Ugh. Improper aggregation abounds here. There are three main interested parties in a commercial endeavor: the shareholders, the employees, and the customers.
Measured profit, discounted and extended far in to the future (the AU$5B mentioned) covers only the shareholders. This seems like the much smaller set of stakeholders. The economic value to employees is likely much larger, and the imputed value to smokers, as measured by the amount they’re willing to pay, greater still.
imputed value to smokers, as measured by the amount they’re willing to pay, greater still.
Inferring preferences of addicts by ‘revealed preference’, that is, what they are willing to pay, is methodologically inadequate. They are characteristically time-inconsistent (to behavioural economists) or dynamically inconsistent (to game theorists)
The economic value to employees is likely much larger
I don’t rate the economic empowerment of tobacco industry employees particularly highly. I doubt they’re ethical consumers if they’re such unethical producers.
cohort of over 8000 adult smokers....The proportion of smokers who agreed or agreed strongly with the statement “If you had to do it over again, you would not have started smoking” was extremely high—about 90%—and nearly identical across the four countries.
The problem with ignoring these real humans’ desires is that your buyout plan fails. You can only pay off the current shareholders, and without some form of more serious government intervention, the employees and consumers will cause NEW enterprises to replace them.
And if you’re going to use the government mandate hammer to prevent that, why not just use it in the first place rather than spending the buyout money?
The existing tobacco companies are real assets that require compensation if they are nationalized, while the right to create new companies does not require compensation if it is destroyed.
You might also ask why people don’t create new American tobacco companies to acquire the advertising rights that existing companies gave up in Master Settlement.
A lot depends on what the “real assets” are. They have no property right in future revenue if customers choose to buy somewhere or something else. They may have contractual rights to a monopoly, which could be purchased (but which is pretty suspect to start with). They do likely have property rights in plant (heh) and equipment, which will be a natural barrier to competitive entry.
and without some form of more serious government intervention, the employees and consumers will cause NEW enterprises to replace them.
Perhaps you should read the link. The argument is that the existing industry can be bought out and replaced by a nationalized agency that, because of reconciled incentives (the same government which is earning the income must also pay most of the healthcare costs, which vastly exceed the profits) can engage in strategies to manage the demand consistently downward with a variety of strategies such as reduced advertising, reduced nicotine content, or higher prices, which reduce the number of people who want tobacco products. If there is no demand because people have not gotten addicted and there are other substitutes for it*, then there is no reason to expect a black-market of large enough scale to make a meaningful difference to public health; if at the end of the managing down of the current 3m smokers, there’s a small black-market of 10,000 people supported by cheaper stronger foreign cigarettes smuggled in through airports—then public health Mission Accomplished.
It’s true that for many popular drugs, regulations or banning can have backlashes, but it’s also possible for some drugs to just fade away or people rationally substitute similar but better drugs; the research chemical scene churns out hundreds or thousands of new drugs, many of which enjoy a brief burst of popularity until they get banned or people move on to the next new thing. The author gives some relevant examples from public health:
It is possible to combine restrictions on additives and nicotine delivery. The effect would be to reverse the development process of the modern cigarette, which could be effective. Removing the addictive elements of a harmful product is neither novel nor revolutionary. Compulsory reformulation of compound analgesics and the eventual ban on over-the-counter sales in the late 1970s effectively reduced consumption and were followed by dramatic reductions in analgesic nephropathy and other harms of compound analgesic abuse.25 It stands as one of the great achievements of public health by regulation. Importantly, the products were never banned outright but use just faded away. Control of petrol sniffing and other volatile substance use in Australian Indigenous communities is another example. Although a number of interventions and educational actions had been undertaken, it was fuel substitution finally culminating in the implementation of OPAL fuel that saw reductions in sniffing of the magnitude of smoking reductions that are required to reverse health harms.26 Although other actions will be required, only the elimination of a tolerable, addictive cigarette will truly address the harms of smoking in the most vulnerable groups and is the cheapest, effective action as the full costs are transferred to the tobacco manufacturer.
