The law of demand proven once again - Credit NARA via Wikipedia

It is really truly amazing what people are able to prove with this science stuff. Here, from the bods at Sheffield University, we’ve a proof of the basic law of demand. Raise the price of something and people will desire less of it – or, to be more accurate, their desire might stay the same but their actions upon that desire become rather less frequent. Raise the price of soda pop and people buy less soda pop. Amazing, eh?

Bumping up the prices of all sugary drinks by 20p cuts consumption by almost a third, a new study suggests.

The approach is different to the Government’s controversial levy, which charges manufacturers depending on sugar content.

Firms now have to pay a levy of 18p a litre if their drinks contain more than 5g of sugar per 100ml, or 24p a litre if more than 8g.

It has caused some beverages, including classic versions of Coca Cola, Red Bull and Pepsi, to have jumped in price by as much as 11 per cent.

But the new research, led by Sheffield University, found a flat 20p bump in prices for all sugary drinks is potentially more effective.

It is possible to be a little too scathing about this. For they have actually studied something we’d like to know – the elasticity of demand. That is, how much does consumption of something fall – or rise if prices move the other way – in reaction to a raise in the price? Elasticity is that “how much?” We know a few things about it. Long term elasticity is always higher than short – that is, the reaction to a change in price will be greater over time than immediately. We know that, for example, oil demand is inelastic in the short term. Things with close substitutes are highly elastic. It’s difficult to switch away from oil so we don’t do very much of it when the price changes. Brewery A’s best bitter is pretty similar to Brewery B’s best bitter (as long as neither are Watney’s) so a relative price change between the two can change consumption markedly.

But what we don’t know, and never really do in advance, is what that elasticity is for any specific product or price change. We’ve not actually got a decent theory nor proxy to tell us. It’s something we’ve got to observe. So, this is actually pretty good:

This means customers would be charged 90p for a can of Coca Cola, instead of the usual 70p before the Government’s levy – nearly a 30 per cent jump.

Major leisure centre operator SIV introduced the levy in their cafes and vending machines across South Yorkshire for the study.

Researchers discovered the higher price caused sales of sugary drinks to drop by 30 per cent and put parents off buying the drinks for their children.

Good in the sense that this is direct observation of something we’d like to know – what’s the price elasticity of soda pop?

Great.

It’s also ignoring the actual important question here. For we know very well that this will be used to demand that tax rise immediately. And our information here is only part of what we need to know. For here we’re being told the cost of getting people to drink less soda. What we also need to know is what is the benefit of people drinking less soda. Yes, we know what they say, that obesity is going to cause us all to pop and thus cost the NHS money. But that’s actually not true, obesity saves the NHS a fortune:

Someone who is the head of the NHS, someone responsible for spending £120 billion or so of our money, really should understand this following point. Fatties, boozers and gaspers save the NHS money, not cost it. We’ve mentioned this before around here:

The researchers found that from age 20 to 56, obese people racked up the most expensive health costs. But because both the smokers and the obese people died sooner than the healthy group, it cost less to treat them in the long run.

On average, healthy people lived 84 years. Smokers lived about 77 years and obese people lived about 80 years. Smokers and obese people tended to have more heart disease than the healthy people.

Cancer incidence, except for lung cancer, was the same in all three groups. Obese people had the most diabetes, and healthy people had the most strokes. Ultimately, the thin and healthy group cost the most, about $417,000, from age 20 on.

The cost of care for obese people was $371,000, and for smokers, about $326,000.

Here is a paper on that very point.

Having us all slim, svelte, sober and pure of lung into our 90s would cost the NHS very much more money than the current level of topers, smokers and lardbuckets does.

There might well be very good reasons to advise people that the private costs of their behaviour, the years of life they will lose through their habits, might well not be worth it. But the public costs of their actions are the other way around from what is being assumed here.

So, what is the benefit of having people drinking less soda pop? That is, what is the benefit to the public finances which might justify a tax to cause it? Nothing – in fact it’s a negative benefit, a cost. So, the logical set up here is that we should all be taxed on soda pop, so we drink less, thereby causing more public costs as the NHS treatment bill rises.

