My latest article for The Atlantic provides four reasons to oppose the new tobacco taxes proposed in the White House budget.
According to Bloomberg, President Obama will be proposing new tobacco taxes to fund pre-kindergarten programs:
Obama’s 2014 budget proposal, to be released April 10, would finance a pre-kindergarten program for 4-year-olds with higher taxes on cigarettes and other tobacco products. The president outlined the program in his annual State of the Union speech to Congress. He’s seeking to increase spending in areas such as education while Republican lawmakers are pushing for additional budget cuts as a way to reduce the federal deficit.
White House spokesman Jay Carney declined to elaborate on the proposed tobacco-tax increase. “Wait for specifics,” he told reporters at a briefing yesterday.
Never mind for now that cigarette smokers already suffered a more than doubling of the federal tax in Obama’s first year in office. The “other tobacco products” part of this proposal is reason to worry for those who enjoy pipes and cigars.
The 2009 tobacco tax increases to fund the Children’s Health Insurance Program created some significant disparities among similar products. Pipe tobacco was taxed at a far lower rate than roll-your-own (RYO). Large cigars sometimes get much more favorable treatment than small cigars. As a result, producers and consumers shifted to pipe tobacco instead of RYO and added just enough weight to small cigars to qualify as large. The distorting effects of these taxes were immediate and striking:
These changes are almost entirely a matter of legal classification. Actual consumption patterns haven’t changed in the way the chart suggests. Neither pipes nor premium cigars have enjoyed an explosion of new consumers as a result of these taxes.
Nonetheless, the government wants to fix this disparity. A report from the General Accounting Office, the source of the chart above (PDF), estimates that in the first two years of new taxes these substitution effects may have cost the treasury up to $1.1 billion.
One way to fix the disparity would be to lower taxes on RYO and small cigars, but that’s not going to happen. So don’t be at all surprised if the proposal from the Obama Administration includes tax hikes on pipe tobacco and large cigars, imposing substantial new costs on consumers and retailers.
For more, read Michael Siegel’s take on the tax proposal. And for a longer explanation of how smoking bans, higher taxes, and FDA regulation threaten the premium cigar industry, see my December article in The Atlantic.
Update 4/10/13: Via International Premium Cigar and Pipe Retailers on Facebook, this is apparently the language in the budget proposal:
Increase tobacco taxes and index for inflation
Under current law, cigarettes are taxed at a rate of $50.33 per 1,000 cigarettes. This is equivalent to just under $1.01 per pack, or approximately $22.88 per pound of tobacco. Taxes on other tobacco products range from $0.5033 per pound for chewing tobacco to $24.78 per pound of roll your-own tobacco.
The Administration proposes to increase the tax on cigarettes to $97.65 per 1,000 cigarettes, or about $1.95 per pack, increase all other tobacco taxes by about the same proportion, and index the taxes for inflation after 2014. The Administration also proposes to clarify that roll-your-own tobacco includes any processed tobacco that is removed for delivery to anyone other than a manufacturer of tobacco products or exporter. The rate increases would be effective for articles held for sale or removed after December 31, 2013.
As predicted, all loose tobacco would be treated equally, resulting in a huge tax increase for pipe smokers. Details on cigars are lacking, but it looks they would be hit too.
One of the topics I’ve been researching for a forthcoming article is the effect of the higher tobacco taxes imposed by the Childrens Health Insurance Program Reauthorization Act (CHIPRA). CHIPRA raised tobacco taxes across the board but it didn’t raise them equally; some products were hit harder than others. The most relevant disparities are between roll-your-own (RYO) tobacco and pipe tobacco, and between small cigars and large cigars.
Before CHIPRA, pipe tobacco and RYO were both taxed federally at $1.10 per pound. After CHIPRA, the former increased to $2.83 while the latter increased to $24.78. Since the two products can be treated as substitutes for each other, this naturally led to manufacturers and consumers shifting to products labeled as pipe tobacco for use in rolling cigarettes. A similar shift affected the cigar market, where it became advantageous for some producers of small cigars to slightly increase the weight of their products to qualify as large cigars. (Direct comparison of taxes on small and large cigars is complicated by the fact that small cigars are taxed by weight and large cigars by value.)
