A short note on tobacco packaging

About a year ago I published a post that was off my macro beat, about whether banning advertising was paternalistic or freedom enhancing. It was prompted by the UK government appearing to kick the idea of enforcing ‘plain packaging’ of cigarettes into the long grass. Subsequently the government seemed to change its mind, and asked paediatrician Sir Cyril Chantler to review the Australian experience, where plain packaging had been introduced more than a year earlier. In April this year the UK government announced that it would go ahead with plain packaging, after a ‘short consultation’.

The standard argument against actions of this kind is that they are paternalistic. Most economists are instinctively non-paternalistic, although personally I think paternalism can be justified in a small number of cases, like the compulsory wearing of seat belts. Furthermore, I think as behavioural economics progresses, economists are going to find themselves becoming more and more paternalistic whether they like it or not.

However my argument on advertising was rather different. Most advertising is not ‘on-demand’: we have to go out of our way to avoid it. Examples would be television advertising, magazine advertising or billboard advertising. A lot of advertising also has no informational content, but instead tries to associate some brand with various positive emotions - a mild form of brainwashing. A ban on this kind of advertising enhances our freedom, making it less costly to avoid being brainwashed. Banning advertising allows us to avoid unwanted intrusion by advertising companies. It enhances rather than detracts from our freedom. Of course it restricts the freedom of companies, but companies are not people.

What appears on a packet of cigarettes is different, because it is ‘on-demand’ - only those buying the product view it. However it is almost invariably of the non-informative kind. In contrast, ‘plain packaging’ is actually informative, about the health risks being faced by the smoker. So in this case, the smoker receives more information under plain packaging, so will be better off. Arguments by the industry that this represents a ‘nanny state’ are nonsense, and are akin to potential muggers arguing that policemen represent a gross violation by the state of the rights of the mugger.

The UK decided in April to adopt plain packaging because the evidence from Australia was that it was having a positive impact. More recently, the Financial Times reports that the latest National Drugs Strategy Household Survey shows a sharp decline not only in the number of cigarettes smoked per week, but also a large rise in the age at which young people smoke their first cigarette. (The cigarette industry and their apologists argue that smoking has in fact increased as a result of the ban, so strangely they are against it!)

This shows how in at least one respect Australia is helping lead a global improvement in peoples’ lives. Alas the new Australian government has also just abolished their carbon tax, which unfortunately means we need to be selective in following an Australian example!

  

Bertrand Russell’s chicken (and why it was not an economist)

When that pioneering economist David Hume wrote about the problem of induction, he talked about the possibility that the sun would not rise one morning. There is no way we can know ‘for sure’ that it will rise. (In contrast, we know for sure that 1+1=2.) Just because the theories we have suggest it will rise each morning, and those theories have been right so far, does nothing to ensure they will continue to be right.

The problem with this example is that it is very difficult to imagine the sun not rising every morning. Bertrand Russell had perhaps a better example. The chicken that is fed by the farmer each morning may well have a theory that it will always be fed each morning - it becomes a ‘law’. And it works every day, until the day the chicken is instead slaughtered.

When I used to lecture about economic methodology, I liked to say that this chicken was not an economist. Now you might say that no chicken is an economist, but suppose that chickens were as intelligent as the farmer who keeps them, so they could be an economist. Economics is at a disadvantage compared to the physical sciences because we cannot do so many types of experiments (although we are doing more and more), but we have another source of evidence: introspection. So if Bertrand Russell’s chicken had been an economist, they would not simply have observed that every morning the farmer brought them food, and therefore concluded that this must happen forever. Instead they would have asked a crucial additional question: why is the farmer doing this? What is in it for him? If I was the farmer, why would I do this? And of course trying to answer that question might have led them to the unfortunate truth.

I thought of this when reading through the fascinating comments on my post on rational expectations, and posts others had written in response. You can see why the habit of introspection would make economists predisposed to assume rationality generally, and rational expectations in particular. (I think it also helps explain economists’ aversion to paternalism.) It only works to use your own thought processes as a guide to how people in general might behave, if you think other people are essentially like yourself. So if your own thoughts lead you to postulate some theory about how the economy behaves, then others similar to yourself might be able to do something like the same thing.

 

But of course this line of reasoning could also be misleading. An economist who introspects does so with the help of the economic theory they already have, so their introspection is not representative. A psychologist or behavioural economist might come to very different conclusions from introspection - what biases do I bring to this problem, they may ask. Economists may also be fooled into thinking their introspection is representative, because they are surrounded by other economists. So this conjecture about introspection does little to show that assuming agents have rational expectations is right (or wrong), but it may be one reason why most economists find the concept of rational expectations so attractive.

