What effect will Bloomberg’s Large Soda Ban have?

It is well known that the United States is suffering from high levels of obesity, which has doubled amongst adults in New York since 1997. Bloomberg, the Mayor New York City, has claimed that 58% of adults in the area are overweight or obese, and he wants to reduce that. The high levels of obesity can mainly be put down to a lack of exercise, big portion sizes and the type of food eaten. With a ban on soda over 16 ounces, Bloomberg intends to control the portion sizes, with the increase in sugary drink consumption being the largest single cause of the rise in calories in the American diet in the last 40 years, helped by the big increase in drink size. In 1974, the biggest drink McDonald’s offered was twenty-one ounces. Today, that’s roughly the size of a “small” drink at Burger King, leading to an increase in consumption. Many studies show consumption of these beverages is linked to weight gain and obesity, and more recently, diabetes and heart disease. However, will Bloomberg’s latest health policy help the city or just add to the argument of the Conservatives who have long warned against government encroachment in the healthcare arena?

Both Democratic and Republican politicians alike have been lining up to attack the idea, which would prohibit restaurants, delis, sports arenas, movie theatres, and food carts from selling any soft drinks larger than sixteen ounces. They have claimed that the ban will be easy to circumvent if people want, which is true, as they can simply  buy two sixteen-ounce servings. However, behavioural economics tells us that usually, people won’t do that, as we will instead see an effect economists call a “default bias.” If you offer a choice in which one option is seen as a default, most people go for that default option. For example, in countries where people have to choose to be an organ donor, most people aren’t donors; in countries where people have to actively say they don’t want to be an organ donor, most are donors. In these cases, people have to make extra effort to do something, and they usually don’t. Bloomberg will be hoping that people don’t make the extra effort to order two drinks.

Of course, if you don’t want the large soda, you aren’t forced to order it. However, behavioural economics suggests that the fact that it exists can influence the choice that people make, being more likely to opt for a bigger size even if they don’t choose the supersize version. A classic experiment by Itamar Simonson and Amos Tversky explains this theory. In a study, people were asked to choose between a cheap camera and a more expensive one, that had more features. In this case, people were divided more or less equally between the two options. But when a third option, a fancy, expensive camera, was added to the mix, most people went for the mid-range option. The high-end model made the middle one seem less of an extravagant choice. In the same way, the fact that larger soda now exist means that the medium option seems less excessive.

In the case of Bloomberg’s plan, he will be hoping that if the size of the largest version is reduced, people will opt for a smaller drink, and a can of Coke might replace the old default choice; medium. People have suggested that we are now used to bigger drinks, so this will have no effect. However, studies have shown that once people try the new choices they will find it is plenty.

Bloomberg has explained that the City spends $4 billion on obesity efforts every year, so the government has a legitimate role in not only making citizens healthier, but also spending helping to increase health standard so that less taxpayer money is spent on obesity each year. However, this ban affects a lot more than just people who live in the City. Every person who purchases soda, whether they live in New York, or who are just visiting, whether the city pays for their healthcare or not. What does a tourist from London or California have to do with New York’s obesity costs? I think that this law will just increase anger towards government efforts to improve the standard of health.

Now, this isn’t the first idea from Bloomberg that has been designed to help the city’s health improve. In the past, he’s tried to implement a state soda tax, but that died in the legislature, never coming into effect. He also tried to restrict soda purchases for food stamp recipients, as lower income groups are more likely to select a large soda, with more affluent parts of society selecting a fashionable smoothie from places like Jamba Juice, or a latte from Starbucks. This also failed to materialise, rejected by federal regulators.

However, one of his ideas has been implemented by his administration, with eateries forced to display calorie counts on menus, with the aim that consumers would choose items with a lower number of calories. At first, you would expect this to work, because naturally, you would think that people would want to choose the healthier of two options if they are trying to pick between two different things on a restaurant menu. But, in practice, this hasn’t been the case. One study has suggested that consumers have, on average, purchased items with 106 more calories in fast food restaurants, suggesting that it has been a failure. On the other hand, I just think that consumers who frequent places like McDonalds or Burger King have bigger concerns than calories, such as price, as they typically have lower incomes. They are however the same group who the scheme was intended to target, as they are more likely to be overweight, suggesting that the scheme was a waste of time anyway.

It is of course possible that Bloomberg’s soda scheme could take advantage of this. But, again, with sodas being one of the cheapest drinks per unit available, with lattes, smoothies and fruit juices costing more, with possibly only water, offered free in most American food establishments, being cheaper.  This could suggest that there aren’t other options for people to turn to, so they will probably continue to buy sodas anyway, meaning that this idea would also fail. Apart from banning bigger sizes, and thus forcing people to drink less, the ban will also likely lead to people drinking less as smaller drinks are more expensive per unit, creating another disincentive to drink more. With lower income groups, where there is a higher prevalence of obesity, being more price conscious, this could have the desired effect. Even so, without any evidence to back this up, the legislature cannot be put into effect based on this claim alone.

Not to mention, this also adversely affects everyone, not just those who cannot control their consumption levels, indicating government failure. Further government failure comes from the fact that more than half of soda consumption takes place in the home, which this scheme won’t effect. Therefore, if Bloomberg’s scheme is successful, it won’t have a massive impact. At the same time, the scheme will also lead to one of the most profitable items for businesses being removed, with larger drinks making massive profits. This could lead to various effects, such as higher prices for other goods or lower tax revenue for the state and local authorities, and thus more government failure. At this point, the evidence suggests that the policy could lead to negative effects than outweigh the positives.

It is worth noting that one of Bloomberg’s policies, a smoking ban in restaurants and public parks, has been really effective, leading to a decrease in smoking by two thirds in public parks, quite a feat considering a lot of the visitors are possibly tourists who aren’t aware of the law. The policy has also led to a few other pleasant effects, with litter also decreasing in parks and on beaches. Pollution has decreased sixfold, and although some expected restaurants and bars to suffer, there has actually been positive effects, with increases in jobs, liquor licenses, and business tax payments. It might not be time to write off the soda policy yet then.

The US certainly needs to find solutions to their obesity problem, and Bloomberg’s New York plan enables economists to look at the evidence and see if something like this works if it is implemented. This is because the results can then be compared to rest of the country, where nothing will change. With soda consumption already falling in the US, we will then be able to see if the New York ban will actually help to reduce consumption. Bloomberg is clearly trying to create a lasting legacy, with a positive impact on the city in which he is Mayor, which the position is intended to do. However, this could in fact be a step too far, actually having more negative effects and thus creating a net welfare loss. If it works, it could be a fantastic solution to at least help with the obesity problem and will then be copied all over the world. However, if it doesn’t, it could lead to anger towards the government getting in the way and making it harder for future schemes to work.