Markets not in everything

My article today at The Atlantic looks at the anti-competitive effects of the FDA’s regulation of tobacco:

David Sley wants to sell cigarettes. This, by his own admission, does not make him the most sympathetic person to feature in an article about excessive government regulation. Yet Sley, an aspiring entrepreneur who has spent more than two years trying to navigate the Food and Drug Administration’s new tobacco regulations, has legitimate cause to complain. The entire cigarette industry has been brought to a standstill by the FDA, forbidden from introducing any new products since March 2011. Tobacco companies contend that the agency’s actions rest on uncertain scientific and legal grounds — and, for once, they may be right.

In the article I document Sley’s attempt to launch a new cigarette brand, a process which has dragged on for more than two years without resolution. As you may remember, the Tobacco Control Act was backed and negotiated by Philip Morris, who just might have anticipated such a result.

The extremely slow approval process also bodes poorly for the premium cigar market, which is even more dynamic than that for cigarettes. Cigar lovers should pay close attention when the FDA issues its proposed rules for cigars later this year.

Read the whole thing.

California brings smoking ban inside the home

It was only a matter of time:

Millions of Californians would not be able to smoke tobacco inside their own homes under new legislation that would raise the bar nationwide for fighting secondhand smoke.

No state ever has ventured into personal bedrooms and living rooms with its smoking restrictions, but California is going even further than that by targeting owner-occupied residences as well as rental units.

Specifically, the measure would prohibit lighting up a cigarette, cigar or pipe in condominiums, duplexes and apartment units. [...]

Levine’s bill would permit outdoor smoking near apartments or condos, but only in a clearly marked area that is at least 20 feet from any housing unit and 100 feet from a playground, school or pool.

Who could have predicted that ignoring property rights and letting bad science go unchallenged would lead to this?

Reform Oregon’s smoking ban

An Oregonian editorial last week was refreshingly libertarian, calling for same-sex marriage, tuition equity for some undocumented immigrants, restraint on gun control, and even opposition to the state’s smoking ban. I sent in a letter about the last item, which they published today:

The Jan. 12 libertarian-leaning editorial “Protect and expand personal freedom: Agenda 2013″ was a breath of fresh air, especially in regard to our state’s excessively stringent smoking ban.

Current law makes few exceptions for businesses that cater to smokers, making it essentially illegal for entrepreneurs to open new cigar bars or smoking lounges even in stand-alone tobacco shops. Regardless of whether one supports a broad smoking ban, it’s difficult to justify forbidding these businesses to open.

Sensible reform would replace the current exemptions, which apply only to venues that have been grandfathered in, with objective guidelines that would allow both existing and aspiring business owners to offer smokers an indoor refuge.

As I reported in the Oregonian in 2011, the promised decline in heart attacks that the smoking ban was supposed to usher in never developed.

When candy cigarettes are outlawed…

A city inspector in St. Paul spent his time last week seizing contraband candy cigarettes from an old-time soda shop and threatening the owners with a fine if they sell the sweet treats again:

Lynden’s, on Hamline Avenue near Cretin-Derham Hall High School, said a city inspections official came in last week and gave the shop a warning and added that a misdemeanor citation — with a $500 fine — would be next if the non-carcinogenic confections continue to be sold.

There are legitimate reasons why one may not want to sell candy cigarettes, but a law banning the products seems excessive. Thank local anti-smoking groups for putting the law into place:

The ordinance was championed by a group of St. Paul teenagers working with the Association for Nonsmokers-Minnesota, which educates youth groups and individuals who want to lobby for anti-tobacco policies.

You’ve gotta get them hooked on banning things when they’re kids if you want them to continue banning things as adults.

[Via BoingBoing.]

Save the stogies

My forthcoming article that I’ve alluded to a couple times this week is now up at The Atlantic:

If a time traveler from the early 1990s were to arrive in the U.S. bars and restaurants of today, what would notice first? Perhaps that the food has become more interesting and varied, or that a perplexing number of diners are photographing it with their remarkable phones. The most obvious change, however, might register on the nose: the nearly complete absence of indoor smoking.

