Crampton on alcohol prices

April 30th, 2014 at 12:00 pm by David Farrar

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Imagine that hazardous drinkers really really cared about the price of . If you increased the price of just a little bit, they’d stop drinking harmfully. Imagine further that moderate drinkers didn’t respond very much to prices: what does it matter to the rich Chardonnay-sipping set if a bottle is $8 or $40? If that were the true state of the world, we would have a very simple solution to problems: hike excise taxes. Harmful drinkers would stop drinking and would stop doing -related harmful things; moderate drinkers would pay more but that would just be tax revenue for the government. Since they wouldn’t change their consumption by very much, deadweight costs would be pretty small relative to the harms avoided. Yay taxes!

But is the assumption that heavy drinkers are more price response true?

Unfortunately, the world don’t quite look like that. Our best evidence on it remains Wagenaar’s metastudyshowing that heavy drinkers respond to a 10% price hike by reducing consumption by 2.8%; average consumption drops by 4.4% with the same price increase. Moderate drinkers respond more to price increases than do heavy drinkers.

The answer is no.

Enter the NZ Government report on excise and minimum pricing. Fortunately, the Minister has more sense than her Ministry and hasn’t gone ahead with minimum pricing; hopefully, she’s not looking at excise. What’s the problem with the report? They started by assuming that heavy drinkers are more responsive to prices than are moderate drinkers.

So why would you assume something that is not backed by the evidence?

And they know it’s wrong. Here, at Table 5, they show the general consensus of the international literature: heavy drinkers don’t respond to prices nearly as strongly as do moderate drinkers. …

Bottom line: heavy drinkers are roughly half as responsive to prices as are moderate drinkers. That’s page 20. And they cite Byrnes accurately at page 21.

So they know their assumptions are wrong, yet they still used them?

But then what do they go and do? They started by trying to get SHORE to estimate NZ elasticities, but something went wrong there: the elasticities were completely out of whack with reality. Reading between the lines at page 25, it looks like SHORE was using the increase in purchases of products on special at supermarkets as part of its price elasticity estimation, and that just ain’t right. If you switch brands because something’s on special and buy more of it than you otherwise would have, that isn’t the same effect as you’d expect for across-the-board price changes you get with excise or minimum pricing.

Way different things. I might buy more Coke rather than Pepsi when Coke is on sale. But that doesn’t mean if the price of both Coke and Pepsi increases that I’ll buy less overall.

The report agrees the NZ figures are wrong:

“It was decided that the significant reductions in consumption estimated using NZ elasticity estimates are not a realistic representation of what is likely to happen in reality and are contrary to all international evidence of the responsiveness of alcohol consumers to changes in price.”

Yet …

Rather than discard the completely nuts NZ numbers, they let those figures stand and added alternative numbers as robustness checks. Those big headline estimates you’ve been seeing in the papers about just how awesome excise is? They’re based on the numbers that, according to the report, “are not a realistic representation in reality and are contrary to all international evidence of the responsiveness of alcohol consumers to changes in price.

Example? A 133% excise hike means about a 40% increase in the cost of low-priced beer, a 44% increase in the cost of low-priced wine, a 45% increase in the cost of low-priced RTDs, and a 103% increase in the price of low-cost spirits. The heavy drinkers SHORE estimated a 61% reduction in harmful consumers’ consumption with that tax hike. So they’re saying that harmful consumers are more than unit elastic. That’s just not right.

I’m glad we have someone who can analyse these reports, and point out the errors in them. we run the risk of flawed decisions being made on the basis of flawed analysis.

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30 Responses to “Crampton on alcohol prices”

  1. gazzmaniac (2,317 comments) says:

    The question that needs to be asked is why did the ministry commission a meaningless report?
    What a waste of fucking money.

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  2. gump (1,491 comments) says:

    I don’t have a problem with sensible minimum prices being mandated for alcohol.

    I’ve had some dealings with people in the late stages of alcoholism and it’s well known that they plan their alcohol purchases around maximising the alcohol/dollar ratio.

    My local supermarket often has beer discounted to a price that is lower than bottled-water (i.e. below $3 per litre). I don’t think that society benefits from such low prices.

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  3. kowtow (7,653 comments) says:

    Bollocks.

    The market should set the price.

    If a couple of fucken alcos and a bunch of callow youth can’t handle their drink that’s not my problem.

    Hi, I’m from the government and I’m here to help. Fuck off.

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  4. Kea (11,878 comments) says:

    gump, who gives a shit what you “think” or what Nanny State thinks ? It is none of your business. The rest of us should not have the force of law imposed on us because of what a few self absorbed control freaks “think”.

    “The market should set the price.”

