productivity are reliant on incredibly strong assumptions relating to such things as time away from labour markets, rate of replacement and effects of productivity levels at work... tweaking any of these assumptions will generally have material impacts on the final number.

The analysis also generally includes a number of statistical techniques which are somewhat questionable, such as the adoption of things like disability adjusted life years (Dalys to those in the know). These tools are supposed to place a value on your loss of ability due to disease. They generally rely on estimates of the statistical value of life.

Don't get me wrong, we shouldn't be squeamish about generating estimates of a statistical value for life. However, they have to be used correctly. In cost benefit analysis the value of life is used to allow for comparison of costs across different projects. In doing so the value will be constant thus the comparative analysis is really only picking up on the number of lives saved or lost. This is good economics.

However the use of an estimated statistical value of life to generate estimate of the aggregate costs of disease to the economy is questionable economics. Although there are a number of different approaches to generating the estimate, most will put the value somewhere between two to three million. And while I have met many economists who regularly use these values (including myself) I am yet to meet any that have total faith in the numbers, nor have I met any that would feel indifferent between a three million dollar payment and death.

I should also mention that the way these studies usually produce results is that you do all the productivity, employment and direct health cost stuff upfront, you leave the Qalys (quality adjusted life years, a concept as equally dodgy as the Dalys discussed above) and Dalys till last, and they are usually able to transform the mere millions you've been working on into billions .. wow ... great if your producing a report for a drug company or government department ... but at the end of the day not really compelling economics.

And now to the conspiracy theory

Here's a further bit of ranting madness. I have absolutely no evidence but i do have a theory, that I suppose could loosely be considered 'public choice'.

I reckon that they whole anti smoking movement has produced a set of skilled professional lobbyists. These lobbyists are now facing the undeniable truth that they have effectively won the war on smoking.

Despite the hype there are hardly any smokers left. They have been reduced to a sad socially ostracised group of people whom most of us automatically assume are just trailer trash or teenagers.

These lobbyists and professionals need gainful employment and its too much of a convenient coincidence that this latest round of wowserism presents them with the biggest opportunity to keep doing what they do best ... ie giving the rest of us the shits.


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