29 August 2012

New York AG vs. "energy drinks"

I do not have too much to say about this or too much time, but since I have been following this issue here, I thought I would make a brief mention of this story about the New York Attorney General investigating energy drinks.

A few random observations:
The state investigators are also examining whether some additives, like black tea extract and guarana, may contain additional caffeine that is not reflected when the drinks are labeled. 
It is really hard to complain about that.  I know that there are some people who think that even informational labeling mandates are anti-liberty.  But as an economist, I have to say that providing accurate information, and trying to provide as much decision-relevant information as possible, even if that involves mandates, is necessary for real informed autonomy (i.e., liberty).

However, once again (as I have pointed out numerous times), what makes these drinks unique in the human experience is the other active ingredients, other than the caffeine (which is often quite modest in quantity).  But, hey, investigating the full picture would be hard, and the newspapers would not give the politicians free press for doing it because the health reporters would have to try to understand something, so never mind.

This, however, is rather unfortunate:
The attorney general...is also looking at whether the companies...violated federal law in promoting the drinks as dietary supplements rather than as foods, which are regulated more strictly.
It is pretty difficult to think of these concoctions as food.  The only reason to define them that way would be to be able to ban them as "adulterated".  (That silly word, in itself, makes the case:  How does it make any sense at all to refer to an engineered, completely artificial product as "adulterated"?  It is what it is.)
[Amelia M. Arria, an epidemiologist who serves as director of the Center on Young Adult Health and Development at the University of Maryland School of Public Health] added. “The term ‘energy drink’ is misleading. Energy should come from calories — this is more about stimulation.”
I like that point.  That is the kind of simple truth in labeling that could nudge people into making better decisions without needless restrictions or manipulative games.  A refreshingly rational and non-doctrinaire point, given the title of the speaker.  Oh, but wait...
“A person who co-ingests an energy drink and alcohol doesn’t understand how drunk they are,” Ms. Arria said. “Caffeine keeps you awake so you can keep drinking, and high levels of caffeine can mask intoxication.”
Huh?  One of the effects of being drunk, for some people, is drowsiness and the like.  Caffeine and other drugs can eliminate (not "mask") that particular effect, but certainly not the other effects.  Perhaps she is arguing that getting groggy and falling asleep is a feature of drunkenness, rather than a bug.  But, funny, you never hear "public health" people arguing that this is a good self-correction built into drinking, even though they are happy to implicitly evoke it when condemning some other product.

Finally, there is this:
The amount of caffeine differs widely among drinks but can range from about 80 milligrams to more than 500 milligrams. By comparison, a 12-ounce cola contains about 50 milligrams of caffeine, while a 5-ounce coffee has about 100 milligrams.
The 80 mg is more typical, so that range is rather misleading.  But more important, why did they not just compare, say, 20 ml of coffee, if they were going to report an absurdly small quantity.  Who pours only  5 oz. of coffee?

24 August 2012

Lance Armstrong - some thoughts on science and fairness

This week's apparent final surrender of Lance Armstrong to those who want to charge him with doping and strip him of his most important cycling awards is interesting to me at so many levels.  I so much enjoyed cheering for him during his glory days (at a time when I was cycling myself).  I am not really one to idolize a performance entertainer, as you might guess, but I enjoy and value the entertainment as much as the next guy.  So this is disappointing to me (though since I, like most people, do not really care what the official records say, it is not like I feel like those great Tours have vanished from memory).

On the other hand, Armstrong's LIVESTRONG cancer charity used to be a particularly high-profile source of disinformation designed to discourage tobacco harm reduction, with its erroneous claims about the risks from smokeless tobacco.  These lies were a pale shadow of the American Cancer Society, who was one of the leaders in producing anti-THR junk science and disinformation, but they were bad enough.  With that in mind, I always saw a bit of a bright spot as the news kept trickling out over the years about Armstrong's increasingly losing battle with his accusers.

But notice the use of past tense in the previous paragraph.  I just checked the livestrong.org website, and most of the anti-THR disinformation has quietly disappeared since THR.o last looked at it (a few years ago).  I found only one paragraph in one document that really parroted the standard anti-THR party line from the anti-tobacco extremists, and a few random mild anti-smokeless-tobacco bits.  So sometime in the last few years, someone at Livestrong must have learned something about THR and stopped repeating the lies from ACS and their ilk.  So much for the schadenfreude.  Livestrong did not go so far as to endorse tobacco harm reduction, though, which leaves them on the wrong side of the most promising way to reduce cancer in the US today

So what about the science of this?  One of the most absurd things about the whole matter is that the best evidence in support of stripping Armstrong of his Tour de France (etc.) victories is that he won the Tour de France.  How is that for Catch-22? 

To win that and other major bike races requires that someone be near the top, among the entirely population of people who have ever tried to ride fast, in each of:  useful genetic freakishness, practice, choice of the right strategy (short and long term), getting in with the right people, luck, etc.  This is true for coming out on top of any highly competitive activity, be it a sport, politics, entrepreneurship, or whatever.  It is not good enough to be near or at the top in one or two factors because there are too many other people who also do quite well at those one or two, and if they are way ahead of you in the others, then they will come out ahead.  (Those familiar with statistics or economics will recognize this is the same phenomenon that creates regression toward the mean, when luck of the moment is one of the factors.)

