Should We Tax Junk Food? with Dr. Larry Summers

Welcome to the Doctors Pharmacy, Dr. Summers. I'd like to sort of start by asking you about how you got into this whole world of global health and what made you interested in it because you're focused on the economy and economics and this seems like a deviation. So how did you get there?

Mark, in the early 1990s, I was the chief economist of the World Bank. Each year, the World Bank writes a major report on one subject connected with development. It's the job of the chief economist to choose the subject of that report. We came up and had to make the choice. It seemed to me the World Bank had been saying a lot about deregulation, a lot about divesting state enterprises, a lot about financial sector liberalization. and I thought it was important that the bank say something about something that affected the lives of regular people very directly and could influence them in a profound way. And I was also aware that there had been a lot of new economic research at that time on the economic analysis of health interventions, basically showing that you could use economic analysis to decide how best to allocate resources, which immunization campaigns would have the highest payoff, where different medical treatments in a world where you couldn't in poor countries do everything that you might want to do, what would have the highest payoff? And I thought it would be important to highlight that research. And so I chose as the topic the global health. and I put a great deal of time into learning more about the subject at that time. And what I came to realize was that in terms of human betterment in the healthcare area, there was enormous potential and that in terms of the impact you could have even with a limited number of dollars, there was probably no sector more promising. Yeah. Than health. So we published the report, and I'm very proud of the impact that it had. The World Bank prints 120,000 copies each year of its World Development Report. But in this case, I think there was one reader who was probably as important or more important than all the rest, and that was Bill Gates. because he has said that our report had a great deal to do with getting him interested in the whole area of global health and devoting his philanthropy to it. I suspect that was in part because some of the issues in global health, developing a very good product, recognizing that once you've developed the product, it doesn't cost much, to produce one extra one, whether it's a software program or whether it's a vaccine or whether it's a pill, and then achieving widespread dissemination. And so everybody feels a need to have it. There are a lot of similarities between software and some of the key issues in global health. I think that was an additional part in addition to the moral importance of what drove Bill Gates in that area?

Well, it seems like it's increasingly an economic issue around health. I think you wrote an article called the Astonishing Returns of Investing in Global Health and R&D. And I just was at a session at the Milken Institute Global Conference that we're at, where Jim Kim was talking about human capital. He's now the head of the World Bank. And he's talking about looking at how do we rate countries according to how they invest in human capital, which is not something we think about. And that those really result in returns in terms of economic returns that are far greater than we imagine by focusing on health and education, things that we don't normally think of as economic drivers.

Ultimately, something's capital. If you put money into it today, you can get returns from it tomorrow. And the return, if you get more back tomorrow, then the return is higher. And so investing in people is a fundamental kind of investment, just as much as investing in new computers or new tractors or new steel mills is investment. What we're increasingly realizing is that for countries in a world where capital, physical capital, in a world where ideas can cross international borders freely, what's most distinctive about a country is its people. And so they are an enormously important target for investment. And the calculations suggest that the return on investments in health and for that matter for investments in education, particularly girls' education, can have extremely high returns. We've done estimates suggesting that in some contexts the returns can be as high as 9 or even 20 to 1 in terms of the benefit cost ratio for investments in health care. There has been a large literature. I worked with a young research assistant when I was at the World Bank in the early 90s named Cheryl Sandberg. Cheryl and I worked on the return to girls' education. We were able to show that that return, once you took account of how they they earned more money down the road, they had smaller, happier, healthier families was very, very large as well. So I'm a very strong believer in investing in people. I'm a strong believer in social sector investments and I think they're increasingly gonna be a determinant of national success.

Yeah, it's interesting, as you know, climate change is apparently if you focus on women's education and family planning, it's one of the biggest contributors to reversing climate change.

It can make a real contribution. People who are a little better educated are much better stewards of land. And when they're better stewards of land, that makes an important contribution to sustainability. So we're in a kind of a.

