Estonia to Raise Alcohol Taxes
- posted by Jim Leitzel @ 9:27 AM

OK, I recognize that if you haven't been following this issue for years, the title of this post does not promise much excitement to follow. And your suspicion, alas, would be correct. But for the interested Vice Squad reader, this BBC News article will prove informative.

The Estonian tax rise will hold repercussions for Finland, which felt compelled to decrease its high alcohol taxes prior to Estonian entry into the EU. The tax rise from Tallinn will probably engender an alcohol tax increase in Finland, too; Finland has seen a significant increase in alcohol-related problems since the tax cut, though perhaps the worst is behind them.

The linked BBC article contains a quote from someone at the Finnish health ministry that employs two frequent Vice Squad tropes, that of alcohol (and vice goods more generally) not being "ordinary" commodities and a comparison with one specific ordinary commodity, ketchup. Warms my heart:

At the Finnish health ministry Ismo Tuominen, in charge of devising new alcohol legislation, says the 2004 tax cut was a mistake - but that Finland is helpless to tackle its growing alcohol consumption.

"EU legislation is at the root of our problems," he says. "They treat alcohol like an ordinary product, like tomato ketchup or milk. They have to allow us to develop a health-based policy on alcohol - so we can limit the now limitless possibilities to bring alcohol in from other EU member states."

These comments are in league with the points recently raised by Dani Rodrik and Vice Squad.

The blog Finland for Thought currently sports a cornucopia of vice-policy-related posts. (First I wrote that the blog "currently hosts" those posts, but I found the rhyme to be troubling.)

Labels: alcohol, Estonia, EU, Finland, Rodrik, taxes

 
US-Antigua WTO Dispute in the Times
- posted by Jim Leitzel @ 1:39 PM

Dani Rodrik points us to an article in today's New York Times on the WTO case between Antigua and Barbuda and the United States. One point that the article does not make clear -- indeed, it sort of suggests the opposite -- is that for the most part, the US won the case. But it does note the stonewalling tactics of the US on that portion of the dispute, primarily concerning internet betting on horse races, in which Antigua prevailed.

Existing domestic vice controls, for all of their faults, represent a sort of evolved equilibrium that in part tries to deal with the social costs of vice. Allowing these controls to be trumped by trade treaties is dangerous, as Vice Squad continues to proclaim. Undoubtedly it would be possible to imagine a world in which a nation's chosen approaches towards vice could be made consistent with trade non-discrimination principles. But allowing those principles to overturn the existing equilibrium, before the first-best system of rules is worked out, puts a country at risk of a difficult transition that might involve much higher social costs of vice. And this dynamic in turn will put trade openness at risk. Dani seems to agree:

To me, this is another example of how existing WTO practices are leading to the narrowing of policy space to the detriment of legitimacy (and economic logic). When the system serves to enforce new restrictions on domestic policy autonomy that would be wildly unpopular at home, it is time to rethink the system.

Dani couches his reaction by invoking the "residual rights of control" approach to ownership. This is not an approach I have ever found to be particularly compelling, though I imagine that I am missing something obvious. Imagine that there is an asset over which there are two payoff-relevant dimensions of use, say, intensity and duration. We write a contract that says that I get to choose intensity and you get to choose everything else. Then by the "residual rights" approach, you are the owner. Now imagine the (equivalent, by stipulation) contract that gives you the right to choose duration, and I can choose everything else; handy dandy, I'm the owner?

Labels: Antigua, gambling, internet, Rodrik, WTO

 
Free Trade and Vice
- posted by Jim Leitzel @ 11:06 PM

Dani Rodrik, Tyler Cowen, and others, have been debating the merits of trade controls. (Economists tend to support most movements towards freer trade, so to non-economists the debate might sound a bit like arguments among various Trotskyite factions.) But their debate presents another opportunity to talk about the intersection between trade policy and vice policy. (Here’s one of the more recent harpings on this issue, from December 3, 2006.) The bottom line, for me, is that for the traditional vices, I am very chary of allowing commitments to free trade to override domestic vice controls.