This is not a useful logical set up.

So, what we’ve actually found is something of interest, the price elasticity of demand for soda pop. And it’s of little to no use in public policy. Unless we’re about to suggest the sensible thing, which is that we should subsidise soda pop so as to save money for the NHS?

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17 COMMENTS

  1. Agree an interesting question but a sneaky way to get the answer they want. I probably let my kids have 1 can of something couple of times a week – if the vending machine was a rip-off I would tell the kids they can have something that evening instead. So this study will think that consumption drops dramatically, instead consumption stays the same and moves to a different time. PHE get to argue that a “modest” tax will have dramatic impacts on consumption – when it just aint so.

  2. The question is not what benefit might be gained by the suggested tax, even though the dastardly activists are trying to be the arbiters of that benefit and the Sheffield lot are known cheats. The question is what the hell gives them the idea that it is any of their business to try to influence, nudge in the modern vernacular, what anybody eats or drinks or ingests in any way if legal? Health fascist busybodies.

  3. The problem with this experiment is it supposes the response to a price rise by SIV does not just cause the much despised lumpenproletariat to purchase the same product elsewhere, such as Mr. Patel’s Fag & Onion Bhaji Corner Shop (where they just sell what people want, rather than attempting some social engineering bollocks by titting around with the prices).

    • But how would Patel avoid the tax? After all, it is not British grocers titting around with the prices, but government.

      The same experiment by the City Council of Philadelphia was a disaster, as they forgot to prohibit suburbs.

      • No Spike. This was a trial for the study. Wouldn’t apply to the grocer.

        And I think my reaction would be the same. Fuck paying that much for a Coke. I’ll buy it elsewhere. Especially if I were hauling a posse of kids around & it could mean a quid or more.

        Further, I do strongly object to health policies that are aimed at the minority of fatties. There also the majority of people out here who need a calorie intake to remain functional. The energy boost from the sugar in a can of Coke is part of why I might drink it.

      • Oh, I see, this was an initiative (at reducing revenue) at a single chain of cafeterias. Then it’s certain the study did not study the extent to which diners simply bought their Coke elsewhere.

        Philadelphia is being studied, and my impression is that the new fad of driving into the hills for the weekly supermarket visit has laid waste to markets beyond soda pop.

        “Drink sales were monitored between January 2015 and July 2017. The levy came into place in ???.” INB4 Tim again wonders what has happened to the sub-editing profession.

      • PS — “Results from the study showed the policy removed the equivalent of 1.3 tonnes of sugar from Sheffield.” — (Or moved it.) Is Sheffield really tiny? or is 2600 pounds of sugar a big deal? If people bake cakes, 520 bags of sugar should be about one day’s sales at the city’s supermarkets.

  4. Did anyone prove the thesis, that there is some difference between applying a 20p tax at retail and taxing bottlers an amount equivalent to 20p per can?

    Agree that a slimmer public is not necessarily in the public interest, unless a war is imminent and there are utterly no fit conscripts anywhere. But this is not about saving money for government but the joy of bossing other people around. Government schools teach that there is no personal fulfillment in leading a healthy life, but one must nag others to do so, and best of all, compel them to do so, such that they know it was you doing so.

  5. I’m thinking a research study is required. Take Professor Liddy Goyder, out in the carpark Of Sheffield University & bang his head against a wall, face first, see how long it takes his scull to go soggy. And what’s that thing science requires? That experiments should be repeatable? Fair enough. Sure there enough people like Professor Liddy Goyder,

  6. I stand corrected by Rhoda Klapp. I made the mistake of accepting the premise that this was a valid question that was being analysed in a stupid way – the right answer is that from RK, “who cares as there is no moral basis to use the answer”.

  7. Aren’t these two sentences contradictory or is one part the wrong way round?
    “Long term elasticity is always lower than short – that is, the reaction to a change in price will be greater over time than immediately. “