Bryan Caplan  

The Great Californian Bag Surplus

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I just got back from a long vacation in my home state of California.  The bad news about California is that its people and government have unusually severe economic illiteracy.  The good news is that their severe economic illiteracy provides enough illuminating examples to fill a textbook.  This trip, my favorite case in point has been California's law requiring stores to charge at least ten cents per bag

Economically speaking, what is this law?  Most non-economists call it a "tax on bags," but it's totally not.  A seller is legally allowed to absorb a tax if he is so inclined.  If the government imposes a  $1 tax on a $10 product, for example, a seller is legally free to cut the list price to $9 so the price with tax stays at $10.  But California merchants are not allowed to charge customers less than $.10 a bag.

If the law isn't a tax, what is it?  A price control.  What kind of price control?  A minimum price, also known as a price floor.  And since bags used to be free, this is clearly a binding floor.

The primary effect of a binding price floor is to create a surplus.  At a price of $.10 per bag, sellers want to sell a lot more bags than customers want to buy.  This may sound strange to California residents: "It's really hard to get bags now.  What do you means there's a 'surplus'?"  But that only shows they don't understand the textbook concept.  A surplus doesn't mean abundance; it means abundance from the seller's point-of-view, combined with scarcity from the buyer's point-of-view.  In fact, textbook econ implies that the bigger the surplus, the less human beings consume.

But binding price floors also have a secondary effect: they raise quality.  If merchants can't make their bags more attractive to consumers by cutting their price, the next-best strategy is to make their bags better.  This abstruse textbook prediction was uniformly fulfilled in every grocery store I saw in California.  Indeed, I've never had better bags in my life!  Every bag was sturdy, pristine, and decorated.  This bag says it all:

bag.jpgBut aren't high-quality bags a good thing?  The general answer is: not necessarily.  Quality costs more; markets let people decide for themselves whether the extra quality is worth the extra cost.  When price floors spur higher quality, however, the extra quality is normally not worth the extra cost.  How do we know?  Because before the law was passed, sellers were free to offer higher-quality, higher-cost bags, but rarely did, demonstrating that consumers place little value on extra quality.

Defenders of California's law who know a smattering of economics will no doubt appeal to the negative externalities of plastic bags.  But in this case, a little knowledge is a dangerous thing.  If you're doing practical policy analysis, you can't just point to a negative externality.  You've got to do quantitative cost-benefit analysis: How much cleaner will the $.10 bag law make the planet - and much aggravation will it inflict on consumers?  I can't find any decent numbers on Google or Google Scholar, but it's pretty obvious that bags are a tiny fraction of all plastic, and plastic a tiny fraction of all potentially hazardous trash.  And it's even more obvious that bringing your own bags to shop is a pain in the neck.

Even if environmental costs heavily outweigh convenience benefits, however, price floors are almost always inferior to simple taxes.  See any decent intro econ textbook: When firms can't efficiently compete on price, they inefficiently compete on everything else.  Taxes change behavior, too, but only by changing prices - leaving firms and consumers free to flexibly and creatively adapt.  And instead of burning up resources on inconvenience and overly fancy bags, taxes change behavior and raise government revenue at the same time.

Strangely, then, the only people with a halfway-decent reason to prefer California's policy to a simple bag tax are libertarians who take the Starve the Beast strategy to its radical conclusion.  Everyone else in California desperately needs to read an econ textbook before he votes again.

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COMMENTS (20 to date)
Travis Eden writes:

That's not even the worst thing about the bag ban.

MikeP writes:

Reminds me of a comment I made when these idiotic laws came to my city in California...

To be fair, the quality of the paper bags improves a lot under these laws: the stores are splitting the dime with you.

I did ask the first time I had to pay for the bags where the money goes. I was glad it goes to the retailer: If it went to the city, that would have been beyond awful.

I don't carry reusable bags. And sometimes I do walk out with an armload of groceries or a half dozen yogurts in a produce bag. (They're still free.)

I don't know what I'll do if NYC pulls this crap.

Consider it grocery tourism. Relish the feeling of being in a third world country that hasn't yet developed convenient lightweight bags that stores give out free to encourage economic activity.

Jeff G. writes:

As a Californian who has dealt with the bag tax for a number of years I can honestly say that for me, the annoyance of bringing your own bag to the grocery store is very small. At this point, I prefer carrying all my groceries in a few, large, reusable bag that never break over carrying everything in 20 flimsy plastic bags.

Thaomas writes:

But merchants are clearly able to absorb the bag tax by lowering prices of things that go into them. And if consumers felt a lot of irritation at the tax on bag pollution, they could let their elected representatives know.

