People are discussing a soda tax. Forget that -- just stop subsidizing the corn that's made into the HFCS that goes into soda.
End obesity and a stupid ag subsidy at that same time.
Next!
Thursday, October 15
Kill Two Birds, Please!
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If they don't use High Fructose Corn Syrup, they'll just use sugar, which is just as bad. Taxing soda will work, because, well, it has lots of calories.
Not that corn subsidies are a good thing.
Taxing soda will not work. Unless by "work" you mean increasing the price slightly, leading people to drink other sugary beverages that are not taxed which are similar, and then having the politicians allocate the funds to projects in the name of improving health, but in reality just line the pockets of whomever is lucky enough to have a decent sounding proposal.
It happens every time - think about last time with the massive lawsuits against cigarette manufacturers. That massive settlement, each state receiving a portion, led to what?
"From the start, the tobacco settlement money was intended to help states pay for health care costs related to smoking illnesses and to fund smoking-cessation programs, though the agreement not bind the states to use it for those purposes.
But to date, only about 3 percent of the tobacco settlement money has gone to cessation efforts, such as "quit smoking" marketing campaigns. Meanwhile, 10 times that amount has been used by state legislatures to plug budget gaps, or by governors to offer tax relief. "
http://redtape.msnbc.com/2008/11/ten-years-later.html
offering "tax relief" in one sector sounds like a legit use of tax revenue from another sector to me. Revenue recycling is a commonly accepted way of reducing distortions.
Even if we get rid of the corn subsidies and manufacturers switch to sugar, the reduced consumption (assuming price is higher with actual sugar) probably won't be "enough" in the efficiency sense of the word.
But I thought the "soda" included other sugary drinks, no?
Damian, I should have been more clear: all drinks that have a high amount of calories (juices, sportsdrinks, sodas, etc.) should be taxed if we are serious about trimming obesity.
If we are serious about curbing obesity, we should most certainly address obesity rather than addressing caloric intake, or even worse, caloric intake from a subset of foods we deem 'bad'. At best, taxing caloric intake is a shotgun approach that may induce some people that ought to consume less consume a little less. But it affects too many people that have no need to reduce calories.
There are many foods that ought not be eaten in large quantities, but most people understand this. Those that do not will be much better served with either food education or better options, although I do not want the government in the business of educating us on what foods to eat. Considering that they used to think margarine was better than butter, that saturated fats were bad, that enriched white bread counts as a serving of breads, that fruit juice provides the body with a serving of fruit just like an apple, etc. And also considering that their school lunch program, originally designed to provide food for poor kids, got corrupted with a second incompatible goal of eliminating surplus agricultural products and then a third incompatible goal of boosting/stabililzing farmers' incomes.
This history repeats itself in almost every piece of legislation that comes out of politicians. Cash for clunkers is a most recent example of a decent idea corrupted by conflicting goals. I could go on and on...
@ Damian
Yay! Keep up the comments.
David, you have to get the magnitudes right. Don't believe the Michael Pollan nonsense. The price of corn is set on the world market, so the subsidy has minimum effect on the price of corn. And the price of corn has minimal effect on the price of soda.
Just because the direction of something is correct, doesn't mean it has any economic significance.
@HoBs -- interesting point, but remember that subsidies to corn lead to "unprofitable growth" and that tariffs against sugar makes HFCS competitive.
actually, that's a good point. distortionary us policies (sugar tariffs) keep sugar prices artificially high. If we fixed that, the price of sugar would go down, as would the cost of soda.
also, further evidence that the price of corn is largely insignificant, the price of corn doubled over the past few years (such that the subsidy is mostly not binding) and I imagine there has been little impact on soda prices. at least not that i've noticed
These taxes are typical feel-good nostrums devised by political quacks. Progressives tax soda pop; reactionaries make pot illegal. Neither policy has any effect on public health, but makes its proponents feel they are "doing something". Too bad the externalities of making these dumb galoots feel happy are so damaging.
are you use legalizing pot is good for public health? pot is much more carcinogenic than cigarettes, and though maybe we tax cigarettes too much, no one says that more cigarette usage would be good for public health.
and yeah, not sure if taxing soda is a good idea. but a big enough tax could do something. i think elasaticity is something like 1, so a 25% tax could decrease consumption by 25%.
If you smoke so much pot (especially today's quality) that you get lung cancer, that's the least of your problems. The more interesting issue is why on earth do we want a government that tell us what to eat? By socializing risk through centrally planned welfare schemes, we are allowing ourselves to become enslaved. Is it really so bad to live in a country that is willing to admit that if we make stupid choices, our lives will suck? That still leaves room for compassion, treatment, and the general values of community.
oBs - What's the price of corn got to do with it? Subsidies kept corn production higher than demand; the invention of HFCS was in part driven by the need to find something to do with the surplus corn.
And if the price has eliminated the need for subsidies, why do we stil have them? Are we in fact no longer paying them?
