Tag Archives: UBath

Economic illiteracy about tobacco, from the antepode

by Carl V Phillips

The most fundamental lie of the tobacco control industry (TCI) is what I have dubbed the “demonic possession” theory of tobacco use. It is the myth that no one likes to use tobacco products.

It is obvious why they need this. If they admitted that people derived benefits from consuming tobacco, then they would have to balance the (supposed) benefits of their actions against the loss of benefits caused by the actions. More important, and the reason this myth is fundamental, is that if they admitted the truth they would have to admit to themselves that most of what they do inflicts harm — serious harm — on the hundreds of millions of people who they pretend they are trying to help. While many in the TCI are truly evil, and would not be bothered by this, many are not, and so need to preserve this fiction to be able to sleep at night. (And, no, “evil” is not hyperbole. It is clear that many people in tobacco control derive pleasure from inflicting pain on people who they consider to be The Other, exactly the same evil impulse that causes racism, homophobia, etc.) Continue reading

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Tobacco control industry really annoyed that tobacco industry is making cogent policy arguments

by Carl V. Phillips

In a recent paper, Anna Gilmore and “researchers” at the University of Bath’s anti-tobacco QUANGO — a group known for not understanding the basics of either the epidemiology or the economics they write about — has demonstrated that they might actually have learned something about how public policies are debated in free societies.  Of course, the spin they put on it is that such debate and freedom are obstacles to be thwarted.

They reviewed (in a faux systematic way, though their methodologic failures are hardly the real problem, so are not worth addressing) publications and documents about the tobacco industry’s responses to proposed regulations in order to create a taxonomy of the types of arguments made.  Their tweet about this actually misrepresented it, since it was not actually a study of “extent”:

(Tobacco Research ‏@BathTR) Extent of tobacco industry’s lobbying tactics unveiled by new paper today – http://www.bath.ac.uk/news/2014/02/06/tobacco-industry-lobbying/

My take on it, I think, better sums it up:

(Carl V Phillips ‏@carlvphillips) MT @BathTR Extent of tobacco control industry’s complete lack of anything useful to do unveiled by new paper today – http://www.bath.ac.uk/news/2014/02/06/tobacco-industry-lobbying/

But that this is a colossal waste of resources really understates what we can learn about the tobacco control industry from this.  The authors comment:

This systematic review has identified common tactics and arguments that the TI [tobacco industry] uses to prevent the implementation of regulation, and has shown that they are repeatedly used across different jurisdictions. Policymakers need to be aware of these in order to understand how the TI may try to manipulate the regulatory environment in their own interests, and public health advocates can use this information to prepare effective counter strategies. The recent failure of the British government to pursue plain packaging legislation highlights the importance of such knowledge.

and

The tobacco companies have a diverse repertoire of tactics and arguments they repeat time and time again to prevent policies which protect the public from its deadly products. Governments around the world need to wise up to when the industry is lying and protect policy development from the vested interests of the tobacco companies.

and

Significantly the paper found that the same tactics and arguments are being used across multiple jurisdictions, showing that the tobacco industry is repeating its activities in high, middle, and low income countries around the world. This suggests that the tobacco industry believes that what works best to influence policy-makers in developed countries will have a similar effect on policy-makers in developing countries. Importantly the paper also identifies a broader range of corporate tactics and arguments than previous studies have suggested.

My god! What kind of “lying” “tactics” are they using to influence policy makers “across multiple jurisdictions”?

It turns out that companies’ arguments fall into four categories:

  1. That a proposed policy will have negative unintended consequences – for example for the economy or public health.
  2. That there is insufficient evidence that a proposed policy will work.
  3. That there are legal barriers to regulation – including that it infringes the legal rights of a company.
  4. That a proposed regulation is unnecessary because the industry does not market to young people and / or adheres to a voluntary code.

Yes, that’s right. The companies are daring to point out how anti-THR measures hurt people’s health and how that cigarette restrictions fuel the black market. They bring up inconvenient truths about how most current tobacco control industry proposals are not based on any evidence. They try to assert their legal rights.

