The measure of the productivity of an activity is the public and private benefit from a good or service that results from that activity.
I had always thought that the argument “the government does not want us to stop smoking because it collects so much revenue in tax” was only the tittle-tattle of saloon bar conversation (at least until the government banned smoking in the saloon bar). But now there is evidence that it was once a serious component of official thinking. Notes of a 1956 UK cabinet meeting have been released from the national archive.
They reveal that the health minister was overruled when he proposed a campaign to emphasise the damaging effects of smoking on health. Harold Macmillan, chancellor of the exchequer, vetoed it because the Treasury believed the revenue from cigarette taxation was too important to be put at risk. The argument is not just immoral, but wrong in its own terms. So is the contrary argument that smokers ought to pay more because their ill-health imposes a burden on medical services. Everyone dies of something sooner or later, and lung cancer is not that expensive because victims mostly die quickly.
Even if carefully made, these calculations are only half the story. The most important effect of smoking on public finances is the impact on the cost of pensions. Since smokers die sooner than non-smokers, fewer of them live to retirement and those who live to collect their bus passes use them for a shorter period. Even if, as Macmillan believed, smoking reduced life expectancy by only one year, the effect would be substantial. If, as we now know, the health consequences of smoking are more serious, the impact of reduced smoking on public expenditure is larger. The government spends more than £10 on old people for every £1 it receives in tobacco tax.
To do this analysis is to demonstrate its absurdity. Increased longevity imposes an increased burden on the public purse and reduced smoking is a contributory factor. But no one would seriously suggest that we should reduce public expenditure by encouraging people to kill themselves. That would lead us to legalise euthanasia and even to subsidise tobacco and rat poison.
The notion that there is something called “the government” whose financial interests can be separated from the interests of the citizens who pay for it and benefit from its services is a fallacy. The notion that there is something called “the economy” that needs to be nurtured and promoted independently of the welfare of individuals and households is a fallacy too.
Both these propositions are, when spelt out, ridiculous. Macmillan’s observation is interesting partly for its cynicism, but also for its revelation of muddled thinking at the heart of government. That muddle continues. It is not unusual to hear people in government talk of “a Treasury interest”, by which they mean an interest in raising more revenue or spending less. I have lost count of the number of studies I have seen that purport to demonstrate the economic benefit of something or other – the arts, the Olympics, or some other pet project – through its impact on spending, turnover and employment.
These glossy consultants’ reports are a waste of paper. There is an economic benefit from Shakespeare’s plays and it is the pleasure people derive from watching them. Their delight is the economic value of the performance and the expenses of the box office are a cost, not a source of additional benefit. If people do not derive pleasure from watching the plays, there is no economic value to putting them on, however large the cast and however much profit was made from building the theatre. There is only a useless transfer of resources from productive uses to unproductive ones. The measure of the productivity of an activity is the public and private benefit from a good or service that results from that activity: the Royal Shakespeare Company and the National Health Service, which produce things people want, are more productive than British Leyland, which produced things they did not.
Macmillan’s comment is a striking illustration of how people can persuade themselves they are being hard-nosed and realistic when in fact they are just being silly. As so often, ethics and common sense are a better guide to action than spurious rationality.
