Tax, Trade and Health Policy

In Mayhew On Insurance by David Anderson

Incentives to change behavior need to be targeted to be effective.

If this was to pass, I will be able to use the entire amount. This morning was a squat morning. Tomorrow is an off day and Saturday is a dynamic back and isometric core day. A tax incentive to go to the gym will not change my behavior. It will just increase my effective income.

I’m also at an age and physical condition where going to the gym won’t produce immediate changes to either my health outcomes or my health expenditures. Hell, I’m more likely to incur incremental medical expenses because I impinged my shoulder stabilizers than had a preventable heart attack in the next twelve months. Maintaining good conditioning and strength in my late thirties may have positive health and functional impacts in my fifties and sixties, but that pay-off is both probabilistic and deeply discounted.

To evaluate whether or not this is a good health expenditure, first we would need to assess how many new/incremental gym memberships/work-out regimes are bought and then how many incremental work-outs actually occur (as we don’t care about the substitution of someone changing from going on a walk around the neighborhood to watching TV on a treadmill at the local Planet Fitness). And then from there, we need to see how much health changes from the incremental work-outs. Or far more simply, we can evaluate it as a give-away to the upper middle class.

Now onto booze:

Kentucky makes a lot of bourbon. Bourbon is a targeted retaliatory tariff item because it makes the constiuents of the Senate Majority Leader worse off and their pain may actually create screams that a decision maker will hear and care about.

What does a trade-war targeting bourbon do to the number of DUI and injuries/deaths due to alcholol related crashes? As I see it in the short term, Kentucky distilleries had projected a certain demand for their slow to produce products. That demand was the sum of domestic demand and foreign demand at a given price. Now the tariffs are a shock. Foreign demand will go down significantly as bourbon is significantly more expensive than all other booze alternatives. Kentucky bourbon inventories will be higher than expected so distilleries will have several short run choices. First, they can cut future production or transform some of their projected 2019 seven year bourbon releases into eight or nine year bourbons. Secondly, they have the choice of paying to warehouse some of the unanticipated surplus or discounting it to get rid of the extra bottles on the domestic market. If there are bourbon discounts, we should expect some combination of consumers shifting from other booze types to the cheaper bourbon and some new consumption. We don’t care about the shift but we care about the increase in consumption due to cheaper booze. So will retaliatory bourbon tariffs lead to higher DUI and drunk driving crashes with injuries?