Power & Market
Why It's Important to "Preach to the Converted"
An an editor of publications with a distinct ideological bent, I sometimes hear that it's important to strive to avoid "preaching to the choir" or "preaching to the converted."
It's difficult to generalize what is meant when this phrase is used. Some users of the phrase think it's a waste of time for any group to discuss important topics among the members. Why discuss laissez-faire economics (or any topic) with other people who already agree?
Some have even argued that the very existence of publications devoted to a specific limited ideological point of view are dangerous because they encourage more in-group discussion at the expense of outside engagement.
More generally, though, the use of the phrase "preaching to the converted" is used to devalue the practice of encouraging frequent discussion of ideas and scholarship within in a certain group. The phrase instead suggests it is better to focus most — if not all — communications outward for the purposes of converting outsiders.
There's a lot of gray area here, and moderates on the issue likely hold a wide variety of opinions as to just how much discussion ought to be with outsiders. Some may think its fine to develop ideas internally, and to engage in only occasional outward "missionary" efforts. Depending on the nature of the organization, some may even think it's fine to focus nearly all energies on in-group teaching and scholarship so that in-group members can then go to other organizations which specialize in outward communications, but do little in terms of internal debate and idea development.
In practice, most ideological groups do both internal idea development and education, and outward communication.
Both activities are important, and many people understand this.
Some observers, nevertheless have a tendency to excessively emphasize the importance of not "preaching to the converted" and this is often due to three incorrect assumptions:
- It is believed that people in the converted already have a sufficient understanding of the topic at hand.
- It is assumed that the converted will never leave the group in question.
- It is believed that the converted won't interact with people outside their group in other contexts.
To illustrate these points, it may be helpful to speak of them in the context for which the term was originally invented: religious evangelization.
This isn't to suggest that laissez-faire views of political economy are anything like a religion. They're not. These views do not constitute a "way of life" or any sort of all-encompassing theory of the cosmos or the human person.
Nevertheless, a religious group can serve as an instructive analogy for a closer look at spreading a certain ideological viewpoint.
The "Choir" Is Often Full of Poorly Educated and Casual Believers
Let's begin by looking at "the converted" or the congregation in any religious group.
Anyone who has experience within any sizable group of Christians — for example — knows that there is a wide variety of knowledge levels and engagement levels within the group.
Some of them are well-read, enthusiastic, orthodox, and attend every single group event. Others are less sure of the group's core beliefs. Some only attend services occasionally. Some self-identify as Christians, but have barely read any of the group's most important documents.
And yet, all of these people call themselves "Christians." Clearly, it would be a mistake to then conclude that no one in this group requires additional discussion, instruction, or reading. In fact, most would benefit from being shown new ways of looking at things, or new readings with which they had not been familiar before. The clergy and teaching staff would also benefit from being asked difficult questions and being asked to elaborate on ideas already discussed. Useful information doesn't just flow one way. Without this, the "converted" cannot be expected to communicate their ideas to others, or even to themselves. Moreover, because old people die and new people are born, new people may be coming into the group as other people are dying off.
Some of the Converted May Be Headed Out the Door
This brings us to the second problem of assuming too much about the converted. It is often assumed that those who are converted will stay that way. This, of course, is a bad assumption in both ideological movement and in religious groups. People fall away from religious groups frequently. The same is true of any number of ideological groups, whether they be based on laissez-faire economics, on Marxism, or on veganism.
Thus, one of the most important functions of "preaching to the converted" is to address the questions of those who perceive inconsistencies in the ideas, or to better explain hard-to-understand aspects of a certain group of ideas. One of the most important things to avoid is the idea that every question already has pat answers that are self-evidently true to everyone. This is rarely the case, of course, so even among the converted, additional discussion and investigation is usually warranted.
The Converted Are Part of Other Groups
And finally, it is important to remember that "the converted" — unless they're part of a despotic cult — interact with numerous other groups of people in daily life, whether through family, professional work, or community groups. If these people are to be expected to spread certain ideas effectively, they must have a competent grasp of them. And there must be some place or publication or organization that can help them obtain this grasp of things.