The catch is that one of the elements of the "etc." -- a big one in cycling during Armstrong's glory days, according to the evidence -- is using banned performance enhancing drugs.  This means that the most likely way to win was to be a freak of nature and train hard with a good team, and also to dope.  (Or at least this is the way it was a decade or so ago.  There are claims that drug detection has temporarily moved ahead of drug hiding in the arms race between them -- though if it were the other way around, would we know?)

So, the logic goes, since there were other people out there who had great genetics, training, teams, etc. and who were, in addition, using great drugs, then even they were a bit inferior to Mighty Lance in most ways, if he did not use drugs also, he still would not have been able to dominate them.  This is perfectly valid scientific reasoning.  The scientifically sensible prediction from this information is that he doped. 

But such logic is not generally acceptable for making rules-based decisions.  Armstrong's statement this week complained, quite reasonably, about the lack of due process, in particular the fact that he (supposedly) passed all of his drug tests -- the accepted definitive measure.  Therefore he should be off the hook.  Indeed, in some sense, passing the drug tests (however one manages to do that) can be considered part of the game.  It is kind of like a hand-ball that is not seen by the official or an umpire calling a dubious out at the plate.  The results are based on whatever was called, which becomes the only truth that matters for the game.  There are no appeals.

The really disturbing part of the due process, though, (even worse than the double/triple/quadruple jeopardy, or the question of how a US organization can strip someone of his French victories) is the power of a few unsubstantiated claims by people with serious conflicts of interest.  As Armstrong observed:
any begrudged ex-teammate can open a USADA case out of spite or for personal gain or a cheating cyclist can cut a sweetheart deal for themselves
A great point.  Unfortunately, this observation will likely not generate concern about the countless people who are convicted of street crimes in the U.S. based on similar "evidence"?  For most of them, the testimony that the cops extract from some convenient "witness" does not leave them as a millionaire living a life of leisure, of course, but utterly ruins their lives.

In sum, I will not be wasting any sympathy on Lance Armstrong, and I really don't feel like this diminishes the great Tour memories...  winning a time trial looking like a salt lick for lack of a water bottle, surviving 30 meters down through the grass after coming off the road on a switchback, and most of all, blowing past Ullrich and Kloden in 2004, after they refused Armstrong's attempt to give a deserved stage win to his teammate and, ironically, his eventual primary accuser.

23 August 2012

@FDATobacco et al. are an embarassment to the US government

There is a lot to complain about regarding the FDA's tobacco regulation unit.  The really important bits involve complicated legal and scientific questions, and in a few places even some room for legitimate debate (though you might not be able to dig through the muck to find it).  Someone might even say that in many cases they are doing what they have been assigned to do, and could even be doing about as well as can be expected, given the conflicting legal constraints and the plethora of bad advice they are getting.  The same cannot be said for their communications to the general public, which are both inappropriate (not in keeping with the legitimate mission of the FDA) and so embarrassing and amateurish that it makes the entire operation look worse than it really is.

I have previously pointed out: (a) FDA has no business trying to do consumer manipulation "education" since, even to the extent that someone might argue that such Big Brother-ism is a legitimate mission of CDC, it is clearly not a legitimate mission for FDA.  (b) This is especially true given how bad at it they are; their material reads like it is coming from some third-rate  county health department or non-scientific activist group -- indeed, that it pretty clearly where they are copying some of it from.  (c) The @FDATobacco twitter feed is especially pathetic, with a large portion of its traffic consisting of thanking people by name for following and retweeting, and much of the rest being material that could have come from the aforementioned third-rate departments or non-scientific charities, rather than a scientific arm of our national government.  It is truly a national embarrassment.

I was reminded of this when @FDATobacco "favorited" a tweet from Jeff Stier (s/o to Jeff for alerting me to this), in which he ridiculed them for offering advice on how to talk to your teen that recommended being honest and open -- two things that FDA Tobacco is very much not known for.  Apparently they did not recognize that it was sarcasm, which is about par for their general savvy. 

But what really prompted me to even bother to comment was running into this silly little quiz, put out by the FDA tobacco unit, so that the kiddies (who the FDA has neither the mandate nor the skill to communicate with) can test their knowledge about tobacco.  To give you a picture of its content:
True or False:  Tobacco use is the leading cause of preventable death in the United States.
The details of this are probably a little complicated for the kids, but this statement is, and has always been and is well documented as being, nonsense.  I am not just talking about the built-in implicit lying about low-risk products by referring to "smoking" as "tobacco", though that is probably the most harmful aspect of it.  The problem is that if it is "preventable", why are we not preventing it?  Because we actually do not know how to do so,  of course.  Then why is it "preventable"?  Because they are quite sure it can be prevented just as soon as they figure out how to do it.  But by that definition, cancer or apoptosis is a preventable cause of death too.

Of course, this nonsense statement is a convoluted way of trying to avoid making the true statement, "of all the things that people choose to do, smoking is the one that kills the most".  But then they would have to admit that people are choosing to do it, and admitting that would be very hard on their self-identity and job security.
True or False: In order to purchase tobacco products in the United States, an individual must be at least 16 years of age.
When I answered True, it told me I was wrong and that individuals must be at least 18 years of age.  Which, of course, means that they also must be at least 16 years of age, so the correct answer is indeed True.  False would mean that you could buy at younger than 16.  Numeracy is not the strong point of these people.
True or False: Youth are sensitive to nicotine and can feel dependent sooner than adults.
The first bit of that conjunction is rather odd to even ask (does anyone really think that young people are immune to nicotine?) so the truth value hinges on the latter part.  They assert "the younger they are when they begin using tobacco, the more likely they are to become addicted to nicotine and the more heavily addicted they will become."  Since there is no scientific definition of "addicted", let alone "more heavily addicted" this is a little hard to judge.  It turns out there is remarkably little solid evidence on this topic (once you replace the dramatic words with something scientific), given the huge confounding problem.
True or False: Smokeless tobacco is addictive and can lead to dependence.
Of course they say True, which is not an absurd claim if you are not bothered by the pesky little problem of their being no accepted meaningful definition for "addictive".  But their answer is still clearly wrong, reading:  "True. Smokeless tobacco contains 28 cancer-causing agents. Adolescents who use smokeless tobacco are more likely to become cigarette smokers." 