Advertising, Paternalism, Information and Plain Packaging of Cigarettes

This is off the usual macro beat, so probably this point has been made in a much clearer way by others, but it is hardly ever made in the public debate, and I have read economists who argue the opposite. It was prompted by the UK government’s predictable decision to kick ‘plain packaging’ of cigarettes (example below) into the long grass. One of the arguments used against plain packaging is that it represents yet more paternalism by the government. My general thought is this: is banning advertising paternalistic, or is it enhancing our freedom?

A simple definition of paternalism is an action, by a person, organisation or the state, which limits the liberty or autonomy of other people for their own good. So we have individual freedom, interference, and crucially motivation. Advertising is usually portrayed as just providing information so that consumers can make informed choices. Sometimes it may do that. But advertising is often about suggesting associations, which provide no information at all. It is a mild form of brainwashing. Most of the time it is simply annoying.

For some, the information provided by some advertising might be useful. For most it is not. We can try and avoid advertising if we do not want its ‘information’, by turning the page, recording the programme and fast-forwarding through the adverts, averting our eyes, but this requires effort. Why should I have to make that effort? So for most people most of the time, it is advertising that mildly interferes with our freedom. (If I wanted to be clever, I could say that companies who advertise believe their product makes consumers better off, and therefore it is advertising that is paternalistic. However companies advertise to increase profits, not to increase consumer utility.)

So a government that prevents advertising can be seen as allowing individuals to make their own unencumbered choices. It is giving us a little more freedom and autonomy, rather than limiting it. The argument for advertising has to be that the benefits to the few in getting useful information outweighs the costs to the many in either avoiding it, or getting information they do not want. It is not paternalistic to ban advertising, just as it is not paternalistic to stop people being stalked.

That is the general point which hardly ever seems to be made. It applies, for example, to banning food advertising aimed at children, where the nuisance element of the advertising has to outweigh its information provision. However the debate about ‘plain packaging’ is not about either packaging that is plain, or the pros and cons of advertising. The Australian version of plain packaging replaces the logo of the cigarette with a picture of one of the health risks if you smoke these cigarettes (see below). So it is not about banning advertising, but replacing one type of advertising with another.

Those who do not smoke and have no intention of smoking are not forced to look at these adverts, so banning this kind of advertising would not increase their freedom. For those who do not smoke but might smoke, and probably for those who do smoke, the information content of the ‘plain packages’ is clearly much greater than packages that were dominated by a logo. So this is one example where the information content of advertising does dominate any reduction in freedom that the advertising entails.

One final point about information. Mark Littlewood, Director General at the Institute of Economic Affairs, says on their website that following the government’s decision:  “Hopefully this will mark a turning point against the excessive elements of the health lobby whose desire to interfere knows no bounds.” Yes, of course, that strange desire to restrict what companies that sell products that kill people are allowed to do. In the Notes to Editors on that website, it says that “The IEA is a registered educational charity and independent of all political parties.” Now I wonder whether the IEA is funded by the tobacco companies that have lobbied hard against plain packaging? That would be useful information, so why does the IEA not provide it, or even advertise it? 

Paternalism and Irrationality

I have talked before about how most economists have an instinctive dislike of paternalism: a dislike of the idea that someone (usually someone in authority) knows better what is good for people than people themselves. I think this is a very good instinct to have, but sometimes it has to be set to one side. Economists should know this, because they often use economic theory in a paternalistic fashion.

How can I write this last sentence? After all, are economists not very careful to focus on agent’s revealed preferences, rather than any objective model of what is good for people? They prefer what people actually choose as measures of well being (like consumption), rather than some scheme of what is involved in the good life dreamed up by some philosopher.  

However, as Daniel Hausman discusses in a recent book, the idea that a preference based measure of individual welfare can ever be a completely adequate measure of individual well-being is deeply problematic. There are many reasons for this, but the one most economists recognise is where individuals clearly act in ways that are not in their own self interest (or in the interest of others). The example I used before is seat belts.  But behavioural economics and experimental data are giving us many more. For example, an individual’s choice may be influenced by the presence of irrelevant alternatives: the choice between A and B may be influenced by whether C is an option, even though A and B are both preferred over C.

These features of behaviour pose an obvious problem for any preference based measure of well being. What economists typically do, faced with this dilemma, is one of two things. The first may be to deny the premise that agent’s choices in these cases are inconsistent with their own self interest. Failing that, the second response is to try and correct the preference measure of welfare to get round the problem. For example, if someone’s preference for not wearing seat belts is due to ignorance about the statistics, then we might be justified in imagining what their views would be if they did have this information. We can talk about welfare as involving maximising preferences that are not based on false beliefs. The idea is that maximising these purified preferences then maximises individual well-being.