It’s remarkable to see you attack it as a proposal for a full illegalization when in the first first section of the preface, the author denies that as a suggestion and warns that pro-tobacco people will try to strawman proposals into prohibition:
That said, an outright ban is a very easy target for the arguments of the opponents of tobacco control. In general, prohibition has not been an effective strategy to eliminate use of other substances. It can easily be crafted by the tobacco industry as an affront to liberty or as counter to the autonomy of individuals. On those grounds, it will probably not be the answer. A separate consideration is whether some tobacco products presently available should be restricted or banned. Oral or chewing tobacco is banned in Australia but used widely in some other countries. There is thus a precedent.
* funnily enough, I think ‘substitutes’ here is as broad as smartphones. One of the major uses of tobacco products has always seemed to be as something to do with your hands, kill time, and idly socialize with others (as suggested by smoking studies where nicotine-free cigarettes offer relief, indicating that tobacco addiction is as much about the habit and activity as the actual chemical contents), and smartphones can do all 3 at once.
We use cigarettes for way more than effect (cause lets face it-the ‘buzz’ sucks), they serve as a social lubricant, and an excuse to stand outside and stare at things without seeming like a moron.
funnily enough, I think ‘substitutes’ here is as broad as smartphones. One of the major uses of tobacco products has always seemed to be as something to do with your hands, kill time, and idly socialize with others (as suggested by smoking studies where nicotine-free cigarettes offer relief, indicating that tobacco addiction is as much about the habit and activity as the actual chemical contents), and smartphones can do all 3 at once.
The myth in the tobacco industry’s economic importance argument is that a significant economic presence necessarily implies significant economic dependence. Implicit in the industry’s argument is the notion that a decline in tobacco economic activity will entail a comparable decline in the economy. However, when resources are no longer devoted to a given economic activity, they do not simply disappear into thin air; rather they are redirected to other economic functions.*
There are three main interested parties in a commercial endeavor: the shareholders, the employees, and the customers.
The employees and customers have no property rights, and the latter are a shrinking minority of the population with little political power to fight any nationalization (as evidenced by their failure to beat the many onerous regulations successfully put in place already). The former employees have somewhat better a chance to organize, but the best estimate I can find of the total number of employees is ~2100, who likewise have failed to stop the creation of the existing regulations; tobacco is no longer grown commercially in Australia, so you can ignore the farmers as they are overseas and are ill-placed to affect Australian politics and also suffer from steep coordination costs.
Measured profit, discounted and extended far in to the future (the AU$5B mentioned) covers only the shareholders.
Who are the ones who can most easily lobby against it and have the property rights which would be seized in a nationalization, and hence the NPV of their stake is the most important figure.
The economic value to employees is likely much larger,
What, all 2100 of them? ‘much larger’? You think each one values that exact job at >$23.8m (5000000000/2100 ~> 23,80,952.381)? The Australian economy has been consistently good for a long time now, so they can find other jobs in manufacturing and marketing, meaning the marginal value of the job existing is not going to be that high to them even if they were guaranteed lifetime employment.
and the imputed value to smokers, as measured by the amount they’re willing to pay, greater still.
No one believes that their willingness to pay reflects their true utility, and that’s why tobacco is getting regulated out of existence.
Ugh. Improper aggregation abounds here. There are three main interested parties in a commercial endeavor: the shareholders, the employees, and the customers.
Measured profit, discounted and extended far in to the future (the AU$5B mentioned) covers only the shareholders. This seems like the much smaller set of stakeholders. The economic value to employees is likely much larger, and the imputed value to smokers, as measured by the amount they’re willing to pay, greater still.
Inferring preferences of addicts by ‘revealed preference’, that is, what they are willing to pay, is methodologically inadequate. They are characteristically time-inconsistent (to behavioural economists) or dynamically inconsistent (to game theorists)
I don’t rate the economic empowerment of tobacco industry employees particularly highly. I doubt they’re ethical consumers if they’re such unethical producers.
edit: if you’re interested see this:
The near-universal experience of regret among smokers in four countries: Findings from the International Tobacco Control Policy Evaluation Survey.