It is difficult to imagine what kind of devious tacticians could figure out how to make such arguments in both high- and low-income countries. And these companies must not really be in competition with each other — they must really be some kind of coordinated monolith — for them all to be employing the same off-the-wall arguments.

But seriously, setting aside item 4, which you may or may not buy, that list of “tactics” is basically a list of the cogent arguments that should be considered before imposing a regulation on consumers (and have no doubt that the proposed regulation of “the TI” has far more impact on consumers than on companies). If the regulators actually cared about people, the industry would not even need to make these arguments because they would be part of the initial analysis. In most cases, these concerns would carry the day if regulations were rational and not driven by lobbying.

But since they are driven by lobbying — the lobbying by the enormously wealthy tobacco control industry — it falls to the tobacco products companies to be the voice of rational public policy.  Yes, this does mean that we depend on corporations to support rationality, consumer interests, and the rule of law by pushing back again those who are paid by tax dollars (the regulators themselves and the TCI lobbyists).

Make no mistake, the industry is not the consumer’s best friend in the world (that would be CASAA, in case you are wondering).  Companies that sell cigarettes, smokeless tobacco, and/or e-cigarettes frequently propose or support regulations that would give them a competitive edge at the expense of consumers — in the form of restricting options or raising prices. But it is clear that industry interests are mostly aligned with consumers’, and both are sharply contrast with the interests of the non-stakeholders who presume that they should own the policy process and resent the intrusion of the actual stakeholders.

But equally remarkable is the extent to which some vapers and e-cigarette companies seem to take the TCI’s side of this policy debate, endorsing consumer-harming, evidence-free, illegal regulations of cigarettes, and lambasting the industry’s push-back against them.  It shows a remarkable lack of understanding of history. I am not talking about a rewind to “First they came for the Socialists…” history (though that is a relevant lesson too).  I am just talking about the 15 years since public health morphed into the tobacco control industry and its imitators in other sectors. Each restriction on consumer choice and reduction of consumer welfare paves the way for the next one. The more outlandish the accepted restriction is, the more outlandish the next proposal can be.

And even if a supporter of tobacco harm reduction is oblivious to history, just look again at that list of the “tactics” that the TCI resents. Anything seem familiar about those?

“We just don’t know” is a bit old, isn’t it?

by Carl V Phillips

A quick post to recognize a brilliant tweet by @TobaccoTacticss.  For those who do not follow that feed (and you should! — consider this a #FF), it was launched as a parody of a website published by the University of Bath (your tax pounds at work, dear UK readers) that consists of libel and ad hominem attacks about people who disagree with the tobacco control industry.  For the uninitiated, that page is referred to as “the wiki” in the feed.  (In a bit of self-parody, the Bath people tried to censor the feed, tricking Twitter into forcing the anonymous author to change the feed’s name a few times, but never slowing him/her down. Apparently they finally acquired the good sense to give up.)  The feed has expanded to being what is perhaps the best running commentary on the sheer idiocy of the tobacco control industry.

But the feed is not just entertaining.  The author provides some stunning insights, subtly presented.  Here is one that made me wonder why the biting simple observation had never occurred to me before:

The link in the tweet is to a 2008 BBC article in which anti-THR activists (the WHO and ASH, specifically) complained that we just do not know enough about e-cigarettes yet to be comfortable with them.  And they were right — back then.  Yes, there were those who were already jumping on the bandwagon, but it is fair to say that the cautious tobacco control people, not the bandwagon, had it right at the time.

But, as noted (presumably to help out the anti-THR people who are notoriously bad with numbers), that was five and half years ago.  Those of us in the reality-based community now know a lot about e-cigarettes and it is basically all reassuring.  The constant repetition of c.2008 ignorance — “we just don’t know” — is no longer caution, it is a lie.

Well, let me temper that:  An anti-THR activist who says “I just don’t know” is probably telling the truth, the same way most of us would be telling the truth if we said “I just don’t know how the CERN Supercollider works.”  Of course, we would have the good sense and honesty not to pretend to offer engineering advice about particle accelerators, given that ignorance.

