Business Columns & Blogs

As sales restrictions gradually fade, consider the economic effects of demon rum

As time goes on, buying liquor keeps getting gradually easier around the country. Bottles of Jack Daniel's Tennessee Whiskey line the shelves of a liquor outlet in Montpelier, Vermont.
As time goes on, buying liquor keeps getting gradually easier around the country. Bottles of Jack Daniel's Tennessee Whiskey line the shelves of a liquor outlet in Montpelier, Vermont. AP

My home state of Minnesota is repealing a longstanding ban on Sunday liquor sales. Idaho bans sales too but lets local governments authorize them, and most do. Economically, this is a tempest in a teapot, but it illustrates alcohol’s importance in our collective psyches.

Drinking brings pleasure to billions and is part of social interactions in most cultures. Sipping a good wine, Scotch or beer is a fine thing in life for some. Drinking also causes enormous physical and social harm.

Yet history tells us that banning alcohol completely is a mistake, so societies struggle to live with it while minimizing harms. Restrictions on when it may be sold are part of that.

Consider the economics:

First, alcohol can be physically addictive for many. That makes demand for it extremely “inelastic.” The quantities people are willing to buy decline little in response to increases in price. This allows selling it above the cost of production if some monopoly can be established. The question is who can achieve that.

Inelastic demand also means that governments can tax alcohol and that the quantities sold — and the revenues generated — don’t drop much.

Addictions upend traditional economic assumptions that people are rational and weigh benefits to themselves against costs in any decision. But addictive impulses override objectivity. Additionally, those ravaged by addiction sacrifice greatly for the ephemeral slaking of addictive needs.

Alcohol is also the classic example of a substance for which consumption imposes external costs on others. In this way, it is little different than coal or pesticides that can harm third parties when used.

Economic theory and history both show that whenever external costs exist, economic efficiency is harmed. Society gets less satisfaction of needs and wants out of a given set of available resources than when the external costs are curbed.

So what does this all have to do with whether you can buy a case of beer on Sunday?

If drinking causes external damage, then limiting the time when people can drink is a way to limit such damage. If people tend to drink more as they sit in a bar, then mandatory closing hours may restrict consumption.

Similarly, if access fosters drinking, then setting days when alcohol cannot be sold curbs access. You can make liquor stores close on Sunday. Saloons too.

Some of these restrictions in the past were overtly religious. Some were practical business: Make workers sober up on Sunday to not be hung-over on Monday morning.

Skeptical economists also see rent-seeking here, the use of political power to feather one’s own financial nest. With inelastic demand, barring sales one day of the week means that more product will be sold on each remaining one. Revenue will be the same, but Sunday closing eliminates one day’s costs of having a store open. Any single store that closes on its own initiative loses sales to competitors, but if a law forces everyone to close, loss of sales is minimized.

As we near a century after its enactment, most people now look on Prohibition as stupid and futile. The experiment did not work, but the harm caused to society by high levels of alcohol consumption by men in the decades leading up to the 1919 ratification of the 18th Amendment was indeed large.

One feature of high consumption was the sheer number of establishments selling booze. So after repeal in 1933, government imposed its ability to limit the number of establishments that could sell liquor for consumption either on or off the premises.

State laws often link the number of on-premises sellers to the population of a given municipality. Idaho does this. In some states, fraternal organizations such as those for war veterans were given priority. And municipalities could retain a monopoly on running a bar or a package store in certain circumstances. We see lots of different local patterns.

But limitations established in the 1930s are eroding. Closing times are not as strict as they once were, and licenses are somewhat easier to get. Most consumers see this as beneficial. Organizing one’s weekend is easier if you can buy your wine on Sunday afternoon while doing other errands. And the silly, wasteful fictions of having to bring your own bottle to a supper club that could only sell set-ups, or of having to buy a membership in a “private club,” are now mostly a thing of the past.

Step by small step, it is getting more convenient to get alcohol. And we continue to abuse it. Research shows that education and treatment are better curbs on alcohol abuse than the sort of nitpicking regulation tried in the past. But the sorrows as well as the joys of alcohol will be with us for a long time.

St. Paul economist and writer Edward Lotterman can be reached at boise@edlotterman.com.

  Comments