Michael Bloomberg and David Paterson announced a proposal yesterday to ban the purchase of soda with food stamps. It is sure to be controversial, but is it a good thing?

At the very least, if the government is determined to try and reduce decrease public expenditures on health care by reducing soda consumption, than this is a preferrable approach to a soda or sugar tax. A first best approach would be to tax individuals who a) are drinking enough soda that it increases their risk of illness, and b) with some probability part of their health care costs will be born by public.

Since foods stamp recipients seem like a likely target for b), this at least meets one criteria. In contrast a general soda tax falls on everyone, and meet neither criteria. Even with the more targeted food stamp approach, people whose soda consumption is at safe levels or who have private insurance will be inefficiently restricted by this.

I have not looked at the data myself, but the conventional wisdom and the contention of the proposed law is that a) is very much true.

The whole discussion of course presumes that the law actually reduces soda consumption. For one thing, if individuals are paying some non-soda food costs with cash they can just shift to spending that cash on soda. There are also ways to trade around this: I buy $10 worth of soda with cash, you buy $8 worth of food with food stamps, and we trade. In either case though, transaction costs have been raised, although in the former the amount may be very slight.

Another problem is that individuals may respond to the lower calories by simply consuming more calories. While researching the health effects of soda for my recent defense of diet soda, the literature appeared mixed as to whether switching from regular to diet soda caused weight loss because of the calorie substitution problem. Perhaps Karl will chime in on this; he is much more knowledgeable about all things obesity.

The final question to ask is whether this policy is simply too paternalistic? I have to say I don’t think it is. Food stamps by themselves are already highly paternalistic. Essentially they tell low-income people that on average they will not spend cash in a way that best benefits them and their family. The government defines a subset of goods and tells them “you will be better off if you stick to these goods instead of buying what you want”. The marginal paternalism of reducing the size of the goods the government allows is slight compared to the paternalism food stamp recipients are already enduring. If your significant other tells you that you have to go to bed between 9:30 and 10 that is highly paternalistic. If they further refine that and decide it has to be between 9:40 and 10 it’s not that much more paternalistic. Perhaps this graph will help:

Another issue that you are free to reject, as it just reflects my diet soda bias and my love of delicious aspartame, is that I suspect much of the continued preference for regular soda over diet soda despite the health advantages is motivated by a lack of understanding of the safety of diet soda. Fear not New Yorkers, despite the email chain letters and urban legends, diet soda is not bad for you.

Overall though we should be weary of this kind of paternalism, and the desirability depends on how effective it would actually be. However, given the high level of paternalism in food stamps already I don’t consider this marginal paternalism to be that troubling.

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