Wow, wasn't that sneaky of them?  They ask a question that while somewhat fuzzy and misleading (trying to demonize smokeless tobacco without actually declaring it to be harmful), but that is not completely outlandish.  And then they provide an answer that is all lie.  28?  A better estimate would be 1000, which is also a good estimate for any plant or animal matter we eat (though I suppose in the spirit of "at least 16", above, I gotta give that one to them).  Of course, when you say something "contains cancer-causing agents" you are communicating that it causes cancer to some measurable degree, which is a lie according to the evidence about the smokeless products that the target audience is likely to be using.  As for "more likely to become smokers", this is either false (if you interpret it to mean "more likely than they would have been had they never used smokeless", which is how most readers will interpret it) or a lie via literal truth (if you interpret it to mean "almost everyone who chooses to use smokeless tobacco is someone who is also more inclined than average to smoke, and thus more likely than average to become a smoker").
True or False: Tobacco smoke contains about 70 chemicals that can cause cancer.
If they had said "at least 70", then in the spirit of "at least 16" they would have been literally correct.  Of course, since so many chemicals can cause cancer in the right dosage and location, and you can never conclude that a particular chemical never causes cancer, this is pretty unscientific phrasing from people that are supposed to be a scientific organization.  But that is not the worst of it.  The answer (True, of course) goes on to say "Therefore, it's no surprise, then, that smoking causes about one in three of all cancer deaths in the United States."  Huh???  Even setting aside the accuracy of the statistic, how they hell do they translate "contains 70" to "causes 1/3"?  It is bad enough that they are so scientifically illiterate that they think that makes sense.  But should they really trying to keep American youth ranked so low in math and science literacy?
True or False: Youth who are exposed to images of smoking in movies are more likely to smoke.
[Insert your own joke about not understanding the difference between inevitable social correlations and causation here -- I have run out of energy.]

Anyone feeling good about the fact that we are being looked over by the beneficent and honest scientific experts at FDA?

20 August 2012

Lying without being technically wrong - an example from the headlines

Quoted material is from Ezra Klein:
On Sunday, Paul Krugman noticed Niall Ferguson writing something apparently false about the Affordable Care Act. Today, Ferguson responded to Krugman’s critique by saying, in effect, that he wasn’t wrong so much as he was very carefully trying to mislead his readers.
Ferguson wrote, in a cover story in Newsweek:
The president pledged that health-care reform would not add a cent to the deficit. But the CBO and the Joint Committee on Taxation now estimate that the insurance-coverage provisions of the ACA will have a net cost of close to $1.2 trillion over the 2012–22 period.
Klein observes:
The intended meaning is pretty clear. Ferguson is saying Obama “pledged” that the Affordable Care Act would reduce the deficit, “but” the Congressional Budget Office and Joint Tax Committee now say otherwise.  The problem, as Krugman pointed out, is that the CBO and the JCT do not now say otherwise. Ferguson is simply wrong.
Klein then goes on to suggest that the CBO reporting was rather confusing, so being wrong is possibly understandable.  This seems way too charitable toward someone who presumes to write paid commentaries in national forums.  But that turns out to be moot.
But Ferguson says he wasn’t confused. Rather, he phrased his original comments very carefully in order to deceive his readers. You see, Ferguson specified that he was only talking about the “insurance-coverage provisions,” and so, if you happen to be an employee of the Congressional Budget Office and you’re aware of the difference between these reports, you would’ve understood that when Ferguson wrote [the above quoted two sentences] that the first sentence and the second sentence had nothing to do with each other. Of course, most people are not employees of the CBO, and so they just got tricked. In the pages of Newsweek. Bummer for them.
 That is a nice summary of what happened.   Sadly, Klein then goes on to say:
But while the fact that Ferguson is trying to trick his readers about the facts of his case might be a reason to be skeptical of the rest of his piece, it’s not the main reason. After all, Ferguson’s careful misdirection is arguably evidence of a quick and agile mind. He might be cheating to strengthen his argument. But that doesn’t mean his argument is wrong.  Rather, the main reason to mistrust Ferguson is that, for years now, his argument has been wrong.
No no no no no.  No!  Bad, Ezra Klein, bad!  Most of the time when someone is trying to understand a technical analysis, they do not expertise like Klein or Krugman has here.  They will not necessarily be able to identify various other things that Ferguson gets wrong, and how the entire basis for his argument is faulty.  The same would be true if Klein or Krugman were trying to interpret a debate about, say, tobacco harm reduction.  The reaction should be "here is clear evidence this guy was trying to lie to me; in theory it is possible that everything else in the piece -- all those bits that I just have to trust the author about -- is true, but a safer bet is that the whole argument is not anchored in truth." 

