Tobacco Settlement Scam

Here is a little exercise in Economic Understanding, courtesy of the Indianapolis Star.  The subject is the tobacco settlement that was the result of a lawsuit filed by states Attorneys General to “punish” the tobacco companies for selling a dangerous product and trying to lure new, young customers with cartoon characters and other marketing schemes.

Here is the history as they report it.  “Indiana was among 46 states that signed the master settlement agreement in 1998 with four of the largest manufacturers of cigarettes in the country. About 40 other tobacco companies later joined the settlement.

“Since 1999, Indiana has received more than $1.9 billion from the tobacco companies.

“The agreement requires tobacco companies to pay states annually. The money is intended to reimburse them for the health-care costs of cigarette smoking-related diseases, such as lung cancer and heart disease. The payments vary year to year and are largely based on how many cigarettes a manufacturer sells in each state.”

How is this different from imposing a higher sales tax on cigarettes?  The money comes directly from the tobacco companies making it look like a punitive measure.  The states receive money proportionate to sales.  But the tobacco companies get the money from their customers in the form of higher prices.  It’s not coming out of profits or out of the pockets of the “greedy” CEOs.

Look at this chart based on the financial information of Altria, the largest tobacco company, courtesy of the Motley Fool website.  It shows that profits (Net Income) for the past 4 years are basically rising.  The scale is in billions of dollars.  The profits for the same company since 1999 (courtesy of wikinvest.com) have dropped, but the pattern is more in line with the overall economy than with fines imposed by the settlement.  The big drop occurs long after the settlement, concurrent with the beginning of the recession.

The main difference between the settlement money collected by the states, which was taken indirectly from smokers by way of the tobacco companies, and a straight sales tax, which would have been collected by the states directly from the smokers, is the political credit the states got by taking on the big, bad tobacco moguls.  (Another difference is that a large amount of money was probably spent on lawyers for both sides and by the government to pay arbitrators.)  Economically speaking it’s pretty much the same effect, but the image of a settlement vs. a “sin tax” makes it look like a display of great courage, caring and child protection.

It just goes to show that even when they are trying to do a good thing politicians are hard-pressed to be totally honest.

Who's Fat?

Problem solving techniques are pretty generic.  There are books and seminars, papers and processes, skills, games and strategies; but the steps are similar and always start out with “define the problem” or some variation of this advice.  If you don’t know what the problem is or refuse to admit it, there is, short of blind luck, very little chance of solving it.

Here is just one of many examples easily found in an Internet search:

That’s why it’s disheartening to find this headline on NBC news:  “What, Me Fat? Most Americans Don't Think So, Poll Finds.”  That’s right, despite the news that more than 2/3 of Americans are overweight or obese, a Gallup poll shows that many of those people are in denial.  "More than half of adults (55 percent) said they don't think they are overweight and aren't making an effort to shed pounds.”  (The proportion is higher for men who are more apt to be overweight.)

This denial is reminiscent of the stages of death and dying, which apply to most any change or abrupt receipt of bad news.  The mirror tells the bad news; the scale tells the bad news; perhaps even the doctor tells the bad news; yet the recipient of that news denies the problem.  What problem?  I don’t need to lose weight!

It makes no sense to reconstruct the list of diseases linked with obesity.  The sad fact is that there are so many that obesity itself is now considered a chronic condition.  Reminders of this fact jump off the page.  “As prevalence of chronic diseases like obesity and diabetes continue to increase in the U.S. population, we have some unnerving news: in the near future, there may be a shortage of doctors able to treat these patients.” (Emphasis added)

So what can we do about it?  Continuing to deny the problem will not solve the problem.  Waiting for someone else to solve it has the distinct disadvantage of the diminishing resources, the predicted shortage of doctors.  The only resort is to take control, accept the personal responsibility.  There will be no solution until people have defined the problem.  Until then, we don't have an obesity epidemic.  We have a denial epidemic.

The Oz Difference

On June 17 Dr. Oz appeared before a Senate committee to testify.  He was supposed to be helping with an investigation to fight Internet scammers peddling weight-loss pills and programs.  Instead the discussion turned into a critique of some of the methods he uses on his television program.  As CBS news described it:  "Oz testified at a Senate hearing Tuesday on deceptive advertising for over-the-counter diet supplements and products," but it turned into him defending "his right to suggest ways to kick-start weight loss by using products that are easily available online but have little data to back up their claims."

