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Nearly all smokers would be better off moving to lower-risk alternatives than giving up nicotine completely; taxing e-cigs has no rational justification; society should be prepared for more non-smokers to take up vaping; and tobacco control is often built on a “demonic possession theory”.

These are among the conclusions of a provocative new paper published by the Institute of Economic Affairs, Britain’s venerable free-market think tank, and written by Carl V. Phillips, the tobacco harm reduction academic and former scientific director of the Consumer Advocates for Smoke-Free Alternatives Association (CASAA).

Reporting has highlighted Phillips’s espousal of a zero-tax regime for e-cigs, but as he notes in his own blog, while “the summaries have picked up on one particular conclusion…the value of the paper is laying out how to think about the whole issue”.

To this end he takes essentially an economist’s point of view, working from the premise – unpopular in tobacco control circles, but unlikely to be denied by most smokers or vapers – that while personal health is clearly a benefit to individuals, so is nicotine for those who choose to consume it.

As Phillips says, “the obvious inaccuracy of a claim implicit in much discourse about tobacco product use [is] that there is no benefit. Of course there is benefit. Claiming that hundreds of millions of people are making a choice that does not provide net benefits is an extraordinary claim. It defies our most basic knowledge of consumer choices.”

From this it follows, fairly obviously, that a product which continued to deliver the nicotine benefit while removing or minimising the health disbenefit would be, overall, a more advantageous personal choice for these individuals than total abstinence.

“It is seldom disputed that most smokers would be better off using a low-risk product than smoking,” as Phillips puts it. “But looking at the actual economics tells us something more: Smokers are generally better off using the low-risk product rather than being abstinent.”

The product he has in mind is the e-cigarette, although he observes that the analysis could equally well apply to smokeless tobacco or indeed to nicotine replacement therapy (NRT). “For practical purposes these are indistinguishable and the products can simply be thought of as having the same low risk,” says Phillips, adding that unlike in most areas of harm reduction, these substitutes for the dangerous product are so benign that they can be treated as no more risky than abstinence.

Banishing the bogeyman

Phillips is not arguing that smokers completely ignore the downside of their habit, but he seeks to strip smoking of the special status some seem to grant it, as a personal harm so dreadful that it can only ever have a negative value in the calculus of choice. He is adamant that consumers are balancing the pleasures of tobacco against the unpleasantness of harm.

“The reason lowering risk has value is not some existential goodness, but because people value their health and so their overall welfare is increased,” he says, although he acknowledges (while also answering) the criticism that in the case of smoking the substantial disadvantages usually come much later in time than the benefits, leading people to discount them.

And he is particularly scathing about those who deny that this kind of decision is being (unconsciously) made. “Some claims by those who seek to deny that this is a benefit-motivated rational choice are so outlandish that they are not even worth addressing – e.g., that people are…permanently mesmerised by pretty packages or how suave movie characters look when they smoke.

“The dominant (implicit) model of tobacco/nicotine consumption is effectively demonic possession,” he says in one of his essay’s more colourful passages, drawing a comparison he has made before.

This model holds that “people act in ways that have no rational explanation, because some arbitrary force is controlling them. Once a demonic possession theory is built into the bedrock of the discussion, it is possible to justify any policy to exorcise the demons (how could anyone object to that?).”

It is even, he says in a sly reference to science’s role in the debate, “possible to make testable predictions about those who refuse to acknowledge that tobacco/nicotine use has benefits: When the population shifts toward the new equilibrium of higher usage prevalence of low-risk products, the advocates of the demonic possession theory will ignore the actual evidence that people like the products and attribute the increase in prevalence to industry marketing efforts.”

Reasons to vape (and not give up)

So, given that smokers enjoy smoking and also that it may harm them, what should they do to maximise their personal benefit, and what does this mean for policy – which, presumably, should be helping citizens achieve just that?

“Substitution of a low risk product would be welfare-enhancing for most smokers,” Phillips says. “Some smokers will still prefer smoking to any available alternative, despite the much higher risk. But there are vanishingly few smokers for whom abstinence is a better choice than switching to a low-risk alternative. Thus there is no apparent ethical justification for anti-smoking measures that push for abstinence rather than switching.”