If someone is cheating that badly to "strengthen his argument", then chances are his argument is wrong.  People who have good arguments to make do not tend to lie like that.  (Note this is different from saying that someone's conclusion is wrong because he is lying or otherwise making bad arguments.  Clueless and/or dishonest people quite often write garbage in support of a conclusion that happens to be correct; but their arguments are not improved by the fact that they accidentally happen to believe the truth.)

Ferguson gleefully outed himself as a liar.  If he had really been confused, that would be a different sort of offense.  But trying to cause people to believe something that is not true is lying, whether it is done with a single false sentence or two true sentences that are juxtaposed in a way that is designed to create a false belief.  As Klein implies, careful misleading statements like this are evidence of intentional craftsmanship, and so there can be no excuse that it was an accident.  Indeed, Klein observes:

I actually can’t recall running into a piece in which the argument is so carefully written as to mislead the reader without, in most cases, being entirely untrue.
So he recognizes that when someone is carefully trying to mislead, their argument is almost certainly untrue.  But he still takes an attitude of "don't leap to that conclusion; instead, look at all the other stuff that Ferguson got wrong, and furthermore, what is wrong with this entire political dogma".  But as nice as it would be for everyone to understand enough about economic policy to see through the worst of the WSJ/Ryan faction's absurd claims, it is not going to happen.  And while this was a major matter for Krugman and Klein, which they were certainly going to carefully review, most people -- even most of their readers -- need a more efficient strategy for figuring out when to stop believing someone.

I will conclude by taking exception to his "evidence of a quick and agile mind" observation.  I have observed a lot of really poor thinkers craft technically correct lies like this one.  Ferguson's particular tactic for lying without writing a false sentence, along with many others, is really quite simple and is frequently employed by lesser minds.  It is really quite easy.  Consider:  "Krugman accused Ferguson of making a false claim and Klein suggested it was an easy mistake to make.  But Ferguson's representation of the CBO report was correct."  That is structurally quite similar to Ferguson's lie, and I just made it up off the top of my head.  And since it is late at night and I am drinking beer, you can be sure that my mind is neither quick nor agile at the moment.

19 August 2012

A bit more on the economics of cigarette (dis)branding

In my last post, I offered some analysis about how the efforts to reduce the brand equity of premium cigarette brands (via plain packaging) will tend to eliminate the existing incentives for social responsibility among manufacturers.  I have two additional observations:

First, I probably should have offered a motivating example, so here is the most obvious one:  Apple recently got a lot of front-page bad press about the working conditions in some of their subcontractors' manufacturing facilities.  This mattered because it was Apple.  The largest of the subcontractors is a gigantic Chinese electronics assembly company that does similar work for a lot of Apple's competitors.  Do you remember which ones?  Me neither.  But Apple got grief because part of what they sell when they collect a premium price for their products is a feeling of membership in their club, and people care about the social responsibility of the club they are a part of to an extent that does not extend products without premium brands.

Consider:  When the Asus/Google tablet is off of backorder and I am finally able to get one -- a reward for resisting the iPad all this time even though I have pretty much all the rest of the Apple Club membership items -- that device will quite likely have been manufactured under worse conditions than my Apple products were.  But I will not think much about that, and the story will likely not be featured on the front page of the New York Times.  I will just be buying an item, not a sense of identity that leads me to care about the brand and how those associated with the brand behave (no more than I care based on general concern about humanity, that is).

Second, a related point that I chose not to cover at the same time to avoid confusion.  From Snowdon:
The premium brands are about to lose much of their appeal and so people are going to turn to cheaper cigarettes. Pushing people onto cheaper cigarettes is not generally considered to be best practice in public health. But fear not, because [anti-tobacco industry leader and all-around muddled thinker, Simon] Chapman has the solution...
But the Australian government can simply raise tobacco tax overnight as often as it needs to effectively maintain a floor price for cigarettes that will deter smokers from buying more than they could have afforded previously.
The man's a genius! Make cigarettes more expensive and fewer people will buy them. Why has no one thought of this before?! 
He is right (Snowdon, not Chapman, obviously) about the general effect of making cigarettes cheaper, and the point that he goes on to make that Chapman's "solution" will just drive more people to the black market.  A bit more economic science about these points can help clarify what would happen and why:

The existing segmentation of the market creates a bunch of sub-markets that are for slightly different products (they are all cigarettes, but of different perceived quality) but whose prices still affect each other.  For example, if the price of the really cheap cigarettes were to plunge, it would exert downward price pressure on the premium brands also because people would still be willing to pay more for them, but not that much more.  (You may be thinking, "aha, that is why the makers of the premium brands work so hard to fight the black market."  Exactly so.)  Similarly, if you drive down the price of the premium market because it does not seem so premium anymore, it will tend to push down the prices of all the other sub-markets because if the better brands get cheaper, they will take sales away from the cheaper brands unless they get cheaper too.

The result is that everything gets cheaper.  This was the conclusion of an independent consultant report produced for BAT about the Australia situation.  They mostly phrased it in terms of "if there is less competition based on image then there will be more competition based on price."  This is basically saying the same thing, but I find it useful to consider the slightly deeper economic analysis of what is going on.