In other words, if the converted are to share their ideas with others, their primary concern should be understanding these ideas well in the first place.
Leonard Read regularly made this point, noting:
it is only in self-improvement that one can have any influence whatsoever on the improvement of others. This point may never come clear unless we know why so few of us feel any need for self-improvement while so many of us possess an overpowering itch to improve others. Why do we spend so much more time looking down than up?
This was perhaps Read's version of "doctor, heal thyself." It's a good thing to want to go out and improve the world. But it's important to also have the means of improving one's self first. Being a member of "the choir" or "the converted" is often a helpful first step.
Crony Capitalism in Scientific Research
My wife and I read a quirky newsletter you won’t find online called the Belly of the Beast. It is the source of this startling but then again not surprising information: Academic researchers publish 2-3 million papers a year, most of it funded by governments. Most of the results of the this research are published in copyright protected journals owned by private companies, especially the giant German company Elsevier, companies that together are thought to earn over $25 billion. To read the research, you need to subscribe, and some of the journals charge as much as $5,000-10,000 a year for the subscription. Individual articles may be purchased separately, but there are stiff fees for them such as $40 each. Academic libraries often use public funding to pay the subscription or article prices.
There are some other peer reviewed "open access" journals, but researchers may have to pay a stiff fee to be put up on line by them, for example $3,000, and they are generally less "prestigious" than the print publications. A documentary film on this subject may be found at paywallthemovie.com . The film teases that you will have to pay $39.95 to see it, but you won’t actually have to do so. By the way, the government giving away billions for research and then allowing private publishers to skim billions from it is far from the whole story. If government funded research at a university results in a patentable invention, such as a drug, the university is granted all the rights to the patent. The university then sells or licenses the patent to a drug company. The government, having doled out so-called public funds, does not share in any of the profits.
Why is government perfectly happy with these arrangements? Because government is working hand in glove with the private interests directly profiting from the arrangements. Politicians benefit through campaign contributions, donations to their captive non-profits, and future jobs. Bureaucrats receive trips or other benefits or the prospect of future, remunerative jobs from the same private interests.
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Spitznagel on Fed Policy, Hedge Funds and Insuring Market Risk
Universa Investments Chief Investment Officer Mark Spitznagel sits down with Bloomberg's Erik Schatzker to discuss the next market crash, the size of the hedge fund industry and worries around hedging market risk.
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Jeff Deist on Crosstalk
Jeff Deist joined CrossTalk yesterday to discuss the influence of neoconservatives like John Bolton on Trump's foreign policy. Things get heated with another guest when Jeff questions the dubious "War on Terror," the enormous US military budget, and whether Trump's actions regarding endless Middle East wars matches his rhetoric.
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New York is America's Least Free State, Which is the Most Libertarian?
I wrote a couple of days ago about America’s best and worst cities for pro-market policy, and I noted that there are several rankings of economic liberty for states and nations.
But what if you want to know the place with the most overall freedom? In other words, what is the most libertarian place to live based on both economic liberty and personal liberty?
If you don’t mind a bit of travel, the answer is New Zealand.
For those who prefer to stay in the United States, Will Ruger and Jason Sorens periodically crunch numbers to calculate Freedom in the 50 States.
Their previous edition had New Hampshire in first place, so let’s take a look at the newest version.
This 2018 edition of Freedom in the 50 States presents a completely revised and updated ranking of the American states on the basis of how their policies promote freedom in the fiscal, regulatory, and personal realms. …More than 230 policy variables and their sources are now available to the public on a new website for the study. …the 2018 edition provides annual data on economic and personal freedom and their components back to 2000. …Freedom in the 50 States is an essential desk reference for anyone interested in state policy and in advancing a better understanding of a free society.
The publication is loaded with data, as you’ll see from the following charts.
To put all this data in context, the report separately calculates fiscal freedom, regulatory freedom, and personal freedom.
We’ll start with the fiscal section, which includes variables about taxes and spending, as well as other measures such as debt and government employment.
For those interested, the report has plenty of analysis and explanation about the variables that are used and the weights that are assigned.
