Tobacco Documents Online

Michigan Tobacco & Candy Distributors and Vendors Association Inc. Affiliated Organization-Music Operators of Michigan 523 WEST IONIA STREET • LANSING, MICHIGAN 48933 • TELEPHONE (517) 372 • 2323 MICHAEL R. SPANIOLO - WALTER P. MANER III LEGISLATIVE AND - EXECUTIVE SECRETARY GENERAL COUNSEL - I F I ~ October 1, 1980 1 Dr. Kenneth E. Warner, Ph.D , School of Public Healt //h University of Michigan 109 Observatory Ann Arbor, MI 48109 Dear Professor Warner: , In my letter of September 11, 1980, I made mention of the fact thut I do not agree with the judgments you have made in the smoking and health area. Indeed, I had hoped Dr. Schafer's paper which I sub- mitted would elicit a more objective viewpoint on the part of the Citizen's Panel. However, in reviewing the draft majority report of the Panel, I feel that the other side of the smoking and health contro- versy has been ignored. In the same letter I stated I would supplement our viewpoint by specifying other errors of fact raised in the economic/social cost section of your discussion paper. Therefore, the following review is concerned solely with that part of the paper. However, my comments in no way acquiesce in other assertions made in your discussion paper. What follows is merely meant to be a succinct review of your erroneous analysis of the notion of claimed economic costs of smoking, based on views of other professional-economists. Your approach fails to distinguish between private costs, which accrue to individuals through their personal choices, and external, or social costs, which fall upon others. As a result, there is extensive double- counting of costs throughout the paper. In general without any reference to smoking, absenteeism and medical costs are fundamentally private, rather than social costs. That some part of the medical bills are paid out of common funds does not change the aggregate wealth of society. These transfers are merely from one sector of society to another. Your treatment of medical costs as so-called net costs of smoking is entirely unsupported by reliable scientific data. Although certain diseases are said to be associated with smoking, you have not provided evidence that smokers use more medical care over their lifetimes than nonsmokers. Further, it is clearly inappropriate to speak of the net cost of smoking, because cost, in economics, is an opportunity concept. It requires that we compare one state of affairs with another. Gt ~ .~ -267- IPA . ~ I I i I I F L ~ L L L

When it is said that the cost of smoking is x dollars per year, what is the alternative against which this cost is measured? If the answer is "no smoking", we do not know anything about the costs which would then arise. The only natural use of these costs is to evaluate a pro- posed policy. Will the policy's benefits exceed its costs? Indirect costs, such as annoyance costs, are largely private costs, as long as there is a "market" for them. This market, which is the most eff icient arbiter of costs between people, depends on the existence of clear property rights. When such rights are limited, as when a proprie- tor may not resolve the smoking issue in his own establishment, it is the restriction which gives rise to social costs. Whether the law re- quires that people be allowed to smoke or that they be restrained from smoking, it is likely that the cost to smoker and,nonsmoker will be higher than in the case of a mutually agreed solution. In commenting on the claimed economic costs of smoking, you say "...that few of the benefits of cigarette production are captured by Michigan to offset these costs...". However, you minimize the economic contributions of the tobacco industry. 0 i I On September 15, 1980, the Wharton Applied Research Center of the University of Pennsylvania released a study of the U.S. tobacco industry's economic contribution to the nation in 1979. This study shows that in Michigan, in 1979, the direct and indirect contributions of the tobacco industry accounted for 76,410 full-time equivalent employees who earned over 1.2 billion dollars. Just under 10,000 of these employees were at work in 1979 because of the direct contributions of the core sectors of the tobacco industry in Michigan. These core sectors included intermediate distribution, retail- ing and vending, and support industries such as media and promotion. Personal compensation in the support industries' alone amounted to 11.5 million dollars. Gross sales exceeded 925 million dollars in the retailing and vending sectors, and approximated 666 million dollars for the intermediate distrib ution sector. ' The direct contribution to state taxes in 1.1lichigan totaled 164.7 million dollars. Additionally, within the state, the tobacco industry's contribution to federal taxes totaled 171 million dollars (excise, FICA, personal income and corporate income). -268-

I , In closing, I feel I have fulfilled my commitment expressed in my letter of September 11. Although I have sincerely tried to discharge my responsibilities as a Panel member, I must state my frustration in impacting the apparently "approved version" of the Panel recommendations. A careful review of the prologue and recommendations of the Panel's majority report reveals virtually no change from the conclusions in your initial discussion paper. One can only conclude that the sparsely attended summer meetings, as well as your urging my participation, was merely intended to be "window dressing" for the pre-ordained recommen- dations. To say that I am disheartened by such an experience would be the height of understatement. I I I I I Sincerely, Gc"&: /• Walter P. Maner III Executive Secretary cc: Members of the Panel bt I I L r I 6 L -269-