Triple Dip

A headline in the Telegraph caught my eye this morning. Included was a graph of GDP, onto which I immediately scrawled an arrow showing when the UK smoking ban came into force.

UK heads for triple dip as GDP contracts 0.3pc

triple-dip

A Treasury spokesman said: “”The official forecast was that the UK economy would contract in the last quarter of 2012 so this figure is not unexpected. It confirms what we already knew – that Britain, like many European countries, still faces a very difficult economic situation.

“It underlines what the Chancellor said at the Autumn Statement and the Governor of the Bank of England said this week: while the economy is healing, it is a difficult road.

Is the economy healing? The way the Treasury spokesman described it, it was as if the UK economy had been the victim of a road accident, but was now gradually on the mend, perhaps aided by infusions of Quantitative Easing and rock bottom interest rates.

Most economists seem to think that the nasty accident was the late 2007 Credit Crunch and banking crisis. But nobody seems to talk very much about the Credit Crunch any more. Are we still in one? If not, why isn’t the economy recovering? Perhaps they’re using the wrong medicine.

For the economists completely ignore the effects of the UK smoking ban that came into force slightly earlier in 2007, and which were perhaps obscured by the subsequent credit crunch – if only because antismoking organisations had declared the UK smoking ban to be a great success, welcomed by everyone, smokers included. And if it was such a great success, there couldn’t have been any adverse economic consequences, could there?

However, while a credit crunch may last for a while, once credit eases, the economy can be expected to recover. But the impacts of smoking bans don’t go away. People change their behaviour, and it stays changed. So, if there are any adverse economic effects consequent on the introduction of smoking bans, they will continue to be felt years thereafter. So some estimate needs to be made of these impacts.

Recently I’ve been looking at the figures in the ISIS study, and wondering if I can tease some economic impact figures out of it. There are at least three questions in it with implicit economic consequences.

1) How often do you go to pubs, cafes, and restaurants? This question had 5 optional checkboxes: More/much more/same/less/hardly ever. If ‘much more’ is given a value 2, and  ‘same’ is given a value 1, and ‘hardly ever’ a value of 0, the 400-sample survey should be able to how much smokers are now going to these places, and a good indication of how much more or less they are spending there. And also spending on getting there.

2) How often do you meet up with friends or family? This question had the same checkbox options, except that ‘hardly ever’ was replaced by ‘much less’. Now it’s reasonable to suppose that when people meet up with friends or family, they usually buy food and drink to go with their parties, dinner parties, dances, or whatever, whether the social gatherings are at home or in pubs or cafes or clubs. And they will also spend money phoning people and arranging venues. And they’ll spend money on transport to get there. They may even spend money on clothes, shoes, hairdressing, and the like. So this question may be able to give a clue about how much more or less money people have been spending.

3) Do you spend more or less time at home? This question had the same checkboxes as the one above. And the responses to this question may also be construed to have economic consequences. Because to the extent that people stay home more, they are spending less time anywhere else, and spending less money in those places. They will most likely not be spending much time in pubs, cafes, restaurants, cinemas, theatres, art galleries, museums, or anywhere else. Nor will they spend money travelling to them, nor phoning to arrange to visit them. So the responses to this question could be used as an indicator of change in spending across the whole economy, rather than just in pubs and restaurants or on food and drink and entertainment.  Although of course people can spend money at home, by buying things online, or ordering pizzas to be delivered, and such like.

There are also a set of checkboxes relating to places where people feel ‘adversely affected’ by smoking bans. And this provides extra information.

Question 2), about meeting up with friends or family, can also provide further information. For to the extent that smokers have been seeing more or less of friends or family, to that same extent, friends or family have been seeing more or less of them, and consequently spending more or less on entertainment as well. If S is the prevalence of smoking/smokers, and F is the factor by which to multiply smokers’ pre-ban spending habits to give their present spending, then across the whole population spending by smokers will be S.F of its former level. And assuming that non-smokers meet up just as frequently as before with other non-smokers, then their change in spending will be (1-S).{ (1-S) + S.F}. And the new total post-ban spending will be the sum of these two values:  S.F + (1-S).{  (1-S) + S.F }. And when F=1 (no change), total spending will also be equal to 1 (no change). But if S=40% (the prevalence of smokers in Bulgaria) and F=0 (smokers never meet up with friends) then spending on entertaining friends and family across the whole economy falls to 0.36 of its former level. In Britain we know that S is 20% or higher. And the ISIS study may be able to give an estimate for F.