Most of us, though, simply want to see which states get good scores and which ones get bad scores.
I’m not surprised to see that zero-income-tax states – led by Florida – are at the top. And I’m also not surprised that flat-tax states – led by Pennsylvania – also are well represented.
I assume nobody is surprised to see New York in last place.
Now let’s shift to regulatory policy and see where the burden of red is most onerous.
This part of the ranking covers a range of issues, most notably controls on land use and restrictions on the use of markets in health care.
But there are other important variables, including the extent and burden of occupational licensing.
Indeed, before getting to the overall rankings for regulation, I want to share those scores because it is so galling and upsetting that politicians impose barriers that limit the freedom of people to earn income.
Colorado deserves hearty applause for being at the top, edging out Idaho by a narrow margin. And even though Vermont was near the bottom of the fiscal rankings, it merits a mention for being good on the issue of occupational licensing.
California deserves hearty condemnation for being in last place. And I’m not surprised to see states like Illinois and New Jersey near the bottom.
I’m very disappointed, however, that Texas and Florida have such a dismal record.
But let’s not fixate on just one of the variables. If we look at the rankings for all regulatory issues, Kansas is in first place, followed by Nebraska and Idaho.
The worst states (hardly a surprise) are New York, New Jersey, and California.
Now let’s combine fiscal policy and regulatory policy and see the report’s ranking for overall economic freedom.
Florida is in first place by a comfortable margin, followed by three other zero-income-tax states (though the absence of a state income tax does not guarantee a good score, as you can see from the poor performance of Alaska, Wyoming, and Washington).
New York wins the Booby Prize by a large margin.
Hawaii and California also stand out in a bad way.
The above table tells us which state enjoys the most economic liberty, but that doesn’t tell us where to live if you want the maximum amount of overall freedom.
To identify the nation’s most libertarian state, we also need to look at rankings for personal liberty.
This means, in part, whether people are harassed and persecuted for victimless crimes, but it also includes measures of educational freedom and gun rights.
Speaking of which, I can’t resist sharing the data on which states most respect the 2nd Amendment.
Kansas gets the best score, followed by Vermont(!), Arizona, Idaho, and Mississippi.
Hawaii is the worst state by a significant margin and we (again) find California near the bottom.
Another issue which is near and dear to my heart is asset forfeiture.
I am nauseated and disgusted that governments are allowed to steal property from people who have not been convicted of any wrongdoing.
So let’s applaud New Mexico, Nebraska, and New Hampshire for putting limits on this awful practice.
And let’s heap unending score on Rhode Island for having the nation’s worst track record on this issue.
But what happens when we combine all issue relating to personal freedom?
Well, that’s exactly what the authors did, which means we get a comprehensive ranking for personal freedom. I’m not surprised that Nevada, Colorado, and New Hampshire are in the top 5, but I’m surprised to see that Maine leads the pack.
Likewise, I guess I’m not too surprised that Texas and other bible-belt states are socially conservative.
But Hawaii next to last?!?
In any event, the report combines economic freedom and personal freedom and tells us which state could be considered the most libertarian.
And the winner is the Sunshine State of Florida, followed by New Hampshire, Indiana, Colorado, and Nevada. I’m surprised that Florida does so well, though some of the other high-scoring states make sense (especially when I look at data on who reads these columns).
By contrast, the most dirigiste state is New York. That doesn’t surprise me, and I’m also not shocked by some of the other bottom dwellers.
I’m tempted to end here since we’ve already surveyed so much information.
But there’s one final chart which hopefully should be very fascinating.
We just looked at the data on how states currently rank for overall liberty.
This final selection tells us which ones have been moving in the right direction and wrong direction since the turn of the century.
Kudos to Oklahoma for adopting a lot of good reform. Same for New Mexico. And it’s also interesting to see that several states from the Great Lakes region boosted their scores (with Illinois being a laggard, of course).
Vermont has the dismal distinction of having moved the fastest in the wrong direction (No wonder it’s the Moocher State).
Hawaii also deserves an unfavorable mention, while the deterioration of New Jersey and New York is hardly a surprise.