Pickle in the world because we see this shifting in disease patterns from infectious disease to chronic disease. We see, we've gone, JAMA had a paper where they showed that there was more than twice as many people dying globally from lifestyle preventable chronic disease as infectious disease. And yet 95% of global resources, from NGOs, from governments, from philanthropy, focused on infectious disease like TB, malaria, and AIDS, like the Gates Foundation, and less on this burgeoning chronic disease epidemic, which is really driven by our food system. So how do we begin to shift our focus and think more about shifting financial resource to address those issues?

I think to be fair, part of it is that we do research on heart disease because there are a lot of people in the United States, Europe, and Japan who die of heart disease, similarly for cancer. And so, to some extent, working on those problems requires less philanthropy than working on the infectious disease problems, which are largely confined to the developing world. But look, I don't think there's any question that the lowest hanging fruit in terms of improving health is in the areas of prevention and lifestyle, increasingly with respect to non-communicable diseases, the big three: heart disease, cancer, and diabetes. I've sometimes thought that food issues are in some ways in the same place that tobacco issues were in the early 1970s. Fundamental scientific research establishing the right guideline, which in the case of tobacco is.

Very simple, don't smoke.

And it's much more complicated in the context of food had been done. But the social revolution that we've seen take place where you can't smoke on an airplane, in a restaurant where there's substantial social pressure not to smoke, where fiscal measures that raise the price of tobacco, have greatly discouraged young people from the habit of smoking. I think we're going to have to think through all of those things in the case of foods and having a healthier dietary system. You know, that people will continue to debate just how large the impact is on the major diseases, but it almost doesn't matter. It's pretty clear that by inducing people to eat in healthier ways, you can have very large impact on health and life expectancy. It's true.

I mean, we know that 80% of health doesn't happen in the doctor's office. So, better improvements in cardiovascular research or cancer research, diabetes research isn't going to help necessarily fix the problem because it's the social drivers that control most of health outcomes and the social environments that people live in, the food environments that people live in. And those are, you know, I just heard Rajiv Shah talking, who's the head of the Rockefeller Foundation, talking about science-based community health. How do we begin to think about prevention and treatments in community-based models that are really different? So I'm curious, you know, how do we shift the social environment, which is really what you're working on now with Michael Bloomberg, with the task force for fiscal policies on changing health and you're looking at what you can do with global partners who are in the finance world to shift government's fiscal policies that move things in the right direction that don't depend on the individual to make better choices. How do you see that moving forward and what are the kinds of things you're using to shift behaviors, both taxes, incentives, and to do that?

Mark, I'm an economist, so I'm a believer in the power of prices. to affect behavior. Start away from health with a basic kind of principle of fiscal policy. Taxes discourage things. It's better to tax things we want to discourage, like tobacco, foods that cause obesity, alcohol that causes drunkenness. than it is to tax things we want to encourage, like working and like saving. And so from a pure tax policy point of view, switching more of the burden of taxes to things we want to discourage, and the foods are one example, but carbon and the global climate change would be another example. There'd be other examples one could think of. As a general fiscal policy matter, It's good to move the burden of taxation from goods to bads. Beyond that, we have evidence that more than most of us realize, we do respond to prices. And we do buy less of things when they become more expensive. That's the most basic principle of economics that has been documented many, many times in ways that I think are almost completely convincing. In addition, there's some evidence that when we tax something and we make noise about the fact that we're taxing it, it carries a message of discouragement that goes beyond simply the effect of the higher price. And I think that would probably be operative as well. So the mission of the commission that Mike Bloomberg and I are leading is to make the case not to people in the healthcare world, like yourself, who mostly are already persuaded, but to bring that case to the world of finance ministries and the world of finance ministers.

Yeah, that's great. And are they receptive?

And so far, the evidence would suggest that they are quite receptive, yes.