But here is the key observation:  The tobacco control industry recognized that e-cigarettes were an important phenomenon a very long time ago.  That industry has orders of magnitude more money for research than every independent researcher working on the topic combined.  And yet they have failed to generate any useful knowledge on the topic, or even — according to their own frequent admission — acquire the knowledge that the rest of us have generated.  Their ignorance tells us nothing about e-cigarettes, of course, but it might be the clearest evidence (amongst a crowded field) that the entire tobacco control industry is just wasting society’s resources.

Sorry, but Anna Gilmore is still lying about economics

by Carl V Phillips

Anna Gilmore, an anti-tobacco activist and “researcher” at the University of Bath (they must be so proud!) is primarily known for doing junk epidemiology but has also branched into junk economics.  (The definitive collection about her can be found at Chris Snowdon’s blog, running a search for her name.)  It is not entirely clear whether she is in the subset of lairs who know they are disseminating disinformation or the subset who claim to be experts but simply have no idea what they are doing.  My assessment, based on her previous foray into economics (see my analysis of it) is that while she seems to be intentionally misleading about epidemiology, in economics she probably never read so much as a first-semester textbook before writing her unintentional comedy.

Her new “contribution” is “Understanding tobacco industry pricing strategy
and whether it undermines tobacco tax policy: the example of the UK cigarette market, by Anna B. Gilmore, Behrooz Tavakoly, Gordon Taylor, Howard Reed, about the impact of cigarette tax increases on retail prices.  It was widely laughed at by commentators because the part of her press release that was usually highlighted in the news was that smokers react to price increases by shifting to cheaper products (that is, from premium brands to brands with lower wholesale, and thus after-tax, prices).  The observations were along the lines of “hey, look, Anna Gilmore seems to have learned basic economics!”  But she actually did not.

I do have to give credit to the health reporters on this one.  Not only did they emphasize the one simplistic observation that she got right, but some fixed her false claim “tobacco tax increases are the most effective means of reducing tobacco use” (by “tobacco” she means cigarettes, of course — the standard casual anti-THR lie is thrown in there), making it accurate with “one of the most effective”.  (Basic education about the risks from smoking is, by a huge margin, the most effective way to convince people to not smoke.  Taxes come in third, after promotion of harm reduction.)  Unfortunately, further down in the articles, most of the reporters went on to report her innumerate claims also.

The core of her innumeracy — failure to understand first-semester economics before trying to write about economics — is claiming that the setting new prices after a shock to the market (in this case, a new tax increase) is a matter of complicated volition rather than simple market forces.  She attributes manufacturers’ actions to various nefarious motives, which is perhaps just political lying, but probably is because neither she nor her coauthors understood what they were writing about (and did not stop to think that perhaps University of Bath has an economics department, and that any decent student in it, let alone any professor, could have explained it).

The key is the following observation :  When taxes are increased, the retail price of premium brands increases by more than the tax increase (i.e., there is a wholesale price increase also) while the price of low-end brands increases by less than the tax increase (i.e., there is a wholesale price reduction).  I am going to assume that this simple factual claim was true — not a foregone conclusion due to Gilmore’s history of publishing out-and-out false claims, but since it is exactly what an economist would predict it seems like a safe assumption.

To predict that the manufacturers would lower wholesale prices (i.e., eat some of the tax themselves) on the highly price-competitive cheaper brands is just a matter of applying the most common supply and demand curve analysis (see, e.g., Wikipedia).  When there is an increase in the cost of supply (a tax has exactly the same effect as, say, an increase the price of the tobacco leaf), it is shared between the consumer (higher prices) and supplier (prices not quite so much higher as to fully compensate for the cost increase).  Usually most of the cost is borne by the consumer, but typically not all of it.  Basic stuff.