    Katies radical idea might actually work !

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  5. gump (1,491 comments) says:

    @kowtow

    “If a couple of fucken alcos and a bunch of callow youth can’t handle their drink that’s not my problem.”

    —————————————

    It is your problem. Because our society – of which I presume you are a contributing member – bears most of the cost for the misuse of alcohol.

    The Police carried out a study in 2010 that estimated:

    * one-third of all police apprehensions involve alcohol
    * half of serious violent crimes are related to alcohol
    * over 300 alcohol-related offences are committed every day

    When you take into account factors like the cost of treating illness and injury, lowered productivity, and the cost of policing – we’re easily spending a couple of billion per year on dealing with the consequences of alcohol abuse.

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  6. leftyliberal (642 comments) says:

    “If a couple of fucken alcos and a bunch of callow youth can’t handle their drink that’s not my problem.”

    Except for the fact that you pay for the damage they cause themselves (and others) from your taxes, whether that be as part of alcohol excise or general taxation. It’s not a zero-sum game, so prevention should probably be considered as part of the solution. It seems reasonable to suggest that part of it is funded by the product that causes the damage.

    Whether or not the level of these taxes should increase is an argument to be had. The data suggests that heavy drinkers tend to be less sensitive to pricing. Is that true of all heavy drinkers, in particular young heavy drinkers (assuming young heavy drinkers are the target group?)

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  7. Kea (11,878 comments) says:

    gump, so the only thing keeping you from getting drunk and; beating, raping, wrecking property, driving drunk, is the Nanny State ?

    I am frightened by you gump !

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  8. gump (1,491 comments) says:

    @kea

    “gump, who gives a shit what you “think” or what Nanny State thinks ? It is none of your business. The rest of us should not have the force of law imposed on us because of what a few self absorbed control freaks “think”

    ———————————

    The misuse of alcohol imposes massive costs on society. This is a verifiable fact.

    The Government has a legitimate interest in minimising the social costs from the misuse of drugs like Alcohol, and therefore has the right to regulate their use.

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  9. Kea (11,878 comments) says:

    gump, indeed it does impose a massive cost. I think it is a disgrace myself.

    I also think that about poor diet and exercise, the leading cause of preventable death and sickness. Should the government FORCE people to run and eat State approved foods and if not, WHY ?

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  10. kowtow (7,653 comments) says:

    Yep

    I pay for all the alleged damge that drinkers do ( hasn’t made any fucken differnce) so gummint wants me to pay even more….

    …..there may be some logic there but I don’t see it.

    By the way ,we’ve always had booze ,but not the recent amount of mayhem we see in society today.

    Booze abuse is the symptom ,not the cause.

    I blame “progressives” for the mayhem. Government is a big part of the problem and is certainly not the solution.

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  11. gump (1,491 comments) says:

    @Kea

    “I also think that about poor diet and exercise, the leading cause of preventable death and sickness. ”

    ————————————

    Tobacco is the leading cause of preventable death in New Zealand.

    Which is why the Government also regulates its sale and use.

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  12. Kea (11,878 comments) says:

    gump, no Tobacco is NOT. It used to be [well that was the claim], but not now.

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  13. Odakyu-sen (442 comments) says:

    ”The misuse of alcohol imposes massive costs on society. This is a verifiable fact.”

    Rather, the government imposes massive costs* on society when it steps in to right the wrongs done by individuals who misuse alcohol.

    *costs in monetary terms

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  14. Kea (11,878 comments) says:

    gump you forgot to answer this one:

    Should the government FORCE people to run and eat State approved foods and if not, WHY ?

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  15. Manolo (13,396 comments) says:

    I don’t think that society benefits from such low prices.

    Who the fuck are you to impose your wish on others? Just another do-gooder and tinpot dictator in waiting!

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  16. gump (1,491 comments) says:

    @Kea

    “gump, no Tobacco is NOT. It used to be [well that was the claim], but not now.”

    ——————————

    Tobacco is the leading cause of *preventable* mortality in New Zealand.

    You can verify this with the Australian and New Zealand Atlas of Avoidable Mortality. I only have the 2006 edition to use as a reference, but given that smoking rates haven’t changed significantly since 2006 it’s fair to assume that the mortality rates won’t have unchanged.

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  17. gump (1,491 comments) says:

    @Kea

    “Should the government FORCE people to run and eat State approved foods and if not, WHY ?”

    ———————

    We are already eating state approved foods and have done so for decades.

    Every aspect of the commercial food-supply chain is heavily regulated via legal instruments such as the Australia New Zealand Food Standards Code and the Food Act 1981. There is also secondary legislation which is intended to minimise and manage food-supply risks to human health such as the Animal Products Act 1999, the Agricultural Compounds and Veterinary Medicines (ACVM) Act 1997, and the Wine Act 2003.