California implemented the United States’ first modern statewide smoking ban in 1998. Today twenty-nine states and 703 municipalities require bars and restaurants to be smoke-free, according to data maintained by the Americans for Nonsmokers’ Rights Foundation (North Dakota brought the tally to thirty states this month). Tobacco use has been banished from our culinary radar along with the question “smoking or non?” Most of us don’t miss it. Yet as a slew of new bans, taxes, and regulations drive smoking to the peripheries of society, it’s worth giving tobacco another look.

Read the whole thing. And for more context on some of the arguments, see my recent posts about the effects of new tobacco taxes and the failure of the FDA to establish an effective regulatory regime.

Incentives matter, tobacco taxes edition

One of the topics I’ve been researching for a forthcoming article is the effect of the higher tobacco taxes imposed by the Childrens Health Insurance Program Reauthorization Act (CHIPRA). CHIPRA raised tobacco taxes across the board but it didn’t raise them equally; some products were hit harder than others. The most relevant disparities are between roll-your-own (RYO) tobacco and pipe tobacco, and between small cigars and large cigars.

Before CHIPRA, pipe tobacco and RYO were both taxed federally at $1.10 per pound. After CHIPRA, the former increased to $2.83 while the latter increased to $24.78. Since the two products can be treated as substitutes for each other, this naturally led to manufacturers and consumers shifting to products labeled as pipe tobacco for use in rolling cigarettes. A similar shift affected the cigar market, where it became advantageous for some producers of small cigars to slightly increase the weight of their products to qualify as large cigars. (Direct comparison of taxes on small and large cigars is complicated by the fact that small cigars are taxed by weight and large cigars by value.)

I knew that these market distortions were occurring, but I didn’t realize just how substantial they were until reading a report from the General Accounting Office (PDF) from earlier this year on the effects of CHIPRA taxes. Here in two charts is a dramatic illustration of unintended consequences at work:

At first glance this may look like booming business for producers of pipe tobacco and cigars, but of course that’s not what’s happening. The changes are almost entirely nominal. Yet since they reduce tax receipts for the government, the pressure is on now to fix the disparity by raising taxes yet again. This would be another blow to producers of traditional pipe tobacco and large cigars, as well as the retailers who sell their products.

115 employees, 3 years, 0 results

When the Food and Drug Administration was granted authority over tobacco products, many people (myself included) objected that this was an inappropriate field for the agency to be involved in. Among other reasons, it makes little sense for the FDA to approve products that are to some degree inherently dangerous. An excellent article from Michael Felberbaum of the Associated Press shows that the agency has failed to establish reasonable standards of review and has halted innovation in the parts of the industry it regulates:

Tobacco companies have introduced almost no new cigarettes or smokeless tobacco products in the U.S. in more than 18 months because the federal government has prevented them from doing so, an Associated Press review has found. [...]

Since June 2009, when the law allowing the agency to regulate tobacco went into effect, the tobacco industry has submitted nearly 3,500 product applications, according to data obtained by the AP under a Freedom of Information Act request. While none have been ruled upon, the vast majority of these products are already being sold.

A grandfather clause in the law allows products introduced between February 2007 and March 2011 that are similar to those previously on the market to be sold while under review. They can be removed from store shelves if they don’t pass muster with the agency. But 400 products submitted for review since March 2011 are being kept off the market.

The reviews, which are supposed to take 90 days, have dragged on for years in some cases. About 90 percent of applications have lingered for more than a year.

Nearly 3,500 applications over three years and zero rulings. Perhaps the agency is understaffed? Not exactly:

The [FDA's Center for Tobacco Products] has an annual budget of more than $450 million, funded by the industry, and more than 365 employees, about 115 of whom work on the application reviews.

