How Candy Cigarettes Contribute to the U.S. Budget Deficit

Exhibit A. Candy Cigarettes for Sale

Gawker in 2010 said farewell to candy cigarettes. But the death of these products was exaggerated. They are still for sale. I would argue they have a high social cost and contribute to the  U.S. budget deficit.  Bear with me. Follow the dots from 1 to 4...

1. Candy Cigarettes for Sale Today to Children

Exhibit A at left is a product clearly marketed to children on several sites via Amazon, accessed in December 2011. Pre-pubescent children are pictured smiling at "World's King Size Candy". The candy cigarettes are wrapped in packs that look just like packs of cigarettes and have markings that imitate those of regular cigarettes. The candy does not have the red tip you may remember from your childhood, because, says a major candy-cigarette manufacturer (Blair), of a "Gov[ernment] ruling". The product, 24 packs of candy cigarettes in three rows of eight, weighs two pounds and costs about $5, sometimes more.

2. U.S. Budget Deficits Attributed to Rising Health Care Costs

Now let us turn to the budget deficit. Exhibit B was shown by an undoubted expert on U.S. deficits, Dr. Peter R. Orszag. He headed up the Congressional Budget Office from 2007 to 2009. Then he was appointed by President Obama as Director of the Office of Management and Budget.

Exhibit B. Health Care Costs Key to Budget Deficits

On November 15, Dr. Orszag explained to the New York Association for Business Economics (he is now Vice Chairman of Global Banking for Citigroup in New York) how medical care costs are almost entirely responsible for the worrisome federal budget deficit projections. The chart above, based on data from the Congressional Budget Office, makes clear that as a share of GDP, projected Federal spending on activities other than health care is not showing much of an increase. 


No, the scary projections of growing spending (and therefore growing deficits) come from one major spending sector, health care costs. Spending is shown in the chart as growing from 20 percent of GDP in 2007 to to one-third of GDP in 2082. But the growth is all in the top layer of spending, i.e., Medicare and Medicaid.


NYU Professor William Baumol warned 20 years ago that the cost of education and health care have been growing unsustainably because of the "cost disease" of high-labor-input activities such as teaching and medical care. The technological innovation and cost savings from international trade have made many items cheaper over time. But the labor inputs in health care have been much harder to reduce through technology or innovation. To bring health care costs under control will be a huge challenge for the U.S. government and medical-care providers. The options are limited. They include reducing the cost of health care procedures or rationing them. The other range of options is to limit demand for health-care services by providing more education to the public and doctors about the potential for making healthy life-style choices. Or the government could develop incentives for the public (consumers of health care services) to make better lifestyle or health-care choices.


3. Cigarette Smoking and Calorie-Heavy Eating Learned in Childhood

Two of the big drivers of higher health-care costs are cigarette smoking, which is usually begun during teen years, and obesity, especially an epidemic of childhood obesity. Private health and life insurers recognize the need to rein in these costs, and many give discounts to nonsmokers. The State of Arizona is probably the first state government to propose charging childless adults on Medicaid who smoke a $50 fee as partial compensation for the extra burden they impose on the state's health system. Here is Arizona's rationale, which includes a reference to medical problems caused by obesity.

Since the beginning of the recession, unemployment increased, State revenues decreased and enrollment in Arizona’s Medicaid program increased by more than 30%. The Medicaid program now makes up nearly a third of the State’s budget – second only to K-12 education. According to the Centers for Disease Control (CDC), 49% of Medicaid recipients smoke, in sharp contrast to the approximately 16% of Arizonans overall who are smokers; 25% of all Arizonans are obese. But what do those figures mean in terms of the cost of our health care? In 2004, taxpayers spent $377 million on smoking-attributable expenditures for the Medicaid population. Meanwhile, annual per capita medical spending for an individual who is considered obese is 42% higher than for someone who is of normal weight. That percentage translated to roughly $148 billion nationally in obesity-attributable medical spending in 2008.

The huge problem with smoking and obesity is that they are easy to start and hard to stop. Smoking cigarettes is addictive. Obesity, it turns out, is hard to reverse. A child that is obese is almost certainly going to be an adult that is obese. Pounds are easy to add and hard to shed.

A child that is eats poorly and does not exercise and becomes obese may as a teenager take to cigarettes because they don't add calories. The United States has a national challenge to tackle both teenage obesity and teenage smoking.  

4. The Social Costs of Candy Cigarettes Far Exceed Their Price

Given the role of health care costs in the economy, and the role of smoking and obesity in Federal, state and local government health care budgets, the true cost of candy cigarettes exceeds the price that consumers pay of $5 per carton or 20 cents per pack. The additional social cost is called a "detrimental externality" or a "negative externality" to the product. It is the cost of attaching glamor to cigarettes, of getting children used to something pleasurable continually in the mouth.


The connection created between cigarettes and candy goes both ways:
- It gets children used to taking long thin sticks out of convenient branded packs and putting them in their mouth for pleasure. This creates a predisposition for cigarette smoking among teenagers.
- It lends the stimulus of widespread advertising of cigarettes to candy. This encourages consumption of candy.


Remedies


If you are with me so far, the three approaches to changing public behavior are (1) a ban on candy cigarettes, (2) a tax, (3) exhortation to parents not to buy this product.
 
I thought maybe exhortation might work. So I put my head into the lion's den and posted some negative comments about candy cigarettes on the review page of a candy-cigarette product offered on Amazon. I asked: "What is the point of the candy cigarettes?" and I answered: "The point seems to be to get kids used to having a cigarette in their mouths..."


Here is a summary of the response I got:

- Of the 56 people who had commented on my review when I last looked, all of whom were presumably looking to buy candy cigarettes, none of them found my review helpful. That probably should not be a surprise, since some of the commenters may have an interest in sales of the candy cigarettes and the rest are at the site because they want to buy the product. 


- Some of the commentators took the trouble to think up names to call me, such as "candy cig police", someone "looking for something to blame". Most broadly I was tarred and feathered for hijacking a quality-assessment site to attack the product itself.


- But here's an interesting report - one person said that candy cigarettes are good for people who are trying to stop smoking because they need something to put in their hands while they go through nicotine withdrawal symptoms. But this user can't be the target market, given that packaging is designed as a counter-top appeal to children.

- A person who identifies herself as the mother of two young children says she had no intention of buying the product for her children - it is for adults ("I'll eat my candy smokes and love it. Get over it. I ain't shoving them down your kid's throats."). 


- A late post asks plaintively: "Do we really need to ban everything?"


In sum, exhortation didn't work. Let's look at the other two options:


- A ban on candy cigarettes. This  may be too harsh. Maybe some grown people do need something to hold in their hand while they are trying to quit. The United States tried Prohibition and the experiment was not a big success. Some countries (Finland, Norway, the Republic of Ireland, Saudi Arabia and Turkey) have reportedly banned candy cigarettes, but a ban is the equivalent of an infinite tax. 

- A special surtax on candy cigarettes. This is preferable because it uses the marketplace to make the price of candy cigarettes reflect its social costs. Tax them the same as cigarettes. Teenage smoking has fallen because cigarettes are so expensive, so why not try the same approach to candy cigarettes?


What do you think?