Wolf's Privatization Plan

"The state would still be running the system, but they would be leasing it out, That is privatization.” Jeffrey Sheridan, Governor Wolf’s press secretary.

Hired by the government, paid by the government, given offices by the government, but "that is privatization"? Wolfonomics is spreading! Now there are two people who are completely ignorant of economics over the past 200 years. Goes with the "Competition raises prices"  mantra the Governor tried to use when he vetoed the privatization bill.

This is the Wolf system in a nutshell:

Governor Wolf proposes liquor privatization compromise

DATELINE HARRISBURG:

Governor Wolf has proposed an historic liquor privatization compromise with Republicans. Patterned after Governor Corbett's extremely successful Lottery Privatization scheme, Wolf's proposal includes:

• Keeping the PLCB wholesale and retail monopoly in place
• Keeping and expanding the State Store System as a state jobs program
• Increasing the number of State Store System workers
• Keeping the same conflict of interest of the government selling and regulating alcohol
• Keeping a single person or department who selects what the entire state is allowed to buy.
• Adding another layer of fully-funded bureaucracy to the liquor system
• Trading a state-controlled monopoly for another state-controlled monopoly (with a different name)
• Dangling the possibility that this could someday maybe possibly somehow a long way off lead to wine at supermarkets and beer in convenience stores...in some manner
• Other yet to be named and explained items

Some Republican leadership said they would have to study the proposal to figure out exactly what, if anything, this would change, or if the Governor was pulling another joke on them, like his trying to raise taxes by $4.7 Billion this year. Others simply refused to believe that this was a compromise and flatly rejected the notion as they should.

Stay tuned to this blog for further developments!

(Please note: we've added a new tag: "You've Got To Be Kidding." If Governor Wolf continues on his current path, it's going to see a lot of use; watch for it!)

Play "Who's the Dummy - PLCB supporters edition"

So much happening lately.  First you have the Governor trying to rewrite two centuries of economic theory by proclaiming that competition would raise prices. Then he told us that privatization would raise prices if taxes were raised...because we all know private stores set their own taxes.

Plenty of stupid, but wait, there's more! Not to be outdone, the brain trust at the ISSU (Independent State Store Union) came up with this gem: "Limited competition negatively impacts convenience." (They called it a "disaster," too.) I gotta ask: if limited competition has a negative impact on convenience, what does NO competition -- like with the PLCB -- do?  Don't forget, this is the union of the managers. We're not nuts about the service level at the State Stores, but you almost have to cut the workers some slack if this is what they have to deal with every day.

Proving that the ISSU doesn't have a lock on stupid, the UFCW (United Food and Commercial Workers) comes up with this gem: privatization will cause a loss of selection and higher prices...and somehow, at the same time, increase drinking. Sounds like they've fully embraced Wolfonomics. As everyone knows, the Governor thinks -- all things being equal -- increased prices result in more sales. It's a cornerstone of Wolfonomics, the corollary to Wolf's dramatic new theory that competition leads to higher prices. Forbes presented a brilliant exposition of Wolfonomics recently: "Opponents Of Private Liquor Sales Claim State Monopolies Serve Customers Better." Take a moment to read it, it's quite good. (I'm talking to you, Governor Wolf.)

While there can be no excuse for such idiocy in a government office or organizational headquarters, it does bleed down to some of the common folk.  Internet newspaper comment columns are full of people who know the PLCB made $550 million in "profit" (some think they made $1 billion in profits!), apparently believing that taxes will disappear if sales are privatized, and that other taxes will automatically go up to make up for these mysteriously disappearing booze taxes. (Tip to you: the booze taxes aren't going anywhere. Not a chance.) There are self-styled economists who don't know that revenue isn't the same as profit, and that neither of them include taxes. There are folks who think that every privately employed liquor store salesperson is or will be on welfare, and that nobody will be hired even if the amount of stores double, triple, or even quadruple.

I especially love the ones who say they don't drink, and then proceed to tell us that the PLCB can get you anything you need...and you shouldn't complain, the implication (sometimes openly stated) being that if you do complain, you're an alcoholic. Or they tell us that the State Stores have the best prices in the country, or that we are safer because of the State Stores, when in fact we are barely mediocre in that respect.

Other favorites are this one woman who didn't want privatization because there wouldn't be any Mom & Pop stores so it was better to keep the PLCB...which has no Mom & Pop stores.  Kinda makes your brain hurt, don't it? One gentleman told me that Walmart will get all the licenses, all 14,000, because it is payback for supporting Republicans. (The facts are that the only free-spending "special interests" in this fight are the unions, and they just got their 'payback' from Wolf's veto. The retailers and the producers/importers are staying out of it, because they know the PLCB will retaliate if privatization doesn't pass.) Can't forget the guy who knew there are 18 states exactly like PA for alcohol sales. I don't think he gets out much. Nothing wrong with having an educated opinion, but you gotta laugh at some of these.

