Cigarette Smoking

"Why doesn't government stop cigarette sales?"

It is a well known fact that cigarette smoking is injurious to health and the main component of cigarette i.e. tobacco had numerous unwanted effects on the human health. Then why does not government just stop the cigarette sales or stop producing tobacco? This is an interesting topic for analyzing the changes it would bring to the economy of a country. Smoking cigarettes is indeed a personal choice for people; however in the long run it has an effect on the economic aspect of the country. This essay brings these aspects upfront.

This essay does not answer questions like "Is smoking good/bad?" or "Should I stop smoking?" Rather it is a portrayal of the economic effects of a non-smoking country. It presents a selective, but representative, view of what these effects are like. It identifies the factors that are affected directly/indirectly by tobacco production and cigarette sales and then provides analysis for these. Following is a list of the affected economic factors:

1) Unemployment

Tobacco industry provides employment for around 1 to 2 million of people. This employment comprises of the "direct employment" in industries directly involved in producing and distributing tobacco products and the "indirect employment" in industries that supply goods and services to those industries. If government decides not to produce tobacco, these employees will lose their jobs. This will increase frictional unemployment 1 for the country in the beginning. It will be great if these people will find new jobs, however considering that they have the skills that are required in tobacco industry but are not in demand in other industries; their unemployment would turn out to be chronic unemployment, resulting in highly dissatisfied people and their unhappy life.

2) Taxes

Federal tax collections from cigarette sales rose about 403 percent from 1950 to 2004, while State collections raised nearly twenty fold. This collected tax is mostly utilized in the healthcare industry. If now US stopped producing tobacco, it will need to compensate in some way for the loss of this fed tax and state tax. If government decides to increase the taxes on other available services and products it will affect not only the people who smoked initially but also those who never smoked a cigarette in their life. This would both be unjust and unfavorable.

3) National Savings

With this level of drop in people working in tobacco and related industries, their savings will definitely show a downwards trend. This would not be just a symbol of social unhappiness in workers' lives; in fact it would also hit the money supply of the country hard. There will be large and growing inequality in wealth across the US households; which is indeed a danger to economic well being of a country. This will decrease the private savings. At the same time with lesser taxes received and lower GDP from the tobacco industry the public saving will also suffer. In totality, the national saving 2 (public + private) will suffer a loss.

4) Where tobacco dollars go?

Tobacco dollars support a considerable amount of economic activity in manufacturing, retail and wholesale trade, transportation, and the farm sector. Researchers 3 bring out an interesting point here that it is incorrect to assume that the money that would have been spent on tobacco will disappear from the economy. In fact, it is suggested that it will be spent on other goods and services. However, if capital from tobacco industry will be shifted to non-tobacco industries, there will be a concomitant increase in demand for other products, subsequently increasing the demand for workers, capital, and other factors of production needed to produce them. This might result in more capital requirements by other industries and sectors. Further pressuring need for more capital.

5) Money Supply

When we assume that the money that would have been spent on tobacco will not disappear from the economy, it is suggested that it will be spent on other goods and services. This inherently means that the number of goods available for purchase will decrease since there will be no more cigarettes to buy. However, the money available with consumers will still be the same. As the supply of goods will decrease in relation to the amount of money available, there will be an inflation effect 4, and hence the prices for the existing goods will rise. This will make it difficult to interpret the information