Is the smoking ban based on bad economics?

Tim Harford, writing for the FT, thinks so:

England’s smokers are about to be banned from lighting up in pubs, restaurants and offices. [...] The smoking ban is justified using fancy-sounding economic arguments about the ”externalities” of smoking. [...] An ”externality” seems a simple enough concept: it’s a harm suffered or benefit enjoyed by some third party that isn’t reflected in a market transaction. Pollution is the classic example.

Yet the only credible arguments for restricting smoking have nothing to do with economics. The damage caused by second-hand smoke in pubs is not an externality. Neither is the cost to the National Health Service of treating smokers. An ”externality” is not just any old cost or benefit; it has to lie outside a market transaction.

In the case of pubs and restaurants, the market could hardly be more obvious. The landlord wants to attract customers, both smokers and non-smokers, and he’ll do that by giving them the ambience they want. [...] The smoking ban is usually phrased as a ban on smoking in ”enclosed public spaces”. Of course, a restaurant or pub is not a public space: it’s a private space in which the public gather. (If you think a restaurant is a public space, try bringing a picnic along to one.)

Those who argue that smoking should be restricted because of the costs to the National Health Service are on even thinner ice. If I offered to pay for your private medical insurance out of the goodness of my heart, you would be unimpressed, and rightly so, if I then turned round and claimed that your smoking was now costing me money and so I had the right to hide your cigarettes. Similarly, the UK’s decision to fund healthcare from tax revenues does not thereby give the government the right to restrict our freedom to take personal risks. [...] Economic arguments can be double-edged; sometimes they are best not wielded.

Tim has a point when he is saying that 'an ”externality” is not just any old cost or benefit; it has to lie outside a market transaction'. What he misses, however, is the all important concept of property rights and who holds them. Pollution is an externality if the atmosphere is owned by the public; if for some reason the air belongs to the polluting businessman, an externality there is not.

Like Tim, I believe that the smoking ban is a bad policy that rests on dubious economic morality. In fact, I am a smoker with no intention to quit anytime soon, so the ban also harms me directly. Where I disagree with Tim is that, unfortunately, any argument against the smoking ban has to be based on normative (what should be), not positive economics (what is).

The property rights to a pub's air should belong to the landlord, and the property rights to my health should belong to me. In a democratic state with a flexible constitution such as England, however, this is not the case. Property rights are defined by the government as the government sees fit. With the state reserving (or re-claiming) the right to a pub's air or to a citizen's health, the analysis of the smoking ban as correcting an externality stands perfectly well.

That's a shame: the air of my pub should belong to me, and my own body even more so. But don't blame the government for bad economics; blame the morality behind the allocation mechanism of property rights.