One hundred fifteen employees and zero rulings. One wonders what they do all day.

Part of the problem is that the agency evaluates products not merely on their physical characteristics, but also on whether they may entice new smokers or discourage current smokers from quitting. Since any new product is intended to appeal to someone, it’s not clear to me how applicants can decisively prove to hostile regulators that their products meet this requirement.

Perhaps one does not feel much sympathy for the tobacco companies. But note that the FDA has signaled that it will likely soon be regulating cigars too, and imagine giving the lumbering agency veto power over all new cigar blends. If Philip Morris and Lorillard can’t push new products through the approval process, how will boutique cigar makers fare? As demonstrated by the FDA’s handling of tobacco thus far, regulation could be devastating to the premium cigar industry.This is a topic I’ll be covering in greater depth next week.

Update 12/14/12: Michael Siegel weighs in too:

The rest of the story is that the Tobacco Act is working exactly as I predicted it would: as a way to protect the existing cigarettes on the market and block any real possibility of competition from what could be truly safer products.

Quote of the day

Julien Guttman on the forthcoming outdoor smoking ban at George Washington University:

“We’re trying not to use the word ban,” says Julien Guttman, of the GW campus advocacy group Colonials for Clean Air. “We encourage people to talk about a smoke-free campus rather than a ban on smoking.”

This is the same Julien Guttman who lamented a couple weeks ago, “No matter how much science we have to back up what we are saying, there will always be individuals who see this as a restriction on their freedom.” Perhaps it’s a sign of progress that she feels the need to resort to such euphemism when defending the policy.

A bit more on the shaky science behind outdoor smoking bans here.

Et tu, BrewDog?

Politicians in the UK are pushing for a minimum price for alcohol that would increase the cost of cheaper products while leaving high-end alcohol unaffected. According to the website Scottish Grocer, they’ve found an unlikely ally: the craft brewers at BrewDog.

This is the same brewery that made a 1.1% abv beer called “Nanny State” in mocking response to critics of their high-alcohol brews, so it’s a bit of a disappointment to see this coming from them. It’s another story to file under brewers behaving badly.

For a contrary view on minimum pricing, see Chris Snowdon.

Repeal Day links and videos

Today is Repeal Day, which as most of you know is the holiday celebrating the ratification of the 21st Amendment and the end of Prohibition. To mark the occasion, Reason has put together an interesting video on the “The Man in the Green Hat,” Congress’s very own bootlegger:

Also of interest: This trailer for Breaking the Taboo, a new documentary narrated by Morgan Freeman about the failure of the War on Drugs:

On a similar note, outgoing Mexican president Felipe Calderón spoke to The Economist about the Drug War and its devastating effects in his country:

“[E]ither the United States and its society, its government and its congress decide to drastically reduce their consumption of drugs, or if they are not going to reduce it they at least have the moral responsibility to reduce the flow of money towards Mexico, which goes into the hands of criminals. They have to explore even market mechanisms to see if that can allow the flow of money to reduce.

“If they want to take all the drugs they want, as far as I’m concerned let them take them. I don’t agree with it but it’s their decision, as consumers and as a society. What I do not accept is that they continue passing their money to the hands of killers.”

Finally, here’s an essay I wrote for The American Spectator on the 75th Anniversary of Repeal Day.

Where to smoke in Portland

horsebrass 021

Today at Drink Portland, I’ve posted a guide to the city’s few remaining cigar bars. There are only eight of them, so click through if you’re looking for a place to escape the rain with a cigar and a drink. Since Oregon’s smoking ban only exempts bars that can demonstrate cigar sales from 2006, it’s essentially illegal to open a new cigar bar. These eight are all we have and all there will be. An update to the law a couple years later also capped the number of tobacco shops that can allow smoking.

Ban advocates predicted that Oregon’s law would drastically reduce the rate of heart attacks in the state. As I noted in the Oregonian, that never came to pass.

