...as never before.You wouldn't credit it.
As petrol prices, food prices and mortgage rates have soared we have been buying more jewelery than ever before.
According to the Bureau of Statistics our inflation-adjusted spending at jewelers shops soared an extraordinary 11 per cent in the first three months of this year.
At the same time our inflation-adjusted spending at meat, fruit and bread shops dived 9 per cent, and our spending at cafes dived 4 per cent.
What on earth happened to our sense of priorities?
To perhaps most of us it makes no sense, but to an economist it's not even surprising...
And the reason why helps tells us why the Prime Minister's planned $500 million tax on so-called “alcopops” is a good idea.
There are some, like the Opposition leader Brendan Nelson and its Treasury spokesman Malcolm Turnbull, who question whether it will actually cut the sales of these sweet-flavored alcohol-laden starter drinks for kids .
Nelson says it's an “outrageous half a billion dollar tax binge”. Turnbull says education would be better than prices at turning young people away.
But an analysis by Commonwealth Securities of the detail behind the latest retail sales figures makes it clear just how important prices are.
Its economist Craig James has set side-by-side a list of those outlets increased their prices by the most over the first three months of this year and those that suffered the biggest slide in sales.
And guess what? The two lists as good as match.
Prices at meat, fruit and bread shops and cafes soared and our inflation-adjusted spending there slumped, more than at any time since the introduction of the GST.
Prices at jewelery stores dived 6 per cent – the biggest slide on record - and we bought up big.
To an economist there's not even a mystery. When the price of something falls we buy more of it (whether or not we really need more of it) and when the price soars we buy less – even if it is addictive, like food and cafe-brewed coffee.
And alcopops.
If Kevin Rudd lifts the price high enough, many many young Australians who would have taken up alcopops will see in 2020 healthy.
6 comments:
The "Free Exchange" blog in "The Economist" posted on similarly quirky retail consumption behaviour:
Tough times call for expensive lipstick
A snippet: "His experience has been that lipstick sales are counter-cyclical... The article (in the NY Times) suggests women buy more lipstick in tough economic times because it’s cheaper than buying clothes, shoes, or jewellery."
Maybe it's jewels instead of mortgages and boats, like luxury lipstick instead of luxury shoes.
There's no mystery to this trend, it's now cheaper to buy a diamond than it is to fill the tank.
Actually your post is an example of what Henry Hazlitt called bad economics.
The good economist looks not just at the immediate effects of a policy, but also at its long-run effects. Of course, the immediate effect will be to decrease consumption of alcopops. But most likely, the same thing that has happened with cigarettes will occur with alcopops - it will be sourced from the blackmarket.
As mainstream cigarettes have been taxed too high, it has been widely reported that blackmarket tobacco is on the rise (profits of which go to terrorists & criminals). The best solution is to eliminate all 'sin taxes', as they have unintended consequences, and focus on education programs.
Sukrit, most of the contemporary literature demonstrates that disincentives through taxation on alcohol actually work in reducing problem drinking in the long term. Obviously, it will not eliminate it, as there will always be a shift in new patterns of drinking, but there is no evidence of surges to black-market alternatives (at least not in western nations). Where such measures have been targeted, hospital admissions through ‘accidents’, street assaults and sexual assaults (all good measures of ‘unsafe’ patterns of drinking) all drop.
Similarly, broad 'catch-all' education programs have been proven repeatedly to have minimal impact with regard to shifting 'unsafe' patterns of drinking. This is especially true when one compares it to taxation levers. Targeted, focused education campaigns have generally proven more successful, but most are far more cost and time intensive than broader campaigns. In addition, you have to know who to target, and that’s not always a category that is a) easy to identify; and b) easily accessible.
Of course, taxation on its own cannot and will not succeed on its own. Generally, those successful policy responses that we have seen combine taxation levers, reviewing outlet density and targeted education campaigns. It’s early days yet, but some of the early signs are positive that we can see a halfway decent policy response, certainly an advance on what we have seen under the previous government, who appeared oblivious to the precedents elsewhere.
Prof. Robin Room (an Australian) has done a lot of work on this. His work focuses on social, cultural and epidemiological studies of alcohol, drugs and gambling behaviour and problems, and he has a whole bunch of stuff on the social responses to alcohol and drug problems and of the measurement of the effects of policy changes. Well worth a look if anyone is interested in this field.
there is no evidence of surges to black-market alternatives (at least not in western nations).
That's simply not true. Read the article I linked to. Then look up this journal article:
Gilbert Geis, Sophie Cartwright and Jodie Houston, "Public wealth, public health, and private stealth: Australia's Black Market in Cigarettes", Australian Journal of Social Issues, Vol. 38, No. 3, August 2003.
The alcopop tax will provide an incentive for young people to seek unsafe blackmarket substitutes, just as cigarette taxes have bolstered the blackmarket tobacco trade in Australia.
This is economics 101. When you increase the price of something, people search for substitutes.
I read your blog item on this with interest, but thought it really missed out on a couple of substitutability questions.
Alcopops are cocktails with training wheels, true, but enough kids seemed to learn to drink anyway with more ghastly concepts such as blackberry nip and flagon port. Pricing alcopops up will lead to simple substitutability in the alcohol market, without worrying about the illicit drugs market.
The price rise, though, according to one retailer, made a six-pack of JB and coke [mixed to not much more than beer strength] about $4 cheaper than the bottle of JB itself. He predicted a rise in DIY alcopops, as kids buy the JB and the coke separately, and a rise in public drunkenness as a result. Moreover, translate these to the pub/club scene where a mixed drink could now be CHEAPER than an alcopop. Not sure that this really is such a well thought out move.
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