Originally published at International Liberty
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Talking about "Affordable Housing" on the Tom Woods Show
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The Myth of Swedish Socialism with Per Bylund
In a new interview with Pete Raymond, Sweden-born economist Per Bylund describes the Swedish economic system and takes a closer look at the claims of those who say Sweden is an example that ‘socialism’ can work in practice.
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The Reforms that Venezuela Needs Right Now
Venezuela's government is in a state of upheaval. Foreign nations are lining up to support either the regime of Nicolás Maduro — who claims to be the legitimately elected president — or that of Juan Guaidó, who the opposition claims is now the constitutionally mandated interim president.
The current situation has been brought on by nearly twenty years of Chavismo, a hard-left socialist ideology, which has left the Venezuelan economy in ruins.
Understandably, many Venezuelans are now hoping for a political change. and many believe no real change can be had until the current regime is gone.
But no matter who is president a week — or a year, or five years — from now, prosperity can only be regained by enormous reforms to the Venezuelan political and economic systems.
Venezuelans must act now to demand these changes, because bringing in new politicians won't be enough to turn the nation around:
- Open the road to monetary freedom, eliminating all legal tender laws and the nation's central-bank supported system of fractional-reserve banks. Allow Venezuelans to adopt whatever medium of exchange they wish. Even dollarization ought to be on the table.
- Open the country to International Trade: eliminate all tariffs, taxes, and trade barriers. All of them.
- Privatize Everything! All state-owned companies and assets, following Econintech's proposal.
- Decentralize the Government: Grant total administrative and budgetary autonomy to Venezuela's twenty-three states . Decentralization is a key to minimizing the damage an abuse central government can do.
- Lower taxes drastically, and decentralize tax collection and administration to the state level. All new taxes must be approved by referendum.
- Allow private Venezuelans to access and accept both humanitarian and security assistance from foreign organizations.
- Guarantee the right to self-defense: demobilize all the armed groups, purge the prisons, implement widespread private gun ownership, and auction to the public all weapons confiscated by the state.
Should Venezuela finally move toward real reform, Venezuela could reclaim its position as one of the most prosperous nations in Latin America. At times like this, Venezuelans can look at former communist countries — such as Poland — that applied radical free-market reforms and now are moving toward a far more prosperous future.
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Come on Mr. Krugman, Give Real Libertarianism a Chance
Professor Paul Krugman asked a very important question in his January 10 New York Times essay “Trump’s Big Libertarian Experiment; Does contaminated food smell like freedom?". In his opinion piece, Krugman maintained that the recently concluded governmental shutdown demonstrated the hypocrisy of Republicans. The Nobel Prize winning economist also defended a plethora of government programs such as the Small Business Administration, food stamps, the FDA and socialized medicine.
As a libertarian, I strongly and enthusiastically support his claim of Republican hypocrisy. With regard to most of the rest of his assertions, I respectfully disagree. Let us consider the specifics.
Mr. Krugman noted that according to Ronald Reagan government was the problem, not the solution. Yes, Ronald Reagan’s rhetoric was strongly libertarian. But talk, no matter how eloquent, is cheap. When he was governor of California, that state’s budget increased, not the other way around. Ditto for when he was president of the United States and federal spending zoomed. Krugman is absolutely correct in asserting that “Republicans have echoed his rhetoric ever since,” but they do not follow through. They held the Presidency and both houses of congress for the last two years, and nary was there any noticeable reduction in government expenditure. However, fair is fair: President Trump did eliminate a few onerous business regulations and lowered tax rates somewhat.
But Krugman’s claim that the shutdown in effect provided some sort of natural experiment for libertarianism is wide of the mark. The idea, here, is that with government out of the picture, if the libertarians are correct, the free enterprise system will quickly ride to the rescue and take up the slack. But no. When government is giving it away for free down the street (courtesy of the long suffering taxpayer), it is difficult, just about impossible, for private firms to provide goods and services competitively. The latest shutdown lasted longer than any previous one. The strong expectation is, now that it has ended, that there will either be a compromise on the wall (a trade for the status of the DACAs), or Trump will build it as part of his claim of national emergency. A much fairer test of this “big, beautiful libertarian experiment” would be if there were a credible announcement that the government would end these initiatives on a permanent basis. Even better would be an announcement from Trump that he would work with Congress to establish free enterprise zones with an eye on actually experimenting with true libertarianism.
