Below is today’s column on the continued use of state controls over alcohol in the United States. With the decision this month of Washington state to embrace the free market system and drop controls, citizens in other states are rightfully asking why officials keep this form of central planning, including officials in conservative states that purportedly favor free enterprise over government regulations.
If current political rhetoric is to be believed, we are on the brink of either a Communist or Socialist takeover. Republican leaders and pundits have repeatedly denounced Obama administration programs from health care to bailouts as part of a creeping “socialist agenda,” which appears to mean any centralized control of a market.
What is fascinating is that the warnings over state monopolies omit one of the longest-standing institutions of central planning and control in the U.S.: 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.
This month, many people were enthralled with a controversy in Idaho where the State Liquor Division had barred the sale of Five Wives Vodka. The division refused to allow Idahoans to buy the popular vodka because it might be offensive to the Mormon population in the state.
I represented the distiller of the vodka, Ogden’s Own Distillery of Utah, in raising a host of constitutional objections to the enforcement of such religious mores. The state recently agreed to rescind its bar on sales, but the controversy should not pass without some discussion of continued existence of these state monopolies on alcohol sales.
Out with prohibition
Almost 80 years ago, the country repealed the prohibition of alcohol with the 21st Amendment. Many states emerged from prohibition with strict state control boards, but the majority dispensed with this inefficient system years ago. However, millions of Americans continue to live in states that control where and what they can buy in terms of liquor. Beer sales are generally not subject to such controls.
Indeed, the Idaho Division blocked Five Wives Vodka despite the fact that bars in the state serve Polygamy Porter. However, when it comes to liquor, these states stand between the consumer and companies with an army of bureaucrats who add costs and delays for the public.
In the case of Idaho, the division’s director, Jeff Anderson, noted that his staff tasted the vodka and preferred the pricing and quality of other products. Imagine those enlightened folks you meet at the post office and think of them passing judgment on the relative value of different types of alcohol — literally of thousands of products sought by citizens. These alcohol apparatchiks in states such as Idaho sit around and debate whether citizens should be allowed to buy a particular liquor of their choice.
Anderson said they concluded that this vodka was not “something we want to have on our shelf, sitting next to Absolut vodka.” Putting aside the perceived need to protect this Swedish vodka from being seen near Utah vodka, there remains a question of the function and power of these bureaucrats. Like Anderson’s vodka of choice, the bureaucrats consider their power over consumers as absolute.
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.
Out with the boards
Because I live in Virginia, I have to drive to an ABC store to buy liquor — a store that is insulated from competition, and it shows. Like many government-run enterprises, the place is run with all of the care and concern of your local DMV.
States differ on the rationale for these boards. The Utah Department of Alcoholic Beverage Control, for example, uses its authority “not to promote the sale of liquor” but to “promote moderation and to enforce existing liquor laws.” The heavily Mormon state is famous for imposing arbitrary limits on the sale of alcohol from formerly banning of bars (in favor of “clubs”) to the required use of “Zion curtains” to prevent bartenders from being seen pouring alcohol.
These and other laws seem based on the belief that “for the bureaucrat, the world is a mere object to be manipulated by him.” The man who said that was Marx, a great believer in central control. These states have allowed a fixed bureaucracy to take hold of a market — a self-perpetuating and inefficient middleman in the market.
Ironically, alcohol board heads often defend their decision to bar particular brands because of the limited space that they have at warehouses and stores — ignoring the obvious point that there would be no limitations if they were removed as a chokepoint in the system. Anderson noted that he and his staff have to decide between hundreds of vodkas in choosing what will be made available to consumers while in most states this is the function of the market and consumer choice.
Unlike Marx’s vision, free enterprise is the touchstone of our society. With such free enterprise comes free choice — not simply the freedom to choose between the options approved by the government. Smith in The Wealth of Nations stressed that “it is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.”
Smith could just as well have added that it should also not be from the benevolence of the bureaucrat any more than the brewer — at least in deciding our drink of choice.
Jonathan Turley, the Shapiro Professor of Public Interest Law at George Washington University, is a member of USA TODAY’s Board of Contributors.
June 18, 2012
@Bron: It is sad that many people are kept poor or struggling because some government numb nut thinks they have all the answers to how to run an economy.