And you know, this country is interesting because you have a lot of the food industry opposing the soda tax and being very active around that. And yet the evidence has started to come in from Philadelphia, where the taxes in Philadelphia have reduced soda consumption 40%. There's a new study came out yesterday looking at taxes not just on soda, but on actually junk food taxes, basically flour products, cakes, cookies, that also have shown reductions in consumption.

But something ironically, Mark, The fact that the food industry objects so strongly.

That's a good sign.

It's confirmation that these taxes are effective. And that these taxes do have significant and meaningful impacts. And if they didn't change the demand for their product, the food industry wouldn't care.

They wouldn't spend $30 million in the last election.

They don't care is evidence. And look, they're going to be incentivized to find ways of developing foods that are attractive for people that don't have the same toxic effects on their health. That's a good thing. I think it's very important that this movement not be a movement in favor of eating your spinach even if it's painful, but be a movement that recognizes that people can eat foods they really like. that are better for them than the foods they're eating now. The food industry has also picked up the theme of don't just emphasize diet, emphasize exercise as well. And I don't think there's any question, I'm sure you'd agree, as a physician, you know more about it than I do. That exercise is beneficial as well.

Sure.

So I think we need to pick up on some of the themes that they emphasize while not losing sight of the core proposition that certain foods, particularly those that are long on simple sugars are very dangerous. I think we need to have an attitude where when people have a second.

Dessert, someone looks at them like socially unacceptable.

Cultural about what he is socially acceptable. And I think over time, the concepts of what's socially acceptable in terms of smoking.

And nobody's gonna drink that soda in public.

And I think there's the prospect that things will evolve a bit over the next 30 years with respect to food. as well.

Yeah. So, you know, we talk about taxes and what about the other side of it, subsidies or incentives? You know, what if we sort of put a 30% tax on sugar and junk food and put a 30% discount on healthy foods like fruits and vegetables? Does that make sense?

I think there's a lot to be said. I suspect that the taxes are going to be a more important mechanism than the amount of revenue we're going to have to spend on subsidies. But I think where there are particular things that can be subsidized, I think I would rather subsidize research and the development of healthier foods than necessarily engage in permanent subsidies of a substantial number of the foods that people eat. I think we need to also recognize to be fair, that this whole area of food, and it's why the work you're doing is so important, Mark, is more complex than tobacco. In the case of tobacco, we just want people to not consume it. It's not really that we're saying that nobody can have any sugar ever. Yeah. And so when you're trying to get something limited but not eliminated, it's more complicated than when you're taking the position that something is just pure bad for you.

So, you've had vast experience in government, working with President Obama as his chief economic advisor, you've been the Treasury Secretary under President Clinton, and we see that the amount of money that we spend on chronic disease is sort of increasing, and we haven't really been effective in sort of shifting the sort of conversation around that. And the world economic forum said that our chronic disease epidemic is the biggest threat to global economic development. They're going to spend $47 trillion over the next 20 years on it. And Warren Buffett said that the ballooning cost of health care act is a hungry tapeworm on the American economy. We've gone from 5% of our GDP on health care to almost 20% in 50 years. And as someone who's been in government, how does government and industry sort of address this trend effectively?

I don't think there's any silver bullet. I think that usually when we have success, whether it's the success we've had with respect to smoking or the success, albeit not ultimate success that we've had in the United States with civil rights or changing attitudes towards women, almost always it's not one silver bullet. But it's many, many different things that are mutually reinforcing. My sense is that that's going to be the case with respect to the control of health care costs. I think making the necessary kinds of investments in prevention, think about how much greater dental bills would be in the United States if we'd never had fluoride in water.

Yeah, true.

And that was a public health intervention. So finding the right public health interventions with respect to heart disease, cancer and diabetes, I think will be profoundly important. Looking at reimbursement schemes, so we reimburse people not on the basis of the number of procedures they do, but on the basis of the increment to health that they provide, I think would offer substantial scope for saving money.

That's happening with value-based care.