The fact that alcohol, tobacco, gambling, drugs, and other traditional vices have been problematic for hundreds of years is strong evidence that these are not ordinary commodities. Any standard liberal policy orientation, whether it be towards free trade, free speech (advertising), or free competition (antitrust), comes under significant pressure when faced with these troubling habit-forming goods. To insist on one-size-fits-all policies, applicable to ketchup and alcohol alike, is apt to produce outcomes that are sufficiently undesirable that liberalism in general (including free trade) might be discredited, or motivate a policy shift to strikingly illiberal policies (such as prohibition) targeted specifically at the vicious goods or activities. Vice should operate as an exception – a limited exception, but a clear one – from many of our more general policy doctrines.

Unfettered trade typically serves the interests of domestic consumers, while lowering the relative prices of imported goods. When it is vice goods that are among the imports, however, we are much less certain that consumers, as well as society more generally, are made better off. The lower prices will lead to more consumption, and if that consumption is both “rational” and does not have significant externalities attached, then the usual presumption that domestic consumers are made better off should apply. But vice goods are sufficiently marked by both potential departures from rational consumption and by externalities that there is good reason to question the standard presumption. The laudable ends that generally are served by commitments to free trade (and free competition and free speech) are not similarly served in their application to vice.

So I believe in vice policy exceptionalism. In practice the question often will amount to whether the exception is made by banning the vice good (and its advertising and trade, of course), or by allowing the vice while controlling competition, trade, and advertising. That is, vice policy exceptionalism is all but inevitable: the only issue is what form it will take. I prefer that vice constitute a differently treated legal activity, while prohibitonists prefer to make vice goods exceptional via illegality. Allowing free trade to trump domestic vice policies will tend to bolster the hand of the prohibitionists, perhaps leading to more constraints upon trade than my version of vice policy exceptionalism. But this is dangerously close to the sort of political argument at which economists have no expertise!

Much more can be said along these lines, especially concerning the possibility that allowing a vice policy exception will result in an expanded definition of vice, one that covers all goods and services that meet with official displeasure -- thereby hollowing out our overall commitments to free speech, trade, and competition. But that discussion is for another day.

The current manifestations of this debate have been a Vice Squad staple. They include the US-Antigua internet gambling case (March 31, 2007), EU alcohol rules (February 19, 2007), and snus (February 7, 2006).

Labels: free trade, Rodrik

 
The Blogosphere Becomes Wiser and Classier
- posted by Jim Leitzel @ 12:05 AM

Renowned economist Dani Rodrik, an old friend of Vice Squad, has started to blog. Welcome to the world of misplaced priorities, Dani; oh no, already checking your web traffic?

A link from Dani Rodrik's blog also alerts us to the fact that Rodrik is the first winner of the Albert O. Hirschman Prize. Congratulations to Dani and bravo to the selection committee. This news really pleases me because I have profited immensely from both of these scholars. My students are used to my lengthy encapsulations of some of Hirschman's notions, and my 2003 book was largely an application of Hirschman's ideas concerning exit and futility. Among the things I have learned from Dani is to be more assiduous in questioning how much of my faith (and the faith of other economists) in free markets and market-style solutions is just that, faith, as opposed to being an honest appraisal of the evidence.

Thanks to Tyler Cowen at Marginal Revolution for the pointer; Tyler in turn thanks Gregory Mankiw.

Speaking of the triumphs of old friends, though it deserves a post of its own, I will append it here. Co-blogger Mike was the first to inform me that another old friend, Susan Athey, was awarded the very prestigious John Bates Clark Medal, to the best American economist under the age of 40. Congratulations to Susan as well. [Now feeling guilty about underplaying the significance of Susan Athey's award. The Clark Medal is a recognition that her work is of the highest order, a fact that was already well-known within the economics profession. I am in awe of her abilities and accomplishments.]

Labels: Rodrik, solipsism