Have I mentioned that Norway has one of the lowest poverty rates in the world, and that nobody in the entire society ever has to “struggle?”
Isn’t it your philosophy that “if you don’t work, you don’t eat?” Isn’t it your philosophy that everything boils down to money, if you cannot pay for medical care you don’t get it, if you cannot pay for school you don’t get to go, if you cannot pay for fire protection you don’t get it, if you cannot pay for food you don’t eat, if you cannot pay for shelter you can damn well freeze in the snow?
That is not the philosophy in a socialist country, Bron. Norwegians eat whether they work or not, education is free, minimum shelter is subsidized, health care is free, police and fire protection is free.
Nobody is kept poor or struggles in Norway, they have had their governmental system for a hundred years, people have been born, lived a good life, and died of old age under their system, without ever struggling.
If the above statement is your measure of good government, that nobody is kept poor or struggling, then life-support-socialism is the government for you. It is working right now, for over a century, for millions of people, in a country near you.
@Skip: Only a socialist would even try to compare countries based on some arbitray happiness index.
First, it isn’t arbitrary, it is based upon several questions put to the citizens of those countries reporting their level of happiness and satisfaction with their lives. So that part of your statement is equivalent to saying, “Who are you going to believe, Tony? Me telling you they must be unhappy, or them?”
Second, “Only a socialist” tries to denigrate and marginalize socialists, which just goes to show that you prejudge the outcome regardless of evidence, which means your opinions are not evidence or logic based at all and your arguments are meaningless, they are all devised to come to the same predetermined conclusion: “Socialism bad! Anarchy good!”
Third, if only a socialist would do that, you must be a socialist, because you were trying to use the SAME happiness index to justify happiness being due to WEALTH, before I kicked that silly argument to the curb.
As for what is happening to China? It is making money by enslaving its people. The women working fourteen hour days in the factories, most do not even get to keep their own paycheck, it is given or sent to their husbands or fathers or the elder male in their family for “safekeeping”.
Skip, you cannot help but betray yourself as a sociopath at every turn. Your sociopathic system that cares about nothing but profit does not work in any way we are interested in seeing, we Normals do not think everything boils down to money. We Normals really do think some things are more important than money. You don’t, and that is why you hate our laws and regulations, why that doesn’t make sense to you, because you are a sociopath, and one of the dumb ones.
@Bron: Then you look at it wrong. Norway doesn’t use oil revenue, they use the RETURNS on the oil revenue. The revenue is a natural resource converted to cash, and the principle is not touched. Saying they are living off of “oil revenue” is a lie, because it implies if they run out of oil the party is over. That isn’t true; Norway has done the sensible thing with a limited resource, they are converting it to cash and an inexhaustible supply of earnings, and utilizing only the earnings in excess of inflation.
Here is an analogy: Say my nephew wants to start a business resurfacing parking lots, and I help him with the plan, and he needs $35K for the used equipment it would take to get started. If I put up that $35K from my stash of consultancy earnings, and his business works and starts paying me $8K a year as my share of the profits, it is ridiculous to claim that $8K per year is me living off my consultancy revenue. It isn’t at all. It makes no difference where the $35K came from. I came by it honestly, I am earning that money by repairing, resurfacing, and restriping parking lots.
The same goes for Norway and its oil, it sold oil, it took the money and invested it in businesses, and the profits those businesses throw off are now income to Norway to do with as it pleases. It is business profits, not oil profits. Properly managed it can theoretically last forever, unlike the oil. Same analogy: My $8K per year from servicing parking lots may continue indefinitely (and will track inflation); the $35K I put in to launch the business would last less than five years at that rate.
hskiprob
1, June 21, 2012 at 3:52 pm
Gene, At what level does it turn from being a social safety net to full blown fascism or totalitarianism. We’re seeing just over the last 40 years how much more aggressive government is getting both in taxation and regulation, which is causing business to either leave of fold. There a jobs probelm because they’re a business problem.
100 Gene H.
1, June 21, 2012 at 3:57 pm
Your loaded question contains a false equivalence (two to be precise).
Social safety nets are not the same thing as either of those forms of government.
Try again, skip.
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what Harry Skip is saying is that totalitarian governments clamp down on industry and limit growth. Tax revenues are reduced and there is less money for social safety nets.