The responses to that report from the ANTZ were (a) "those evil cigarette companies are threatening to start dumping cheap product in our market if we do this!" and (b) what Snowdon quoted above.  Point (a) reflects basic illiteracy (no one was saying anything of the kind, as anyone who could read could see), as well as economic innumeracy:  Anyone who understands basic economics knows that producers cannot just pick the price they want to sell something for.  They want to charge as much as possible.  More precisely, they want to profit as much as possible, selling at a high price that has lots of profit, but not so high that they lose profit by driving customers away.  A monopolist would shoot for the sweet spot that such that any additional profit from raising the price would be lost because of losing too many customers.  But market competition pushes the price down from what the monopolist would charge (which is why competition is good for consumers).  The analyses of what will happen (either my brief analysis here which I am giving away free, or the one from the consultants that probably cost six figures) identify how the ability to charge more will be eroded and the competition will drive the price down.

The raising taxes idea is equally innumerate:  Taxes on cigarettes in most places are already about as high as they can be without tipping a large portion of consumers who buy at the cheap end of the legal market into the black market instead.  In some places (e.g., Canada, New York City) the taxes are even higher than that level, and so the black market is really thriving.  In most places there is little room to raise taxes any more.  This is presumably what Snowdon was pointing out with his response to Chapman.

But it gets worse (for the likes of Chapman):  Recall that I said that due to competition, companies cannot just set the price at the level where they would make the most profit.  They are not allowed to collude to avoid the effects of that competition.  But the government can do what companies are prevented from doing by antitrust laws:  They can raise the price to the monopoly price and keep the premium for themselves -- and that is basically what they do.  To a large extent, this is because branded cigarettes offer a lot of room for monopoly profits before consumers will exist the market in favor of perceived-inferior substitutes (the black market, but also roll-your-own, grow-your-own, and anything else that avoids some or all of the taxes in a particular jurisdiction).

In most jurisdictions that have sufficient government to enforce tax collection, government makes a lot more from the sale of cigarettes than do the manufacturers or the retailers.  Indeed, in places like Australia and Britain, the taxes are intentionally pushed to about the maximum the market will bear -- before too many people exit to substitute sources of smokes -- to maximize revenue and to a lesser extent to discourage smoking.  Raise the taxes any more, and revenue would drop, but also many smokers would switch to an alternative that is a lot cheaper, thereby losing the anti-smoking effects of the higher prices.

The segment of the legal market that competes most closely with black market is at the lowest end, where brands are not worth much.  That is where the marginal customers are right on the cusp of switching to the black market, and where most of the switching would occur if taxes were increased.  The premium brands are much less vulnerable to this competition because they offer something more than the commodity.

So with that in mind, the story is:  Those who are motivated by their hatred of cigarette companies want to drive the price of the premium brands down and ideally make the whole legal market look like the current market for the cheapest brands.  It is that cheap end of the market that is the constraint on current tax rates, to keep from driving those consumers to the black market.  Since under the de-branding plan the entire market will look like that end of the market, there will be even more switching to the black market at any given tax rate.  Anywhere the taxes are already at the estimated sweet spot (driving many, but not too many, consumers to the black market) where raising them any more would tip too many people into the black market, the optimal response to the situation is to decrease taxes.  If the taxes are already on the verge of tipping too many people into the black market (etc.), thereby losing revenue and the anti-smoking incentive effect, then eliminating brand premiums will make the current taxes higher than the optimum, requiring a decrease to get back to the optimum.

And so the plan is to raise the taxes for the legal market even more.

Really?  Did I miss something there?

I am pretty sure not.  But someone sure did.  I assign the blame in equal parts to poor basic education about economics and the even poorer education in graduate-level public health, sociology, and related fields, where science is treated as decoration to dress up ideological conclusions.

[Update: More on this here.]

18 August 2012

Cigarette plain packaging - understanding some of the basic economics of branding

For those who are not aware, the latest "make it look like the billions we are spending are actually accomplishing anything" effort by the anti-tobacco industry, particularly in Australia and Britain, is to remove the branding from cigarettes (and presumably eventually from low-risk alternatives also -- except those made by their patrons in pharma, of course).  The claim by the industry's puppet masters to their legions of useful idiots is that this will reduce the appeal and thus the uptake of smoking, and indeed that this has been proven.  The anti-tobacco useful idiots can be counted on to not exercise enough scientific insight to think "how can it have been proven if it has never even been tried?", let alone show enough understanding of their pet cause to think, "um, no one smokes because of what appears on the packages".

The leaders of the industry -- at least the ones who are not bright enough to lie consistently -- have basically admitted that this is not motivated by any real hope of reducing smoking.  Rather, the goal is merely to make it more difficult for manufacturers to charge a premium price for some brands, or put another way, to confiscate the value of the major cigarette companies' high valued brands.  E.g., see what Snowdon and Puddlecote have written about this.

Almost every honest commentary about the topic notes that rigidly-defined simple plain packages make counterfeiting considerably easier.  Commentators often further observe that black marketeers, unlike legal branded manufacturers, do not care about such niceties as not selling to children or product purity.  Actually, to say that more precisely, it does not actually matter what the relative degree of caring is (e.g., many ANTZ apparently think that people who work for tobacco companies are morally worse than people who work for organized crime).  Rather, it is that they have no incentive to worry about those niceties.  And it is there that the economics gets a little more subtle and a little more interesting.