I dug out some figures today for household sector-by-sector spending in the UK in 2005, and marked up the sectors that smoking bans were most likely into impact, with the greatest impacts marked red, lesser impact yellow, others not at all.

household-spending

I estimated that the two red-dotted sectors plus the alcohol and tobacco sector amounted to 28% of total UK household consumption. If the 20% of the population who are smokers dropped their spending in these sectors to 60% of their former levels, while non-smokers had maintained their former spending habits, total consumption of all goods by households would have fallen to 97.5% of its 2007 value – a 2.5% contraction.  So a fairly large change of spending habits by the 20% of smokers can have quite large impacts on the whole economy.

Furthermore, the impact is likely to gradually intensify over time. People do not generally lose contact with all their friends and acquaintances immediately upon the introduction of smoking bans. It’s a slow process of gradual attrition. And so the factor F used above to estimate changes in spending on entertainment of friends and family will tend to fall over time, increasing the economic impact on the whole economy as household consumption falls, in a gradual decay curve.

Furthermore, the effects of the ‘multiplier’, as falls in spending in one sector of the economy bring falls in spending in several other apparently unrelated sectors, will tend to increase the impact.

household-expeditureIs there any evidence of a fall in consumption in the UK? Yes, there is. The Bank of England in its first quarterly report in 2009 refers to a negative ‘demand shock’ that had become evident. A ‘demand shock’ is a sudden change in consumer demand. And in addition, when hunting around for graphs showing household consumption trends in the UK, I came upon the graph at left on the blog of an economics professor. And this shows the sort of slow decay curve after 2007 that could be expected when people gradually stop meeting up with their friends, and gradually reduce their spending accordingly.

It remains to be seen, of course, whether the ISIS study will provide sufficient data to make a estimate of changes in smokers’ consumption patterns, and whether the resulting economic consequences will be as large as those shown in the graph.

It will all be published in the ISIS study report in due course. But if a good case can be made that the UK smoking ban is having serious impacts on the UK economy (and there can be no doubt that it is having some negative impact), then no amount of Quantitative Easing, or low interest rates, or anything else, will serve to boost household consumption and ‘heal’ the economy. In fact, it will continue to gradually deteriorate. And so will every other economy in which smoking bans have been introduced.

About Frank Davis

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16 Responses to Triple Dip

  1. Frank Davis says:

    John Redwood, MP, is (in some ways) asking a similar question.

    Why doesn’t this huge Keynsian fiscal stimulus, all this extra public spending and borrowing, give us growth?
    By JOHNREDWOOD | Published: JANUARY 26, 2013
    Instead of constantly asking questions about the “cuts”, the question that needs to be asked about the UK economy is why hasn’t the huge public sector stimulus injected since 2008 succeeded in pushing the economy back into growth?

  2. harleyrider1978 says:

    why hasn’t the huge public sector stimulus injected since 2008 succeeded in pushing the economy back into growth?

    Simple everybodys leaving over super high taxes with money! Taxes and regulations have killed business in the top industrialized countries forcing them over the past 3 decades into the banana republics and communist countries around the world who dont have those restrictions. Off shore accounts is an outcome of over taxation and regulation not greed.

  3. Mr A says:

    Wouldn’t surprise me. I used to spend £1000 – £1500 a month on going out. Now I probably go out once a quarter. As shit as everything is, at least my bank account is swollen! And on top of that, I am the only smoker in my group of a dozen friends. But not wanting to sound arrogant, I was the fun-loving, “Let’s have fun” guy. Once I gave up, all my non-smoking friends stopped going out, too. Now they go out as much as I do. The loss to the economy of those 12 people alone, is enormous.