    We live in a highly regulated world. It’s hilarious that you don’t appear to realise this.

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  18. RightNow (6,676 comments) says:

    So who the fuck are SHORE?

    SHORE is a multi-disciplinary group undertaking policy and community research and evaluation on a variety of health and social topics.

    http://www.shore.ac.nz/massey/learning/departments/centres-research/shore/shore_home.cfm

    It seems they’re expert troughers.

    Research and evaluation carried out by SHORE and Whāriki has been funded by numerous sources including the Health Research Council of New Zealand, Ministry of Health, the World Health Organization, Ministry of Social Development, Ministry of Business, Innovation and Employment, Marsden Fund, Building Research Capacity in the Social Sciences, Health Promotion Agency, New Zealand Police, Auckland Council and the ASB Trust.

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  19. Bill Ted (80 comments) says:

    Yep, SHORE basically just take Govt funding and churn out ‘research’ that suits their political viewpoints. This is certainly one of the better examples I’ve seen.

    Gump, actually smoking rates have significantly declined in New Zealand over the past 10 years and the leading cause of preventable death here is now heart disease etc from bad diets/lack of exercise. If I had the inclination I would do the proper thing and link to the relevant reports but I’m too fat and lazy. You’re right on one thing though, we already live in a heavily regulated society. Not a good thing.

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  20. Kimble (4,383 comments) says:

    I don’t have a problem with sensible minimum prices being mandated for alcohol.

    No matter the cost?

    I don’t care how many alcoholics you know, there is no justification for ignoring the costs of the policy.

    I’ve had some dealings with people in the late stages of alcoholism and it’s well known that they plan their alcohol purchases around maximising the alcohol/dollar ratio.

    Then you would care about something that would make it more likely to INCREASE binge drinking, right?

    Well, a price increase may very well cause people to forsake casual drinking and intensify consumption when they do drink. That way they get the biggest bang for buck.

    As Eric wrote:
    Even worse, Byrnes et al show that heavy drinkers’ price responsiveness mostly comes from their reductions in drinking on low-drinking days: they basically save up to be able to continue binging on the weekend.

    Another case of unintended consequences.

    When will people recognise that the obvious solutions based on their natural assumptions and conventional wisdoms almost always have the opposite effect they are intending?

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  21. Kea (11,878 comments) says:

    gump, okay I will accept your claims.

    So what degree for force should be used to make people comply with your views ?

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  22. edhunter (498 comments) says:

    The act of getting old imposes massive costs on society. This is a verifiable fact.

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  23. Psycho Milt (2,269 comments) says:

    The disabled are also well-known imposers of costs on society. What’s the government going to do about it, I’d like to know?

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  24. Manolo (13,396 comments) says:

    Psycho, defender of the poor, and born-again wowser speaking. Live and let live, comrade.
    Fortunately or unfortunately, consequences in life are inevitable.

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  25. Steve (North Shore) (4,500 comments) says:

    I’m power drinking as I read these musings by expert corksoakers who wish to control my life and how much I pay for my power drinking.
    How about fuck off out of my life? and other responsible peoples lives?

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  26. Steve (North Shore) (4,500 comments) says:

    When I first browsed this I thought WTF would Eric Clapton know about drinking? He plays a guitar and has done some heavy shit, but not so much drinking.
    The I re read and find Eric Crampton, an expert, nosy, interfering, do gooder socialist who thinks his way is the only way.
    Get a haircut and get a real job mate

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  27. Monique Angel (252 comments) says:

    Gump. People drink to excess because Helen Clark held the reins of power for so long, not because of the price of alcohol. Socialism churns out alcoholics.

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  28. mikenmild (10,766 comments) says:

    This was a really interesting post, and somewhat interesting discussion. I had not realised the variation in price sensitivity would make such a difference to drinking behaviour. I wonder though if there is still scope for excise tax being more targeted in pursuit of consumption reductions.

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  29. Left Right and Centre (2,823 comments) says:

    My local supermarket often has beer discounted to a price that is lower than bottled-water (i.e. below $3 per litre). I don’t think that society benefits from such low prices

    Who would buy bottled water ? Idiots. And anyway – even heavily discounted – that would make a dozen beer about $12 or less. I don’t often see that myself and I shop at cut price low as fuck socio-economic shitholes just about every single ding dong fuckin day mate.

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  30. Psycho Milt (2,269 comments) says:

    Psycho … born-again wowser…

    …Eric Crampton, an expert, nosy, interfering, do gooder socialist…

    Wow – astonishingly poor reading comprehension on this thread…

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