A recent article by an expert on branding fleshed out this thought with this observation:
why spend on corporate social responsibility (CSR)? Brands empower and enable consumers to select those companies they approve of. The environmental policy of a company or how they treat their employees influences my decision to buy a given branded product. Without the brand, however, that power is removed and, by default, the business's interest in CSR. The business's fear factor and liability is reduced substantially.
Take that concept and circle back to the discussion of the black market.  It is actually an application of the same principle.  Manufacturers of non-monopoly, branded consumer goods have the incentive to behave well, sponsor good causes, not break marketing laws, etc. because they get more business by appearing to be good citizens.  Of course, many of these friendly "good" "citizens" still support all kinds of policies that are bad for 99% of the population, so do not mistake this for praise of big corporations at their core.  Rather, it is praise for one way of making them behave a bit less like the purely selfish rapacious entities that they otherwise would be.

Manufacturers who do not sell to the public do not face these constraints because few business-to-business transactions hinge on warm feelings about anything beyond the product being purchased.  Monopoly seller do not have to worry about being responsible either (how often does someone avoid buying a pharmaceutical due to seemingly constant deluge of news about pharma's bad behavior?).  But those who sell to the public and have competitors need to care, at least as long as they have an identifiable brand.

As further elucidated in the linked article, creating a brand with equity is not an easy thing.  It requires a lot of advertising, among other things.  Since tobacco produce manufacturers cannot effectively advertise anymore, there is almost no chance of creating a new high-equity brand.  (And, no, as any non-idiot will know, just putting graphics on a package does almost nothing to promote brand equity.)  For comparison, consider the efforts of e-cigarette makers to create brand equity -- sometimes including efforts to position themselves as more socially responsible -- and how they have largely failed.  If the existing high-value brands lose their value, there will be no more high-value brands.

There will be no more sponsorship of events or high-profile donations that provide some social value while supporting these brands at the expense of their low-end competitors.  Oh, wait, that value has already been taken away.  What will be newly lost is much of the incentive to support corporate responsibility initiatives and units, harm reduction research, and the like.  Indeed, the profits that support those come from the high-value brands.  Some cigarette makers spend a lot on these things, and some spend basically nothing at all.  Guess which ones benefit when the brand reputation value goes to zero? 

It is the black market that benefits the most, though, since they have none of the expenses of maintaining a respectable brand.  This includes the costs of obeying the laws, but also the costs of not being seen as hateful -- even if they do something despicable, it will not follow them because there is no brand.

Of course, the anti-tobacco industry would probably respond to that paragraph by claiming that all manufacturers are equally despicable and that no cigarette brand can be respectable.  But this is because they only ever talk to other members of their fringe clique, and are bizarrely unaware that most of the population -- including those who matter, the consumers of cigarettes -- do not share their view.

Their narrow vision also does not extend (except when begging for more money to fight the "global epidemic") to the vast majority of smokers who are not in rich countries like Australia.  Thus, there seems little chance that they have ever asked the question, "once we provide a training ground for manufacturers of low-quality-control unbranded or counterfeit products who avoid taxes and other constraints, whose lack of branding saves them from having to worry about their brand reputation, just what do you think they are going to do with their new found skill and infrastructure?"  If the anti-tobacco industry succeeds in their present efforts, there seems little doubt that they are building the low-value, low-quality, cheap, and criminal brands that will come to dominate the cigarette market for many poor populations.

[Update:  Some more on this in my next post.]

13 August 2012

Its still better than anti-THR methodology...

William Easterly at the NYU development research institute blog:
Rigorous ex-post evaluation finds no evidence that Olympics produces Olympic medals
Using data conveniently available from the Peruvian, Ecuadorean, Bolivian, and Chilean Olympic trials, the study compared athletes who just made the Olympic team with those who just fell short....
Read the whole thing to appreciate since it is a very quick read -- so much short that to quote extensively from it would not be fair use.

I just hope the the anti-public-health activists who claim there is no evidence that tobacco harm reduction works do not learn this methodology.  Of course, it might still be an improvement if they looked at evidence at all.

09 August 2012

Another anti-global-warming fiasco

I thought that having worked on and around the issue of industrial wind turbines, that I could not be shocked by how dumb and counterproductive people can be in their attempts to reduce greenhouse gas emissions.  I was wrong.  (I suppose I did not need that last sentence -- have you ever seen a blog post that just said "I was right" and ended?)

Today the NYT reported a story which I wondered why I had not heard before:  Manufacturers of a particular type of refrigeration compressor gas (the stuff in the heat-transfer pipes in refrigerators and air conditioners), mostly in China and India, figured out that they could make a fortune collecting "carbon credits" for reducing greenhouse gas emissions.  They destroy a byproduct of their manufacturing process -- which is quite cheap and easy to do -- rather than venting it into the air (which would be illegal in most places, but not in China and India), and collect 11,700 carbon credits for each ton of the gas they destroy (because it is calculated to cause 11,700 times as much global climate impact as one ton of carbon dioxide).

They can then sell those credits to builders of new carbon-emitting facilities in countries where attempts to adhere to the Kyoto treaty, or other motives, results in national governments requiring emitter be carbon neutral or at least partially offset any production.  This goes particularly to offset new power plants in Europe and other attempts to comply with Kyoto, though it is also what you are subsidizing if you check the box when buying an airline ticket that reads, "Would you like to pay an extra $20 because you are the type of person who likes to pat himself on the back for throwing money at meaningless gestures, and you want to pretend that you are not, by flying on this trip, creating more greenhouse gas emission than you could ever offset by driving a hybrid car or putting solar panels on your house?"  (At least that is what the text by the checkbox ought to say.)

This is all thanks to the United Nations system of tradable credits for emissions, created with the goal of using market forces to bring about a more efficient reduction in greenhouse gas reductions.  Tradable offsets are, indeed, a good idea in principle.  If it is cheaper to reduce total emissions by, say, paying Indians to take some cheap and very efficient action rather than covering half the countryside with expensive barely functional alternative generators, then we should do that, obviously.  But the trouble with creating an artificial market for a fake good that people do not actually value, but are forced to buy, is that you have to be very careful about your rules because there is a lot of incentive to take advantage of the system.

For example, the "market" for tax stamps on cigarettes -- a "product" that no consumer wants and is just forced to pay for -- results in an enormous enforcement mechanism and still there is a black market.  Because consumers do not care if the tax stamp they are buying is fake, market discipline does not really exist.  Or consider the market for liability insurance for drivers:  There are many poor and/or socially irresponsible people who would not buy such insurance if they did not have to, so their end of the market prefers products that are as cheap as possible, even if they are worthless.  Thus, the insurance regulators have to work hard to make sure that all products meet certain minimum standards, resulting in complicated multidimensional rules, and other rules are needed to make sure drivers buy anything at all.

The people who created the carbon trading scheme did not show this level of care in creating their rules.

Rather, they created a rule that actively rewards manufacturers for producing a lot of a product that creates the waste gas, which they then sell for a pittance just so they can collect the carbon credits.  The particular refrigerant gas they produce happens to contribute to climate change and stratospheric ozone depletion itself (and it is inevitably vented into the atmosphere via leaks or when the refrigerator ends up in a Chinese landfill), and there is an attempt to phase it out in favor less damaging alternatives.  But these manufacturers are having none of that.  After all,
Each plant has probably earned, on average, $20 million to $40 million a year from simply destroying waste gas
The production of coolants was so driven by the lure of carbon credits for waste gas that in the first few years more than half of the plants operated only until they had produced the maximum amount of gas eligible for the carbon credit subsidy, then shut down until the next year, United Nations reports said. The plants also used inefficient manufacturing processes to generate as much waste gas as possible
In addition, the manufacturers are threatening to start venting the gasses if their absurd subsidies are withdrawn.  You might recognize that business model because it is the same one employed by Somali pirates:  Do something that is socially very harmful, and make money by getting Westerners to pay to you reduce the harm you are causing, somewhat.

Of course, unlike piracy which is an inherent risk of shipping, this problem was created by the people who were trying to solve the problem. 
“I was a climate negotiator, and no one had this in mind,” said David Doniger of the Natural Resources Defense Council. “It turns out you get nearly 100 times more from credits than it costs to do it. It turned the economics of the business on its head.”
Really?  It never occurred to anyone that it was a bad idea to create a "market" where someone was not penalized for creating a pollutant (because the requirement to buy carbon credits to offset pollution is imposed only in a few countries) but was rewarded for destroying it.  Even if the authors of the plan -- inexcusably -- were unaware of this technology that produces that 100-fold profit margin, surly they must have realized this was a perverse incentive.  I realize that someone who works for NRDC is perhaps not a very good scientist, but the planners could have asked, say, a random economics student for some help.

Apparently just under half of all of the tradable carbon credits that have been awarded under the UN scheme have gone to 19 manufacturers of these refrigerant gasses.  It would have been much better if the U.N. had just given a random 19 Chinese and Indian companies $20 million/year worth of the credits to sell; it would have still created a market for buying credits, which produces a bit of efficiency, but would not have caused the production of more greenhouse gasses on the other side of the planet as the current system does.  Of course, paying that $20 million/year as ransom, to end this inefficient process without the companies making good on their threats to vent, may be exactly what ends up happening.

It is interesting to wonder if all of the greenhouse gas reduction from building industrial wind turbines (if the net does indeed turn out to be a reduction -- there is debate about even that) adds up to as much as the greenhouse gas creation that was caused by implementing this half-assed carbon offset market.

03 August 2012

Unhealthful News 217 - Economic innumeracy and tobacco substitution

The always-simmering debate about the core math curriculum in high school and college has heated up a bit lately.  Are the abstract courses badly designed, or are American students just lazy?  Does the limited "real world" usefulness of what is taught mean that is should not be mandatory, or is it a core skill for being able to function in the world?  I am convinced that a lot of this issue would be resolved if algebra and calculus courses were taught with an eye toward microeconomics rather than the Newtonian physics that seems to usually motivate them.  They would be more practical and more motivating.

A great frustration, which I expect most practical economists share with me, is that there is so little general education about economic thinking.  Thus, we are constantly having to explain things that are so obvious to us that it takes effort to figure out how to even begin to explain them.  Sadly, liberal arts economics classes do not emphasize the core thinking and math, but tend to mostly be economic history filled with big picture abstractions, simplistic finance, and a maybe a few little calculations that are not enough to generate real understanding.  Over and over, I have to include in my reports an explanation for why money is a measure or a marker but not a real resource in itself, how measuring the value of a nonmarket good (e.g., saved lives) in dollar terms does not mean that it is equivalent to "mere money", the difference between a real cost and a transfer, etc.  In conversation, I find that it is remarkably difficult to explain why paying cash (if you are able) versus taking a loan to get a durable good (house, car) is not a moral issue of financial responsibility, but is simply a decision about whether you want to invest your cash in the good or in something else.  All of these are quite obvious -- or would be if everyone were taught math in terms of economics rather than the less useful (for 99.9% of the population) physics.

