Wednesday, April 18, 2012

It Would Be Sweet If the Government Stopped Regulating Sugar

"Government knows best." 

"Government must do something."

I hear it all the time. People think that the government is some omniscient, omnipotent entity that can solve our woes. The sugar industry doesn't get a pass. The government thinks it can manage sugar. "Sugar is a fragile commodity, so we need some form of protectionism." Or in a similar vein, "Sugar is causing the obesity epidemic. Government needs to step in and make sure people are consuming less sugar." I know this is going to shock some people, but not only is government intervention in sugar not necessary, but it's not helpful. What I would like to do here is look at two facets of government controlling sugar: the tariffs for Big Sugar and the attempts to control citizenry's sugar consumption. 

Sugar Tariffs
The American government has been regulating sugar since the inception of this country, and has continued ever since. Currently, the government imposes a tariff-rate quota on foreign sugar in hopes to protect the American sugar industry. For those who are familiar with economics, it shouldn't surprise us that as a result, U.S. prices are higher than the world average (note Tables 2 and 6 in USDA data). Higher prices do not only affect consumption. If prices are higher, then confectionary companies feel the need to move their production elsewhere since it's cheaper, which translates into less employment in America. 

As the International Trade Association, which is part of the U.S. Department of Commerce, released an indicting report against sugar protectionism. It was not simply the millions of dollars that this policy costs us, and that eliminating the program would provide us $1B per annum. My favorite line from the study is that economic literature "suggests that eliminating sugar quotas and tariff rate quotas and allowing sugar to enter the United States duty free would result in economic gains in the form of increased domestic food manufacturing production and U.S. exports, gains for consumers, taxpayer, savings, and a net positive effect on U.S. employment (p. 11)."

What we see right now is yet another example of "crony capitalism," or an instance in which Big Business colludes with Big Government. The only ones who benefit here are Big Sugar and the government officials who receive political contributions. If we do away with this protectionism, we not only help the food industry, but we also provide the consumer more affordable food.

Controlling Sugar Consumption 
It's simply not enough for the government to pick winners and losers in the market. There is also a call to "regulate sugar like alcohol." A sugar tax, or more specifically, a soda tax, is a "popular idea." Since the demand for sugar is highly inelastic, then a tax on sugar in going to be highly ineffective. Furthermore, you have to deal with unintended consequences, the primary one being that it will disproportionately affect the poor because they disproportionately consume soda. Plus, the effects of weight loss as a result of the tax have been marginal at best

Advocates for the soda tax have also not considered the substitution effect. In the off-chance that the tax is so high that soda becomes unaffordable, don't you think people will find something else to drink that will taste just as good and comparably unhealthy? If the government decides to heighten its crusade against sugar, won't people find substitutes, such as fatty or salty foods, because they want something just as tasty to eat? There are plenty of foods that can decrease overall health quality. How far will the government have to go in order to fight obesity? 

The causes of obesity are complex. However, does that mean the government should be thinking of increasingly invasive ways to regulate sugar? Of course not! It's not as if someone was forcing Americans to consume such high levels of sugar. Consumers consciously make those decisions. This is where freedom comes into play. In a relatively free country such as this one, we choose what we want to eat. What accompanies that choice is consequences of that consumption. If you want to stuff your face with fatty and sugary foods because it tastes better, that's fine. If your medical bills increase as a result, that is something you would need to deal with. In a free society, those costs would be private costs. We do have Medicaid and Medicare, which makes many of those costs spill over into society and turn into social costs (i.e., our health care system is not completely free). If we scaled back or completely eliminated these programs, sugar consumption would go back to being a private cost, which would make such regulations completely unnecessary.

Individuals are ultimately responsible for their diet, and as such, consumers should be informed of what constitutes a healthy diet. The Internet provides us a wonderful opportunity to self-educate. After a brief search, I found this site from Web M.D about healthy diets. It's easier than ever to find information, which minimizes the excuse of "information asymmetry." But again, this does not give the government the excuse to excise further taxes or come up with more failed ideas that make our government more and more intrusive. In a free society, one can complain about someone's dietary practices until the end of time, but that doesn't mean altering individual's consumption patterns and forcing one's idea of what a good diet onto society. 

It would be sweet for the government to stop finding new ways to regulate citizen's health and diet. Awaiting the Supreme Court decision on Obamacare makes me wonder about the direction of this country's healthcare system, but can't a guy dream for less government intervention in the meantime? Come on, gimme a break!

9-8-2014 Addendum: I would like to add this study from the American Enterprise Institute, as well as a recent report from AEI.


  1. Nice post. You didn't mention one of the more interesting results of the high US sugar tariffs. Because sugar prices are so high in the US, food manufacturers find it advantageous to substitute high fructose corn syrup in place of sugar. In most other countries, they routinely use sugar for purposes where HFCS is used in the US, because it's cheaper.

    While I'm with you on the libertarian point of keeping government out of the business of telling us what to eat, I'm not sure I buy the economics of a sugar tax that you present. You say that because the demand for sugar is highly inelastic, a tax on sugar isn't going to be effective.

    First, if you check the source of the data behind the link you show, you see that the data is from 1953-1983. Given the lack of good substitutes for sugar in that period (was saccharine the only artificial sweetener for most of that period?), it's likely that the elasticity has increased since then. Wikipedia has an interesting article on HFCS that has a nice graph showing how the consumption of sugar plunged, and the consumption of HFCS shot up after the sugar tariffs were implemented in the 1970's. That seems to back an argument that sugar demand is anything but inelastic - though it's possible that the demand for sweeteners in total is rather more inelastic.

    Second, if the tax is on soda, rather than sugar, most proposals exclude diet sodas, which are very good substitutes for regular soda, and so the tax might be highly effective, in the sense of inducing a switch from regular to diet soda (though it's a whole separate question whether the tax will really lead to less obesity).

  2. Gary, I thank you for your comments. They were quite helpful. How I didn't notice the obsolescence of the cited elasticities, I'll never know. After reading your comments about elasticity, I realized how inelasticity would conflict with the idea of the substitution effect. Since one could substitute soda or any other sugar-based good with something else quite easily (i.e., increased elasticity), I would agree with you about sugar being a more elastic good. I'd be curious to see how much corn subsidies distort the elasticity of corn and the extent to which the subsidies make fructose corn syrup cheaper than refined sugar. I would guess that if the government stopped subsidizing corn the way it does, less foods would be made with corn syrup, which would most likely mean healthier eating options.