Senators pointed out, with video clips from his own show, how often he uses words like"magic" and "miracle" to promote questionable products such as green coffee beans.  An NBC reporter said that "at times he sounded like a pitch man" for these dubious products rather than like a scientist.  When confronted, he admitted that it was his "intent to engage viewers" thus using "flowery language, language that was very passionate."  In other words, he was trying to please the audience by telling people what they wanted to hear."

Near the end of the NBC segment a Federal Trade Commission spokesperson warns to be wary of these too-good-to-be-true weight-loss products and programs.  "The only thing you are going to lose is your money."  This is followed by Dr. Oz quietly (certainly not passionately) saying, "The basis of long-term well-being is diet and exercise.  It always has been and probably always will be."

This is what I have been saying for the 3+ years that I have been writing these essays.  That's the difference between me and Dr. Oz.  I do not tell you what you want to hear, the easy answers, but what you should hear, that real change, real improvement, the real solutions for America's problems come from the hard work of improved behavior.

How to Think About Survey Results

The USA Today runs a daily feature called USA snapshots.  They are "easy-to-read statistical graphics that present information on various issues and trends in a visually appealing way," addressing a particular issue in a number of different subject areas including politics, money, sports, news and entertainment.  They sometimes refer to a current news item, movie release or sporting event, but the rest of the time they are just random subjects.  They do provide some good examples for the practice of critical thinking.  (Anyone can review a large number of these simple graphs by searching on the Internet for USA snapshots.)

When looking at these graphs and pie charts or any others it's important to consider a couple of questions.  What type of question is being asked, and what is the source of the data?

One category is facts or statistics.  These are easy to look up and verify.  The source of the information may be government or industry records.  Some typical examples from from the daily inserts:  NCAA Division I all-time scoring leaders, top grossing superhero films, most popular cosmetic surgery and soft drink consumption trends.  The first two are straight out of the record books, so to speak.  The third comes from the American Society for Aesthetic Plastic Surgery and presumably they should know.  The soft drink information comes from "Beverage Digest," another reasonable source.

Another category relates to choices or behavior.  They ask people whether they have ever come in late to work or left early knowing that the boss was out of the office.  The sample of 507 workers is not particularly large, but they should know if they have ever done it and may be willing to honestly confess to it.  It is a little puzzling, though, that the pie chart shows 3% who answered "Don't Know."  A question for 1383 adults who have had allergies for more than 3 years asks whether they stick to the same brand of allergy medicine or tend to switch around.  The primary problem with behavior questions like these is that they are self-reporting.  There is no safeguard against lying or  exaggerating.  This is especially a problem as questions get more sensitive and personal, such as the use of drugs, criminal behavior, smoking, drinking or sexual practices.  The above questions seem innocent enough that people wouldn't be inclined to falsify and even if they did, the  consequences of a bad survey result are small.

Other surveys deal strictly with opinions.  Like the behavior category the self-reported nature of the answers is always problematic in that they are not verifiable.  We must take the word of the individuals.  That is something always to keep in mind.  The graphs in this category ask questions like how many episodes of binge TV viewing are too many - asked of 800 people who admitted to watching at least 3 TV episodes in one sitting.   PETA asked 1,234 New York City voters if they favored or opposed the banning of horse-drawn carriages in the city.  Be careful of this result since we don't know how the question was couched, that is, what questions were asked to lead up to it (setting the mood) and how exactly was it worded?  Because it was a PETA survey, it is reasonable to suspect that they favor a particular answer.  (FYI, most opposed the ban.)

Finally, there is a category that seems like an opinion, but it's hard to determine the basis for any opinion on the subject.  A LoanDepot survey of 1000 adults asked if it was easier or harder to get a mortgage today than it was a year ago.  Do people apply for mortgages every year?  That seems unlikely.  It doesn't even specify that these adults were in the process of applying or had applied in the recent  past.  Who are these people and where are they getting their information that forms the basis of such an opinion?  Yet, more than half (78%) had an opinion while 22% answered, "not sure."  This is truly puzzling and perhaps disturbing that so many people form opinions on "gut feel" or, believing that they should have an opinion,just make one up.  On this subject it's harmless enough, but are there implications for bigger issues?  Likewise, it's a problem that the organization doing the survey and the paper printing it don't question it.  How many people would be inclined to form their own  opinion,  based on the opinions of others that were based, in turn, on nothing substantial?  In a democracy where lawmakers follow poll results so closely, it's scary to think about.

Oil Pulling or Are They Just Pulling Your Leg?