There are a lot of problems with this approach, which Hausman discusses in detail. However, it strikes me that once this attempt is made, economists themselves tend to be paternalistic. Because how do we judge whether preferences need correcting? Often we simply ask whether choices are consistent with rational choice theory i.e. the basic axioms of much of microeconomics. If they are not, then any preferences that violate these axioms need correcting. What we are doing here is elevating rational choice theory, or more generally the micro theory we typically use, to an objective theory of well being.

Let me give one final, and rather more complex, example. There is a lot of evidence (and has been for some time e.g. Ainslie (1992), Picoeconomics, CUP.) that individuals discount over time in a hyperbolic way, rather than in the simple exponential manner which captures impatience as a constant discount factor. Hyperbolic preferences mean that if the choice is between A now and B in x periods time, we may choose A, but if it is between A in y periods time, and B in y+x periods, we choose B. Now hyperbolic preferences cause problems because they are clearly time inconsistent. From a welfare point of view, we have to ask who is the individual whose welfare we are maximising: the individual today with one set of preferences, or the individual tomorrow with different preferences. Faced with this dilemma, economists and governments typically ignore the preferences agents actually have, and carry on using a constant discount rate. Yet if this is not what people actually do, does it make sense to discount at all?    

In this and many other ways, economists appear quite happy to ‘correct’ the preferences people have, and instead make judgements on the basis of the preferences they should have. That may be the sensible thing to do, but it seems pretty paternalistic to me.

Happiness and Paternalism

                Although I clearly do not agree with current UK macroeconomic policy, I did note at the end of a recent post that the government had taken the positive step of collecting more data on happiness. (It also deserves considerable credit for setting up the Office for Budget Responsibility, which it predecessor did not have the courage to do.) So I was interested to see a recent broadside from the Institute of Economic Affairs attacking this decision, and the whole happiness project more generally.

                Their collection of essays is slightly schizophrenic. It includes papers that try and show happiness is unrelated to equality, or employment protection legislation, and is negatively related to government consumption. However other papers and the introduction also argue that happiness data is an unreliable guide to wellbeing, and that the government should not use happiness data to promote wellbeing explicitly. What is the underlying problem? Why put so much effort into criticising a few extra questions in a survey?

                This is a question that the New Economics Foundation asks in a refreshingly restrained response to the IEA document. The answer they suggest is that the IEA, and many of its contributors, have a fear that happiness data will be used by governments to do things government thinks will make people happier, rather than allowing individuals themselves to decide what makes them happy. 

                I am sometimes asked by students whether economics as a discipline has an ideological bias. What they often have in mind is the role of markets. My response, which I think is reasonable, is that once you get beyond the welfare theorems in Econ 101, what most economists spend their time doing is analysing market imperfections. So if you want to know what is wrong with markets, ask an economist.

                However I think most economists do share one philosophical characteristic, and that is a deep distrust of paternalism.  This is something I share – by and large, if it does not adversely affect other people, individuals should be allowed to make their own choices. But the by and large here is crucial. Sometimes individuals do make choices which are clearly bad for them.

                This was cogently argued by Richard Thaler and Cass Sunstein in a short paper provocatively entitled ‘Libertarian Paternalism’ (American Economic Review, 2003, Vol. 93, pp. 175-9). A great deal of behavioural economics is all about departures from rationality, and these in turn can lead to people making choices that are not optimal. Thaler and Sunstein point out that sometimes government cannot avoid making decisions that influence choices. An example they give is enrolment in employment based savings plans. Should people be given the choice to opt in or opt out?  What is called ‘status quo bias’ means that which happens will influence people’s choice. Given this, surely it is best for the government to choose the option that makes people better off in its judgement.  The authors have subsequently developed these ideas in their book Nudge. The Economist has a nice summary of this position, and some arguments against it, here. Nudge has been very influential among policymakers, both in the UK and the US.

                Decisions on whether to make savings schemes opt in or opt out, and similar nudges, seem fairly innocuous even if they are important. But what about forcing people to do things they might definitely decide otherwise not to do? Like wearing seat belts. Some economists have difficulties with making the wearing of seat belts compulsory, and regularly cite the possibility that it might encourage drivers to drive more dangerously. This belief seems fairly impervious to contrary evidence, and this post  from philosopher/psychologist J.D.Trout has a justifiable go at economists as a result. The unfortunate truth is that individuals are rather bad at assessing low probability high risk events, and as a result it makes sense – at least in this case – to take away their choice. Can anyone think of a recent similar example with rather more global consequences?!

                So the bad news for the IEA and similar devotees of absolute individual sovereignty is that sometimes people do systematically make bad decisions, and the state is right on those occasions to do something about it. Equally, the state is often too paternalistic, and interferes when it should not. The state can also make bad choices. Given this, the more data we have that allows us to sort out whether government is helping or meddling the better. That is why happiness data is useful, because it can help us do this.