This is the entire point of free enterprise zones: government taxes, regulations, prohibitions, do not apply in a small test area, say, the size of Rhode Island, maybe located in the wilds of Alaska, Nevada or Wyoming, or in that entire state. There would be no laws there against drugs, sex between consenting adults; no welfare for anyone; the whole libertarian nine yards would be implemented. I challenge Mr. Krugman, a fair minded man, to call for exactly this sort of “experiment” instead of the present one he offers almost tongue in cheek, which does not at all qualify for that honorific. Ceteris was hardly paribus, during the recently ended shut down.
Krugman mentioned that SBA loans and farm subsidy checks were no longer being sent out during the partial shutdown, but he was curiously silent as to whether or not he favors these elements of “crony capitalism” that Republicans, but certainly not libertarians, support. The case against them is easy to make for left-liberals: They take money from all taxpayers, and direct the funds to the relatively rich. Libertarians oppose welfare programs both for the poor (they can creative incentives for family break up) and for the wealthy. We all have a word for compelling some people to give money to others against their will: theft. But only libertarians employ it when the government is involved as intermediary. This opposition holds true whatever the wealth of donors and recipients. Both of these programs, farm subsidies and SBA, should be abolished in their entirety; immediately, if not sooner. Moreover, they are both elements of central planning and government picking winners (Solyndra, anyone?). Have we learned nothing from far better “natural experiments” than the one alluded to by Krugman: that between East and West Germany, North and South Korea?
Let us now consider the Food and Drug Administration, a shibboleth amongst so-called “progressives.” Why should we be forced to put all our eggs in one basket: to trust the views of but one institution for the all-important task of ensuring safety regarding these products? It is a basic premise of economics 101, to which even Mr. Krugman should adhere, that competition brings about a better result than a compulsory monopoly. That applies to all industries, certainly including the one tasked with ensuring food and drug safety.
Then there is the question of why FDA pronouncements should be compulsory. Why not, merely, advisory? How does it help the consumer to reduce options among medications? Our friends on the left side of the spectrum favor “choice” in the debate over abortion. Why not here, too? The FDA, along with programs such as compulsory Social Security, are profoundly incompatible with democracy, yet another favorite of this sector of the political spectrum. If people are so stupid as to require prohibitions of medicine deemed inappropriate by the FDA, not merely warnings, and cannot save for a rainy day or for their retirements, then it cannot be reasonable to give them the right to vote. On the other hand, if we entrust them with access to the ballot box, we cannot also logically think they need FDA advice, let alone prohibitions, or nanny state requirements that they save their money (put the Ponzi scheme elements of social security to one side). But even governmental advice is highly problematic. Nowhere in the Constitution is there provision made for government to function as an Ann Landers.
Then, too, brand names are a source of security for quality of food and drugs. Who is really more responsible for insuring excellence, Pfizer, Heinz and McDonalds, or the FDA? If the former fail us, they will be heavily penalized, even bankrupted. When the latter fails they keep on going, just like the Energizer Bunny. (The Army Corps of Engineers is still in charge of the Mississippi River, even though it was the failure of their levies which led to the deaths of some 1900 people in late 1920s; were a private enterprise responsible for such a horror, it would have long ago have been replaced by a different business firm).
Nor must we sweep under the rug past FDA mistakes. For example, it failed to warn pregnant women of the morning sickness medicine thalidomide, which created birth defects. That was a Type I error, approving of a negative. Once burned, twice shy. As a result of that horror, the FDA has been busy manufacturing all sorts of type II errors: refusing to allow people to use safe medicines. That is, not until after years and years of very expensive testing. This pushes pharmaceutical prices through the roof, and deprives needy patients for long durations of unavailability. Many unnecessary deaths can be attributed to this failure of theirs. No, the FDA is nothing to brag about. It should be terminated and ashes sowed where once it stood. Milton Friedman indeed hit the nail precisely on the head when he condemned “the F.D.A.’s existence as an unwarranted interference in the free market,” as Krugman accurately states.