I knew that these market distortions were occurring, but I didn’t realize just how substantial they were until reading a report from the General Accounting Office (PDF) from earlier this year on the effects of CHIPRA taxes. Here in two charts is a dramatic illustration of unintended consequences at work:
At first glance this may look like booming business for producers of pipe tobacco and cigars, but of course that’s not what’s happening. The changes are almost entirely nominal. Yet since they reduce tax receipts for the government, the pressure is on now to fix the disparity by raising taxes yet again. This would be another blow to producers of traditional pipe tobacco and large cigars, as well as the retailers who sell their products.
It’s not everyday that one sees a corporation exert its dominance over government as openly and brazenly as Nike did to Oregon Governor Kitzhaber and the legislature this week. From The Oregonian:
Turmoil over Nike’s taxes surfaced Monday when Kitzhaber made a surprise announcement that he was ordering lawmakers into an “extraordinary” special session with four-days’ notice. He said he was motivated to act fast after being approached by Nike officials who were asking for greater tax certainty before proceeding with a major expansion.
Nike got the guarantees it wanted. Kitzhaber defended the policy by citing figures regarding the corporation’s economic impact — figures provided by Nike without verification:
In speeches and press releases, Kitzhaber and Nike representatives claimed that the company offers an average annual compensation of $100,000 to its employees and that employment in Oregon has grown 60 percent since 2007. Kitzhaber, citing a Nike economic analysis, said the company’s expansion could trigger up to 12,000 direct and indirect jobs and a $2 billion-a-year boost to the state economy.
Those numbers were repeated by supportive lawmakers on Friday, although Nike has not provided data to back up those claims. The company has declined to release the economic report done by AECOM.
Kitzhaber’s spokesman, Tim Raphael, said that the office took the figures from fact sheets provided by Nike, without any independent verification. Nike refused requests from The Oregonian for evidence or context regarding the figures.
The tax deal doesn’t change anything in the short term, but it’s a sign of a sick relationship between the state and large corporations.
Hikes on tobacco taxes are an easy sell to voters because smokers are presumed to pass their health care costs on to society, creating a negative externality that non-smokers have to pay for. The actual budgetary impact of smoking is more complicated: Smokers, by dying earlier than those who abstain, save governments a considerable amount of money. There is a lot of research to back this up, the latest coming from the Congressional Budget Office in The New England Journal of Medicine. The CBO examined a hypothetical increase in federal cigarette taxes indexed to inflation:
Outlays would be lower in that initial phase because decreases in per capita health care spending would outweigh the costs of greater longevity. From about the middle of the second decade onward, however, the effects of increased longevity would outweigh decreases in per capita health care spending, and outlays would rise; but until about the mid-2060s, that growth in outlays would be more than offset by the increase in tax revenues from higher earnings. The largest deficit reduction from the health-related effects — about 0.005% of GDP annually — would occur from about 2030 to 2035. After the mid-2060s, the deficit would be larger than otherwise because the higher outlays would outweigh the health-related revenue increase.
Factoring in the additional excise tax revenues, the researchers project that a tax increase would nonetheless result in a very small reduction in the deficit. Absent those revenues, the federal government is made fiscally worse off by people quitting smoking or never taking it up in the first place.
Michael Siegel, who is usually good at dispassionately evaluating arguments on their merits, is furious:
The rest of the story is that it is despicable that the Congressional Budget Office believes that it is appropriate to evaluate a public health policy based on whether it might save lives and therefore increase Social Security and Medicare spending. In doing so, the CBO is borrowing a page right out of the tobacco industry’s playbook. This type of analysis would never be done for an issue such as mammography, because anyone who advanced such an argument would be raked over the coals.
Like Philip Morris, the CBO should disavow its report and apologize for the argument it advances.
Finally, while it is shameful that the CBO has advanced this argument, it is also shameful that the journal agreed to publish this argument, thus giving it legitimacy. Both the CBO and the journal owe readers and the public an apology.
There is an obvious difference between mammograms, which are a treatment, and taxes, which are involuntarily taken from consumers. Not everyone buys into the argument that smokers should be taxed for their own good. For many, the best case for cigarette taxes is that smokers shift health costs onto the state. The CBO study is relevant to that argument.
