What Are The Best Methods For Stopping People Smoking?

In class we went through this question in a format of open discussion. We initially got distracted by our favorite economists (I having a thing for Milton Friedman) and then the so called “devil” of economics Alan Greenspan. I have respect for Greenspan and his intellect with economics, but his role in the sub-prime mortgage crisis was clear. Ironically Greenspan wrote his PhD dissertation with comments on soaring house prices and effects on consumer spending as well as anticipating a burst of the housing bubble.

In class we had a discussion based upon this question. Immediately we were separated into two camps, how inelastic or elastic was the demand for cigarettes. I put forward my opinion that the demand for cigarettes is more inelastic then elastic, many because those that smoke tend to continue to smoke and factors such as addiction help maintain the demand. From personal experience I know that people who smoke will buy cigarettes at any price, because they feel they need them.

In regards to the question, we came up with a list of several methods to stop people smoking.

Change in Cost:

  • Raise Excise Tax (duty)
  • Sales Tax (we considered it more effective as it is direct and the consumer notices)
  • Goods and Services Tax (direct)
  • VAT
  • Tax on the production of tobacco, and the production of cigarettes

Change in Branding & Advertising:

  • Blank Packaging (no picture, white box, and small lettering for brand name)
  • Gore Images (pictures on the boxes of people in hospital or tar in lungs)
  • Laws on Advertising (ban on advertising tobacco products on television & radio)
  • Supermarkets & General Stores Must Hide Tobacco Products

Public Restrictions:

  • No Smoking Inside or Workplaces (fines)
  • No Smoking on Public Transport (fines)
  • No Smoking in Public Places e.g. Trafalgar Square (fines)
  • No Smoking Around Minors (Under 18)

 

Our ideas regarding cost brought up an interesting question, at what price will people stop buying cigarettes due to the major increase in opportunity cost? This is a problem with changing the price of cigarettes that due to factors such as addiction people still may consume them at the greater price, which just means the government is making money from the tax and not helping the people.

I would argue that introducing greater public restrictions would dramatically change the elasticity of the demand for cigarettes. This is because even though smokers see cigarettes as a need, they will be restricted where they can smoke, making it harder for them too smoke. The change in branding and advertising may just lead to a downward shift in demand but not too dramatic.

Towards the end of the harkness discussion we all clearly agreed that the prohibition of smoking would be preposterous idea as it would introduce a black market (greater than the current one). I personally do not believe it is the role of the government to stop people smoking; all the government must do is offer people assistance in stopping smoking and make decisions while aware of the health implications of smoking. We cannot simply bury the tobacco companies as they are a considerable part of economy. If people want to make bad decisions then let them, we are all ultimately responsible for ourselves. This is why I am in favor of public restrictions on smoking, such as no smoking inside, because that way others do not have to suffer from others problems.

While on the note of prohibition, I brought up the example of the legalization of marijuana. Currently marijuana being illegal leaves it on the black market, unregulated and easier to purchase by minors than tobacco and alcohol. Strict regulation and smart policies can help us control so called “sin” products such as tobacco, alcohol, and marijuana. I believe that this would be a more effective war on drugs, than the United States attempt.

Command Economy Vs. Free Market (Round 3)

Video

The Crisis of Capitalism, are we really using the right system? Capitalism has been the champion of the free market system, but is there an issue with the foundation of our system.

David Harvey talks about the inherent failures of our system, but is there really a better alternative?

I personally believe that in this video David Harvey is  biased against the capitalist system.  He does make a point of taking a Marxist point of view to address the issue of barrier points that capitalism may face, and this sets the tone for his perspective. From my understanding Harvey is in favour of more regulation, as he spoke about financial ingenuity and innovation he basically slandered the movement from manufacturing & industry to finance. Due to his bias I believe he failed to develop the point that this change had been positive at the time and lead to substantial economic growth. I assume that Harvey’s stance would be towards a command economy, due to the several factors he mentions.

There are five general points developed, Harvey makes a notable reference to Alan Greenspan’s comments on the crisis (many people had blamed him to be a contributing factor to the sub-prime mortgage crisis) as Greenspan notes that it is human nature that lead to the failure (human frailty). This is in reference to qualities such as greed and instinct for mastery, on this point I would have to agree with Greenspan as no matter what system is used we are a big factor in contributing to error (impossible to have a perfect free market, purely theoretical). The second point is the obsession with false theory; at this point I believe that Harvey establishes him to be against free market economics. Harvey considers that peoples false belief in the efficiency of markets is what contributed to crisis, and mentions Hyman Minsky’s theory of the inherent instability of financial activities. To an extent I would agree that absolute belief in the efficiency of markets can only lead to systemic failure, as free markets are prone to speculation and the development of bubbles.  I believe that Minky’s theory is a fair while analysing economic trends, as instability at certain periods of time is almost unavoidable.

I personally believe that an error of free market economics that led up to the financial crisis was the driving up of the credit economy, which was a result of wage repression after the 80’s. The development of the credit economy let people live beyond their means (increase in effective demand). However there was a vast accumulation of debt, and In the U.S. it was concentrated in the housing market this was a contributing factor to the crisis. In Minsky’s theory he mentions that a mechanism that pushes towards crisis is the accumulation of debt by non-government sectors. I believe that too often the 2007-2008 financial crises is blamed on poor policy and institutional failure and not enough on the fact that the people are to blame as well as those in power.

