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End the Sugar Tax Now

End the Sugar Tax Now

Tags Corporate WelfarePricesValue and Exchange

12/09/2015Gary Galles

Sugar Vs. Corn Syrup” reads the headline about legal wrangling between enablers of America’s sweet tooth. Big sugar accused big corn syrup of misleading the public with an ad campaign that it is “nutritionally the same as sugar,” asking for $1.5 billion in damages. Corn syrup producers had already sued for $530 million in damages, alleging that sugar producers falsely depicted corn syrup as less healthy than sugar.

No jury will determine a winner, however. The battling “Rock ‘em Sock ‘em” robots ended the trial by reaching a confidential settlement. Given that agreement was reached between the parties, the false-advertising sparring may be over. But that will not leave them as intense competitors in every other dimension.

Why Special Interests Help Other Special Interests

The sweetener competitors will continue to support one another’s pet special interest policies. Corn syrup producers will continue to back import quotas on sugar; sugar producers will remain on board with methanol mandates.   

A single reason explains the false-advertising rumble and its settlement, as well as their ongoing political alliance — sugar and corn syrup are substitutes.

Advertising that tarnishes just one benefits its nearest substitute. However, mutually tarnishing each other can hurt both. Putting an end to that process can explain a confidential settlement. But because they are substitutes for one another, anything that artificially boosts the price of one also benefits the other.

Consider ice cream and frozen yogurt. If the products were produced by different firms, ice cream makers would like to tarnish frozen yogurt’s reputation and frozen yogurt makers would like to tarnish ice cream’s reputation, as long as the stain didn’t extend to their competing products. But when both are harmed as a result, they have an incentive to mutually restrict the defamation. At the same time, if some protectionist policy raised the price of ice cream, producers of frozen yogurt will also benefit, because a higher price of ice cream will increase demand for frozen yogurt. And if some government mandate forced up the price of frozen yogurt, producers of ice cream will also benefit, because a higher price of frozen yogurt will increase demand for ice cream. Replace ice cream protectionism with import quotas that sharply inflate US sugar prices and frozen yogurt mandates with ethanol mandates, and you have the sweetener marketplace.

Those government intrusions have increased US prices of both sugar and corn syrup, raising profits artificially for both groups. But those hikes have driven many candy makers and the jobs they entail out of the US, harming those workers and their communities, with parallel effects for the other major sweetener users. The resulting higher prices have also harmed food consumers.

Rather than focusing on their tit-for-tat advertising contretemps, if we were interested in consumer well-being, we should learn from economist John McGee’s admonition that “what businessmen do to one another is much less significant than what they find it useful to do together to serve their common interests,” and focus on policies that benefit both sugar and corn syrup producers at the expense of consumers.

Such an approach would also make good use of Adam Smith’s far-earlier insight:

The interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. … But … the interest of the consumer is almost constantly sacrificed to that of the producer … to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

Gary Galles

Gary M. Galles is a Professor of Economics at Pepperdine University and an adjunct scholar at the Ludwig von Mises Institute. He is also a research fellow at the Independent Institute, a member of the Foundation for Economic Education faculty network, and a member of the Heartland Institute Board of Policy Advisors.

Image source:
wikimedia: https://commons.wikimedia.org/wiki/Category:Sweeteners#/media/File:Sugar_Dish.jpg