I think we're moving with accountable care organizations and other things, in that direction. I think if we can find ways of reducing the enormous burden that comes from a kind of war of attrition, where the insurance companies hire a bunch of people to insist on holding down costs, and the hospitals hire a bunch of people to figure out how every patient can be put in the highest paid category, and they all fight with each other. I suspect we could get to an outcome that wouldn't be that different and might even be better than the one we get to with fewer people at war with each other.

So we had a conversation a number of years ago about food stamp program. Now, that's the largest part of the farm bill, which is about a trillion dollar bill. It's about $750 billion of it, almost three quarters, is food stamps. And by a factor probably 10 to 1, junk food and and soda are the biggest line items on that. We see $7 billion a year for soda for the poor, but more than 10 billion servings a year of soda. We talked about shifting that policy to restrict access to certain foods. You said at the time you thought it was a regressive tax, that it was harming the poor. This is a lot of what the food industry promotes. They fund groups like the Food Policy Action Network about hunger groups to oppose that shifting of food stamps, how do we begin to have policies that are all aligned and integrated? Because that's-- My view, Mark, you may.

Not agree, and reasonable people certainly can disagree, is I'd like to see systematic taxes on dangerous sugary foods. And yes, it may be that the poor pay a higher share of their income But the poor also suffer a larger share of the adverse health consequences. And so the benefits in terms of reduced health care spending, in terms of lower life expectancy, will be disproportionately felt by the poor. So I'm completely comfortable with the idea that we should put a universal tax on sugary goods, recognizing that it may be regressive. being prepared to offset that regressivity in other ways through changes in levels of welfare benefits, through changes in the personal exemption in the income tax, through changes in the progressivity of the income tax generally.

Or even social programs that derive from those taxes. That derive from those taxes.

Absolutely. Where you and I, I think, had a difference of opinion a few years ago, and I guess I still have the same opinion I do. is should we say to food stamp recipients that they can't use their food stamps on, say, sodas? And you can say yes, because sodas are harmful and we have this leverage and all that. There are two reasons why I wouldn't go there. One is I think that it's already stigmatizing enough to get food stamps. And the day we say that you and I aren't allowed to buy something at the store, maybe that's the day we should say poor people aren't allowed to buy it at the store. But I worry about more intrusion in the freedom of poor people than we intrude in the freedom of more affluent people. Yeah.

Depends how you define freedom, like freedom of health, right?

The thing is that I'm not sure you can do this effectively since most of the people on food stamps are also spending some money at the grocery store. I suspect that if you do try to do this, you'll end up having them spend their food stamps on other foods, and if they still want to buy soda, they'll be in a position to buy soda. So, I would be careful of.

Changing.

The food stamp benefits.

The triple taxation, though, around our food isn't interesting because we subsidize corn, soy, and wheat, which are commodities, and the people who consume the most of those have the most disease. And we pay for those commodities with basically food stamps. And then we pay for Medicare and Medicaid. We're triple taxing the taxpayer and we're privatizing profits and socializing costs. So how do we begin to shift that so there's a true accounting for the true cost of food? Because we don't have that in the--.

The best way is through the tax system. When we have an externality is what economists call it, some cost that I impose but that I don't naturally bear, it's appropriate to put a tax on equal to the magnitude of that cost. And I would favor having much more so-called corrective taxation of that kind. But once you have that, then I think you shouldn't go saying that certain classes of people just aren't allowed to use their income for a certain purpose.

That's true. Interesting. Should we tax also junk food or just sugar? Should we tax cookies and cakes and pies and goods made with flour, which have a higher glycemic index than sugar?

I don't know the answer to that. In principle, I would be open to a broad set of taxes and subsidies that were directed at promoting health, just how accurately we know precisely which foods it is that are most dangerous and just what the limits of political acceptability are. I think these are very, very important questions and I don't feel like I know the answer. One thing is that it was many, many years of experimentation, research, innovation before we found the compound mix of public policies that were so effective against alcohol. And I think we're just at the beginning with respect to the social science aspects with respect to diet. With respect to the biological and scientific aspects with respect to diet, we understand a great deal.