Of course, the real oddballs are in the legislature, but you can read about them everywhere.

Until the next time -- keep buying out of state!

Wolfonomics: competition causes higher prices

Governor Wolf, the businessman who knows how to get things done, who can reach across the aisle and find common ground with the opposition, is not a stupid man. However, he must think we are.
For a guy that wrote about “Conflict and Organizational Accommodation" for his Ph.D. dissertation, he doesn't seem to be to very "accommodating." As reported in numerous newspapers, the Governor's "My Way Or The Highway" approach is blocking progress.

"That's MY way over there; the HIGHWAY is over there."

His interview in Keystone Q & A gave us a warning when they asked:"How much of the budget that you introduced do you hope to see as an end product?" and he answered "All of it. It actually is a holistic program not meant to be cherry picked," Which means he isn't willing to compromise, at least not in the way I understand the word. Of course, that is a flip-flop from his inaugural address, when he said, "We have to believe that none of us alone has all the answers—but that together, we can find an approach that works." I guess he forgot to add "except for the budget."

As a college-educated man he had to take a few business courses, like accounting or economics, at some point in his academic career. One of the things you learn in those classes is that monopolies are inherently anti-consumer due to:

1. Higher prices than competitive markets
2. Decline in consumer surplus
3. Less incentives to be efficient.

They are so inherently anti-consumer that there are laws prohibiting them. Then there is that whole idea of centralized planning; that worked so well for the eastern bloc and Soviet Union. You remember that: where the government decides what you are allowed to buy, where you will buy it, and how much should be made available. Sorta like the PLCB. 

Centralized government planning is known for:

1. Being poor at predicting future trends
2. Having a lack of incentives when income is guaranteed
3. Being inflexible, with difficulty responding to shortages and surpluses

What is really ironic about centralized planning is the theory that the government will be able to overcome market failure and achieve equality of distribution...thus preventing monopolies from emerging to exploit consumers. Pretty funny considering our home-grown Fossil of Prohibition, the Relic of Repeal, the State Store System.

The Governor's reasons for vetoing liquor privatization really call into question what he thinks of the citizens of the Commonwealth. As noted in the Washington Post's blog (how badly does a Democratic governor have to screw up to be called out by the Post?): "Pennsylvania’s governor doesn’t understand economics (or won’t admit the real reasons he vetoed ending state liquor monopoly)."

It's bad enough that the PLCB treats us like children, but now we have the Governor doing it too. The piece in the Post quotes the Reason blog: "Wolf and his fellow Democrats 'warned that prices would rise as private businesses sought profit.' In other words, private merchants will jack up prices because they want to make money—unlike the Pennsylvania Liquor Control Board (PLCB), which seeks only to raise revenue." Except competition -- as 200 years of economic theory and experience prove -- drives prices down. When Wolf ran his family business, Wolf Furniture, did Wolf raise the price of his cabinets to be more competitive? Or did he lower them? Is this the dawn of Wolfonomics?

The Governor specifically mentioned, "In the most recent case of another state that pursued the outright privatization of liquor sales, consumers saw higher prices and less selection.” He's clearly talking about Washington State. Their higher prices wouldn't have anything to do with the 27% in new fees that came with their privatization plan, would they? You know they would, we've told you that, time and time again, and backed it up with fact, not speculation. More Wolfonomics: apparently competition somehow causes higher taxes, not government!

And the notion that selection has decreased for Washington's citizens is simply absurd. The number of stores increased almost fivefold, and true superstores entered the market, stores with more products on the shelf then the entire state control system stocked. You can see the same thing in New Jersey at any Super Buy Rite, Total Wine, or Joe Canal's. There are stores like these all across the country, and there is no reason they won't be in PA too (despite what you may read in comments sections of news stories). The Commonwealth Foundation had a nice synopsis posted that you can read here.

It was the Pittsburgh Post-Gazette that put it best, though: "Since [Governor Wolf] is now the sole person standing in the way of this historic privatization, the governor has earned the right to have the state stores named in his honor." 

We agree. Welcome to:

Unchanged for 80 years!

I would ask the Governor to put his business hat on and take this simple test. If you wouldn't put a system like the State Stores into place today... why do you want to have it tomorrow?

We all know the answer. No one really wants this system except the people who directly (or indirectly...through campaign contributions or dues) benefit from it, but it is because of those people and their outsized influence that Wolfonomics had to come into being. We don't want it, and you know we don't, and as a business owner you can't really want it. Do the right thing, Governor.

End It, Don't Mend It.

(Wolfonomics - a system of economic theory that reverses 200 years of thought by presupposing competition increases prices. Or "Everything you know is wrong"  Feel free to use it whenever the Governor talks economic policy.)