  4. harleyrider1978 says:

    No smoking ban here! thank god and so I stay Broke! But its a nice for now…………..Ya I fight hard to keep kentucky smoking…………….

  5. harleyrider1978 says:

    Heres a catchy one liner………..kinda says it all

    You have to accept the risks in a free society to have a free society.

  6. harleyrider1978 says:

    Is this surrender or what!

    Do penalties for smokers and the obese make sense?

    By MIKE STOBBE
    AP Medical Writer

    NEW YORK (AP) — Faced with the high cost of caring for smokers and overeaters, experts say society must grapple with a blunt question: Instead of trying to penalize them and change their ways, why not just let these health sinners die?

    Annual health care costs are roughly $96 billion for smokers and $147 billion for the obese, the government says. These costs accompany sometimes heroic attempts to prolong lives, including surgery, chemotherapy and other measures.

    But despite these rescue attempts, smokers tend to die 10 years earlier on average, and the obese die five to 12 years prematurely, according to various researchers’ estimates.

    And attempts to curb smoking and unhealthy eating frequently lead to backlash: Witness the current legal tussle over New York City’s first-of-its-kind limits on the size of sugary beverages and the vicious fight last year in California over a ballot proposal to add a $1-per-pack cigarette tax, which was ultimately defeated.

    “This is my life. I should be able to do what I want,” said Sebastian Lopez, a college student from Queens, speaking last September when the New York City Board of Health approved the soda size rules.

    Critics also contend that tobacco- and calorie-control measures place a disproportionately heavy burden on poor people. That’s because they:

    -Smoke more than the rich, and have higher obesity rates.

    -Have less money so sales taxes hit them harder. One study last year found poor, nicotine-dependent smokers in New York – a state with very high cigarette taxes – spent as much as a quarter of their entire income on smokes.

    -Are less likely to have a car to shop elsewhere if the corner bodega or convenience store stops stocking their vices.

    Critics call these approaches unfair, and believe they have only a marginal effect. “Ultimately these things are weak tea,” said Dr. Scott Gottlieb, a physician and fellow at the right-of-center think tank, the American Enterprise Institute.

    Gottlieb’s view is debatable. There are plenty of public health researchers that can show smoking control measures have brought down smoking rates and who will argue that smoking taxes are not regressive so long as money is earmarked for programs that help poor people quit smoking.

    And debate they will. There always seems to be a fight whenever this kind of public health legislation comes up. And it’s a fight that can go in all sorts of directions. For example, some studies even suggest that because smokers and obese people die sooner, they may actually cost society less than healthy people who live much longer and develop chronic conditions like Alzheimer’s disease.

    So let’s return to the original question: Why provoke a backlash? If 1 in 5 U.S. adults smoke, and 1 in 3 are obese, why not just get off their backs and let them go on with their (probably shortened) lives?

    Because it’s not just about them, say some health economists, bioethicists and public health researchers.

    “Your freedom is likely to be someone else’s harm,” said Daniel Callahan, senior research scholar at a bioethics think-tank, the Hastings Center.

    Smoking has the most obvious impact. Studies have increasingly shown harm to nonsmokers who are unlucky enough to work or live around heavy smokers. And several studies have shown heart attacks and asthma attack rates fell in counties or cities that adopted big smoking bans.

    “When you ban smoking in public places, you’re protecting everyone’s health, including and especially the nonsmoker,” said S. Jay Olshansky, a professor at the University of Illinois-Chicago’s School of Public Health.

    It can be harder to make the same argument about soda-size restrictions or other legislative attempts to discourage excessive calorie consumption, Olshansky added.

    “When you eat yourself to death, you’re pretty much just harming yourself,” he said.

    But that viewpoint doesn’t factor in the burden to everyone else of paying for the diabetes care, heart surgeries and other medical expenses incurred by obese people, noted John Cawley, a health economist at Cornell University.