However, few bits of economic innumeracy are as troubling as the failure to understand the basic workings of supply and demand in a market.  (Note:  Perhaps the right term is "economic illiteracy", but I like "innumeracy" because it emphasizes that the understanding largely depends on having enough basic math skills.) 

Today the press dutifully reported on a new a post in CDC's weekly newsletter that reported that due to punishing taxes on cigarettes, many smokers are instead buying cigars and loose tobacco that has lower taxes.  The New York Times reported it in a very matter-of-fact and accurate way.  The key big-picture information was:
“While consumption patterns of traditional cigarettes have continued to decline, when we take into account these alternative cigarettelike products, we’re seeing a lack of change in the overall consumption of burned tobacco that is being inhaled,” said Terry Pechacek, associate director for science with the C.D.C. Office on Smoking and Health in Atlanta and one of the report’s authors.
That will not stop the anti-tobacco industry from claiming ongoing success when it suits them, of course.  I do not anticipate CDC or the rest of that industry backing off on their efforts to keep smokers from switching to low risk alternatives.  But back to the topic for today....

Surprisingly, the NYT did not wander into nanny state propaganda or economic innumeracy, thanks to the reporting of Roni Caryn Rabin, who is much better than most of their staff and the headline writer who chose the matter-of-fact "Big cigars offer way for smokers to save" and "More smokers switch to less-taxed loose tobacco and cigars".  Equally surprising, most of the other news reports avoided the trap too.  But definitely not all all.  For example, the Detroit Free Press headlined their story "Tobacco companies profit from loophole" and used this lead quote:
"This report demonstrates that the the tobacco industry is as resourceful, and as predatory, as ever," says Thomas Glynn, director of international cancer control at the American Cancer Society.
The DFP story and the ACS quote, and others like them, demonstrate two fundamental bits of economic innumeracy.  The first is the mistake of thinking that supply creates demand rather than the other way around.  What actually happened is that the price of one good kept climbing while an inferior (in the eyes of the consumer -- else they already would have been buying it) good remained cheaper, and once the price differential was high enough, some consumers accepted the reduction in quality and switched.  Specifically they switched from cigarettes to pipe tobacco, which they rolled themselves, or to "little cigars" or the even lower-taxed "big cigars", a category that has consistently been protected from excise taxes because rich people like them.  It is consumers that are resourceful.  Once the consumer started being resourceful, something happened that would only surprise the innumerate:  People started buying out all the supplies of pipe tobacco, and in response, the producers started producing more.  And when the cigars that are just big enough to be in the cheaper "big" category became more popular, more of them were made too (as well as the little ones which have more taxes but are a better substitute for cigarettes).

Why was there a market?  The economically innumerate would have us believe that it was somehow created by the producers.  Yes, some suppliers can push their products to some extent (advertising works in some cases, though not all).  But tobacco suppliers really cannot -- they are so restricted in their advertising that they cannot really tell consumers much, and only can respond to what consumers already know.  Price sensitive consumers are quick to figure out where the bargains are. Yes, the suppliers are obviously cheating a bit, selling huge quantities of "pipe tobacco" that they know is getting rolled into cigarettes -- but again, it is the consumers who are seeking out that product, and so someone is going to supply it.

Who benefited from this?  The economically innumerate would have us believe that it was those evil producers.  But in a competitive market like this, the producers cannot capture windfall profits from the price differential (which was created by the government) because competition drives down the price until only normal net revenue are available.  Roughly the same modest net revenue is available from producing loose tobacco, cheap cigars, or cheap cigarettes -- or most any other fast moving consumer goods.  (Premium brand cigarettes are a different story -- the producers make more profit there.)  It was not the producers who benefited, it was the consumers.

Of course, nothing infuriates the anti-tobacco industry more than impoverished tobacco consumers (poor people being most willing to give up some quality to get a lower price) avoiding the financial punishment that they "deserve".  This was evident in the immediate flurry of press releases and blogs that have called for raising taxes on these other products to eliminate this money-saving option, which of course is The Way Things Are Supposed To Be.  You know who else will be happy about that change?  The makers of premium cigarettes.  From the Detroit Free Press article:
Altria, the parent company of the country's leading cigarette maker, Philip Morris USA, believes "that little cigars and roll-your-own tobacco should pay the same tax as cigarettes, as Congress intended," spokesman David Sylvia said.

Funny how everyone that is not Congress is always so sure that Congress intended to do what was best for their own interests.

The fact that so many commentators seem to find consumers seeking cheaper alternatives to be shocking or nefarious bodes ill for both economic numeracy and future policies.  They seem to not understand that trying to manipulate markets is like trying to push on the sides of a balloon to reduce its total volume:  There is an equilibrium volume that is created by gas pressure (or consumer demand), and you can affect it a small amount by pushing.  But if you try to make a big change you will find the balloon (or markets) popping out somewhere where you are not pushing.  A little bit of pressure (or taxes) shrinks the volume some, but a lot of pushing mostly just moves the volume to somewhere new.  If the pressure is extended to include loose tobacco or cigars, the volume will move somewhere else.  If we create some pressure relief by keeping low-risk smoke-free alternatives cheap and available, and constantly improving in quality, much of the pressure will find its way there, which would be great for public health (but ruinous for the anti-tobacco industry, and thus they fight that possibility with a desperate fury).  But if all the legal "loopholes" are closed, the pressure relief will be in the form of newly profitable black markets.

That is all simple and obvious to anyone with basic economic numeracy.  Unfortunately, another way of phrasing that statement is "almost no one seems to understand that".