The reason for this is that “they would have to (a) change their preferences such that smoking has negative net benefits, which certainly does happen (people change their preferences and quit smoking). But they would also have to (b) derive so little benefit from a low-risk substitute (either because they really dislike them or completely lost their taste for tobacco/nicotine) that it is not even worth its much lower cost.”

Moreover, the mere existence of lower-risk products alters the equation. Before they appeared, a choice between pleasurable yet harmful smoking and less pleasurable, harmless abstinence might have come down on the side of quitting. But with lower-risk alternatives reducing the harm more than they reduce the pleasure (if they do so at all), most smokers are better off in terms of overall personal benefit by switching to reduced-risk rather than giving up nicotine, in Phillips’s view.

And the fact that abstinence has always been an option also implies something about the present population of smokers, he believes. “Anyone who would only be a bit better off being abstinent rather than smoking would be even better off using a low-risk product; most everyone for whom abstinence is so much better would have already figured out that quitting was better than smoking, and would have done so.”

No taxation

One of Phillips’s main conclusions is that zero taxation on e-cigarettes will maximise consumer welfare, in the sense of allowing all those smokers the best possible combination of pleasure and health – although he also believes that it is justifiable on purely public health grounds.

“For any remotely defensible goal, including minimising population health risk, the optimal level of excise tax on low-risk products is zero (assuming that is the lower bound; a subsidy would be better still). This is sometimes presented as if it were immediately evident from the comparative risk, but that is not actually a valid claim. However, simple economic analysis shows that it is the case.”

He comes to this conclusion not only by pointing out the positive benefits of lower-risk products, but also by demolishing each argument for taxation.

Firmly, Phillips says that taxing products to protect consumers from themselves – by deterring consumption – makes no sense. “It it seems impossible to justify a tax based on inadequate consideration of future risk. The risks are so close to zero that there is almost nothing to be inadequately concerned about. There is simply no basis for claiming that consumers are making choices that inadequately consider this risk.

“There is a far better case to be made that consumers (both smokers and non-users) irrationally avoid the low-risk products because they overestimate the risks, which means that the welfare-optimising tax would be negative” – in other words, encouraging people to move to vaping by making it cheaper, although Phillips admits this is an unlikely scenario.

Taxation to minimise health risks overall (as opposed to maximising consumer benefit overall) may make some sense at first glance, he grants, but its rationale doesn’t work out either. “Lower taxes encourage smokers to switch, which benefits health, but there is also a small health benefit from discouraging non-users who might want to start using low-risk products, and so a balance must be struck.“ However, smokers are much more likely to switch to reduced-risk products because of lower prices than non-smokers are to take them up. So this again implies that zero taxation is the optimum.

And while compensating society for costs such as health costs and cleaning up litter is a legitimate reason to tax combustibles, he says, it barely applies to e-cigs.

New users

Much more contentiously, against the backdrop of an industry and a vaping culture which are adamant that hardly any non-smokers will take up reduced-risk products, Phillips believes that is precisely what will happen – and that those who pooh-pooh the notion are gravely wrong.

He puts it elegantly, with logic that is difficult to deny, if one accepts that consumers are making at least semi-rational choices about personal benefit rather than bowing to the whims of fiends. “The question ‘will more people use tobacco/nicotine products when they are low risk?’ is exactly equivalent to ‘do some people choose not to smoke because it poses high risk?’, and no one doubts that the answer to the latter is ‘yes’.

“The availability of low-risk tobacco/nicotine products will inevitably increase total consumption as compared to a world where cigarettes are the only option. This is the inevitable and rational effect of lowering the costs of a consumption choice. It is properly counted as an additional benefit [because it provides a benefit to individuals who have chosen to use nicotine], though it is widely derided as a cost.

“Public supporters of low-risk products who condition their support on those products not attracting any new users are either being naïve or cynically imposing conditions they know cannot be met,” says Phillips, noting that “it is already evident in Sweden where more men use tobacco/nicotine than would be expected to smoke in the absence of snus”.