In any case, the CBO makes clear in its commentary that budget effects are only one factor that should be considered:
Consequences for the federal budget are only one factor that lawmakers may consider when developing policies to promote health. Others factors include effects on people’s health and well-being, views about the appropriate role of government in influencing behavior, the burdens that policies might impose on people in various circumstances, and effects on the budgets of state and local governments.
Emphasis mine. Siegel, while admirable for his advocacy against junk science in the anti-tobacco movement, often misses the mark on issues related to paternalism.
The Family Meal: Home Cooking with Ferran Adria, Ferran Adria — As I’ve gotten more into cooking over the past year, my biggest obstacle to doing more of it is taking on recipes that are too complicated, too time-consuming, or require too many esoteric ingredients. As a result I enjoy cooking when I get around to it, but all too often I end up getting food out and putting off trying new things.
Ferran Adria of elBulli, the legendary restaurant famed for its innovative culinary techniques, is not the person I thought would reverse this. But his book of home cooking, which collects recipes from the “family meals” elBulli served their staff each night, does exactly that. The dishes by necessity tend to use readily available ingredients that are mostly inexpensive; each dish is given in quantities for two, six, twenty, or seventy-five diners. The methods are fairly simple and make the most out of light lists of ingredients. I brought it with me to Upper Peninsula Michigan and was able to cook from it there; if you can source items in the U.P. you can source them anywhere. I still have a lot more to try from this book, but so far everything has been good. More importantly, it’s a book that I’m actually using with frequency.
A Capitalism for the People: Recapturing the Lost Genius of American Prosperity, Luigi Zingales — Recommended by everyone from Tyler Cowen to Brad Delong to Paul Ryan, this is an impressive book. It’s libertarian without being ideological, diagnosing the cronyism that plagues our economics system and offering institutional solutions to fix it. Capitalism has taken a bruising in the past decade, not least of all from its supposed defenders. Zingales’ “promarket populism” hits exactly the right tone; I’d unhesitatingly recommend this to friends on the left and the right.
Ron Paul’s eEVOLution: The Man and the Movement He Inspired, Brian Doherty — I hadn’t planned on buying this book but picked it up when Brian Doherty visited Powell’s in Portland. Having read Brian’s previous book and followed Reason magazine’s daily coverage, would I really enjoy an entire book about Ron Paul? The answer is yes, and I finished the book appreciating Paul’s career more than I had before.
Jonathan Turley has an op/ed in USA Today arguing for privatization of spirits sales and the end of state liquor boards:
Seventeen states continue to exercise control over liquor as absurd relics from the 1930s. Ironically, there is no better example of the failures of central planning than the “ABC stores” around the country from Alabama to Pennsylvania. Indeed, if Karl Marx were alive and trying to buy Schnapps today, he might reconsider aspects of Das Kapital after dealing with our central alcohol planners. [...]
Most states have gotten rid of these boards and fared well in relying on the market and conventional regulations to protect consumers. Just last month, Washington state embraced the free market and got rid of its state control. Thirty-three states rely on what Adam Smith called the “invisible hand” of the market where consumers choose among products — and the law of supply and demand handles the rest. However, eleven of the seventeen control states — Alabama, Idaho, Maine, New Hampshire, Vermont, Oregon, North Carolina, Ohio, Pennsylvania, Virginia and Utah — exercise direct control over the retail sale and price of liquor, sometimes even owning the ABC stores where it is sold.
In the long run, Turley is obviously right. There’s nothing special about spirits that makes them uniquely amenable to state distribution. As with most normal goods, consumers would be best served in a bottom-up, unplanned market with minimal barriers to entry.
The problem, alas, is getting there from here. As clearly demonstrated by Washington state this year, privatization is difficult. Any process of privatization will have to contend with entrenched interests that include distributors, retailers, state employees, and the state itself all seeking to bend the new regulations to their benefit. Economists call this regulatory capture. Or, in this case, deregulatory capture: Using the guise of deregulation and privatization to protect their own interests.
In Washington’s case, latent support for privatization was widespread. Yet it was Costco who did the work of getting an actual initiative on the ballot. Included in the initiative was a rule restricting most new retail licenses to stores of 10,000 square feet or greater. This is good for large retailers, but not so good for consumers or for smaller entrepreneurs who’d like to take a more boutique approach.
