Lifestyle Economics

It’s not a cost-benefit analysis without the benefits

The US Food and Drug Administration is considering making a calculation of the pleasure that people get from using e-cigarettes and tobacco products. It has suggested that financial estimates of the benefits consumers get from living longer be discounted to reflect the loss of utility they suffer from being denied their pleasure of choice.

This is an unusual – and probably shortlived – example of a government agency acknowledging that issues related to ‘public health’ have benefits as well as costs. The public knows that drinking, smoking, vaping and eating tasty food has benefits. If they didn’t, people wouldn’t spend money on them. But when campaign groups compile economic calculations of the costs of drinking, for example, they tend to ignore the benefits of sociability, laughter, good conversation and – yes – inebriation. Admittedly, these benefits are intangible, but campaigners have no hesitation in putting a monetary value on intangible items such as a year of life and various ’emotional costs’.

Studies which look at the costs of drinking or smoking are only cost studies, there are not cost-benefit analyses. If we ignore benefits then almost any restriction on potentially risky behaviour can be shown to have a net benefit.

Acknowledging benefits therefore might involve putting limts on lifestyle regulation. This is a problem for people like Stanton Glantz, a veteran anti-smoking campaigner, who said of the FDA’s proposal…

“This makes it a lot harder to justify regulations on cost-benefit grounds.”

Well, yes. Yes it does, because suddenly something else would be placed at the other end of the scales. The government would have to acknowledge that regulations themselves bear a cost on consumers.

The FDA has suggested discounting an extra life year by 70 per cent to reflect lost utility. For example, if it previously estimated that an extra year of life was worth $100,000, it would be lowered to $30,000 for a reluctant ex-smoker.

Of course, these figures are arbitrary. All estimates of intangible and emotional costs are arbitrary. I would argue that they’re also pretty useless, except as bargaining chips for various campaign groups. The value someone places on drinking and smoking is personal to him or her and it varies enormously between individuals according to their preferences and circumstance. The same is true of the value someone places on an extra year of life, or the importance they place on having pristine health.

It would be a step forward if governments acknowledged the existence of benefits in cost-benefit analyses, but if they accepted that individuals are best placed to evaluate their own costs and benefits – and act on their preferences accordingly without being nudged and poked by the state – it would be a giant leap.

Head of Lifestyle Economics, IEA

Christopher Snowdon is the Head of Lifestyle Economics at the IEA. He is the author of The Art of Suppression, The Spirit Level Delusion and Velvet Glove; Iron Fist. His work focuses on pleasure, prohibition and dodgy statistics. He has authored a number of papers, including "Sock Puppets", "Euro Puppets", "The Proof of the Pudding", "The Crack Cocaine of Gambling" and "Free Market Solutions in Health".