The economic logic of the plastic bag tax: it’s not just a “sin tax”

Kroger in my neighborhood in Dallas, Texas

Today I went to the grocery store. I didn’t want to: it’s New Years day, it’s raining, and Jon and I both have a cold. But we ran out of Nyquil, so something had to be done. While I was at the store, I picked up Nyquil, some chicken breast, some eggs, and two spring rolls from the nice Japanese man at his Sushi counter. I went to the self-checkout kiosk, and worked my way through it.

When I tapped the screen to show that I was finished, there was a prompt I’d never seen before: “How many bags would you like to purchase?” it asked. I glanced over at my groceries, cuddled up in one of the store’s plastic bags. Normally I bring my own canvas bags, but I was tired and in a rush and it slipped my mind.

I called over the store attendant who was watching over the self-checkout area, and asked, “I haven’t seen this before. What is this?” He put on a sad face, and said in his most apologetic tone: “It just started today. It’s a new law, across all of Dallas: 5 cents for each bag. I know, it’s…”

I smiled brightly and interrupted him: “Oh, no, no… I have no problem with it! I think it’s great! I was just asking because I hadn’t seen it before. Thank you.”

Conservatives hate stuff like this, because they see it as the use of government to arbitrarily impose liberal “morals” on society. They see it as government-imposed “punishment” for making certain economic choices, which goes against free market principles. Essentially, they see it as a “sin tax”: the government taking money from you because it thinks you are behaving badly… even though what you are doing is not illegal per se.

In the conservative world view, the correct way for liberals to fix the problem of plastic bag use would be to take the following steps:

  1. Educate the populace about the dangers of plastic bags, and convince them that it is important to not use them.
  2. Convince small business owners to sell and publicize alternatives, like reusable canvas bags.
  3. Use private resources (not courts or laws) to try to convince grocery stores to either charge for plastic bags or stop carrying them.
  4. Once the first three steps are accomplished, the free market will sort it out: people will have the correct free-market pressures to stop using plastic bags, and will stop by their own choice.

That’s the free market vision.

The problem is that grocery stores are in what game theorists call a “prisoner’s dilemma“. If I own a grocery store, I might very well know that there are long-term, environmental “hidden costs” to distributing plastic bags. These costs are not part of what I pay for the bags, but come in the form of litter and environmental damage, and the further depletion of oil as a natural resource on this planet.

I may want to even take those “hidden costs” into account, and start charging a fee for plastic bag use. But here is the dilemma: I know that if I do that, and none of the other grocery stores do, I will drive away customers. It will not be in my short term interest to take into account the long-term costs of distributing plastic bags.

Of course, since every single grocery store owner may think the same way, plastic bags continue to be distributed, guaranteeing the acceleration of the cost to the environment.

In economics this is also known as the “tragedy of the commons“: when companies only act in terms of their immediate self-interest, their short-term balance sheet, they do not take into account the fact that they may be using up or damaging common global resources (“the commons”). As a result, they will use and use and use, and eventually will end up damaging their own business (along with everyone else’s) because that resource will be gone.

(For another current example of the “tragedy of the commons”, examine why oil prices are dangerously low.)

The plastic bag fees imposed by Dallas are not a “sin tax” or a “punishment”. They are a way to fix the fact that the free market system it, in fact, broken. The fees are requiring consumers to pay for real costs incurred to “the commons” (the environment) that grocery stores, driven only by their short-term balance sheets, won’t ask them to pay.


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  1. Lori Saldaña says:

    Interesting commentary on how the concept of a “free market” can hamper efforts to protect the environment for all. Also, I would not have imagined such a bill re plastic bags would be passed in Texas. Was it a state bill or a local ordinance?

    FYI California passed a bill in 2014 Banning single use plastic bags. However opponents gathered signatures for a referendum to overturn the law, so the ban is on hold.

    The so called “citizens initiative” process in California is now primarily used by those with the deepest pockets. (In San Diego a local ordinance to increase minimum-wage has been blocked by a similar effort.)

    I suppose you could say these initiatives are the ultimate expression of a free market form of government: those who can afford it hire signature gatherers, fund the campaign to pass an initiative and completely bypass elected officials, policy hearings etc.

    • Greg Stevens says:

      Thanks for your comment, Lori!

      And your intuition is pretty much on: this is a local (county) ordinance, and Dallas is well-known in the state of Texas for being one of the “blue dots” in a sea of red (the other one being Austin)!!

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