I fully appreciate David Harvey’s perspective, however I believe whether it is a capitalist system (free market) or a socialist one (command economy) failure and crisis is inevitable part of economics, a part of human nature. We attempt to apply theory to reality, and in that is the digression of successful economies.

Command Economy Vs. Free Market (Round 2)

Discuss the advantages and disadvantages of a free-market economy:

Advantages:

  • Price Mechanism:

Through free market concepts such as price signal and opportunity cost, the free market supplies a method of pricing resources without government intervention. An example being if there is great demand for a resource and it is scarce price rises, and vice-versa.

  • Self-Adjustment (equilibrium):

Resources are basically allocated by the supply and demand relationship, if there is a demand for a resource then someone will look to make profit and provide a supply. However the market ultimately decides the price, and self-adjusts so unless there is a sudden change in supply or demand theoretically there will be no shortage or surplus.

  • Human Psychological Aspect:

Each person effectively looks after themselves; there is that necessity of personal gain to feel progress is being made to achieving happiness.

We have been brought up to believe that the way to gain is to obtain employment, therefore earning money, allowing us to express effective demand over wants and needs.

  • Competition:

The free market allows the creation of competition which suits the consumer; people like to have options this therefore creates space for producers to create better products cheaply aiming to achieve a greater hold over the market.

Disadvantages:

  • Speculation & Bubble:

The free market can allows certain resources to be over-valued on false pretences, factors such as insider information or industrial espionage can lead to price surge or crash. A superficial bubble can be produced, as a certain resource should crash but people are continually trying to keep it up.

  • Undervaluation of Needs:

Since there is a concentration on immediate gain and short term perspective through the free market, important services such as education and health tend to be undervalued by consumers. In a utopian free-market these services would be accurately priced, but this does not occur in reality.

  • Monopoly & Duopoly:

If a producer gains to great of a market share they begin to control prices themselves, which leads to the failing of the pricing mechanism and the supply/demand relationship. This is against the interest of the consumer, and misallocates resources. An example of a prominent duopoly situation is Airbus vs. Boeing.

 

Discuss the advantages and disadvantages of a command economy:

Advantages:

  • Planned & Greater Predictability:

In a command economy the government sets production and growth targets, there is an idea of the bigger picture on how the economy will perform in the future. This theoretically increases the economic stability, such as maintaining the value of a currency or given resource (less volatile, fluctuation a rare occurrence)

  • Elimination of Opportunity Cost:

Since the government allocates the resource the consumer does not question the practicality or use of a given resource, this usually takes the form of coupons. The consumer does not lose out the ability to consume another resource when a coupon is used as it only works for a certain resource.

  • Valuation of Services (education, health, etc.):

There is the organisation of a social health and education system, ensuring that everyone can attend school and receive an education as well as ensuring that people are medically taken care of.  This stops people from thinking in the short term, and the government is allowed to independently decide the value of education (i.e. the creation of an education budget).

  • Reduction of Inequality:

The government decides on how the country’s wealth is distributed, in theory this stops anyone from having more money than they “need”.  This allows people with service jobs to still have food, healthcare, and education. This achieves social justice as those with jobs such as janitors are valued workers.

Disadvantages:

  • Misallocation of Certain Resources:

The government will not always know how much to give or produce of a certain resource. For the government to effectively allocate resources in this situation it must have large amounts of information on the populace of the country. This also raises the question does a doctor deserve more or equal to someone of a lesser profession such as a cleaner.

  • Lacking Innovation (no choice or variety):

There is only ever the production of one type of product, as it becomes a national brand as if there could only be Marlboro Cigarettes and Colgate toothpaste. This means there is no competition which leads to a lack of innovation.

  • Shortages & Surplus

When the government misallocates resources, it may decide to change production of the resource. The problem with this aspect may lead to too little of the resource being produced or too much, this is because it is difficult to understand consumer demand.

  • Efficiency
    • The free-market handles itself, whereas the command economy requires people to regulate all aspects and control it. This means that the producers lack profit motive and see no reason to “work harder” but to simply meet the quota.

What is the optimal level of government intervention and what does it depend on?

When looking at the role of the government in economics it is important to separate regulation and intervention. As such government regulation is a necessity, it allows us to have control to ensure that the economy serves everyone best interest.

Regulation can take form in any manner, but is in the interest of the government to provide regulation that does not hinder innovation or competition. However, it is equally important that regulation ensures that monopolies do not occur, as it does not serve the general public interest. Regulation is also important when factors such as the environment are involved, as it is in the general public’s interest to live in a healthy environment. Therefore, regulations on pollution levels are put in place and fees are introduced such as carbon tax to impose the regulation.

The government should rarely truly intervene in the economy, granted for situations such as economic collapse or hyperinflation the government must act. The situation needs to be truly dire for the government to intervene but what is more important is how the government intervenes. Allowing some aspects to fail is of great importance as it shows what must be changed; this is opposite to what governments did during the 2007-2008 financial crises where the British government decided to buy into the failing banks essentially de-privatising them.

The inclusion of government and the role of central banks is a controversial and debatable topic. There is no right or wrong as such, and every country needs a different mixture between government control and regulation and the allowance of a free market.