Booze, Liberalism and the taxation of externalities

03Jun10

The comments thread at LC’s article against the minimum price for alcohol has proven to be hilarious for a further demonstration of the sociological ignorance of Tim Worstall et al, whose approach to the issue is at best naive and at worst dangerous and actually illiberal (I’ll explain why later).

The approach of the Worstall tendency to social and health policy issues is generally to examine matters from the perspective of examining what the externalities of certain market transactions are, and then ensure the externalities are priced and paid for via a pigou tax. Hence the solution to social problems caused by alcohol is taxation, the solution to damage caused to non-smokers through passive smoking – well that’s another tax as well, and the solution to the externalities of carbon consumption – yep, a tax. In fact whenever an externality arises, the preferred solution is a tax. (Can you start to see why this is an illiberal approach). It’s also worth noting the tendency of libertarians to start to deny, or play down the externalities here whether the issue is passive smoking or climate change.

But the question of pricing externalities correctly in a cost-benefit analysis has one major problem; often the externalities are as much about the way a good is consumed as they are about the consumption of the good itself. Here is where the sociological truism comes in, goods are consumed in different ways and with different effects by different people at different times. Alcohol is almost the classic example of this. Here are 4 examples of different types of alcohol consumption that clearly have different positive and negative social consequences.

  1. People having a few glasses of wine in the evening at a social event following a business conference
  2. Lads on a stag do drinking until they puke
  3. Somebody getting drunk at a music festival.
  4. A mother spending all day getting drunk on cheap supermarket booze (and as a result neglecting her children).

The traditional way of calculating pigou taxes simply adds up the costs of all types of alcohol consumption (policing town centres, hospital costs, social workers and care costs, rehab costs etc) and uses this to calculate an appropriate per unit level of alcohol tax. Ironically this is very similar logic to those advocating a minimum price of alcohol, they’ve simply calculated the social costs and worked out what the minimum price should be based on this calculation. It’s actually amusing how the bloggertarians consider the latter completely illiberal, but the former totally legitimate, and I can only guess that it’s because the former is proposed in economics textbooks whereas the latter is advocated by people who don’t generally work in the city stealing our pensions.

Yet both are illiberal approaches because they impose the costs of alcohol consumption upon every drinker without considering that people consume alcohol differently, and its effects are different. For example I enjoy getting drunk on the weekend at live music gigs and rock clubs. In over 14 years of going to these places I have only ever seen one fight (started by somebody not in the scene). Yet the chav meat market down the road regularly results in ambulances and police cars turning up. Both myself and the violent drunk down the road pay exactly the same taxes on our drink, allegedly to cover the social costs of our drinking.  Let’s have another example to avoid the accusation that all I am doing here is a “my subculture is better than yours” argument. A member of CAMRA who enjoys real ales pays exactly the same taxes on his beer as a drunken bastard who beats his family up. The occasional drinker doing no harm pays the same tax as the alcoholic drinking himself to death. We pay exactly the same regardless of the damage our consumption does

And this is the Liberal approach! Punishing everyone for the actions of the few?

LOL

The real tragedy of this is that such an approach has actually made the situation worse. Sticking to the public consumption of alcohol, any police officer or pub goer will tell you that in every city some pubs and clubs contribute more to the violence than others, with a few places having developed very nasty reputations. Yet all pubs will be subjected to the tax, and licensing costs (question – are these the same, or similar, for all pubs?) and regimes. Furthermore the family-run old village pubs are less able to absorb the costs of this than large chains who can have economies of scale. Yet which do you think are more likely to promote responsible drinking in a friendly, peaceful atmosphere?

And consumption of alcohol in public places is also different to consumption in home. In a public place, there are trained first-aiders, staff that should be looking out for you and can tell when you’ve had enough, and possibly even friends who can stop you doing stupid things. An alcoholic in the home has nobody to supervise him.

The real tragedy of recent years has been the decline of the traditional pub, and its replacement by cheap supermarket booze. A place where alcohol was enjoyed in a sociable manner, created social capital, and was an asset to numerous communities has been replaced by a form of consumption that is solitary and harmful. Anecdotally organisations involved in helping victims of domestic violence report that consumption in the home is linked to domestic violence.

The taxation approach to dealing with social costs has failed to consider the way alcohol is consumed , and instead forces a blanket tax on all regardless of how we consume it. Instead of this simplistic approach to dealing with the real harms alcohol can cause, it might be a more intelligent idea to consider the ways in which it is consumed, and how we can deal with the really harmful forms of consumption whilst not punishing those whose consumption creates fewer problems, and arguably benefits society. And it is far more liberal to do this than taxing everyone.

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2 Responses to “Booze, Liberalism and the taxation of externalities”

  1. Oh, wow, way to miss the point!

    I make an argument about cost benefit analysis and you come back with a critique of Pigou Taxes.

    Well done you!

    Just to reiterate the point I was making over there. Yes, there are costs to drinking. But there are also benefits. Among which is the enjoyment that drinkers get from drinking. As a rough approximation of the lower bound of the value that drinkers get from drinking, the amount that drinkers spend on drinking can be used.

    For, in a voluntary transaction, what is being given up must be of lesser value, to the person doing the giving up, than the value of what is being received.

    This was the point I was making, not what we do about the undoubted costs.

  2. what is being given up…

    (Such as your liver, family, house, career, longevity, health, and happiness.)

    …must be of lesser value, to the person doing the giving up, than the value of what is being received

    Such as a lot of cheap cider.

    And yes you really do think that, and you think it has to be true by definition, by axiom. And you think anyone who disagrees is certainly an economically illiterate idiot, and probably a fascist. Well done you!


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