The problem with ignoring these real humans’ desires is that your buyout plan fails. You can only pay off the current shareholders, and without some form of more serious government intervention, the employees and consumers will cause NEW enterprises to replace them.
And if you’re going to use the government mandate hammer to prevent that, why not just use it in the first place rather than spending the buyout money?
The existing tobacco companies are real assets that require compensation if they are nationalized, while the right to create new companies does not require compensation if it is destroyed.
You might also ask why people don’t create new American tobacco companies to acquire the advertising rights that existing companies gave up in Master Settlement.
A lot depends on what the “real assets” are. They have no property right in future revenue if customers choose to buy somewhere or something else. They may have contractual rights to a monopoly, which could be purchased (but which is pretty suspect to start with). They do likely have property rights in plant (heh) and equipment, which will be a natural barrier to competitive entry.
Perhaps you should read the link. The argument is that the existing industry can be bought out and replaced by a nationalized agency that, because of reconciled incentives (the same government which is earning the income must also pay most of the healthcare costs, which vastly exceed the profits) can engage in strategies to manage the demand consistently downward with a variety of strategies such as reduced advertising, reduced nicotine content, or higher prices, which reduce the number of people who want tobacco products. If there is no demand because people have not gotten addicted and there are other substitutes for it*, then there is no reason to expect a black-market of large enough scale to make a meaningful difference to public health; if at the end of the managing down of the current 3m smokers, there’s a small black-market of 10,000 people supported by cheaper stronger foreign cigarettes smuggled in through airports—then public health Mission Accomplished.
It’s true that for many popular drugs, regulations or banning can have backlashes, but it’s also possible for some drugs to just fade away or people rationally substitute similar but better drugs; the research chemical scene churns out hundreds or thousands of new drugs, many of which enjoy a brief burst of popularity until they get banned or people move on to the next new thing. The author gives some relevant examples from public health:
It’s remarkable to see you attack it as a proposal for a full illegalization when in the first first section of the preface, the author denies that as a suggestion and warns that pro-tobacco people will try to strawman proposals into prohibition:
* funnily enough, I think ‘substitutes’ here is as broad as smartphones. One of the major uses of tobacco products has always seemed to be as something to do with your hands, kill time, and idly socialize with others (as suggested by smoking studies where nicotine-free cigarettes offer relief, indicating that tobacco addiction is as much about the habit and activity as the actual chemical contents), and smartphones can do all 3 at once.
The more I read the more compelling the smartphone replaces idea stands out to me.
Perhaps it could be marketed as a replacement to ciggies. If there were to be an app that replicated this kind of function, it would be good to go:
As the users of a drug forum comparing the difficulty of quiting cigarettes to heroin say:
Never thought of that! How clever.
see small game fallacy and conjuring evolutions and your ideological assumptions begone!
Addicted consumers cannot make free choices. This makes several economic assumptions collapse when they’re used to try to analyze drug consumption.
The employees and customers have no property rights, and the latter are a shrinking minority of the population with little political power to fight any nationalization (as evidenced by their failure to beat the many onerous regulations successfully put in place already). The former employees have somewhat better a chance to organize, but the best estimate I can find of the total number of employees is ~2100, who likewise have failed to stop the creation of the existing regulations; tobacco is no longer grown commercially in Australia, so you can ignore the farmers as they are overseas and are ill-placed to affect Australian politics and also suffer from steep coordination costs.
Who are the ones who can most easily lobby against it and have the property rights which would be seized in a nationalization, and hence the NPV of their stake is the most important figure.
What, all 2100 of them? ‘much larger’? You think each one values that exact job at >$23.8m (
5000000000/2100 ~> 23,80,952.381)? The Australian economy has been consistently good for a long time now, so they can find other jobs in manufacturing and marketing, meaning the marginal value of the job existing is not going to be that high to them even if they were guaranteed lifetime employment.No one believes that their willingness to pay reflects their true utility, and that’s why tobacco is getting regulated out of existence.