Bottom line: the corn subsidies no longer make any sense at all, if they ever did, and should be eliminated forthwith. Let's start there, instead of taxing a product whose production we subsidize!
subsides these days are better designed and for the most part don't encourage overproduction. also, they mostly only kick in when prices are low, which they're not, they're extraordinarily high because of high demand growth from china and india and due to droughts in Australia.
soda producers use HFCS mostly because of high sugar tariffs.
also, in general economists don't believe in too much demand or too much supply, because if there were too much of one or the other, prices should adjust until they equilibriate.
agreed there did used to be surpluses becuase of price controls
in the past, but those are mostly gone.
not to say i support corn subsides. no economist does.
I also mostly agree with Michael Pollan broadly. But I just get annoyed when people launch off on these rants against things that are bad in principal, but mostly insignificant in practice.
@HobS -- If corn subsides don't "mean anything" then it should be easy to get rid of them. Tell that to your senator.
OTOH, if they DO mean something (to ADM and Cargill, especially), you can be sure that heads would roll for even hinting at ending them.
I think that your position is so far from the consensus among ag economists that you will need to support it. I suggest heading over to USDA (speaking of captive orgs) and adding up corn revenues from market revenue vs. subsidies. I'd wager (my normal $1) that subsidies are responsible for at least 25% of revenue to farmers, and I am including the impacts of sugar tariffs and ethanol...
that's a bet i'd easily take. if you said profits, i might have to think twice chance, but you said revenues, and i'd guess you're not remotely close.
if you read my comments, I agree that subsides are very bad, but the magnitude of the welfare loss is pretty minimal. the same is true for free trade. economists all agree that trade barriers are bad, but we ran the numbers at CEA for the president who wanted us to find big numbers, of the net welfare benefit of getting rid of them all, and got surprisingly minimal welfare effects.
the reason corn subsides around is because of how congress works. and certain interests have extra power. and the costs to everyone else are minimal. sugar tariffs are only protecting about 1000 jobs, but they manage to stick around.
http://www.ers.usda.gov/Briefing/corn/2009baseline.htm
so eyeballing, corn production in 2009 is about 14 billion bushels at $5 per bushel, that's $70 billion.
http://farm.ewg.org/farm/progdetail.php?fips=00000&progcode=corn
That's about $5 billion on average.
(i didn't find 2008 data but they are likely lower because corn prices are high)
http://www.cbo.gov/ftpdocs/100xx/doc10057/04-08-Ethanol.pdf
in recent years corn ethanol subsides have grown to something like $5 billion though that's pretty recent. in prior years, it was well below $2 billion. also i worked out with a couple ag economists how much of the incidence of the subsidy goes to the corn industry, and likely the majority goes to refiners since they have most of the elasticity.
Anyway, so it's at most 15%, but likely less.
finally, my contention is the impact on price is small. the impact of the ethanol subsides is to increse corn prices as estimated by CBO in the link above by a few percent. the rest of the subsides at about is at most 5/70 or about 8%. so at most the subsides could reduce prices by 8%. the net effect is 5-6% decrease in the price of corn.
spending on corn at $70 billion per year (Actually less since 20% is exported) accounts for maybe 10% of what we spend on food each year (about half a trillion). so we're talking about a 5% decrease on 10% of our food budget. hard to imagine that has major effects on anything.
oh, and you can pay me $1 at my website at http://www.benho.org there should be a link to donate money.
HoBs - "the magnitude of the welfare loss is pretty minimal. the same is true for free trade. ... we ran the numbers at CEA for the president who wanted us to find big numbers, of the net welfare benefit of getting rid of them all, and got surprisingly minimal welfare effects."
What were they? Can you clarify here or provide a source for a paper?
Thanks
@Ben (welcome back :) -- not quite. I said 25% of revenue, but you need to control for the expansion of supply with subsidies.
Go ahead.
why do i have to control for the expansion of supply? you didn't say anything about that. stop trying to weasel your way out
but we can easily do some back of the envelope. corn prices doubled over the past few years, supply increased by not too much (one of the links I posted above had a graph, <10% or so).
so a 10% subsidy should therefore yield maybe a 1% increase in supply.
of course you could argue short term/long term, but hard to imagine a 10% subsidy having much more than a 10% quantity effect in any industry.
as for the calculation on the welfare effects of free trade, unfortunately i got that from a memo that is somewhere in the presidential archives. you could probably go to texas and dig it out of the library. (along with a lot of memos I wrote that may one day haunt me. someone pulled out a memo Paul Krugman wrote for CEA back in the 1980's that was was very very wrong)
http://www.nationalreview.com/nrof_luskin/kts200406170833.asp
unfortunately, i don't remember the papers they reference or the exact numbers. i'm sure the papers they reference are online somewhere, but i couldn't find any useful references searching scholar.google just now. you might have better luck.
i just remember they weren't big enough for us to advertise, back then when we were fighting for doha and various free trade agreements.
HoBs says: "also, in general economists don't believe in too much demand or too much supply, because if there were too much of one or the other, prices should adjust until they equilibriate."
In a discussion about subsidies.
Without any apparent trace of irony.
@Tim
oh, even with subsides. a subsidy is just a negative tax (more or less) and works the same way. there are large taxes on everything we buy, but supply still meets demand (absent price controls or the like).
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