The state made sure to keep its cut of spirit revenues too. Voters supported privatization envisioning California-style low prices. The Tax Foundation explains what they got instead:
… the initiative introduces several new fees which not only make up for the lost profit, but are likely to actually increase the state’s total revenue from alcohol sales. Private retailers are burdened with a new liquor retailer license fee of 17 percent of gross revenues, as well as an annual renewal fee of $166. Also, liquor distributors must pay a liquor distribution license fee of 10 percent of gross revenues. Unfortunately for consumers, these new fees will end up costing them more at the check-out than the old system they replaced.
When the Washington initiative first came up for debate, my friends and I in Portland, Oregon envisioned crossing the border to shop for liquor. In fact, the opposite has occurred: Consumers in privatized Washington are coming to state-controlled Oregon to buy their booze.
None of this means that privatization is not a worthy goal; it’s absurd that nearly eighty years after Prohibition ended we still have state boards determining which products consumers can and cannot buy. But advocates of privatization and deregulation need to be smart lest they give these goals a bad name (remember Enron, anyone?). Competition and privatization are not the same thing; we should seek the former without fetishizing the latter. And no amount of privatization will lower prices if the state imposes high taxes on the supply chain.
It’s too early to judge the results of Washington’s attempt in full, but that state’s experience should serve as a warning. When advocates present privatization as a magic bullet without bothering to get the details right, consumers may end up spending a lot more than they bargained for.
[Update with disclosure: For those of you who don't read here regularly, I should mention that I work or have worked in various guises in the spirits industry. Opinions here are my own.]
Tyler Cowen’s new book An Economist Gets Lunch is, as he would say, self-recommending. When I lived in the DC area Cowen’s ethnic dining guide was a reliable source for finding good restaurants off the beaten path. If you read Marginal Revolution you already know his style and have a good idea of whether you’ll like the book. A few of the policy-oriented chapters are perhaps too brief to convince devoted skeptics of genetically modified organisms or long-distance trade, but they inject a healthy dose of economics into the conversation about how to improve the food system. I highly recommend it and agree with almost all of it.
Like Cowen, I place a high value on making every meal count. Given the nature of my job as a brand ambassador for a spirits company, however, I must often take a different approach than he does to seeking out good restaurants. When I travel I’m rarely able to eat in the suburbs, unless I’m going to an airport or distribution warehouse. And I definitely can’t avoid the places with vibrant social scenes selling lots of drinks – not if I’m doing my job properly, anyway. Yet despite this I still manage to eat very well.
With the exception of wine, Cowen seems to have a blind spot for alcohol. He notes that Prohibition sent American food into decline by shuttering many of the better restaurants, but aside from wine pairings one doesn’t get the impression that he would have missed the drinks had he been alive then. Post-Prohibition he laments the continued popularity of drinking spirits with food through the 1940s. Beer is noted mainly for its high mark-up. I don’t think cocktails are mentioned at all. The section on dining in Tokyo does recommend izakaya bars, but only secondhand via an email from another blogger and with the preface of “the sake aside…”. His book is about food, not drinks, but given how often the two go together – and more importantly, how often informed consumers of one are also informed about the other – paying so little attention to their intersection leads one to miss out on some good dining opportunities.
Cowen notes that the influence of alcohol on food can run in two directions. On the plus side, profitable drinks serve as a cross-subsidy for quality food, helping cover costs of rent and labor. On the negative side, an emphasis on drinks and sociality can take the focus off of meals and attract customers who come for other reasons. Just as a restaurant with a great view can skate by on mediocre food, so can one full of attractive, happy, socially lubricated people. The challenge is to find the places where quality of the food and the drink is high.
I’m happy to report that there are ever more places doing both very well. For a long time drinks received too little care in part because two of the same forces that damaged American dining – Prohibition and World War II – cast an even longer shadow on American drinking. The former threw talented barmen out of work or overseas. Both events were disastrous for quality wine, beer, and spirits. Home brewing of beer wasn’t legalized until 1978, helping open the field to new entrants. Spirits and cocktails have taken an especially long time to recover, due to complex and restrictive laws regarding distribution and service that differ in every state. The rediscovery of vintage cocktails and spirits began taking off in the late 1980s and has only recently expanded widely.