By the way, contrary to Krugman, Friedman always characterized himself as a small l libertarian, not a conservative. His intellectual and moral soldier in arms, Friedrich Hayek, wrote an essay “Why I am not a conservative.”
Professor Krugman opines that “libertarian ideology isn’t a real force within the G.O.P.; it’s more of a cover story for the party’s actual agenda.” This is only partially true. There are several libertarians now in the congress: Senator Rand Paul and Congressmen Justin Amash, Walter Jones and Thomas Massie. Dr. Ron Paul was a long time member of the latter institution. There is also the Congressional Freedom Caucus composed of many other libertarians as well as conservatives. Senator Paul is now widely discussed (not only within libertarian circles) as Donald Trump’s Vice Presidential running mate for 2020, instead of Mike Pence. Yes, libertarianism sometimes serves as a fig leaf for Republicans, but, this philosophy plays a role just a little bit more vital than that.
No truer words were ever said about all this than Krugman's: “In the case of the (Republican) party establishment, that agenda is about redistributing income up the scale, and in particular helping important donor interests. Republican politicians may invoke the rhetoric of free markets to justify cutting taxes for the rich and benefits for the poor … but they don’t really care about free markets per se. After all, the party had little problem lining up behind Trump’s embrace of tariffs … Stick it to the bums on welfare, but don’t touch those farm subsidies.” But this, of course, does not at all apply to libertarians.
Next consider health services, whether Medicare, Medicaid, Obamacare or the single payer system of Canada and much of Europe. Basic supply and demand analysis indicates that when prices are held below equilibrium, demand exceeds supply. Every freshman economics student can tell you that this means there is a shortage. And, a shortage there is, in these systems. In Alberta, Canada, both a woman and a horse she owned had kidney stones. Her pet was treated right away (there is no veterinary socialism in that country); were it not, she would have been arrested for animal cruelty. As for her, she had to endure several long months of pain, until she was treated. That is but one sad story in this tip of the iceberg.
Why is medical care so expensive in the U.S.? It is so for two reasons. One, we have covered above: the FDA boosts prices of medical drugs. Two, even more important, the strongest labor union in the country, the American Medical Association, practices restrictions on entry, similar to what the taxi cab crony capitalists attempt to do against Lyft and Uber, and downtown hotels vis a vis Airbnb. They strictly limit the intake of medical schools and their number. They strive mightily to ensure that highly qualified foreign doctors are not allowed to practice in this country. Eliminate their unwarranted powers, and there will be no felt need for medical socialism. Relative prices of computers, television sets, and other products of the somewhat free sectors of the economy continually fall. Next, perhaps, to banking, the health industries are the most highly regulated and prices remain high, there.
Professor Krugman ends on this note: “Knowing that the food you’re eating is now more likely than before to be contaminated, does that potential contamination smell to you like freedom?” I say, in contrast, if you want to be free of tainted food and drugs, the last thing we should rely on is the FDA. Yes, eliminate it, and allow the “magic of the market” as Ronald Reagan would say, to bring us security in this regard.
Originally published at Real Clear Markets
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Philadelphia's Soda Tax Was a Win for Politicians, A Loss for Everyone Else
I’ve periodically opined about why politicians should not try to control people’s behavior with discriminatory taxes, such as the ones being imposed on soda.
And I’ve cited some examples of how these taxes backfire.
The big drop in soda purchases after a tax on sugary drinks was imposed in Berkeley.
The big drop in soda sales after a big tax on sugary products in Mexico.
The big drop in soda purchases expected to occur following Seattle’s new tax.
If the following headlines are any indication, we can add Philadelphia to that list.
For instances, this story from the Philadelphia Inquirer.
Or this story from the local CBS affiliate.
These examples reinforce my view that it is not a good idea to let meddling politicians impose more taxes in an effort to control people’s behavior.
Some of my left-leaning friends periodically remind me, however, that there’s a difference between anecdotes and evidence. There’s a lot of truth to that cautionary observation.