I don't think you've put your finger no an important problem.

Jim writes:

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Fazal Majid writes:

You are making too big a deal about something fairly trivial.

The externalities of single-use plastic bags were exaggerated, however - I used to use them as free garbage bags, and now I have to pay for them anyway ($27 for a pack of 100, albeit ones custom-fitted for my trash can).

Most reusable bags are significantly more expensive than 10 cents, at least a dollar, and the truly convenient ones like ChicoBags that collapse down into a pocketable pouch cost closer to $5. The only bags that actually cost $.10 are paper bags, and those are useful for compost.

Hernan writes:

Those who think like economists won't pay 10 cents for a plastic bag because that's outrageous! And those who care about using less plastic won't pay either. The rest of people can pay all they are willing for artificially priced bags that money will be going towards a good cause.

Hana writes:

Item number 5326 for why we are leaving upon our youngest graduation (five months away, house on the market, new house already bought and furnished. Enjoy those green zones, oh wait, you have to commute through them. Keep driving, you're almost home). There is nothing the state government doesn't believe they know better than you. What did Arnold say? 'Hasta la vista, baby'.

Christian Moon writes:

Very helpful analysis!

Shops in England have had to charge 5 pence since October 2015 for the plastic carrier bags we use.

I noticed that I switched my purchases (of bags only) towards those from one particular supermarket because they were heavier duty and longer lasting (just in the way you described).

My total consumption is actually determined by the amount of rubbish I generate, since I use these bags as bin bags, and otherwise re-use them for shopping just as I did before.

The consequence of the measure is thus that I am now consuming a greater mass of these bags, which is quite counter to the intentions of the legislation.

Shane L writes:

We have had this policy in Ireland since 2002. Initially, as a consumer I felt the policy was working well. Beforehand, shop staff immediately packed things in bags, while afterwards they asked "would you like a bag?" As a result the number of bags being handed out fell drastically. While a small part of all plastic waste, I wonder if they are a larger part of waste that becomes litter, and I felt that the amount of litter had reduced.

It took a few years before Ireland went the Californian way. Now the big supermarket chains no longer give out the cheap, small bags, but insist on offering customers only large, thick, relatively expensive bags. This has become a bit of an annoyance.

As of 2013, the government saw it as a resounding success:

"Environment Minsiter Phil Hogan said the introduction in the levy led to a drop from an estimated 328 bags per person per year prior to the levy being introduced to 21 bags per person by the end of 2002 and a further reduction to an estimated 14 bags per person by the end of 2012. Last year’s report by the National Litter Pollution Monitoring System indicated that plastic bags constituted 0.3 per cent of litter in 2012 in comparison to 5 per cent prior to the introduction of the levy."

mariorossi writes:

I think I read somewhere that platic bags are a particularly problematic platic. Due to their particular composition they disintegrate and become micro-particules that can be quite dangerous as wildlife can easily ingest them. So it might make sense to tax disproportionally that type of platics.

Another wierd twist is that, in the UK at least, shop provided bags are subject to minimum pricing, but home delivered bags are not. So I can get many free platics bags as a relatively wealthy indiduval who lives in a large metropolitan area, but I wouldn't as a poorer rural citizen.

In Sweden and Germnay they use refundable deposits: you have to pay a deposit when provided with a recyclable container (plastic bottles, alluminium cans and so on), which you get back when you return it to the shop. So it's like a pre-paid littering fine.

I think the point raised above is also interesting: this is really a minimum price on a subset of a transaction. Wouldn't that have a theoretical different effect? You never go to the shop to buy bags, but to buy other stuff as well. Given that the retailer keeps the fees, they must have the resources to lower other prices by a corresponding amount. In very special circumstances you'd basically get no effect, since bag consumption would stay the same, and shops would offeset the bag charge with lower prices overall (since they had to factor the cost of the bags beforehand). It's obviously still distoriting in expectation, but differently.

This might have some support in the evidence. At least in the UK, better bags are significantly more expensive than the old bags (which are still availbale at the minimum price). You basically need to reuse bags 10 times on average to get a benfit from switching. People still buy the better bags. The forced unbundling of the 2 prices is a more subtle effect, no?

I am not sure if this makes the policy better or worst to be honest...

Ayn R. Key writes:

People are talking about how trivial this is, and how trivial libertarians must be for actually taking the time to comment about something this trivial. That leads to an interesting question.

If this is so trivial, are the regulators as trivial for having taken the time to regulate something this trivial?

