Bad habits, hard choices

They’ve arrived! My copies of David Fell’s new book in the Perspectives series on how to design and implement a smarter tax system.

Bad Habits, Hard Choices

Bad Habits, Hard Choices

I wrote about it yesterday, and one comment on the post observed that surely taxing unhealthy foods more and healthy foods less is regressive, because people with not much income have unhealthier diets.

Yes indeed, if you assume people’s behaviour does not change at all in response to either price incentives or other incentives. David argues in the book that the present structure is unfair exactly because it harms the health of people with lower incomes. He draws also on behavioural economics to discuss how being nudged not only by post-tax prices but also by packaging information etc could encourage people to make healthier choices. Koen’s comment also argued that we don’t know which foods are unhealthy and this might not be inherent – as indeed has been said in the context of the sugar tax debate. A little is ok, it’s eating/drinking a lot that’s the problem. The book does also address this in its discussion of implementation, strongly advocating some trial and error.

I have reservations about behavioural economics and paternalism, or rather about the gung-ho enthusiasm with which economists are wielding this new tool in our toybox, but I do think Bad Habits, Hard Choices makes a strong case for restructuring VAT. And this is surely a good moment to be thinking seriously about the tax system as a whole and whether it’s helping or harming society.

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Taxing for well-being, not ill-being

Taxation is in the news – and a plug for my colleague Rachel Griffith’s recent RES lecture on the taxation of multinationals is in order given today’s headlines about Google. John Gapper was spot on in his discussion about this in the FT today (£), Alphabet and Apple Spell Global Tax War: “Multinationals, especially US corporations subject to America’s dysfunctional tax laws, stretched rules to the point where the result appals taxpayers.”

Important stuff. But even bigger news is the publication tomorrow of the latest in our Perspectives series, Bad Habits, Hard Choices: Using the Tax System to Make us Healthier by David Fell.

It’s a highly persuasive argument that the government shouldn’t hesitate to reshape taxation to make good foods cheaper and bad foods dearer. I particularly like this endorsement from David Cadman, Visiting Professor at University College London and the University of Maryland: “The fact that I read, at one sitting, a book on VAT is a tribute to Fell’s ability as a writer.  I liked the book very much – original, informative and well argued.” Of course the recent discussion about a sugar tax is relevant, but David’s case is broader. It isn’t just corporation tax that’s dysfunctional. So is VAT, a large government distortion of market prices contributing to ill-being, not well-being.

Inequality and the seeds of destruction

I’ve been reading Branko Milanovic’s new book Global Inequality: A New Approach for the Age of Globalization. I’ll be reviewing it for the journal Democracy, not for here.

It adds to a recent literature on inequality, of which Thomas Piketty’s Capital in the 21st Century is the best known, but also includes some excellent books with a lower public profile – Anthony Atkinson’s Inequality and François Bourguignon’s The Globalization of Inequality. I liked the Atkinson book especially for its down-to-earth list of supremely practical policy proposals to reduce inequality. About the Milanovic book I’ll just say for the moment that it will be another must-read on the subject, and includes a super-clear overview of the global income inequality data as well as a persuasive analysis of the forces driving inequality trends (far more persuasive than Piketty’s determinism).

 

Why now? The answer to that is surely events; a degree of inequality tolerable when the economy was booming is intolerable now there is less growth. Does it matter? Just read Martin Wolf’s sobering column today (£) (The Economic Losers Are in Revolt Against the Elites) to appreciate why it might. These are fragile times, whether you look at migration, climate change, global epidemics, demography, populism – exactly the circumstances when you would want people to be pulling together rather than diverging into separate worlds (Davos-land, middle England or America, refugee camps) due to such big differences in income. Milanovic’s book lends weight to Wolf’s pessimism: “If western elites despise the concerns of the many, the latter will withdraw their consent for the elite’s projects. In the US, elites of the right, having sown the wind, are reaping the whirlwind. But this has happened only because elites of the left have lost the allegiance of swaths of the native middle classes.”

Food, glorious food

I’ve been reading Hamburgers in Paradise: The Stories Behind the Food We Eat by Louise Fresco – slowly, in the (brief) window between going to bed and falling asleep because although a gorgeously produced and fascinating book, it’s too heavy to carry around.

The book is stuffed full of fascinating stories and facts. It isn’t a history although it contains much history. The chapters take themes, starting with accounts of (food in) Paradise and the fall, with others covering subjects such as biodiversity, scarcity, plenty, bread, fish, obesity. The broad arc of the narrative, though, is the eventual escape from a Malthusian world via the progressive industrialisation of food production, and the questions now about sustainability and the quality of our food and our well-being. Can we return from the hamburgerized modernity to a paradise of moderation in abundance? I haven’t quite finished so don’t yet know her answer.

And the facts! I had no idea that yields in the Netherlands were 10 tons of wheat per hectare, compared with 1-2 tons in Portugal, while rice yields are 7-8 tons per hectare in China and just 4-5 tons in the most fertile parts of India. Who knew you could develop a fatal anaemia from eating broad beans – which on the other hand offer some protection against malaria? But the book is no nerdy tome on farming; its main theme is the culture of food, of growing it and eating it – I’m just picking out examples that appeal to my nerdiness. A lovely book.

 

Sharing the economic growth

Thanks to a recommendation from Martin Wolf, I’ve just read Theoretical Welfare Economics by J de V Graaff, a 1971 reprint of a 1957 primer on this subject – Martin told me it had been his university text. While in my undergraduate course we certainly covered welfare economics, it was as a settled body of knowledge, and I don’t recall reading anything like this on the earlier debates.

It’s a very clear and interesting discussion – succinct too, at about 150 pages. One of the most interesting aspects is how comprehensively the author demolishes the idea that questions about the size of the economic pie and its distribution can be separated. He lost the argument in later economics of course – economists assume, and often state, that these are separable. However, the strength of Graaff’s counter-argument is evident. At the formal level, he covers the inconsistency of the Kaldor/Hicks notion that losers from a change in allocation can (potentially) be compensated – Skitovsky originally showed that the (potential) Pareto optimality of any change depended on the initial distribution. (Here is a good Interfluidity explanation.) But the book also explains it far more intuitively:

“In a one commodity world some definite meaning could be attached to a phrase like ‘the size of national income'; and we could legitimately  say that welfare depended on the size and the distribution of this one commodity. But as soon as we leave a one-commodity world this ceases to be true. There is no unambiguous meaning we can attach to ‘the size of national income’ when we have a heterogeneous collection of goods and services. How can we combine the various goods into a single quantity that can be said to have a ‘size’? By weighting them and striking an average? This is certainly a possibility. But we can only get the relevant weights from a welfare function; and if we have the usual Paretian one … it will only tell us what weights to use when the distribution of goods among members of the community is given. Only in a very limited sense can welfare be said to depend on ‘size’ and ‘distribution’ – for the two elements are no longer independent and cannot be separated out.” [my italics]

He adds that the index numbers usd in constructing national income cannot be an indicator of change in welfare – they simply provide information relevant to a balanced judgement. “Index numbers of aggregate output or consumption should always be supplemented with information about the distribution of income and wealth – and also with separate indexes of investment, personal and collective savings, and expenditure on collective goods like defence. The more informatio made available, the more likely it is that a balanced judgement will be obtained.”

So here I think we have one of the earliest arguments for the ‘dashboard’ approach to measuring economic progress. But also an irrefutable case – with as many singing and dancing cross-partial derivatives as you like – for never leaving income distribution out of an assessment of how the economy is doing.