He does note, however, that e-cigs may not be the preferred option of these new nicotine users. “Few never-smoking adults will adopt e-cigarettes even if they might benefit from them, since the physical behaviour itself is a barrier. More might adopt snus if it became popular in their culture.”

Young users

A similar prognosis is applied by Phillips to the issue of minors, the other group which most e-cig supporters are anxious to underplay (although it has been suggested several times by public-health experts at conferences that supplying e-cigarettes to minors who would otherwise smoke is a credible idea).

“The eventual equilibrium [of smoking, vaping and non-use] will be determined not by switching or new adult adopters, but by the behaviour of new cohorts coming of age. There is much consternation about the popularity of e-cigarettes among teenagers and young adults who have never smoked, but this is exactly what we would expect from rational decision-making.

“Given the low risk, a young person’s decision about whether to seek the benefits of nicotine is really quite similar to the decision about drinking coffee (and almost certainly less consequential than the decision to drink alcohol).”

Here, however, Phillips does offer some support for restrictive regulation. “If one’s position is that acquisition of this preference [nicotine] often reduces lifecycle welfare and is chosen by adolescents who do not understand its ramifications, that can be argued based on the economics (though such positions are generally merely asserted, not analytically supported). It could be argued, based on the multiple-selves concept, which is particularly compelling in the case of children harming their future adult-selves, that this justifies restrictions aimed at stopping non-adults from initiating consumption (though, again, this needs to be argued rather than treated as if it goes without saying).”

Prove me wrong

Apparently aware that his position is likely to face fierce criticism, Phillips is resolute, pointing out that it simply applies established economic ideas to the issue of reduced-risk nicotine products, without the ideology that so often infuses the debate.

“The study of tobacco harm reduction is dominated by doctrines, with evidence misinterpreted as supporting absurd claims. Those who would challenge these results need to produce a well-defined alternative model or a variation on the present model that produces different results. This appears to never have been done.

“When a one-off result with an ad hoc analysis contradicts a well-established theory, the better conclusion is that there is probably something wrong with the data or analysis. This is clearly the case for the naïve claim that people who are choosing to smoke really would prefer to not smoke.”

What This Means: It is certainly possible to pick holes in Phillips’s arguments – perhaps most obviously, the frequently picked-at hole in the side of economics, the assumption that consumers are both informed and rational when it comes to their own best interests.

He also strays into rhetoric himself at moments (“a de facto near-ban moving forward in the USA” is not a fair description of the deeming regulations) and while the argument that reduced-risk products should logically attract some non-smokers is in some ways a compelling one, the evidence for this actually happening seems thin (though it is certainly possible that those likely to be attracted have at least tried combustibles when they were the only option, thus excluding themselves from the never-smoking group. Or maybe e-cigs just need to become more mainstream before this phenomenon is seen on a large scale.)

Some will consider, too, that his thesis places insufficient weight on the impact of secondhand smoke.

These cavils apart, however, Phillips offers a rigorously rationalised case which is difficult to ignore, however uncomfortable some of his conclusions may be for those who will therefore ignore them.

A particularly interesting aside comes in his comments on smoking prevalence, and its implications for counterfactual worlds. In situations where smoking was “socially acceptable, consumers had enough wealth to afford it, products were not aggressively taxed, and there was not widespread concern about the health risks” – for example among western men around 1960 – the smoking rate was roughly 50%.

This may imply it is the “natural” proportion of people who would take pleasure in nicotine. When health awareness enters the equation that rate drops to 25%; taxes and other regulatory activity would seem to account for the rest of the difference between these rates and the real smoking prevalences of today, which in many western countries is 20% or a little less.

The burning questions that this leads to are whether the arrival of reduced-risk products will push the prevalence of nicotine consumption up toward the “natural” 50% mark again; and whether it should be allowed to. Although it seems highly unlikely that it will get remotely close, even a modest increase would set the cat of reality among the policy pigeons.

– Barnaby Page ECigIntelligence staff

Photo: Andreia

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