We do.

But I don't think we've yet fully worked through all of these aspects. And I think you have to think very hard because if you put a dime tax or a dollar tax on all products that are dangerous in a certain way, people may decide to take the most dangerous of the products, given that they've all got the same tax. And you may end up with a slightly perverse Kind of effect. So I think you have to be very careful in the design of these policies. But I think ultimately, if we could get people back to where the country had the same distribution of weights of its population, same incidence of obesity that we had when I was a child or in the 1940s, I think that would have enormous health benefits.

Yeah, it's true. It's huge. So you know, you had this sort of awesome opportunity with this fiscal task force, and you're focusing on taxation. But you're working with Michael Bloomberg, who's done interesting things around the world, like in sporting activities in Chile and Mexico, where they create a broad set of interventions, changes in food marketing, changes in food labeling, changes in school lunches, changes in taxation. All these things seem to work in concert. Are you focusing on other aspects of financial policy that could shift those this.

Year we're going to focus primarily on fiscal policy because Mike feels strongly that if you have too many messages, you don't have any message.

Yeah.

And so he really wants to pound home the message about fiscal policy. We've moved recently in response to all the interest there has been to envision the commission as a multi-year, certainly a two-year project that I suspect down the road will get much into many of the aspects that you're talking about.

Because it's a systemic, big systemic issue. Absolutely. So as a sort of policymaker, economist, besides the taxation, what can governments do to shift this burden of chronic disease that's emerging? I mean, we now know that 80% of the world's type 2 diabetics are in the developing world. We know that obesity is scaling across the world. We know we're actually created the worst out on the planet and are exporting it everywhere, just like cigarettes. We're not selling them here, but we're pushing them overseas?

Well, I think there's a whole set of issues around US exports that will be appropriate to look at, and certainly some of the more embarrassing moments in the history of US trade policy were the extent of US efforts to open foreign markets for the benefit of our tobacco companies. And I would hope we won't make those mistakes with respect to our junk food companies.

Like NAFTA, I'm not sure. I think you may have been involved in that, right?

I was involved, not in the precise details, but in the overall conception of NAFTA.

I was very involved. Yes. And so, we see the unintended consequences in Mexico, where we've opened up markets and this influx of junk food companies and fast food companies into the Mexican market, which has led them to have this explosion of diabetes and obesity, and now they're shifting back to try to address that.

I think in many ways, the right principle in trade is what's called national treatment. That is, I think countries should be encouraged to restrict junk food, for example. But I think that it is reasonable that whatever the country's rules are on junk food, it'd be the same for local companies and for American companies. And that's really where the focus of trade treaties is. It's on preventing discrimination.

Yeah. Fascinating. in the sort of understanding of this new sort of global chronic disease burden and what other things that can governments do besides just taxation?

I think their agricultural subsidy policies can very usefully be directed towards encouraging healthier kinds of healthier kinds of food consumption. I think there's a great deal of scope for labeling policy that labels foods when they have significant dangers associated with them. I think there's a significant role for government simple publicity. You know, I think we've been very slow in the United States to adjust our recommended USDA diet guidelines for people. And I think adjusting those guidelines in more rapid ways is a valuable endeavor. I think in many countries there's a role for public service announcements and what kinds of public service announcements are provided. what kinds of materials the government makes available for that purpose. I think that's an important variable as well.

So there's dynamic dance between industry and government. And so taxation is sort of a sole government action. But what about regulations to sort of put guardrails on the food industry? We do that with automobiles. We say airbags have to be there, seat belts, safety emission standards. We do put guardrails on different industries to protect the consumer.

