The Political Economy of Obesity
In the above article, Jared Bernstein argues for a Pigovian tax on soft drinks to fight the obesity epidemic. A Pigovian tax is economic jargon for a tax that is levied to remedy an externality. It does this by increasing the private marginal cost so that it aligns with the social marginal cost. More info can be found here.
Mr. Bernstein's argument is summed up by him as follows:
- The increased caloric content of sugary drinks has contributed to the epidemic;
- The epidemic is a significant contributor to the increase in health costs;
- There's a large price elasticity in play here.
Mr. Bernstein feels that this tax is necessary because obese people who drink "high calorie" soft drinks do not take into account the additional health care costs that they place on society and thus they consume too much.
But in my opinion the bigger problem is that we have a health care system that allows obese people to burden others, mainly because they are not charged correctly for their insurance. Mr. Bernstein anticipates this and counters with "But there are problems here -- what about low-income, overweight people
who can't afford the higher premiums? What about the uninsured?"
But if low-income, overweight people could not afford insurance because of their weight problem, wouldn't that provide them with an incentive to lose weight? Simply saying that they could not afford it and thus this idea would not significantly reduce the problem is missing the point of incentives. If we subsidize their insurance through inefficiently priced premiums so that they can afford it, where is their incentive to change?
The insurance market is full of distortions such as the tax benefits given to employee provided insurance and coverage mandates for certain services (both of which lead to having an excess of uninsured). But just because there are distortions and inefficiencies in the health insurance market does not mean that we need to resort to a second best solution in the beverage market. What policy makers should do is remove the distortions in the health insurance market and let the marketplace work. In my opinion this would internalize a lot of the externality, eliminating the need for any Pigovian tax on "high calorie" drinks.