Alcohol Reform and “Structural” Economic Problems

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During the past 4 years you’ve no doubt heard Republican politicians, and even many Democrats, say that the economy’s not growing as fast as it could because we have “structural” problems. That is, the problem isn’t weak sales, it’s that the supply side of the economy is getting choked out by job-killing regulations that aren’t allowing us to produce as much as we could be.

I think the problem is mostly about weak demand, but at the state level there is some truth to this story. Republicans rarely want to get more specific about it, so allow me to put some meat on the bones with an actual example of a job-killing regulation that is stunting the Pennsylvania restaurant industry: the liquor license cap.

Republicans won’t like this story though, because the villain isn’t the unions or the poors – it’s other business owners.

Basically, all PA restaurants could be more profitable if they were allowed to serve alcohol. In other states, restaurants use the high mark-up on booze to cross-subsidize the food. In PA, only restaurants who can afford to purchase one of a limited number of liquor licenses get to do that.

With the stroke of a couple hundred pens, the PA legislature and Tom Corbett could change all this and give every restaurant the ability to sell alcohol, increasing everyone’s profits overnight and increasing restaurant workers’ wages.

It’s the easiest known way to increase growth and jobs in the service sector. So why aren’t we printing up thousands of new liquor licenses?

Lew Bryson explains in his recap of the beer laws forum at Yards:

Tom Peters would be quite vocal in support of the tavern owners’ interests (understandably so) through the night. What are the tavern owners’ interests? They have an asset — their license — that is quite valuable, worth tens of thousands (or even hundreds of thousands) of dollars, and they don’t want to see anything happen that will decrease the value of that license. Beer distributors selling sixpacks will cut into their sixpack business. Well…maybe. But the grocery stores that bought bar licenses to sell sixpacks are cutting into it now, and the fact is that for most licensees, sixpack sales are a tiny part of their income. Even those who have used their license to run sixpack stores would probably be able to compete, though with lower markup and more effort. But if they’re going to give that right up, they want something in return, and that…is where politics and the art of the possible will come into play.

And that is why we have no sixpack law, because the tavern owners haven’t been happy with any deal they’ve been offered. I get that it’s their family business, their livelihood, but…we vote too. Maybe, with an activist leader coming to the committee, it’s time to cut that deal.

We’re not doing it because for some reason politicians are running the state for the benefit of the license cartel, rather than changing the law to unlock more small business growth and raise restaurant worker wages.

If tavern owners don’t want to accept any of the compromise plans to buy them out, then eventually you just need to liquidate them, not shut the reform effort down. It would be worthwhile to buy them out of their licenses to get a more dynamic restaurant market, but if they don’t want a deal then at some point you stop trying to buy them out and start printing up more licenses.

The problem with all the various alcohol reform ideas is that they’re starting from the premise that none of the reforms should create more competition for any of the incumbent players. That’s why we’re getting nutty Rube Goldberg ideas like this one:

Speaking of cutting deals, we did get into privatization. The senator is backing a plan to sell wine and spirits by the bottle for takeout at bars. The licensee would pay a $10,000 annual fee for that right (this would obviously lead to the equivalent of specialty bottleshops like The Foodery, but for wine or spirits, or both). Tom was skeptical; many places don’t have the room for the inventory that would require. Well, then don’t get the license, or figure something else out: if there’s money to be made, people will figure out a way to make it.

$10,000 annual fee! Takeout bottle service at bars! Apparently the only reform ideas that can get any oxygen are things that nobody would want to do, meanwhile the stuff everybody actually wants – booze in grocery stores, expanded six-pack sales, more booze-selling restaurants – are ruled out of hand before the debate even starts.

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