Soft Drinks, Taxes, and Regulation: Why the Attacks on Mayor Bloomberg’s Proposed Size Restrictions on Soda Servings Are Misplaced

Posted in: Tax and Economics

Late in May of this year, New York City’s Mayor, Michael Bloomberg, proposed restricting the size of the servings of soda drinks offered for sale in the city to 16 ounces or less.  The Mayor’s proposal was the latest in a series of public-health initiatives that have been put into practice by his administration, all of which are based on the overwhelming evidence that ties sugary drinks to America’s obesity epidemic, and especially to obesity among children.  Therefore, from Mayor Bloomberg’s standpoint, this initiative is about protecting the public’s health, as well as about saving current and future taxpayers from the consequences, including the healthcare costs, of having a fatter—and thus inevitably sicker—population.

The mayor’s announcement caused an immediate stir, with cries of “nanny state” and the usual anti-government rhetoric being heard from the usual suspects.  Although the immediate public furor has, by now, died down, the battle is now moving onto its next stage.  The country’s major soda manufacturers have now hired public-relations firms to lobby New York’s public officials—and to attempt to swing public opinion against the proposed rule.

The strategy of the soda makers is simple:  Make this “a debate about freedom, not fatness,” as an article in The New York Times recently described the soda companies’ plans.  The public-relations onslaught includes completely false claims, suggesting (as in Facebook and Twitter campaigns telling people to “say no to a #sodaban”) that the mayor’s proposal would “ban” the sale of soda.  It would, of course, do no such thing.

The mayor’s proposal is not only sensible from the standpoint of public health.  It is also, more importantly, an unremarkable use of the standard tools of public policy to address a severe problem that can be mitigated through public action.  Bloomberg’s approach is no more an attack on people’s freedom than are traffic lights, or laws against lying to consumers.  Indeed, steering people away from harmful behavior in all these diverse ways is the very essence of good public policy.

The Soda Size Restrictions Are, in Essence, the Same as a Sales Tax

One of the surprising elements of the reaction to the mayor’s proposal is that people have ridiculed it for being hopelessly ineffective.  As many have pointed out, nothing in the mayor’s proposal would prevent a thirsty person from buying two or more sodas, thus allowing that person to consume any amount of soda (and thus, any amount of sugar) that he wants to consume.  The mayor cannot stop people from buying as much soda as they like, this argument goes, so what is the point of limiting soda size?

The answer to that objection is, however, quite simple.  Buying multiple 16-ounce sodas is more expensive than buying one 32- or 48-ounce Mega Gulp at a movie theater, for two reasons:  First, we know from decades of observation that businesses do not price sodas (or most other consumer goods) by the ounce.  At my local megaplex, for example, the prices of the Small (32-ounce), Medium (48-ounce), and Large (64-ounce) sodas are $4.50, $5.00, and $5.50, respectively.  Adding a dollar to the price of a Small thus buys a person a 64-ounce soda.  Businesses have discovered that people will not pay by the ounce because, say, the thirty-seventh ounce of soda is less valuable to people than is the first ounce.

Even if the mayor’s proposal were to cause some adjustment in soda prices, therefore, it will still be more expensive for people to buy 64 ounces of soda under the mayor’s plan than it would be otherwise.  The rule would thus act in the same way that a tax is supposed to act: reducing consumption by adding to the net price of a good, which is a simple application of the basic “law of demand” in economics.  The mayor, in other words, need not (and surely does not) imagine that he will succeed in preventing everyone in New York from consuming more than sixteen ounces of soda at a time.  He can, however, count on the tax-like effect of the rule’s reducing overall consumption.

Moreover, the “price” of consuming soda would go up in less obvious ways under Bloomberg’s proposal.  Economists have developed a broad concept known as “transactions costs,” which recognizes that buying decisions depend upon a lot more than the sticker price of an item.  When stores are farther from one’s home, for example, the price of shopping effectively goes up (due to the price of transportation, and the time spent in transit).  When there are fewer cashiers at a given store than there are at others, the cost to the consumer of the resulting time spent waiting in line becomes part of the expense of buying a product, or set of products, at that particular store.

