As a part of my analysis of the ISIS survey figures, I’ve been wondering if I can make an assessment of the economic impact when a substantial fraction of the population stops going to pubs and restaurants, sees less of friends and family, and stays home much more.
One question I’ve got is: what is there that such people will spend more money on? Because antismokers say that, even if smokers spend less in pubs and restaurants, they’ll spend more elsewhere, and so there’s no overall economic impact. But if people are staying home, and seeing less of their friends, what might they be spending more money on?
I suppose that, if smokers are spending more time at home, one possible outlet these days is via the internet. They could spend more on music, movies, books, computers. And maybe also on drugs and pornography and online gambling and gaming. And maybe they’d buy more alcohol and take-away meals. The home would become a place of solitary vice.
But I can’t say I’ve done any of these things myself. I spend a lot of time online, but I buy next to nothing there except the occasional book. The thing I have done much more of is mathematics – and that’s a very inexpensive hobby. Has anyone spent more or much more on anything since smoking bans overtook them?
The other thing I’ve been wondering is what the effect of reduced all round spending is likely to be on credit. I don’t have a credit card, and buy everything either with cash or a cash card. But some people seem to buy almost everything with a credit card. I imagine there were quite a few people who would run up a tab at a bar or restaurant, and pay on the way out with a credit card. So what happens when lots of people start using their credit cards much less? What is the response of banks?
My guess is that, if people don’t use their credit cards so much, banks will drop their interest rates to encourage more borrowing, with interest rates acting as the ‘price’ of money. That’s how supply and demand works.
Equally, if people stop spending, they’ll save a lot of money, and they’ll probably look around for somewhere to invest the excess cash, buying shares, bonds, etc. Money will drain out of the economy into these sorts of investments. And it’ll drain out of banks too. So banks will begin to face liquidity problems.
And the financial crisis that began in 2007 (hard on the heels of the UK smoking ban) saw interest rates tumbling, and banks going bust (e.g. Lehman brothers).
I was reading about the economic impacts of US prohibition in the 1920s.
Economics of Prohibition
Prohibition’s supporters were initially surprised by what did not come to pass during the dry era. When the law went into effect, they expected sales of clothing and household goods to skyrocket. Real estate developers and landlords expected rents to rise as saloons closed and neighborhoods improved. Chewing gum, grape juice, and soft drink companies all expected growth. Theater producers expected new crowds as Americans looked for new ways to entertain themselves without alcohol. None of it came to pass.
Instead, the unintended consequences proved to be a decline in amusement and entertainment industries across the board. Restaurants failed, as they could no longer make a profit without legal liquor sales. Theater revenues declined rather than increase, and few of the other economic benefits that had been predicted came to pass.
On the whole, the initial economic effects of Prohibition were largely negative. The closing of breweries, distilleries and saloons led to the elimination of thousands of jobs, and in turn thousands more jobs were eliminated for barrel makers, truckers, waiters, and other related trades.
Sounds like people stayed home back then too. Of course, some people would say that we are not living in a new prohibition era, because the sale of tobacco has not been prohibited. But, while you can still buy tobacco (at vastly inflated prices), you have been prohibited from smoking it almost everywhere. And people are staying home. And bars and restaurants are closing.
One big difference perhaps is that modern Tobacco Prohibition is being introduced piecemeal. In the USA a state-wide ban was introduced in California in 1995, in Delaware in 2002, in New York and Connecticut in 2003, in Massachusetts and Maine and Idaho in 2004, in Montana in 2005, in Ohio and Colorado and Hawaii and New Jersey in 2006, in New Hampshire and Minnesota in 2007, in Maryland and Illinois and Iowa in 2008, in Michigan and Kansas in 2010, and North Dakota in 2012. It’s mostly the southern states which haven’t enacted state-wide bans, but in many of these there seem to be town or municipality bans.
Elsewhere in the world Italy introduced a ban in 2005, Australia in 2006, UK and Denmark and Finland in 2007, France and Holland and Turkey in 2008, all of Canada by 2008, Austria in 2009, Greece in 2010, Spain and Belgium and Poland in 2011.
It’s a creeping global tobacco prohibition. It’s much bigger that US Prohibition. And its effects, in terms of reduced consumer spending, come gradually rather than all at once. It’s a slow, gradual squeeze.
The decade after 2000 also looks a lot like the decade after 1920. Business was booming until suddenly the banks started folding up. And now it seems that all the attempts to boost demand and kickstart the ailing US and European economies (none of which involve lifting public smoking bans, of course) aren’t working.
I’m a bit surprised that no economists are considering the possibility that gradually multiplying smoking bans all around the world are having big effects on consumer behaviour. But then, smoking bans aren’t news. And Tobacco Control is very good at getting across the media message that smoking bans are a ‘great success’, and ‘particularly among smokers’, most of whom, they tell us, ‘want to give up smoking’ anyway. And politicians and the media all believe them, and go along with the ‘success story’. So the economists instead look at interest rates and bank lending policies and the price of tomatoes. They look at everything except smoking bans.
But I think that there’s a good case to be made that smoking bans have an all-round slight negative effect on the economies in which they are introduced, and that these small negative effects add up as more and more bans are introduced, so that as one US state bans smoking and consumer demand falls slightly, it fractionally affects other US states. And the same goes in Europe and everywhere else in the world.
It might be an interesting exercise to take the populations of the various US and European states, and suppose that there’s a 1% or 2% fall in spending in each one when smoking bans are introduced, and see what it amounts to over time as the bans are introduced.
I’ll end with a poll in respect of your local smoking ban, wherever in the world you live: