Tuesday, June 21, 2011

Is Privatization Bad for your Health?

The guys at Freakonomics have always struck me as a bit too quick to jump on the anti-alcohol wagon; sure, there are valid points to be made for the social costs of alcohol abuse, but the numbers that are out there would really benefit from a closer look. But this piece was handled more fairly, I thought, even though the big quote from the Herzenberg study overweighted things a bit.

Thing is, as the comments pointed out, the whole argument that privatization increases consumption is quite likely a flawed one, based on questionable methodology: "retail purchase" is a reliable substitute for "consumption." That sounds okay, till you consider how many Pennsylvanians cross the Delaware, Maryland, and New Jersey borders to buy caselots of booze. Look, if my DAD did it, I know plenty of other Pennsylvanians are doing it. Hell, I'm in Kentucky right now, and I have four bottles of bourbon that I can't get in PA in the car (Old Fitz BiB, Heaven Hill 6 Year Old BiB, and Charter 101 (the 4th is a surprise for someone, but trust me: it's not available in PA!); I'm planning on giving them all away before I return to PA, though...).

It doesn't even pass the "straight face test," to use a popular Washington phrase. If consumption in these newly privatized states and provinces were really up by 48%...where's the corresponding increase in alcohol-related problems? Because there is none. We're being sold a sack of crap again.


Greg said...

I think you're being a little too hard on this study, Lew. Of course you're right that some people cross borders, but not enough to affect sales that dramatically.

It makes perfect sense that making something more accessible would increase sales. Ending prohibition doubled the number of drinkers, decriminalizing marijuana would mean more pot smokers, and taking alcohol sales out of the PLCB's hands would sell more booze. That's part of the point.

I think you hit on it perfectly though when you note that a rise in use does not mean a rise in abuse, though. All it necessarily means is a rise in tax revenue, which is a good thing.

Alexander D. Mitchell IV said...

If the consumption in these states is up 48% as alleged, can anyone track a similar increase in production or distribution to match these numbers? Shouldn't Diageo, AB-InBev, etc. be doing at least 25% better in these states? Or can they document a drop in "consumption" in the adjoining states--not in percentages, but in units being sold?

Jon Geeting said...

I think the study makes sense, but it's still no reason not to privatize.

Everybody agrees that the state store system makes booze more expensive than the true market price. So if you privatize, alcohol will be cheaper on net. When stuff gets more expensive, people buy less of it, and when it gets cheaper, they buy more of it. So it's perfectly reasonable to expect consumption to increase.

Now, the alcohol industry is not making most of its money from guys like me that have a beer or two every day. They're making most of their profits from the problem drinkers who drink a case every day. And if the price goes down, that's going to get way worse.

That's why I'm for market prices, but higher taxes to keep the price constant. A straight gallonage tax based on alcohol content would be the best option in my view.