To be sure, I could simply respond by saying a pattern is evident when a couple of anecdotes turns into dozens of anecdotes. And when dozens become hundreds, surely it’s possible to say the pattern shows causality.
That being said, it is good to have rigorous, statistics-based analysis if we really want to convince skeptics.
So let’s look at the results of some new academic research from scholars at Stanford, Northwestern, and the University of Minnesota. We’ll start with the abstract, which nicely summarizes their findings about the impact of Philadelphia’s big soda tax.
We analyze the impact of a tax on sweetened beverages, often referred to as a “soda tax,” using a unique data-set of prices, quantities sold and nutritional information across several thousand taxed and untaxed beveragesfor a large set of stores in Philadelphia and its surrounding area. We find that the tax is passed through at a rate of 75-115%, leading to a 30-40% price increase. Demand in the taxed area decreases dramatically by 42% in response to the tax. There is no significant substitution to untaxed beverages (water and natural juices), but cross-shopping at stores outside of Philadelphia completely o↵sets the reduction in sales within the taxed area. As a consequence, we find no significant reduction in calorie and sugar intake.
Here are some of their conclusions.
We draw several lessons about the effectiveness of local sweetened-beverage taxes from these analyses. First, the tax was ineffective at reducing consumption of unhealthy products. Second, in terms of revenue generation, the tax was only partly effective due to consumers substituting to stores outside of Philadelphia. Third, low income households are less likely to engage in cross-shopping, and instead are more likely to continue to purchase taxed products at a higher price at stores in Philadelphia. The lower propensity for low income households to avoid the tax through cross-shopping leads to a relatively larger tax burden for those households. In summary, the tax does not lead to a shift in consumption towards healthier products, it affects low income households more severely, and it is limited in its ability to raise revenue.
If you’re wondering why consumers responded so strongly, here’s a chart from the study showing the price difference after the tax was imposed.
The bottom numbers in Figure 3 show that some sales still occurred in the city, but a persistent gap between city sales and suburban sales appeared.
And here’s what happened to sales inside the city (taxed) and outside the city (untaxed).
Wow. This data makes me wonder if suburban sellers will start contributing to the Philadelphia politicians who have generated this windfall?
Others have noticed how the tax is hurting rather than helping.
The Wall Street Journal opined about the failure of Philly’s soda tax.
When Philadelphia became the first major U.S. city to pass a soda tax in 2016, Mayor Jim Kenney said it would improve public health while funding universal pre-K. Two years in, the policy hasn’t delivered on that elite ideological goal. But the tax has come at the expense of working people… On Jan. 2, Brown’s Super Stores announced the closure of a ShopRite on Haverford Avenue. The supermarket is close to the city limit, and customers discovered they could avoid the soda tax by shopping outside Philly. …the once-profitable store began losing about $1 million a year. …That means fewer opportunities for workers with a criminal record. Mr. Brown’s supermarkets employ more than 600 of them, with the majority in Philadelphia. Some of the ex-cons have become his most-valued employees.
And Kyle Smith explained in National Review how the tax backfired.
Philadelphia’s outlandish soda tax is what Democratic-party politics looks like when it lets its freak flag fly. So many classic elements are there: (failed) social engineering and “think of the children!” on one side, paid for with a punitive tax on poor people and destroyed businesses, which means destroyed jobs, which in turn means lives upended. …Now that beer is, in some cases, cheaper than soda in Philadelphia, alcohol sales are up sharply. …the total loss attributable to the tax in sales of all items was $300,000 a month per store. Other, untaxed drinks also suffered sales declines within the city, suggesting people were simply saving up their shopping trips for when they left town.
I don’t feel compelled to add much to what’s been cited.
Though I will cite a headline from the Seattle Times to reinforce one of the points in the academic study about consumers bearing the cost of the tax rather than the soda companies.
And my one modest contribution to all this analysis is this comparison of the winners and loser from Philadelphia’s new tax.
For what it’s worth, similar comparisons could be developed for just about every action by every government. Academics call this “public choice” while ordinary people realize it’s just common sense.
Originally published at International Liberty
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