And that is the big problem as I see it with liberals, they want to control, to a point beyond necessity, our economy and by doing so limit expansion which limits tax revenue and increases debt if you want to keep a certain life style.
Capitalism is such a huge creator of wealth that if the market were left to its own devices with limited regulations, there would be more than enough for all.
And that is what Harry Skip is saying.
It is sad that many people are kept poor or struggling because some government numb nut thinks they have all the answers to how to run an economy.
real wages for workers doubled in the 19th century, we cannot say that about the 20th century. A donut and a cup of coffee in 1924 adjusted for inflation is about what it costs today. In 1890 it would have been 1/2 of what it cost in 1824.
Tony C:
The economic philosophy in vogue is what I was talking about. Since we live in a regulated market Washington is a partner and has a good deal to do with the level economic prosperity or lack there of.
@Skip: The so-called happiness Index noted that the wealthier countries were happiest.
And FAILED to note that the wealthiest countries were also the most socialist. You ignore that because you think socialism is a COST when it is actually an INVESTMENT that pays dividends in happiness, productivity and increased wealth.
Because an ounce of prevention (of poverty, desperation, illness, disability) is worth a pound of cure.
The value in the articles is not the opinions of a biased author, it is the facts and data provided. The selection by the author of “wealth” as the distinguishing characteristic is arbitrary; socialist safety-net countries with capitalistic economies end up wealthy and happy, but the reverse is not true; wealth alone does not make happy citizens.
Tony, Generalized statements like that are really stupid. Andora is one of the wealthiest nations in the world and one of the most free market. Hong Kong is perhaps the wealthiest per capita, per sq mile nation in the world and they have no natural resources. A large majority of people retire as milllionairs and it is a very free market society. Probably less so since being turned over the China. Speaking of China, they are freeing up their markets and what is happening to them TONY?????? Stop generalizing and comparing apples to oranges. There are poor in our country that are unhappy and rich that are happy. Only a socialist would even try to compare countries based on some arbitray happiness index.
Tony C:
“Norway was socialist before they sold oil, and it worked. Norway does not rely on oil revenues AT ALL to fund their social programs, they rely on payroll and wealth taxes. You are factually incorrect.”
Money from oil is used for things which tax money doesnt have to be used for. If I have an annuity which pays $50,000/year and a job which pays $30,000 per year, it is rather disingenuous to say I pay my living expenses with my job. The 2 funds are commingled even if I put them in separate accounts and only use the $50,000 for fun and travel.
Or at least that is how I look at it in regards to Norway.
@Skip: The problem isn’t regulation, the problem is sociopathy. The flight of jobs overseas is to places where no job safety is enforced, no limitations on beating workers, exposing them to carcinogens, or demanding they work 16 hours a day, seven days a week, forcing them to live in company quarters, or many other such things. All of that stuff happens in both China and India, btw.
The problem is the sociopathy of large manufacturers, when they can get away with mistreating employees they do, when they can get away with putting employees in lethal working conditions, they do. In the USA, we have outlawed such practices, and that costs money. The 40 hour work week, social security and medicare, OSHA and all the other employment laws cost money.
The reason jobs are flying overseas is because, as always, the closer a company can approximate slavery, the lower their costs are. Calling for an end to our labor laws is calling for a better approximation of slavery.
The correct solution is to prevent the companies, in one way or another, from making a profit on such blatant exploitation, or to prevent them from selling such goods produced by slavery or near-slavery in the USA.
The reason that solution is not implemented is because of government corruption by the corporations that earn billions of dollars in profit by doing it. The problem is sociopathy, not regulation. The regulations and taxes SHOULD be there, it is the sociopathic circumvention of those protections that is causing the economic problems.
Tony, your only targeting those companies that moved. How many businesses that just went into bankrupcy and died. We are over taxed and over regulated but we should surely discuss what we both believe regulation should be how how best to do it.
Your loaded question contains a false equivalence (two to be precise).
Social safety nets are not the same thing as either of those forms of government.
Try again, skip.
@Skip: I already defined “fair play” earlier; you can read it for yourself.
@Skip: It not quite as simple as you are suggesting Tony.