Pre-ban, my favorite place to have a cigar in Oregon was the Horse Brass Pub. My ode the Horse Brass is here. It’s still a great bar, but you can’t light up there anymore.

The CBO would like to thank you for smoking

Hikes on tobacco taxes are an easy sell to voters because smokers are presumed to pass their health care costs on to society, creating a negative externality that non-smokers have to pay for. The actual budgetary impact of smoking is more complicated: Smokers, by dying earlier than those who abstain, save governments a considerable amount of money. There is a lot of research to back this up, the latest coming from the Congressional Budget Office in The New England Journal of Medicine. The CBO examined a hypothetical increase in federal cigarette taxes indexed to inflation:

Outlays would be lower in that initial phase because decreases in per capita health care spending would outweigh the costs of greater longevity. From about the middle of the second decade onward, however, the effects of increased longevity would outweigh decreases in per capita health care spending, and outlays would rise; but until about the mid-2060s, that growth in outlays would be more than offset by the increase in tax revenues from higher earnings. The largest deficit reduction from the health-related effects — about 0.005% of GDP annually — would occur from about 2030 to 2035. After the mid-2060s, the deficit would be larger than otherwise because the higher outlays would outweigh the health-related revenue increase.

Factoring in the additional excise tax revenues, the researchers project that a tax increase would nonetheless result in a very small reduction in the deficit. Absent those revenues, the federal government is made fiscally worse off by people quitting smoking or never taking it up in the first place.

Michael Siegel, who is usually good at dispassionately evaluating arguments on their merits, is furious:

The rest of the story is that it is despicable that the Congressional Budget Office believes that it is appropriate to evaluate a public health policy based on whether it might save lives and therefore increase Social Security and Medicare spending. In doing so, the CBO is borrowing a page right out of the tobacco industry’s playbook. This type of analysis would never be done for an issue such as mammography, because anyone who advanced such an argument would be raked over the coals.

Like Philip Morris, the CBO should disavow its report and apologize for the argument it advances.

Finally, while it is shameful that the CBO has advanced this argument, it is also shameful that the journal agreed to publish this argument, thus giving it legitimacy. Both the CBO and the journal owe readers and the public an apology.

There is an obvious difference between mammograms, which are a treatment, and taxes, which are involuntarily taken from consumers. Not everyone buys into the argument that smokers should be taxed for their own good. For many, the best case for cigarette taxes is that smokers shift health costs onto the state. The CBO study is relevant to that argument.

In any case, the CBO makes clear in its commentary that budget effects are only one factor that should be considered:

Consequences for the federal budget are only one factor that lawmakers may consider when developing policies to promote health. Others factors include effects on people’s health and well-being, views about the appropriate role of government in influencing behavior, the burdens that policies might impose on people in various circumstances, and effects on the budgets of state and local governments.

Emphasis mine. Siegel, while admirable for his advocacy against junk science in the anti-tobacco movement, often misses the mark on issues related to paternalism.

“No safe level,” continued…

The idea that there is “no safe level of exposure to secondhand smoke” has to be one of the most misleading statements in public health. I mentioned it in a story about campus smoking bans yesterday. It pops up again today in a blog post about airport smoking areas at The New York Times by Nicholas Bakalar:

Five large-hub airports in the United States have designated indoor smoking areas. According to a study from the Centers for Disease Control and Prevention, they all have unhealthy air — even in places where no one smokes. [...]

The researchers found that the pollution level in smoking areas of the five airports was 23 times as high as the level in nonsmoking airports, and the average in adjacent areas was five times as high.

The study, in the Nov. 20 issue of the Morbidity and Mortality Weekly Report, notes that no level of secondhand smoke exposure is safe, and even brief exposures can have adverse cardiovascular and respiratory effects.

