Published in Financial Post, August 17, 2001, p. C-15
When tobacco companies claimed that there was no evidence that smoking was dangerous to smokers' health, they were scolded as liars. Now that they have been bullied into admitting that they are nasty while politicians and bureaucrats are nice, they are attacked for drawing the public finance conclusion that smokers statistically die younger.
The reactions to Philip Morris's study on the Public Finance Balance of Smoking in the Czech Republic tell us more about the weight of politically correct opinions than about the economics of smoking. Media reports notwithstanding, the study does not claim to be a cost-benefit analysis. It only purports to analyze the impact of smoking on public finance in the Czech Republic.
The study estimates that Czech tobacco tax revenues are 29% higher than health care and other publicly financed costs of tobacco-related diseases and mortality. It is consistent with a large number of studies done in many countries over the last 20 years.
Over the first half of this period, public health specialists who claimed to measure the social cost of smoking monopolized the debate. Their literature claimed that non-smokers had to pay for part of the cost of smokers' health care. But they double-counted some costs and neglected savings or benefits.
Their arguments were empirically demolished in the early 1980s when economists Robert Leu and Thomas Schaub showed that, in their life cycles, smokers do not incur larger health-care costs than non-smokers, because non-smokers statistically survive longer and incur large health-care costs after smokers have died. If we factor in tobacco taxes and savings in old age public services (pensions, etc.), smokers actually subsidize non-smokers, not the other way around. A large number of studies in other countries confirmed these findings.
These studies have been so persuasive that even the World Bank, which started an anti-smoking crusade in the early 1990s, seems to accept them. Its 1999 report skirts the issue by talking about "conflicting conclusions," "contentious" issues, and costs that are "more difficult to identify and quantify." A survey published more recently by World Bank researchers excludes tobacco taxes in order to be able to conclude that smokers do not pay their way!
Defeated on their own grounds, anti-smoking activists changed their tactics. They started arguing, as MIT Professor Jeffrey Harris did in 1993, that "[T]his is not the kind of calculation that a civilized society engages in." Observe the irony again: After attacking smokers as a financial burden to non-smokers, anti-smoking advocates now claim that it is immoral to consider the contrary empirical evidence.
The real question from a public policy viewpoint is whether there is a net social benefit or a net social cost of smoking, after netting out whatever intrasociety transfers are made. This complex issue eventually boils down to a simple question: Who is better placed to decide what an individual will do with his life, the individual himself, or the Nanny State's politicians and bureaucrats?