I am not suggesting it is simple. You are doing that, by calling it “fascism,” a loaded word if ever there was one, considering the association it has with probably the most brutal crimes in history. Comparing what is wrong with us now to what was wrong with Hitler is like comparing shoplifting a candy bar to an armed bank robbery. Yes, those are both theft, and … that’s it, comparison over.
@Skip: I presume you want my definition, since you could look up the standard one yourself.
For me, a “regulation” is a clear rule that prevents probable harm to somebody, it either prohibits or requires something be done. Sometimes that thing is just disclosure of information, or a requirement to keep track of some information, sometimes it is a physical precaution, or a test. A “regulation” will also provide a clear penalty for failure to follow it; such as a fine, a revocation of license or permission to engage in that business anymore, a prison term, notification of those that may have been harmed, etc.
A regulation is set by an authorized rule-making body; so if that is a legislature it is also a law, but the rule-making body may have been delegated authority by a legislature to make sensible rules in an area outside the expertise of regular citizens serving in a legislature, so they are similar to laws but the punitive power of the rule-making body may be limited, for example to fines, notices, and license revocation.
It is different from a “right,” and different from a “guideline.”
@Bron: Norway was socialist before they sold oil, and it worked. Norway does not rely on oil revenues AT ALL to fund their social programs, they rely on payroll and wealth taxes. You are factually incorrect. And as I said, every country has something to sell, even if what it has is basically human Labor that adds value to something. In high school, I had no property to sell to pay my rent or buy my food. I was like a country without natural resources, I had nothing of value to extract or sell. But I had 30 spare hours of labor a week, and I added value to dirty dishes by turning them into clean dishes.
It is also rational self interest to do those things,
No, it isn’t, unless you intend to redefine “rational self interest” to include self-immolation. When a business owner faces personal bankruptcy, sometimes they can escape that fate by cutting corners on safety, reliability, and quality. Those things might bite them in the ass later, that is a risk, but not as immediate a risk as their bankruptcy next month if they do NOT find a way to save money starting immediately.
Alternatively, some owners, facing slow sales due to new competition will cut costs on safety, cleaning, disinfecting, etc, and when they find out that has probably caused sickness or death, will do everything they can to conceal their acts. Honesty and openness in that case is going to lead to liability, possible criminal charges of negligent manslaughter, and probable bankruptcy. If you define “rational self interest” to include admitting culpability in that case, then your definition covers all possible acts and means nothing, because it does not distinguish between acts that are and are not in somebody’s “rational self interest.”
Finally, capitalism is not predicated on a “robust economy,” capitalism is supposed to CREATE the economy. The entire paradigm of capitalism is to let people take the risk of failure in order to enjoy the rewards of success, but failure and competition are an inherent part of the system. No matter how robust the economy is, it isn’t going to save 200 pizza joints in a city that has a pizza demand that will only support 150 pizza joints. The worst tasting, worst service, worst managed pizza joints will be starved of business and die, that is how capitalism is supposed to work.
The problem is that, unlike kids soccer, the losers don’t shake hands, accept defeat and walk away, because their livelihood is on the line, a hundred thousand dollar investment is on the line, their house, retirement, and perhaps health insurance and child’s education is on the line.
Desperation leads to immorality; people are often honest, open and moral right up until panicked self-preservation seizes their brain. Then, all of a sudden, endangering choices start to look like “risky ideas” versus “certain catastrophe.”
If you want capitalism, you have to accept that a LOT of business attempts will fail. Once you accept that (as I do) then you have to accept that imminent failure is going to create a highly charged, emotional environment in which long term thinking is thrown out the window; business owners start thinking literally to survive week-to-week or even day-to-day.
Between that, and other owners that are just ignorant, or naturally careless or sloppy or unsanitary when the public can’t see them, or would tell blatant lies to protect their own hide, the only way you can permit capitalism without endangering the lives and health of consumers is to have mandatory inspections, regulations, and licensing.
Tony C:
Norway is not a good model because we will never drill for oil to the extent they do. Socialism would not work in Norway without oil money.
We limit growth in this country for whatever reason and it prevents a robust economy. One which could provide a social safety net for people who actually need the soft landing.
But I do agree business needs to be transparent, operate with integrity and treat employees fairly, which is usually the result of a robust economy. It is also rational self interest to do those things, look at Enron and other companies which do not act with integrity, look at Bernie Madoff. Rational self interest is not the same thing as egotism. Ken Lay and Bernie Madoff were certainly not employing rational self interest, one is dead and the other is in jail for life.
