The Sky Is Falling
On Friday, April 7th Oklahoma Attorney General Drew Edmondson shifted into full-scale Chicken Little Mode regarding a possible reduction in the extortion money customers of the big tobacco companies pay to forty-six states each year. Edmondson is terrified that Oklahoma’s slice of the extortion pie, typically $65 to$70 million a year, will be reduced and he is now issuing dire warnings of the sky soon to fall.
In statements following a talk Edmondson gave on tobacco litigation at the University of Oklahoma Health Sciences Center College of Health on Friday, he stated, “The threat is very real. The timing of the threat is still up in the air”. Edmondson went on to state, “It’s a fluid situation right now in terms of whether the companies are going to withhold this year or pay under protest or pay a part of what they owe. The litigation is inevitable”.
The event which put Edmondson into Chicken Little Mode is a New York appellate court ruling on Thursday that disputes over reductions in tobacco payments must go to arbitration. The reduction to the states could amount to more than $1 billion a year, one-sixth of the total extortion money the states receive from ‘big tobacco’, or more accurately the customers of the major tobacco companies, each year.
At the heart of the scare afflicting Edmondson is basic economics. When the states blackmailed the big tobacco companies into paying the $6 billion a year in extortion money, a provision of that negotiated agreement permits the big tobacco companies to reduce their annual payments if their market share has eroded as a result of the higher prices they are forced to charge in order to afford the extortion payments.
With forty-five of the big tobacco companies party to the extortion agreement with the states and eighty smaller tobacco companies not party to it, it is pretty obvious what is happening. Customers of the extorted companies faced with drastic prices increases, coupled with endless increases in state taxes on tobacco products, are opting for the lower priced products of the smaller companies. These products not subject to the extortion fees which hamstring their bigger companies. The market share of the smaller companies is going up while the market share of the bigger companies is going down.
This is ‘Basic Economics 101′ stuff. It is why most of us do not drive luxury vehicles, live in quarter-million dollar homes and jet off to Europe for our vacations. Evidently Attorneys General are not as familiar with ‘Basic Economics 101′ as are normal people, otherwise they would realize that consumers confronted with a choice between premium products they can no longer afford and non-premium products they can afford will always go with the lower priced products rather than doing without.
Mr. Attorney General, let us assure you that the sky is not falling, nor is it going to fall. We would however point out that while the goose that lays the $6 billion dollar golden egg each year is not dead, it is in ill health and to a large degree owing to the greed on the part of politicians. Rest assured that Oklahoma Smokers are familar with basic economics and will continue to find ways to control spending for tobacco products. One such way is to purchase less costly but inferior products. Another way is to elect less greedy politicians.