The upshot is that the quality driven parts of the drink industry attract people who are passionate about all aspects of food and drink. To succeed one has to taste widely and pay attention to technique; it would be surprising for this passion not to transfer to related domains in food. When I want to find good places to eat in a city I don’t know, I ask for recommendations from a bartender or barista who cares about what they do. They rarely steer me wrong.
This same thinking applies to customers. People who have cultivated their taste in drinks demand good food to go with their beverages, and I think it’s increasingly difficult for a good restaurant to skimp on its bar (if it has one) without putting off informed consumers. The same is true for bars: If they’re serving high-end drinks, they’ll want any food on offer to be of comparable quality. The rise of the gastropub is an example of this, but it extends to many types of cuisine. In my current home of Portland, Oregon, new, high-quality ethnic restaurants often make a point of hiring a talented bar staff. Some of the best new French, Thai, Mexican, and Japanese places to recently open here have included very respectable bars. (It helps that the barriers to obtaining a liquor license are fairly low in Oregon.)
When quality cocktail bars do serve food, they can be among the best options in a city, especially at night. For example, on a recent trip to Nashville I arrived too late to find anything but places with active bars still open. I went to Patterson House, a “speakeasy” themed cocktail lounge considered one of the best in the city. Drinks get by far the most attention here but they do offer food. It was quite good and, I think, better than almost anything else I’d find in the city at that hour. If you want to make every meal count, sometimes you have to go to the cocktail bars.
Reading An Economist Gets Lunch inspired me to think explicitly about how to find good food in American bars. Here are a few general suggestions based on my own experience:
Avoid places with lots of vodka and light rum. These can be bought cheaply and are easy to dress up in crowd-pleasing ways with liqueurs, fruit, and herbs. If these are what the customers are demanding than the food may be equally designed for broad appeal.
In contrast, look for ingredients that signal a knowledgeable staff and consumers. Italian amari, herbal liqueurs, rhum agricole, quality mezcal, batavia arrack, and – lucky for me – genever are good indicators. If I see a bar stocked with these I’ll want to see the food menu.
Go into the city. The density of consumers with expendable income, knowledge of food and drinks, and access to transportation that doesn’t require them to drive is in urban areas.
Laws matter. In some states regulations require that places selling spirits also serve food. Where these laws don’t exist, many of the best cocktail destinations won’t bother much or at all with food, so one might plan to eat and drink separately. (These laws are bad news if you just want to drink, since your drink prices may be covering the cost of an under-utilized cook and kitchen or bars may simply close earlier to save on labor. Virginia’s law creates particularly perverse incentives.)
Follow the food trucks. In cities with liberal regulations quality bars can team up with quality food trucks to outsource their kitchen. The truck parks outside and customers travel just a few steps to reach it. This is a fantastic way for each business to focus on its strengths and keep informed customers happy.
Charcuterie is your friend. Much of the preparation is done in advance and it pairs well with drinks, so it’s ideal bar food.
Don’t forget to Bone Luge.*
Finally, a note on behalf of cocktails. Cowen writes of the United States that our access to quality raw ingredients at affordable prices is inferior to that in much of the world. Thus, he advises, go for dishes that are composition-intensive, not ingredient-intensive. “The best option is buying prepared food from people who can put together sufficiently good raw ingredients in an interesting way.” He’s talking about cooking but its an apt description of what bartenders do.
David Wondrich describes mixed drinks as “the first legitimate American culinary art.” And why not? Mixology plays to our strengths. We are good at trade and distribution; we can take flavors from around the world, have them distilled for us (literally), and combine them to make novel creations. The toolbox available to a bartender in a well-stocked bar is incredibly broad (this is one reason I switched to making cocktails from making coffee, with its more limited range of flavor profiles). The skills needed for mixing cocktails are also highly transferable, requiring less tacit knowledge than the many complex processes that go into food preparation, so that a successful cocktail recipe is easily spread. These factors suggest that if your culinary interests extend beyond just food, quality cocktails and spirits offer rewards to exploration.
*Only kidding on this one. Maybe.
My latest article at Culinate takes a look at a few liqueurs that have recently arrived on the market, highlighting three to try and cocktails in which to mix them. Read it here for details on some very good fruit liqueurs and the redemption of crème de cacao and crème de menthe.
The article also includes the recipe for the newest cocktail at Metrovino, a variation on the Pegu Club. The ingredients in a traditional Pegu — gin, lime, orange liqueur, and bitters — combine to create a grapefruit-like flavor, so substituting the excellent Combier Pamplemousse Rose grapefruit liqueur for the orange was one of the first things I tried with the spirit. Such a minor variation in recipe deserves at best a minor variation in name, hence the listing as Pigou Club on our menu. The number of our customers who know about both Pegu and Pigou is sure to be vanishingly small, but the allusion makes me happy.
1 3/4 oz. London dry gin
3/4 oz. Combier Pamplemousse Rose
1/2 oz. lime juice
1 dash Angostura bitters
1 dash orange bitters
Shake all ingredients with ice, strain into a cocktail glass, and garnish with a twist of lime peel.
If you fly business class on KLM, you’ll be presented with a welcome gift from the airline: A small ceramic bottle of genever glazed in the style of Delft tiles and modeled after actual buildings in Amsterdam. This is a practice at KLM dating back to 1952, with a new house introduced each year. This I knew from my recent trip to Amsterdam. I have my own bottle, pictured above, of the House of Bols. This is the only one you can acquire without flying KLM or buying from collectors.
What I didn’t know is why this tradition developed. It turns out it’s an unintended consequence of regulation. Airline rules at the time capped the value of gifts to passengers at seventy-five cents, however they placed no restriction on the provision of drinks. KLM’s ingenious work-around was to hand out a single-serving of genever in a bottle that was worth far more than the spirit inside. Despite the cost-cutting that has deglamorized air travel in recent years, these ceramic bottles have become too beloved to eliminate.
See The Wall Street Journal for the full story, and thanks to my friend Edgar Hutte for the tip.
Republican candidate for Oregon governor Chris Dudley is taking some heat for comments he made suggesting that Oregon should add a tip credit to its minimum wage laws. (Tip credits allow businesses to pay less than the standard minimum to tipped employees on the assumption that the difference will be made up in gratuities; all but seven states make some sort of allowance for this.) The proposal is being used to drum up opposition to him from people in the service industry, as in this video:
If you’re a tipped employee already making minimum wage, then of course you’re not going to like this idea. But there are other considerations:
1) At $8.50 per hour, Oregon has one of the highest minimum wages in the country. We also have one of the highest unemployment rates. If you work or are seeking work in the hospitality industry here you’ve probably seen the crowds of people who show up in response to job ads; 700 lining up and even camping overnight at a new Olive Garden in Bend is an extreme example. Lines like that are an indication that the combination of a high minimum wage and no tip allowance is raising the demand for hospitality jobs while reducing their supply.
Many of these people lining up would likely be willing to work for less than the minimum wage rather than be unemployed. As a personal example, when I moved to Portland it took six months for me to find full-time employment behind a bar. I’d have gladly accepted a barback job for less than minimum wage in order to get my foot in the door somewhere, but it would have been illegal to negotiate such a deal.
2) The higher the minimum wage, the harder it is for employers to offer non-wage compensation. One of the biggest complaints from people in the hospitality industry is the difficulty of getting health insurance. Many of them might gladly trade a lower hourly wage for an equivalent contribution toward health insurance. (Actually more than equivalent, since health benefits wouldn’t be taxed. I’d be curious to see numbers relating minimum wage to provision of non-wage benefits, adjusted for other factors.)
As another personal example, the restaurant where I worked in DC paid less than the minimum wage, but employees who worked enough hours were eligible for insurance. That’s not a bargain we could make here.
To be clear, I’m not writing to advocate one way or the other on this issue. I’d just like to see better economic thinking in the discussions about it. Tip credits are portrayed as being bad for workers, but the trade-offs are more complex than that. Oregon’s current law favors employed hospitality workers over those seeking jobs in the industry and wages over non-wage compensation. These might be worthwhile trade-offs, but they are trade-offs, and so far I haven’t seen any acknowledgment of them in the critical responses to Dudley’s comments.
For more background on Oregon’s minimum wage and service industry employment see Patrick Emerson.
After the seminar, I spoke to Freeman, who admitted he came up with the idea for the talk after becoming fed up with other bartenders and establishments taking credit for and profiting from his recipes and techniques. (Fat washing, for example, the process by which a spirit can be infused with, say, bacon, was pioneered in part by Freeman, yet is often attributed to others.) “Someone needs to get sued … to set a precedent,” he told me.
“In no other creative business can you so easily identify money attached to your creative property,” Freeman went on. “There is an implied commerce to our intellectual property. Yet we have less protection than anyone else.”
No disrespect to Freeman, who is understandably frustrated, but he fails to address the purpose of intellectual property in copyrights and patents. This is neatly summed up in the Constitution:
[The Congress shall have power] To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.
Intellectual property exists to promote progress. Its purpose is not to ensure that no one’s ideas are stolen or that creative people can earn a living, unless those things are needed to promote progress in a field. The granting of temporary monopolies in the form of patents and copyrights is the price we pay for progress, not a goal in itself.
It might be completely true that bartenders are shamelessly stealing from each other, and that’s certainly something we should condemn, but we probably shouldn’t get the law involved unless we can show that this theft is causing mixology to stagnate. Along with fashion, cooking, and even magic, we’re in an industry that’s arguably better off with weak IP. This decade’s boom in craft cocktails is a sign that we’re doing OK without stricter protections, and I’d be worried that additional threats of lawsuits would have a chilling effect on the sharing of new techniques and recipes.
Perhaps Freeman or someone else has a workable, beneficial idea for expanding intellectual property related to cocktails, but I have a hard time imagining what that would be.
Update 9/1/10: Ezra Klein agrees.
Matthew Yglesias calls on governments to improve DMVs, noting that many offices have inconvenient hours and locations. A better idea: Why not privatize them? Licenses to operate a DMV center could be sold to private businesses, which would then have an incentive to operate in ways that are pleasant for consumers. Better hours, better locations, better atmosphere. You could put one in a Starbucks or a Wal-Mart. Offer wi-fi. There are plenty of ways a business might make additional money by better catering to people who have to go there. Perhaps not all functions of the DMV should be privatized, but at least some of them could be.
This paper from the Cascade Policy Institute is from 1997, but it notes that several states already have some experience with this. In 2005 Radley Balko posted notes from satisfied customers in New Mexico and Arizona.
One of my college economics professors had a maxim that he drilled into us students: “Markets are for consumers.” Economic logic can help to predict how certain changes will affect people up and down the supply chain, but if you start using that knowledge to protect producers’ interests at the expense of consumers, then you’re doing economics wrong. Markets are for consumers. (The maxim applies to monopolies too. They are problematic because they raise prices or are unresponsive to consumers, not because they wipe out competitors.)
Keep this maxim in mind as you read about the Washington Brewers Guild’s opposition to Initiative 1100, which will liberalize alcohol sales in Washington:
Beer brewers and drinkers opposed to privatization of state liquor sales? Indeed, says Heather McClung, president of the Washington Brewers Guild, which represents the state’s small craft breweries and, roundaboutly, craft-brew drinkers. Her industry is lined up against I-1100 – though still weighing I-1105 – the privatization measures headed for the November ballot and detailed in last week’s SW cover story. “There is something that is being left out of the discussion it seems,” says McClung.
I-1100, for example, is actively promoted as a modernizing of liquor laws, she says, when it’s actually a sweeping proposal that repeals 39 state laws, enabling the biggest retailers, distributors, and producers to own and give favorable pricing to each other. That, says McClung, of Seattle’s Schooner Exact Brewing Company, would eliminate the level playing field that small breweries such as hers need if they are to prosper.
At issue is a section of the initiative that would allow breweries to self-distribute and offer discounts to bulk buyers like Costco, grocery stores, and bars. Beer in Washington must currently sell at a uniform wholesale price: Costco pays the same amount for crates of it that a small retailer pays for a few cases. As a result, beer prices at large retailers are higher now than they will be if I-1100 passes.
Eliminating the uniform price requirement might make it harder for craft breweries to compete with the big beer companies who can offer greater discounts and benefits. Does this make the initiative anti-consumer? Only if you look exclusively at craft beer drinkers. Craft beers currently make up about 7% of the US market (probably somewhat higher in beer savvy Washington). The vast majority of beer consumers will benefit from being able to buy macrobrews at lower prices.
To put this another way, the Washington Brewers Guild is saying that the state should keep beer prices artificially high for 93% of the beer market in order to maintain the same broad selection for the remaining 7% (or whatever the actual figures are in Washington).