    “If I’m obese, the health care costs are not totally borne by me. They’re borne by other people in my health insurance plan and – when I’m older – by Medicare,” Cawley said.

    From an economist’s perspective, there would be less reason to grouse about unhealthy behaviors by smokers, obese people, motorcycle riders who eschew helmets and other health sinners if they agreed to pay the financial price for their choices.

    That’s the rationale for a provision in the Affordable Care Act – “Obamacare” to its detractors – that starting next year allows health insurers to charge smokers buying individual policies up to 50 percent higher premiums. A 60-year-old could wind up paying nearly $5,100 on top of premiums.

    The new law doesn’t allow insurers to charge more for people who are overweight, however.

    It’s tricky to play the insurance game with overweight people, because science is still sorting things out. While obesity is clearly linked with serious health problems and early death, the evidence is not as clear about people who are just overweight.

    That said, public health officials shouldn’t shy away from tough anti-obesity efforts, said Callahan, the bioethicist. Callahan caused a public stir this week with a paper that called for a more aggressive public health campaign that tries to shame and stigmatize overeaters the way past public health campaigns have shamed and stigmatized smokers.

    National obesity rates are essentially static, and public health campaigns that gently try to educate people about the benefits of exercise and healthy eating just aren’t working, Callahan argued. We need to get obese people to change their behavior. If they are angry or hurt by it, so be it, he said.

    “Emotions are what really count in this world,” he said.

    http://hosted.ap.org/dynamic/stories/U/US_MED_HEALTH_COSTS_REALITY_CHECK?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2013-01-26-10-03-12

    • Rose says:

      I think that Callahan has been badly hurt by his experience of “denormalisation”.
      I don’t think anyone quite gets over the shock of being turned from a respectable citizen into reviled outcast virtually overnight.
      Especially when it’s your own government that is doing it to you.

      No one stood up for him, especially not the people he would have expected to.

      “The effort of smokers to invoke their civil rights gained no traction,’’ Callahan writes, “and the public health community made no moves to come to their aid.’’

      http://www.boston.com/lifestyle/articles/2011/07/15/whats_wrong_with_subjecting_obese_americans_to_the_same_stigmatization_that_smokers_are/

      It may be that he is trying to come to terms with what happened to him by embracing it as a legitimate form of medical intervention rather than feeling that he had been singled out, after all when everyone has been stigmatized for one reason or another,then to carry such a scar becomes the norm.

      Me, I’m furious, I feel badly let down, I have no need to rationalise it and I will never forget

      • Frank Davis says:

        Longer piece from (corrected) link above:

        …he sent me a draft paper he had written on the subject: “Harnessing Stigma or Stigmatizing Stigma? The Case of Obesity.’’

        Callahan makes a persuasive case: 67 percent of Americans are overweight, he writes. “Obesity is a leading cause of diabetes, heart disease, and kidney failure. There are some prima facie reasons for thinking about stigmatization as one more arrow in the quiver of possible solutions.

        “It can hardly be said that obesity is beyond individual control,’’ he continues. “So, why not stigmatize [the obese], bringing social pressure to bear?’’

        What could be more logical? No category of US citizens, with the possible exception of prisoners, has been subjected to more government-sponsored economic and social harassment than cigarette smokers. Last month every newspaper and TV station in the country gleefully reported the latest taxpayer-funded attack on smokers: graphic new cigarette warning labels, depicting coffin-nail addicts as losers with rotten teeth and, of course, dead.

        Taxed up the wazoo, forced to pay hundreds of extra dollars for health insurance, tossed out in the rain and snow to sneak a few puffs of the dreaded cancer sticks – smokers are the deadbeat dads of the public health landscape. Here in Boston, there is a move afoot to ban smokers from public housing. In New York, Mayor Michael Bloomberg is ticketing cigarette smokers in public parks.

        “The effort of smokers to invoke their civil rights gained no traction,’’ Callahan writes, “and the public health community made no moves to come to their aid.’’