Notice how much work the “no safe level” line is doing here. It allows the researchers to abdicate responsibility for showing that levels of particulate matter in the air surrounding smoking lounges are causing any actual harm. They have no need to relate this minuscule level of exposure to a level of risk — because, in fact, doing so is likely beyond epidemiology when the risks are this small, if they exist at all. As Jacob Sullum noted in 2006 when Richard Carmona’s Surgeon General’s report came out, the science in the report is much more modest than the “no safe level” hype that accompanied it:

Since it is difficult even to measure the health consequences of long-term, relatively intense exposure to secondhand smoke among people living with smokers for decades, how could one possibly demonstrate an effect from, say, a few molecules? It’s clear that the vast majority of people exposed to secondhand smoke suffer no noticeable injury, so in what sense is their exposure unsafe? “No safe level” is an article of faith, not a scientific statement.

And yet, unfortunately, the “no safe level” idea continues to be used as an easy shortcut by researchers — and then dutifully transcribed by health reporters.

Banned on campus

One of the quiet ways smoking bans have spread across the United States is via bans on college campuses:

Colleges and universities have become the latest target of anti-smoking groups. While schools have long banned smoking indoors, the new bans are addressing outdoor space.

So far, more than 800 schools have banned smoking on campus, according to the American Nonsmokers’ Rights Foundation. The list is dominated by medical schools and non-residential community colleges, although more and more residential colleges and universities are joining.

Encouraging schools to go smokefree is now official policy of the Department of Health and Human Services, which recently launched an initiative in collaboration with the University of Michigan to encourage campus bans on campus. The bans apply outdoors, which is a major inconvenience to smokers on sprawling campuses, potentially driving students to less safe perimeters. The measures are supposedly important for creating a healthy environment. Unfortunately, they seem to also create an environment of self-righteous attitudes and bad science:

“The CDC and surgeon general say there is no safe level of exposure to second-hand smoke,” said Julien Guttman, a GWU public health graduate student who is part of the advocacy group Colonials for Clean Air. “No matter how much science we have to back up what we are saying, there will always be individuals who see this as a restriction on their freedom.”

Those crazy individuals! The idea that there is “no safe level of exposure to second-hand smoke” is itself unscientific, a line of propaganda devoid of any measurement or relation of exposure to risk. If taken literally it would lead to absurdities like… well, like banning smoking in wide-open expanses of outdoor space.

Too hot for North Dakota

North Dakota, rugged North Dakota. Now home to one of the most restrictive smoking bans in the country:

Measure 4 bans smoking in places where North Dakota state law previously allowed for it, including bars, tobacco shops, taxis, motel rooms and private nursing home rooms.

The ban also requires smokers to be at least 20 feet away from buildings. Tobacco-less e-cigarettes are also included in the ban.

Violators could be fined $50, and bars that still allow smoking could be subject to having their liquor license revoked.

North Dakota will be the 30th state to implement a smoking ban in bars and restaurants, but few are this restrictive. The impact on cigar bars and tobacco shops could be devastating, as Stogie Guys reports.

This is speculative, but I imagine that the average North Dakota resident is not so intolerant as to object to smoking in these specialized businesses. However the anti-smoking groups who pushed this initiative didn’t give them the option to allow exceptions, forcing voters to choose between all or nothing.

Romney won’t be president, and other good news

It’s no secret that I greatly dislike both Obama and Romney, so my expectations were pretty low going into yesterday’s election. Thus it came as some surprise to me that I went to bed late last night feeling happier about the results than I have for any election in my lifetime, and that has nothing to do with who will or won’t be in the White House.

Yesterday morning I tweeted, “Hoped-for silver linings today: Marijuana legalization, marriage equality, no GMO labeling, good turnout for Gary Johnson.” Pretty much everything I could have reasonably hoped for came true.

Marijuana legalization — Two out of three states where marijuana legalization was on the ballot approved the measure. My own Oregon let me down, but Washington and Colorado succeeded. Voters also legalized medical marijuana in Massachusetts and decriminalized it in Detroit. By putting two states in direct conflict with the federal government, this is potentially a watershed year in the movement toward a more humane drug policy.