[For those who want to delve a bit deeper:  The consumer pays most of the cost because the supply curve is much closer to horizontal than in the typical picture like the one in the link.  For those who want to delve even deeper, and to argue that long-run supply curves do not actually slope upward at all, despite the usual picture, it gets a bit more complicated.  We still observe that cost shocks are shared by consumer and supplier.  The easiest explanation is that in a highly price-competitive market, at least one supplier is going to have an upward-sloping short-run demand curve over the relevant range — because they have already invested the capital in their manufacturing and distribution capacity and so are better off lowering prices to somewhat offset the reduction in demand, just like in the standard graph.  If this is true for even one supplier in the competitive market, the others will also have to lower their prices or lose revenues to the cheaper competitor.]

The extra price increase on premium brands is even easier to explain.  The manufacturer of a premium brand has some “market power” because consumers have loyalty and will not switch to a competitor to save a few pennies (and there are relatively few competitors, so they are all doing it).  This lets the supplier charge more without losing so much business that the reduced quantity erases the increase in net revenues per unit.  The ultimate in market power is a monopoly; with no competitors at all, the only constraint on a monopolist’s prices is consumers reducing their consumption, and so they can command a lot of net revenue per unit.

What happens in a market power situation when there is a cost shock like a tax?  The consumer becomes less sensitive to any given increase in net revenue.  It is easy to see:  Imagine a good with a production cost of $1 that the manufacturer charge $1.20 for because that is the price that maximizes total net revenue; raising the price to $1.21 would drive more than 5% of the customers to cheaper competitors, and so the net effect would be a loss.  Now imagine a new tax of $1 on everyone, including the competitors.  A price rise to $2.20 maintains the old margin, but now an increase to $2.21 is a much smaller change in the base price, and so consumers will react less.  Less than 5% will be lost due to such an increase, but the impact on the supplier (making an additional 5% cent per unit) is still exactly the same, so the additional increase is a good idea.  So it is perfectly predictable that a tax increase would lead to an additional wholesale price increase.  (Note that the total net revenue of the supplier might still drop due to the reduced demand that the big price increase causes, but this does not affect how to optimize the situation as it is.)

Snowdon discovered that Gilmore’s close allies have been failing to understand this since at least 2008:

“The hypocrisy of the industry knows no bounds,” said Deborah Arnott, the director of Action on Smoking and Health. “While complaining bitterly about tax increases, these companies have been raising the price of cigarettes to fill their own coffers while hiding behind the screen of tax rises.”

Undoubtedly in the last five years, in response to such silly claims, someone explained the basic economics to them.  Of course manufacturers do not like tax increases — they decrease demand.  Of course they raise their prices (on premium brands) when there is such an increase — it only takes the two paragraphs above to explain why.  So perhaps the current claims are intentional disinformation rather than mere unforgivable ignorance after all.

It is hard to tell exactly what they want people to believe, since it is hard to be precise when arguing nonsense.  But they try to suggest that these simple predictable effects of supply and demand, observed in a market with multiple competitors who want to take business from each other, are some complicated unified plot to manipulate their customers.  Somehow every bit of it, both the competitive price decreases and the premium price increases, is part of a grand scheme to do something other than simply make as much profit as possible given the taxes and what consumers want.

Ah, to have the easy life of working in the tobacco control industry.  Archeology is made much easier if you just take the Jewish Bible as fact and do not have to bother with all of that pesky carbon dating and digging in the ground.  Economics is similarly easy if your bible lets you avoid bothering with all the theory and empirical evidence from economics.

So why did I cover this junk science about cigarettes in the anti-THR lies blog?  The answer is that basic economics offers the strongest arguments in favor of THR.  Therefore any attempt to mislead people about the basic economics, and to claim that the tobacco/nicotine market is somehow mysteriously different from markets for all other goods that consumers want, tends to aid the anti-THR agenda.  The main message of this analysis is that the market was working just like it does for any other consumer good, with price changes reflecting exactly the same profit-maximizing forces that we would expect in normal consumer markets for phones or almonds or coffee.

So long as we get the economics right, the case for THR is even stronger than the usual arguments that are based on health effects alone.  More about that soon when I widely release the paper that I am now circulating.