Here’s my article for yesterday’s Crikey.

The media inform us that the Rudd Government is adopting the world’s most draconian cigarette packaging regulation and requiring cigarettes to be sold in plain packages from January 2012. Good on it. When I was on the Productivity Commission (then the Industry Commission) inquiry into Packaging and Labelling the same policy came before us and I sold it to the team and the other commissioner, Morrie Joyce.  We took it to a full Commission meeting and nearly got our strongly worded recommendation through.  However as I recall, the draft recommendation was written up in an elaborate way and after nearly going through, one Commissioner started questioning some small part of it, and then others chimed in. In the end it got unpicked and was dropped.

More comprehensively removing the right to advertise and make cigarettes attractive was always good policy. Higher cigarette taxes may be sensible policy but some of us support them with a heavy heart – such taxes are very regressive.  In fact, though our proposed recommendation was dropped, consensus was reached by having the text broadly supporting restrictions on marketing on cigarette packaging – effectively endorsing the kind of position that’s now been taken – but without a formal recommendation.

Purposes of product labelling include identifying the product, informing consumers and promoting the product. Promotion can increase a branded product’s sales in two ways. It can cause consumers to substitute between brands and it can increase the over-all consumption. For dangerous drugs (both therapeutic and non-therapeutic) identification and providing information are appropriate roles for packaging. Cigarette promotion on labels would appear to be inconsistent with the Government’s policy objectives, especially that of reducing exposure. . . .

Registrar of the Australian College of Paediatrics (ACP) has said that the ACP is confident that current research from abroad substantiates that generic packaging is effective and that:

… making tobacco more difficult to market would protect our young people from becoming addicted to what was arguably a lethal drug. (ACP 1995, p. 1)

As further research becomes available, governments should continue to consider constraints on the promotional value of cigarette labels if this could generate a substantial reduction in the level of smoking.

So there you have it. The PC was (quietly) ahead of its time.

My article for yesterday’s Crikey!

It’s been clear for a long while that we’ve picked a lot of the low hanging fruit available in traditional economic reform. Once tariffs get down below 10% not only are the gains from cutting them painfully slim compared with the gains from cutting 50% tariffs but there are also costs which may well outweigh them. Anyway even mentioning this tends to get people very excited. Right now we’re turning the focus on education and health. As a new area of reform it’s not surprising that there’s a bit of low hanging fruit around. Getting better quality teachers in education and focusing systems more on preventative health and reducing cost shifting are good candidates in health.) Still in these areas, the preponderance of social and ethical considerations both in how these services are consumed and produced means that we’ll never really know what’s ideal. Beyond the obvious, worthwhile reform will often be hard, uncertain work.

But there is still low hanging fruit. Information is just one example.  This government has taken hesitant steps to improve information flows in education. Meanwhile Paul Krugman bemoans the blatant conflicts of interest which undermined the integrity of ratings agencies. Ladies and gentlemen, trust me when I say to you that a free market is not the best way of generating information about integrity. Why? Because it’s free to embrace conflicts of interest as Moody’s and Standard and Poors did costing the world economy the odd trillion dollars.  That’s why governments have Auditors General.  Markets free to embrace conflicts of interest are not and never have been the best way of getting information about the integrity of our financial markets – whether this be by way of ratings agencies or the general auditing function. And they’re not the best way of getting good data on whether drugs work. But it’s the model we use.

Trouble is, as in health and eduction, other than identifying some of the worst abuses, it’s not clear what the best possible system is. But removing basic conflicts of interest is basic to picking the low hanging fruit. With Australia’s government having taken the gutsy step of running corrupt investment (cough cough) ’advisor’s’ commissions out of town, perhaps it can see it’s way clear to making this a general theme of reform.

From the NBER Digest: Calorie Posting in Chain Restaurants, Bryan Bollinger, Phillip Leslie, and Alan Sorensen

“Mandatory calorie posting influenced consumer behavior at Starbucks in New York City, causing average calories per transaction to drop by 6 percent.”

Nutrition labeling on packaged food has been mandatory in the United States since the early 1990s, and printing tiny lists on cans and bags has long been accepted practice. Yet, in spite of this improvement in providing information, the share of Americans who are obese has continued to rise, increasing from 15.9 percent in 1995 to 26.6 percent in 2008.

The fraction of calories consumed in restaurants also has risen in recent years. In 2008, New York City extended nutrition labeling to chain restaurants, requiring them to post clearly the number of calories in every one of their foods and beverages. In March 2010, new federal health care legislation mandated calorie posting for chain restaurants nationwide beginning in 2011. Will these point-of-purchase postings have any public health effect? Could menus with “350 calories” printed beside “eight grain roll” drive a consumer to buy a banana (100 calories) instead?

In Calorie Posting in Chain Restaurants (NBER Working Paper No. 15648), study authors Bryan Bollinger, Phillip Leslie, and Alan Sorensen ask whether mandatory calorie posting influences consumers’ purchase decisions. They use detailed data from Starbucks stores in New York City, where calories are posted; from Starbucks in Boston and Philadelphia, where calories are not posted; and from Starbucks stores throughout the nation. The researchers find that mandatory calorie posting influenced consumer behavior at Starbucks in New York City, causing average calories per transaction to drop by 6 percent (from 247 to 232 calories).

They also find that these effects are long lasting: after the posting began, the calorie reduction persisted for at least 10 months (the duration of the sample period). There is also evidence of persistent learning effects: commuters who lowered their calories per transaction on weekdays in New York City also lowered them in transactions at Starbucks outside the city, where calories were not posted.

The researchers also find that almost all of the calorie-reduction effects in Starbucks are related to food — not beverage — purchases. Following calorie posting, average food calories per transaction fell by 14 percent. The effect is larger for high-calorie consumers: individuals who averaged more than 250 calories per transaction reacted to calorie posting by decreasing calories per transaction by 26 percent — dramatically more than the 6 percent average reduction for all consumers.

Beverage consumption was largely unaffected by calorie posting. Consumers tended to underestimate the calories contained in Starbucks’ food and bakery items, but they overestimated the calories contained in Starbucks beverages. According to the researchers, consumers who discovered by calorie posting that an Iced Cafe Latte contains just 130 calories were pleasantly surprised — and continued buying.

Noting that calorie reductions on the order of 6 percent at chain restaurants would yield only modest decreases in body weight, the researchers suggest that the direct effect of calorie posting on U.S. obesity may be small. The most meaningful effect of the calorie posting law may be its long-run impact on menu choices, as restaurants will have an economic incentive to offer low-calorie options. The new policy may also benefit public health as consumers grow accustomed to counting calories and choose or demand healthier foods.

The study also explores how calorie posting affected corporate profits. The authors find that it did not cause any significant change in Starbucks’ overall revenue. At Starbucks stores located within 100 meters of a Dunkin Donuts store, revenue actually increased by 3 percent — suggesting that calorie posting may have caused some consumers to substitute away from Dunkin Donuts toward Starbucks.