Marriage equality — Same-sex marriage was on the ballot in four states yesterday. In Maine, Maryland, and Washington, it was approved by popular majorities. In Minnesota, a majority rejected a constitutional ban on gay marriage. Demographic shifts and growing social acceptance make it seem inevitable that more, perhaps all, states will eventually follow their lead.

GMO labeling — This is one issue on which I’m opposed to many of my peers in the food and drink industry, but I think that California’s proposal to require labeling of genetically modified foods was deeply flawed. The case that they are harmful to consume is very weak, labeling and liability would be costly, and the proposal itself was riddled with exemptions. If consumers and activists want to avoid GMOs I would rather see them push for more organic food or other explicitly GMO-free options than force mandatory labeling onto the entire food system. Cheers to California voters for getting this one right.

Eminent domain bonus — I wasn’t following Virginia’s referendum to further protect private property from Kelo-style takings for private development, but I’m heartened to learn that it was overwhelmingly approved.

Gary Johnson — His campaign never crystallized as I hoped it might, but Johnson nonetheless earned 1% of the vote and as of this writing a raw total of 1,139,562 votes, the most of any Libertarian Party candidate in history. More importantly, I think Johnson may have done more than any recent candidate to reach out to the left and make libertarianism cool. (Sorry, Bob Barr.)

Romney lost — Romney was just terrible. The flip-side is that Obama won, which is also terrible but marginally less so. Most importantly, yesterday was a straight-up beatdown for social conservatism and the last twelve years of Republican politics. This opens the door, at least, to a better GOP.

After all of this, watching Obama’s soaring acceptance speech at a bar in downtown Portland was simply anti-climactic. As my friend Conor Friedersdorf tweeted, “This speech would be more enjoyable if I didn’t already know what follows Barack Obama speeches like this. An imperial presidency.” Or as my friend sitting next to me summed it up, “I don’t even care about this shit. This is just bullshit.”

The electoral outcome of this presidential race was going to be dismal no matter what. On the economy, on foreign policy, on the Drug War, neither side offered the kind of changes we need. The inspiring story from yesterday is that in so many instances where voters had the option to expand freedom directly, they voted to do so. Given the opportunity to let gays marry the people they love, to let sick people access medical marijuana, to let ordinary citizens smoke a joint once in a while without fearing prison, they voted to live and let live. This bodes well for the future. We progress in spite of our politicians.

Prohibition lives on in Alabama

A few weeks ago I wrote about the remaining legal hurdles to homebrewing in the United States. Demonstrating that these laws are still doing harm, agents from the Alabama Alcoholic Beverage Control Board raided a Birmingham store to seize homebrewing equipment:

The owner of a small beer, wine, and homebrewing supply chain says three agents from the Alabama Alcoholic Beverage Control Board raided his unopened store late Thursday afternoon and took $7,000 worth of home beer brewing supplies, including boxes of beer brewing kits, carboys, immersion chillers, and books about brewing.

[...]

The agents took the equipment used to brew beer, but Torres said they left the ingredients used in beer brewing — grain, hops, and yeast — in the store.

“They said they’ll be back at 10 o’clock tomorrow morning and everything had to be — everything, every pellet of hops, every kernel of grain — had to be out of the store before they’d be willing to consider our license,” Torres said. He said he now plans to get those ingredients out of his unopened store, which is located on 2nd Avenue South near Pepper Place, and take them back to his other location in Atlanta Thursday night.

An attorney for the ABC praises the agents’ discretion:

“The agents used their discretion, and instead of taking all of the items — which they had the authority to do — they only took a portion of the items with the assurance that the rest of the items would be out of the state by today (Friday),” Peacock said. The agents also showed discretion by choosing not to arrest the general manager of Hop City, he said.

[Hat tip to Alabama beer lover Tom.]