Personally, I doubt that the results will be as bleak as the WSG predicts. Craft brews are growing in popularity while macros are declining, and that’s unlikely to change. Smaller breweries are also starting to merge, operating independently while taking advantage of economies of scale. There may be some closures — this is true regardless of I-1100 — but craft beers don’t show any sign of going away.
However, even if I’m wrong, that doesn’t mean this is a bad bill. As much as I love good beer, it would be improper to elevate my preference to force of law. If the only way the current high number of small breweries can survive is by shackling their larger competitors, then we may need to settle for having fewer breweries. I hope that beer drinkers will continue pay more for quality, but that’s their decision to make. Markets exist for consumers — all consumers, not just the ones who like microbrews.
Additional notes: The question of tied houses is complicated, and arguably the matter of most concern. It’s the aspect of I-1100 I would be least confident in supporting.
File this story under the “Brewers Behaving Badly” label, which previously featured California craft brewers lobbying against laws that would allow beer companies to hand our more swag or offer free tastings in bars, Pennsylvania brewers opposing a measure to let consumers buy beer in 18 packs, and Michelle Minton’s coverage of Colorado brewers opposing the sale of good beer in grocery stores.
For more on liquor privatization efforts, see my recent post in the Examiner.
Hat tip to Drink Gal, who also has a good post on the subject.
A smart post in defense of tipping from Greg Beato gets at one of the benefits of tips that many writers neglect to mention:
Make it automatic and it also becomes easier to track, easier to regulate, easier to tax. We tip billions and billions of dollars a year, and it’s not just that the recipients of our largesse manage to avoid paying taxes on much of what they collect. The business owners who use tips as a rationale to pay their employees lower wages end up paying less in payroll taxes, too. And by keeping menu and other prices lower than they would be in a tip-free economy, tipping reduces the amount of sales tax the government can collect as well.
Whether this is a good or bad thing depends on one’s perspective. As someone who goes out a lot, I’m glad the people I tip get to hold on to more of their earnings. And as someone who receives tips, I disagree with those who say I’d be better off if we eliminated tipping and moved toward mandatory service charges or living wages. From a previous post on this blog:
What a service charge would do is give servers less say in how their income is spent. With tipping they can spend it however they choose and enjoy a nice bonus in the form of cash tips that can be partially hidden from taxation. With a service fee the income would be fully taxed or [...] some of the income would be shifted into untaxed health insurance expenditures or retirement funds. This might be better in the paternalist sense of wanting people to plan ahead for their insurance and retirement, but it might not be welfare enhancing for the servers. It would put them in the same position as lots of other American workers: Spending more than is optimal on health insurance because of the tax subsidy, tied to their employer for fear of losing that insurance, out of luck if they lose their job, and with less income to spend on other things. As a restaurant worker myself, I say thanks but no thanks. I’d rather take the cash.
Of course if you think that it’s more important to maximize the tax base and make sure no one is evading taxes, then a service charge is the way to go.
Two years ago today I drank this cappuccino and hit the road west from DC, destination unknown. According to some psychologists there was a good chance this decision was based on a focusing illusion, and that my actual happiness would be unaffected for long. However my own experience and that of everyone else I know who’s escaped DC for this coasts suggests otherwise. For some of us, at least, coffee, beer, good weather, and a more relaxed lifestyle really do count for a lot.
From an op/ed by an Oregon liquor store agent on why we shouldn’t privatize liquor sales:
A net revenue of $163.5 million (fiscal 2008-2009) just from liquor sales was returned to the citizens of Oregon. What retail business can generate net profit revenues of 40 percent of sales? I’d sure like to invest in such a company. Even a wildly successful company like Apple posted only a 19.9 percent net profit margin for 2009, which is far less than what OLCC liquor revenue generated for Oregonians.
And in the same article:
If the citizens of Oregon think that getting the state out of liquor distribution and retailing will reduce the price of alcohol at the checkout counter, think again. I’ve compared retail prices in California and Arizona to ours in Oregon, and except for the best-sellers (less than 10 percent of the inventory) the prices are the same or higher in those states.
So his arguments are that 1) monopoly liquor distribution yields enormous excess profits for the state and 2) introducing competition will increase prices for consumers. If this is the best the anti-privatization side can come up with, I think it’s safe to say the pro-privatization side wins the economic argument.