To provide for a social safety net you must first have an healthy economy. The current economic philosophy [both liberal and conservative but more liberal] is not providing for the growth needed to expand the economy to the necessary levels to provide jobs and to provide a healthy tax base to fund government without borrowing money from China. Which is most certainly not in our rational or national self interest.
Jacob,
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.
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Oregon doesn’t have a sales tax. Washington people near the Oregon border do a lot of shopping in Oregon. They’re supposed to pay Washington sales and use tax for the products they buy in Oregon, but that doesn’t mean they do.
It just goes to show you people don’t really like to pay taxes and will go out of there way not to. They are forced to by a wide variety of tactics. I wish we could do a test of the various things government does and have people allocate what services they really want based on a percentage of income tax they have to pay. It would force government to really sell the majority on the stuff they do.
Tony C. 1, June 20, 2012 at 1:16 pm
@Matt: But business won’t play fairly.
Hence the need to regulation of business, to make playing fairly its best option in its own self interest.
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Well done. Enron, etc., etc., etc.
TonyC.
God forbid I suggest anything to you, but the round would be complete with chapters on government and regulation, or whatever strikes your fantasy. Of course the invite comes because of your fine work.
Just to make the LLCs hpppy with there take home of 75 percent /750,000 on one million), can say it would be less here. But I’m famiiliar with the personal income scales here, not those for the equivalent to LLC.
Industry subsidies have disappeared here after their failure fitst to the textile trade and then the
“The problem is a matter of scale, and as humans we tend to have scale blindness.”
A true problem I see no easy way to correct, Tony. You can’t educate away the tendency to scale blindness. You can mitigate it, but you can’t eliminate it has been by experience.
Great summary of the nature of the campaign finance/graft problem, by the way.
@Idealist: So in summary, it is big business that is the problem.
Businesses are focused on profits. That’s fine if your LLC is earning around one million in profits every year; your income taxes are around $250K, your take home is around $750K.
Exxon earned 41,000 million dollars in 2011. I am phrasing it that way for the contrast; their taxes, at 25%, would be around $10,000 million dollars. That isn’t what they pay (in 2009 they famously paid zero dollars in income tax).
Exxon formally pays half that in income tax, and gets half of that back in tax breaks and subsidies. So Exxon saves, compared to your LLC, about 75% of their taxes, for them $7,500 million dollars. Why is that?
Because at the Exxon scale, you have to look at the trade offs. Exxon pays less taxes because of the tax law, which has been mysteriously written as if their best friends sat at a bar with them drinking and asked them what they would be allowed to put in it, along with clever ways of making it look like Exxon is paying its taxes when the money is going to boomerang back at them. Drinks and Chili Fries courtesy of Exxon.
More specifically, this country and its tax laws and stance toward Exxon are under the control of about 100 key politicians. So for Exxon, it is cheaper for them to lavish millions of dollars a year on EACH of those key politicians, by hook, crook, indirection or an army of lobbyists, than to pay an extra $7,500 million dollars in taxes every year. What does it cost them, $500 million? Small change compared to what they save.
The problem is a matter of scale, and as humans we tend to have scale blindness. At the scale of the Fortune 100, or the Dow Jones companies, or Koch Industries, massive bribery is cheaper than taxes. It is cheaper to BUY the government (or the Chairmen, Committee heads and key members) than to be subject to it.
Most people really do have a price, most elections really are close enough that they can be bought. When an election cannot be plausibly bought, the politicians are retired by their corporations to cushy jobs with big salaries and no defined duties: For example, Chris Dodd recently retired to a $1.5M a year job as “President” and lobbyist for the Motion Picture Association of America. After his services to the banking industry, they got a bargain, and will happily keep him there as long as he wishes to stay, as a grinning exemplar for the next politician Chris Dodd himself chats up for lunch.
I know it sounds cliche, but yes, big business really is the problem; at a certain scale corrupting the government to let you circumvent the law (while preserving deniability behind brigades of lawyers) makes cold, hard economic sense.
Tony C.,
That summation you prepared for Bron went down like an ice cold glass of purified water.
Excellent work.