These costs show up in the proposed soda regulations most obviously in the simple annoyance of a soda consumer’s trying to carry more than one container at a time.  A baseball fan could, for example, buy three sixteen-ounce sodas, if he really wanted to consume forty-eight ounces of soda, but his doing so would be more “costly” in a way that will discourage at least some people from consuming extra soda; he would have to juggle three soda containers at once.  (The alternative to buying three at a time—making multiple trips to the concession stand—also increases transactions costs, in the form of time spent in line, rather than enjoying the game.)

Although the soda restrictions would be “like taxes,” however, they are very different in one important way: they do not raise money for the city’s government.  One would think that the anti-government ideologues would be happy that this is not a “money grab” by the supposedly power-mad mayor.  Of course, the opposite seems to be the case:  Most opponents of the soda regulations refuse to admit that there is anything good about them at all.

The Equivalence of Regulations, Taxes, and Lawsuits: Multiple Tools to Reduce Public Harms

Even in light of all the arguments I’ve put forth thus far, one might still ask why Mayor Bloomberg is trying to fight obesity in this particular way.  If the goal is to raise the cost of fattening foods, one might ask, why not go with a tax, rather than this proposed size restriction?

One response is that this question itself is often posed in bad faith.  That is, too often when a public official proposes a regulatory change that is designed to change what people do, we suddenly are told that there are oh-so-many things wrong with regulations per se, and that this is the worst way to achieve an otherwise-laudable public policy option.  Then, however, when the regulatory proposal is abandoned and replaced with a tax proposal, we suddenly are told that taxes are even more awful.

This is, in fact, exactly what has happened in the case of soda drinks.  The mayor and other public health advocates have, in fact, proposed taxes on soda, only to be told that such taxes are wholly unacceptable.

Moreover, a third alternative has already been tried and rejected as well.  Lawsuits are another functionally equivalent way to change consumer behavior regarding the market for a product.  For example, when people began to sue manufacturers of asbestos due to the deadly diseases that are caused by breathing asbestos fibers, the resulting financial liability shut down that industry as effectively as a regulatory ban would have (and certainly as effectively as would a tax calibrated to the harm that people suffered from breathing asbestos).

In the case of soda drinks, suits were filed not too many years ago against the sugary drink manufacturers, attempting to hold the manufacturers responsible for the public harm that their products were causing.  The suits were filed, moreover, on behalf of minor children, so that there could be no argument that the victims had tacitly consented in an informed way to later suffer the consequences of their soda-consumption choices.

The response to those lawsuits at the time, even among those who were sympathetic to the idea that soda consumption causes serious harm to children, was that this was “not the right way” to attack the problem.

In short, the responses to the various ways to attack this problem, when taken together, take on the flavor of a cynical game.  For those who play the game, it is not the goal that is the problem, but that the particular solution—no matter what it is—is always the worst solution.  Again, this is not a hypothetical scenario.  We have actually seen all three alternatives attacked in the same merry-go-round way—attacked, that is, based on the claim that another of the two alternative approaches will be better.  And so the circle continues, and the soda makers continue to profit, at a high cost to children’s health.

What About the Broader Liberty Objection?  Claims About Government Overreaching Are Out of Place in the Soda Debates

Some opponents of soda restrictions, however, reject the very idea of doing anything about the excessive consumption of sugar via soda drinks.  It is not a matter of their claiming that the instrument is wrong.  These advocates will admit quite readily to opposing any restrictions at all on what can be sold.

This objection is ultimately, however, quite flimsy.  There is nothing categorically new or different, after all, about any level of government (federal, state, city, or local) setting rules about how legal products can be packaged or marketed.  A government could ban the sale of sodas in glass bottles, for example, on the basis of the public danger that is caused by broken glass and thrown bottles.