Procrustes writes:

Ayn R Key is on to something - it's not really trivial at all, it is an emblematic teaching moment regarding the lengths economically illiterate local government regulators will go to in order to address non-problems (and signal virtue to their citizens).

My hunch is that in aggregate a lot of such trivial regulations that don't pass proper cost benefit analysis and have a disproportionate impact on innovative smaller business adds up to one explanation for the low productivity growth (and hence low long term growth in living standards) in so many western countries.

Jeff G - you are entitled to your preferences, which the Californian law allows, but is there any demonstrable reason why the preferences of others should be disregarded?

Light weight plastic bags are such a small proportion of the litter stream and are a clean and cheap way of providing convenience to shoppers. They tend to be made of a by-product of the petro-chemical industry so not using them has neglible impact on resource use. They could be re-used as rubbish bags. There is also some (albeit contested) evidence of increased e- coli and similar infections because of the move away from lightweight bags to sturdy bags (which most users never clean).

Why do regulators think they know better than consumers even on such relatively "trivial" issues?

poorlando writes:

I live in California and told my parents who live in a red state back east that those grocery plastic bags that I use as trash can liner were banned. Without my asking, they bought me a box of 1,000 (and I doubt they would have done so if it cost anywhere close to $270 per comment above). On top of that, they used to steal a whole bundle of them every time they used the self-checkout at their grocery store and then, whenever they wanted to send me some object through the mail, they would use them as cushion and stuff as many of them as they could into the flat rate USPS mailer. I finally had to tell them to stop, and now I try to go through those bags at a much quicker rate than before if only so I can get rid of them to free up space in my little condo. They've essentially moved some of my consumption of those bags from the future into the present, and I'm using more than I would otherwise. Yes, this is just a strange anecdote, but a nanoscopic example of an unintended consequence of plastic bagphobic nanny state authoritarianism.

David writes:

As a manager of a small business, I'm delighted with the bag charge. A cost I previously had to absorb I can now pass on directly to the customers! And since everyone is doing it, and since it's socially "good" to do so, and since the cost to customers is tiny, I don't incur any marginal loss in making this change.

Looking forward to more environmentally friendly regulations! ^-^

gamma writes:

Two more externalities:

(1) It takes much longer for a grocery clerk to pack reusable bags. I noticed this at Wegman's some time ago. The clerk had been quickly packing up groceries in disposable plastic bags using the efficient system provided by the grocery store. When a stack of reusable grocery bags was handed to him, he was suddenly required to use both hands to arrange groceries in the bulky recalcitrant bags, which slowed down the process immensely. Apply this experience with a single customer to every grocery customer, with their motley assortment of bags. Longer lines? More checkers? More self-serve lines? Increased costs and/or decreased levels of service.

2. Shoplifting has skyrocketed. It's just to easy to load your opaque bags while you shop, and difficult for the grocer to see if such bags are actually empty. Once again, increased costs.

Ben Hughes writes:

@David Be careful what you wish for: To the extent that this policy increases the annoyance of shopping for groceries (as it has for me) by reducing convenience, one would would expect a slight marginal compensating shift towards people eating out instead of cooking at home (requiring groceries). Depending on magnitudes, that may actually be *worse* for your store, not better.

S.P. Brown writes:

Okay, so the grocer isn't legally allowed to charge less than $0.10 per bag, but he is legally allowed to charge less on the groceries the consumer buys. So, why couldn't a grocer absorb the bag charge?

Say that $50 worth of groceries requires five bags on average. Couldn't the grocer segregate the bag charge (this is just an accounting adjustment) and compute a price reduction across his inventory to account for the bag charge? Now, groceries that cost the consumer $50 costs the consumer $49.50. What law would prevent a grocer from doing this?

Jaap writes:

Taking "starve the beast" to its logical conclusion is Californians' favorite local pastime. Almost everything in state politics is in some way connected to prop 13. Whenever something seems not so much ideological as just plain weird, it's nearly always a consequence of prop 13 or a way to get around prop 13.

Yuthika Agarwal writes:

You bring up a very interesting point that it is not a "tax" but rather a binding price floor. That is an important distinction to make. I had no idea that merchants could change the price of their items to absorb taxes! I agree with the point that price floors do raise quality. As a California resident who shopped before the "bag tax" and after the "bag tax" I can vouch for the fact that in an effort to sell more 10 cent bags, stores are making their bags pretty and sturdy. I like that you end with explaining how plastic bags are such a small part of pollution and it's a bit absurd that California law-makers truly believed that 10 cents for a bag would make the demand for plastic bags go down (which it kinda did) but I doubt it will have a drastic enough effect to noticeably reduce pollution!

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