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Lies, Damn Lies, and Statistics --

The Economics of Smoking Bans

By Theresa Fritz Camoriano

The proponents of the proposed smoking ban in Louisville have been saying that smoking bans do not have an adverse effect on businesses in other cities, like New York, so there is no good reason to oppose a smoking ban in Louisville.  However, Greater Louisville Inc. has now contradicted those statements, saying that smoking bans have an adverse effect on business.  Benjamin Disraeli's statement, "There are three kinds of lies: lies, damn lies, and statistics," certainly appears to apply here.  Both sides of the argument are marshalling statistics to “prove” their point.  One side says smoking bans don’t harm businesses, and the other side says they do harm businesses.  We all have seen that statistics can be carefully selected and skewed to “prove” just about anything, so who is right?  Whom should we believe?

When all else fails (and even before all else fails), I suggest resorting to logic and common sense.  Consider the following: 

Step 1:        The profit motive provides a great incentive for business owners to do a good job serving their customers, so we can assume that the vast majority of business owners want to do the best they can to meet the desires of their customers in order to earn money.   (Any business owner who is in a competitive environment and is not interested in serving customers will go out of business pretty quickly.)

Step 2:        From observation, we can see that there are all kinds of customers, and each business owner caters to his own particular segment of the market in order to earn a profit.  For example, some restaurants serve expensive, sit-down meals in an elegant environment.  Others serve inexpensive, self-serve meals.  Some provide big-screen TVs or other forms of entertainment with their meals, while still others provide take-out meals or deliver meals to their customers’ homes.  Similarly, some restaurants and bars cater to smokers, while others cater to non-smokers, and others try to cater both to smokers and non-smokers by having smoking and non-smoking sections. 

Step 3:        If a law is passed that prohibits smoking in restaurants and bars, then most businesses that previously had been catering to smokers, allowing them to smoke while eating or drinking, will lose business.  For example, a smoker who used to eat in a restaurant that catered to his tastes may opt, instead, for take-out pizza, which he can eat at home, where smoking has not yet been prohibited.  This will harm the restaurant that used to cater to smokers, while benefiting the take-out pizza business.  Similarly, a smoker who used to enjoy stopping by a bar for a drink and a smoke will be prohibited from exercising that option.  He may still go to the same bar occasionally, but, since he can no longer smoke there, he may stay for a shorter time (spending less money) and will often opt to buy his alcohol at a grocery or liquor store and then relax with a smoke and a drink at home (or in his car in the parking lot), where the ban does not yet apply.  In addition to smokers changing their habits as described above, many will simply opt to spend their money across the river in Indiana or in another county where there is no smoking ban, again harming businesses where the ban takes effect.  Since the restaurants and bars located in the area of the smoking ban that used to cater to the tastes of smokers will be prohibited from catering to those customers, they will lose at least part of that business.  It is not likely that a smoking ban will cause non-smokers  suddenly to start spending a lot more money in restaurants and bars than they were spending previously so as to make up the loss of business from smoking customers, so the loss of smoking customers represents a real harm to the bottom line of these businesses.

Step 4:        Thus, a smoking ban will harm certain business owners by restricting their ability to cater to a particular segment of the market (in this case smokers), thereby causing them to lose a portion of their business.    

Will some businesses benefit from the ban?  Probably, yes.  In the examples described above, liquor stores and take-out pizza restaurants probably will see an increase in their business due to the smoking ban, as smokers buy products to be consumed at home or in their cars.  Will the benefits to the liquor stores and take-out pizza restaurants outweigh the harm to the bars and restaurants that previously catered to smokers?  Probably not.  But, even if they did, real harm would be done to real business owners and their employees and customers due to the ban. 

While a smoking ban is very likely to cause great harm to some businesses, the metro council should not be debating the economics of a smoking ban, because banning smoking should not even be considered.  The proper job of the metro council is to protect property rights -- to protect the ability of buyers and sellers to come together to make mutually advantageous exchanges.  Government should not be choosing the winners and losers in the marketplace.  Government should not favor take-out pizza businesses over sit-down restaurants or liquor stores over bars.  Instead, the government should leave consumers free to seek out the businesses that best meet their needs and desires, and it should leave businesses free to knock themselves out serving their customers and earning profits.    

Whenever the government puts up barriers that prevent sellers from catering to the wishes of their customers, it harms both the sellers and the customers, by preventing them from engaging in the kinds of exchanges they would have preferred.  And that is true no matter what the statistics say.

See also http://www.davehitt.com/facts/badforbiz.html

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