        I was looking forward to chatting with Callahan, because he sounded like a public health writer unfettered by modish jargon and the strictures of political correctness. He agreed to speak with me by phone from his vacation aerie on Little Cranberry Island, Maine. Practically the first words out of his mouth were: “I am switching sides. I don’t want to lead a crusade for stigmatizing men and women who have trouble controlling their weight. It would be enormously hurtful for a lot of people.’’

        Who got to you, I asked?

        Callahan showed his paper to other researchers before publication, and, predictably, they gave him some stiff criticism. He was particularly chastened by an articulate and forceful critique from Rebecca Puhl, a clinical psychologist who is also director of Research and Weight Stigma Initiatives at Yale’s Rudd Center for Food Policy & Obesity.

        Puhl and I spoke, covering much of the territory she reviewed with Callahan. She repeated the mantra that I heard from other public health experts: “When we are talking about smoking, we are talking about behavior. When we are talking about obesity, we are talking about people.’’

        Bollocks. In both cases we are talking about behavior that is harmful both to the individual and to society, and in both cases we are talking about people. It’s just that humiliating smokers is a societally approved parlor game – some joker at Harvard has been inveighing against “third-hand smoke’’- while state and local governments, and almost all corporations, observe a very different standard in handling fat people.

  7. smokingscot says:

    Oh dear oh dear Frank, now wouldn’t it be a smack in the mouth to all those terribly important and influential individuals (who get paid handsomely to address the salivating minions) in Davos if someone actually fronted up and said that 30% of the 30% who don’t want to quit are in some tangible way partly responsible for screwing up their brave new world?

    And bear in mind that some of those miscreants are now growing their own tobacco and smoking it. Of course they don’t, not really Frank. They’re just posting stock photo’s and even if the tiny little minority who claim to be able to harvest tobacco are in fact doing so, well it’s only a few grams each and of no concern whatsoever economically.

    There’s no learning curve, no way you guys can improve your yields, so you’ll always have to come back for ever more expensive commercial tobacco.

    The charade becomes more amusing as time passes. But they’ll never get it!

    And if – perchance – you happen to be bang on the money, well look at the geopolitical implications of China, Russia, Korea, India and Brazil all joining in the negative growth party!

  8. Matt says:

    There is another potentially-significant factor linked to this. Although not the direct effect of the smoking ban itself (but definitely a direct effect of related government policies of excessive taxation and control of enjoyable things such as tobacco and alcohol), many people are purchasing significant quantities of these goods on the black market. Including people who would have previously never considered such actions.

    Once people have entered into the practice of buying stuff in this way there is little psychological barrier to them widening their black-market purchases to a wider range of goods (consumer goods etc.) if these happen to be on offer. The end result of this is a significant loss to the “economy”, or at least the visible economy as seen in official figures. It’s fair to say I’ve no idea how great this impact is at present but there again nor does anybody else – and particularly not the policy-makers! I suspect it’s bigger than many imagine.

    It strikes me that the ad-hoc private social gatherings of ex-pub-patrons (who were sidelined with the smoking ban) tend to provide an ideal and safe environment for the exchange of goods and services outside of the official economy.

  9. harleyrider1978 says:

    Smoking bans make about as much sence as;

    Honey Im going to the gun range to shoot
    But baby you dont have a gun anymore since they outlawed them
    Yes I know they said just because it was outlawed you can still go to the gun range!

    Im off to the Pub honey to have a pint
    But Baby they outlawed alcohol
    Yes thats right but I can still go to the Pub………..for what,nobodys there including the pub as they dont make money from talking treason with your buds.

    Yo jack,you wan to meet for a coffee at the coffe shop in a few
    Why they outlawed coffee,its closed down now. Well public healthists said we were still free to go to the coffee shop!

    You get it now right! going to a place to smoke is just as important as the other functions a business or activity has to offer……………The restriction alone kills the incentive to go and that covers about everything we smokers do,so its easy to stay home!