Similarly, governments can prescribe when and where another dangerous (but legal) product—alcohol—can be sold.  There is nothing even mildly different about putting a restriction on the size of a soda drink, in response to the damage to public health caused by over-consumption of the product.  The industry (and the loud anti-government echo chamber that exists in the conservative tabloids and on cable TV) is doing its best, of course, to convince people that Bloomberg’s proposal is a big, new, different attack on freedom.  It is no such thing.  It is, rather, a plain-vanilla packaging law.

But perhaps the problem is that all such packaging laws are a violation of our freedom.  If so, then the answer would be to roll back all such laws, and not to allow yet another brick to be laid on top of that liberty-blocking wall.  As the examples in the previous paragraph demonstrate, however, packaging restrictions are simply a matter of setting the rules of commerce, making them no more of a violation of people’s freedom than rules on, say, which types of contracts have to be signed and notarized in order to be legally enforceable.

Saying that governments can do nothing to set the rules of commerce is logically incoherent, because commerce is based on the rules of contract, property, and other bodies of law that must, by their very nature, be enforced by some entity with coercive powers.

Are Soda Restrictions a Case of Paternalism Run Amok?  Why Adults Need to Live by Rules, Especially When Other Adults Are Trying to Deceive Them

I recently attended an academic conference, where a professor argued that Mayor Bloomberg’s proposed soda restrictions were an insult to the maturity of the people of New York.  It might be true, he said, that people would make better decisions if “their mamas were standing next to them at all times.”  But part of accepting the notion of living in a free society is, he insisted, accepting the idea that people will make mistakes.

As I noted earlier in this column, though, a big part of this debate is about children, not adults.  One could then argue, of course, that the rule should only be applied to children.  At that point, however, we would surely hear objections from those who would say that the law would be ineffective, because adults would buy larger sodas for children than children could legally buy on their own.

Even if that were true, however, the nature of broadly applicable rules always involves some over-inclusiveness, as well as some under-inclusiveness.  Yes, there will be some children who are able to drink more than one sixteen-ounce soda at a time, under the mayor’s plan.  And yes, there will be people whose “freedom” would be restricted by the inability to buy as much soda at one time as they would like, but who would not become obese even in the absence of a size restriction, because such people have the self-control to drink exactly the number of ounces of soda that they want to drink, and no more.

All of that is true, but it is irrelevant.  Traffic laws, to take but one of many examples, restrict the freedom of some people who might choose to drive only three miles per hour faster than the speed limit, and thus who really would pose no risk to public health even if there were no speed limit.  That fact does not, however, support a coherent argument that speed limits, in general, are an unconscionable violation of all people’s liberty interests.

Moreover, as I argued in a column two years ago, the idea that adults have formed their eating habits in a vacuum is patently absurd.  People are not genetically disposed to drink soda, nor to drink it in large quantities.  Soda drinks are cheap because of government subsidies to corn growers, and soda makers advertise heavily to get people to buy the artificially cheap drinks that are contributing to disease and death.

If it were not true that the attempts of marketers to change people were effective, moreover, then we would have to explain why so much money is spent to try to do the impossible.  Clearly, the claim that restrictions on soda purchases violate freedom of choice is based on a false presumption: that people’s tastes have not been distorted in the first place.

There is no doubt that there are other ways to address the obesity crisis.  Some of the alternatives to Mayor Bloomberg’s size restrictions might, in fact, be more effective than the mayor’s current plan.  This is a classic example, however, of not allowing the perfect to be the enemy of the good.

There is a real public health crisis going on in this country, affecting both children and adults.  The soda manufacturers can try to change the subject to a distorted view of what counts as freedom of choice, but the public should not be fooled.  This is about disease and death, and about reining in the companies that profit from pretending otherwise.

Posted in: Tax and Economics