I think it's an important, I think it's an important the most important thing to look at. Again, I think the challenge we have here in the food area is, in the case of baby seats, we never want a baby to be in an automobile except in a safe baby seat that will protect that baby. We basically prefer a world where nobody ever smokes. tobacco. But, you know, to take something we haven't talked about much in this conversation, alcohol.

Yeah.

We don't want to take the position that nobody can ever have a glass of wine. Because when we took that position through.

Prohibition, it didn't work out.

Didn't work out well. Well, similarly, we don't really want to say that nobody could ever have an Oreo. We just want it to take place in. more restraint. Yeah. You know, something I've wondered about, for example, is packaging. Usually we say that we want things to be packaged in ways that makes it easy to get access to. But maybe if it's a little. Maybe if Oreos were sold one at a time and you had to unwrap each one.

That's interesting.

Yeah, it would act. as a discouragement to binging.

So instead of super size, you mini size.

Yeah, I think that that whole area is something that is worth looking at. I mean, there's a whole new emerging field of behavioral sort of emerge of behavioral economics and behavioral regulatory policy that shows that Contrary to the usual paradigm of economics, which is that people are making rational choices between alternatives, many people are just following habit. And then if you nudge them, you can get them to make a different choice that they'll like just as much or better without having intruded on their sense of freedom and autonomy. And those are the kinds of policies.

That I think- so what kind of behavioral economic policies would you put in place? what would be the kinds of things you could use in this space?

I keep coming back to the taxes, Mark, because I think they're really very important, probably the single most important thing, as a signal. Then I think there are a set of issues around labeling, a set of issues around packaging. I think there are a set of issues around making sure that we don't use our influence to subvert developing countries that want to make progress on these questions. I think there are a set of issues around public service announcements. I think there are many different things that you can do. And I think it's very important because it's about whether a large number of kids are ever going to know their grandmothers.

Yeah, it's true. We're raising the first generation of Americans to probably live shorter lives than their parents.

At risk of that. Yeah.

If you were king of the world for a day and you could have the ability and the power to change the landscape of policy, laws, whatever, to actually change this trajectory, which is creating a depletion of human capital and threatening economic development, how would you do that? Big question, but how would you do that?

I'd begin by using my, Kingship to deliver what I hope was a very powerful speech about what was in all of our collective interest as citizens in terms of our obligations to ourselves and our obligations to each other. Then I would announce a comprehensive set of tax policies that put substantial tax burdens on the foods that were most toxic. Then I would announce a set of revised set of transparency requirements that made it important that anyone who decided to consume pure cookie dough was going to understand that this was potentially going to have adverse health consequences for them down down the road, then I would announce that the United States didn't want in this area, as it didn't want in others to be a merchant of death. So we were going to insist that our firms be treated in the same way that a country's home firms were treated under trading agreements, but that we were not going to seek to subvert valuable health and safety regulations.

Fantastic. That's what's neat. Because you see in Chile, when the president came out with these new policies to tax and limit advertising, kill all the cartoon characters on cereal boxes, the food industry is now suing the government and aggressively attacking them. So you've got these companies that are trying to shift towards better food products, but they're also at the same time actively opposing change like funding the NAACP. NAACP, NAACP funding Hispanic Federation, so to oppose soda taxes, it's like a very interesting sort of dynamic.

I think that's right. Again, I think these things take time to work through, but that's the reason why we should get started as soon as possible.

Well, the thing that's really hardening to me is someone of your stature, someone who's been deep in the economic world, in the White House, president of Harvard, been chief economist at the World Bank, is actually serious about these issues and doing something about it and realizing it is one of our biggest global threats. And I really appreciate that.

It affects many people's lives and probably affect them more fundamentally than anything about interest rates.

Fantastic.

I think it's important for those of us in economics to try to use our economic skills to address some profoundly important issues.

Well, it's very heartening to me and I think it's a good trend. And I appreciate your work and commitment to this issue.

Very glad to be with you, Mark.

Thanks for having. Thanks for being here, Larry.