    • Dave says:

      Yep your right it is easy to stay home and when these piece of shit control freaks said oh well people will get used to it. Yep we got used to it all right in our own living rooms. While there are some places I can smoke here in Michigan. Very few but there are some and of course all the casinos welcome us with open arms. I had to ask myself if the ban was lifted tomorrow state wide would life return to normal. The answer is no as too much damage has been done. I assume many smokers would likely celebrate and return to the bars and restaurants. Not me as we are nothing but cash cows to the state and I want no part of it. I have adjusted all right to my friends home bar and a few other things and that is just the way it is. For me it is personal and a war that was waged on us that goes right in line with a clear violation of human rights. I know one day this will run it’s course but even then for this smoker it is not going to matter as life will never be the same. If I quit smoking tomorrow it still changes nothing as I still am not going to contribute to this state tax base or any business or anything else. I did not choose this nor did any of you and it has been one hell of a life lesson in how cruel humans can be. However we are not special as certain groups have been targeted thru out time and hatefull bigots will always exist.I often wonder if the perps of hatred truly set out to cause so much harm. Do they realize the damage they have done. I assume no straight forward answer exists as it reminds me of that council president recently who admitted he asked himself what right did he have to take our liberties away. Keep in mind he originally voted for the smoking ban and then reversed his decision weeks later. This clearly was a man caught up in this whole mess just going with the flow until he HEARD the people he represents and even reminded the council woman they represent smokers as well. What a concept we are people after all. I will stop rambling on and since this at the end of a topic of comments I have no idea a single person will read this however I had something to say. My voice like every other smoker and non smoker that believes in freedom,joy and just plain old living life deserves a voice. From day one the truth has always been on our side and everyday I wake up I know my actions are not destroying peoples lives but rather I try to inform those of all the evil that exists and I try to make a positive difference. I have more to say but will call it a day for now. I wish you all the best…

      • Frank Davis says:

        I had to ask myself if the ban was lifted tomorrow state wide would life return to normal. The answer is no as too much damage has been done.

        I don’t think life would return to normal either. I wouldn’t be regaining my many lost friends. I think a more or less permanent social division has been created.

        But I would go back to the pubs and cafes and restaurants. I was quite happy to go to them even if I didn’t know anyone inside them. They were nice places to be. And I’m sure that one day they will be again. But I’ll be sitting inside them on my own, and not with friends.

        • Dave says:

          Thanks Frank for taking the time to read my post. I guess I should not say never because I could change my mind. I am just so bitter over the whole issue as when I think of all the time I have missed out with my Father playing the video lottery as we did before the ban. I can never get that time back anymore than you will see your friends again or the bar/pub owner who lost his business will magically get it back. So much damage and all for nothing. It is hard to even put into words sometimes but we must press on.

  10. Frank Davis says:

    Vaguely relevant:

    (Reuters) – The U.S. economy unexpectedly contracted in the fourth quarter, suffering its first decline since the recession ended more than three years ago as businesses scaled back on restocking and government spending plunged.

    Gross domestic product fell at a 0.1 percent annual rate after growing at a 3.1 percent clip in the third quarter, the Commerce Department said on Wednesday.

  11. Frank Davis says:

    Also vaguely relevant:

    Spain’s long-running economic crisis deepened in the final quarter of last year, official data showed Wednesday, increasing pressure on Prime Minister Mariano Rajoy to enact new measures to ease the pain.

    Spanish gross domestic product fell 0.7% from the third quarter and 1.8% from the same period a year earlier, Spain’s National Statistics Institute, or INE, said in a preliminary reading. It said output for the whole of 2012 fell 1.4% from 2011.

    The euro zone’s fourth-largest economy, which is grappling with the collapse of a decadelong housing boom, fell into its second recession in three years toward the end of 2011. The pace of decline accelerated in the final quarter of 2012 as the full weight of a new package of austerity measures came to bear. Spain is under intense pressure from the European Union and financial markets to slash a budget deficit that exceeded 9% of GDP in 2011.

    But after data last week showed that Spanish unemployment hit 26%–and more than 55% for those under 25 years old–Mr. Rajoy has signaled he might ease up somewhat on the austerity push.

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