Health advice found on the Internet and in the news continues to surprise.  The Washington Post tells us that everyone is talking about something called oil pulling.  “Oil pulling is an ancient Ayurvedic practice that involves swishing a pure oil around in the mouth to draw toxins from the body.”  The theory is that swishing the sesame seed or coconut oil for 10 minutes 1-2 times per day (Some sources say 15 to 30 minutes.) draws the toxins out of your body.  The Natural News reports: “This practice has immediate and tangible effects on conditions such as halitosis, gingivitis and dental plaque. Doing this regularly has been shown to improve the luster of the hair, clear the skin, whiten teeth, eliminate parasites, reduce joint pain and improve overall body odor.”  They also imply that it may reduce the risk of heart disease, stroke and dementia.  (Can you say “snake oil”?)

Actress, Shailene Woodley, who calls it amazing and says it makes her teeth whiter, endorses it along with an acupuncture physician in Tallahassee, who shuns the “harsh chemicals” in mouthwash and was attracted by this “more holistic approach.”  She claims that it reduced her tooth pain, and she feels that it helped balance the ratio of good to bad bacteria in her mouth.  (Is there really a way to sense the ratio of good and bad bacteria in your mouth?)

These are clearly individual opinions, not to be confused with facts, based in part on some magical thinking; but what do the experts have to say? 

American Dental Association will not comment without seeing the results and reviews from additional research.  “Institute of Dental and Craniofacial Research, says they are not conducting any research on oil pulling.”  A small study at the University in Southern California showed only a temporary reduction in bacteria associated with cavities.  Another study conducted by the department of Pediatric Dentistry at Dental College in Chennai, Tamil Nadu, India, compared oil pulling to mouthwash and found that mouthwash was more effective.  Professionals in the referenced articles recommend seeing your doctor or dentist before embarking on any self-diagnosis and remedy program warning that “bad breath or tooth sensitivity can point to other, sometimes serious, issues” and it could be “extremely harmful” to anyone allergic to coconut oil or sesame oil.

It seems silly though to worry about research and expert opinion when actresses, social media and others endorse so strongly a practice “based on traditional Indian Ayurveda medicine, which dates back 3,000 years.”  If it’s very old, Indian or Chinese, does not involve chemicals, seems holistic and feels good, how could it be anything but good for you? – Or so the thinking goes.  But it’s not critical thinking.

Added note:  I just got back from the grocery store where I priced mouthwash against coconut oil and sesame oil.  The mouthwash is more than 4 time less expensive than either.  So, this kind of "health superstition" also becomes a poor economic choice.  

Cheap Food

Now we get to the real cause of the obesity epidemic in America, cheap food.  “According to the researchers, in the 1930s, Americans spent one-quarter of their disposable income on food. By the 1950s, that had dropped to about one-fifth. The most recent research finds Americans now spend less than one-tenth of their money on food.”  They draw a direct relationship between this availability and convenience of cheap food and eating more.  The sedentary lifestyle from office jobs to television watching to videogames has less of an influence than fast food, microwavable meals and government farm subsidies.

This seems to contradict the big news from earlier in the year:  “Prices are rising for a range of food staples, from meat and pork to fruits and vegetables, squeezing consumers still struggling with modest wage gains.”  (It’s not really a contradiction, just more evidence that our media will paint any angle of a story as a crisis.)

Although it may look like just another excuse – this time blaming the price of food – it’s impossible to deny the affect of behavior.  The food does not jump off the shelves or out of the drive-thru window demanding that we buy it and eat it.  Popcorn may be more tempting when it’s only two minutes away in a microwave bag without the prospect of a messy clean up, but it’s still a free choice.  No matter the price or the convenience, we still have a choice between nourishing food and junk food, and between eating more or not.  It’s behavior:  discipline, responsibility and critical thinking.  After all, Amazon made buying books cheaper and more convenient, but we weren’t overwhelmed by a reading epidemic!

One could also ask what we were doing with the income saved as the price of food dropped from 25% to 10% of disposable income.  What choices were we making?  Were we saving at least some of it for a comfortable retirement or education; or were we spending it on bigger houses (for smaller families), more toys (for both children and adults), travel, entertainment, designer clothing and generally trying to keep up with/impress the neighbors?  The answer to that question is easy and obvious to everyone.

We were given an opportunity to make sound choices, but were driven, instead by price and convenience and an inability to delay gratification.  Now the majority of Americans are overweight with little or no savings.  We don’t need more research into the cause of the obesity epidemic.  Lay the blame where it belongs – on behavior.