The Minnesota Legislature seems well on its way to repealing a longstanding ban on Sunday retail sales of liquor. In economic terms, this is a tempest in a miniscule teapot, but the fact that this small change rates headlines illustrates the substance’s importance in our collective psyches.
Drinking alcohol poses enormously complex challenges for a society and the economics are not simple either.
Drinking brings pleasure to billions of people and is an integral part of common social interactions in most cultures. Depending on one’s preferences, sipping a good wine, a choice Scotch or one’s favorite beer can be one of the finer things in life. Drinking also causes enormous physical and social harm. It can cause accidental injury and death, serious health problems, destruction of property, family violence, harm to relationships and on and on.
Yet history tells us that we are not willing to go without alcohol completely, so societies long have struggled to live with it while minimizing harm relative to benefit. Restrictions on when it can be sold are a historic part of that.
Let’s think a bit about the economics.
First, alcohol can be physically addictive for many people. That makes demand for it extremely “inelastic,” meaning the quantities people are willing to buy does not decline much in response to an increase in price. This opens up the possibility of selling the product for well above the cost of production if some degree of monopoly can be established. The question is whether that is achieved by the manufacturer, the wholesalers and retailers or the government.
The inelasticity of demand for alcohol also means that governments can tax the product and not see the quantity sold — or the revenues gained — drop much. The same is true for other physical necessities, such as salt, and excise taxes on salt and alcohol go back as far as recorded history itself. Some describe taxes on alcohol, tobacco and gambling as “sin taxes,” designed to minimize substances or activities that many consider immoral. That factor may well be in the mind of some advocating taxes or other restrictions. But like Willie Sutton’s explanation of why he robbed banks, “that’s where the money is,” remains the foundation of alcohol taxation and that is due to its inelastic demand.
Note also that addictions upend traditional economic assumptions that people are rational decision makers who weigh benefits to themselves against costs when considering buying and using some item. Addictive impulses override these objective considerations. Additionally, those caught in the ravages of alcoholism or drug addiction actually sacrifice valuable things, including relationships and personal freedom, for the ephemeral slaking of an addictive need.
Die-hard believers in ultra-rationality argue that subject to the external constraint of the addiction, addicts still make rational decisions. It is just that the need of the moment can be extreme, and satisfying it is of great benefit at that point in time. I am not convinced. And other research is destroying ultra-rationalist economic assumptions on other matters, so the argument that addictive goods don’t belie rationality is not made as often as in the past.
Alcohol is also the classic example of a substance for which consumption creates external costs for others. In this way, it is little different than coal or anything else that causes harm to third parties when used.
Note that drinking is different than smoking, another addictive behavior, in the relative balance of internal and external costs. Effects of secondary smoke aside, most health costs of smoking are borne by the smoker. A far higher proportion of the costs of alcoholism are borne by people other than the drinker. Economic theory and history both show that whenever external costs exist, economic efficiency is harmed. Society gets less satisfaction of needs and wants out of a given set of available resources than when the external costs are curbed.
So what does this all have to do with whether or not you can buy a case of beer on Sunday?
If drinking inevitably causes external harms, then limiting the time in which drinking can occur long was deemed a way to limit such harms. These limits might be within a day. If people tend to drink more and more as they sit in a bar, then impose mandatory closing hours so that the length of time a drinker can pound them down is limited.
Similarly, if access to alcohol facilitates drinking, then set aside at least one day a week on which alcohol cannot be sold. Make liquor stores close on Sunday and saloons too.
Some of this was overtly religious. Keep the sot from his bottle and perhaps he will take his family to church where he, himself, may be inspired to change his ways. Some support was practical and production-oriented. Make the workers sober up on Sunday from their Friday and Saturday night toots and they won’t be hung-over when they file into the factory on Monday morning.
Skeptical economists may see some rent-seeking here, the use of political power to feather one’s own financial next. With inelastic demand, barring sales one day of the week means that more product will be sold on each of the six remaining ones. Revenue will be the same but locking the door on Sunday eliminates a seventh day of the overhead costs of having the store open. Any single store that shuts on its own initiative will lose sales to competitors, but if a law forces everyone to close, then that danger is minimized. This is an argument currently being made by smaller, locally owned liquor stores.
But this assumes that all liquor stores face the same structure of fixed and variable costs relative to revenues. They don’t. And, as with other retail sectors, liquor faces structural change. Big box discounters are gaining sales from smaller, often family-owned neighborhood stores just as big do-it-yourself chains grow at the expense of neighborhood hardware stores and small-town lumberyards.
So when small store owners oppose repeal of the Sunday liquor sales ban with the argument that it will hurt them relatively more than the big stores, they are right. But we never afforded any other small retailers similar shielding from big competitors. Yes, there once were “blue laws” that mandated the closing of nearly all businesses on Sunday, but these have been gone for decades.
As we near a century after its enactment, most people now look on prohibition as stupid and futile. The experiment did not work, but the harm caused to society by high levels of alcohol consumption by men in the decades leading up to the 1919 ratification of the 18th Amendment was indeed large. One feature of high consumption was the sheer number of establishments selling booze. So after repeal in 1933, government imposed its ability to limit the number of establishments that could sell liquor for consumption either on or off the premises.
State laws often linked the number of on-premises sellers to the population of a given municipality. In some cases, fraternal organizations such as those of war veterans, were given priority. And municipalities could retain a monopoly on running a bar or a package store in certain circumstances. So we see lots of different local patterns.
Such municipal monopolies could be valuable when located near another jurisdiction where the populace nominally frowned on alcohol but, in practice, frequently had a snort. The little Dutch immigrant colony in which I grew up, centered on the village of Edgerton, did a great deal to keep taxes low in adjoining non-Dutch towns like lake Wilson, Trotsky and Hatfield whose municipal stores sold to the nominally abstemious Dutch. The economics of this, depending on tax revenues paid by outsiders, is not all that different from the dependency of Wyoming’s state finances on sales of coal to other states.
In general, limitations established in the 1930s are eroding. Municipalities find that running a liquor store can be a headache and citizens can easily buy outside the town or county if the selection or service are poor. Closing times are not as strict as they once were and licenses somewhat easier to get. Most consumers see this as beneficial. Organizing one’s weekend is easier if you can buy your wine on Sunday afternoon while doing other errands And the silly, wasteful fictions of having to bring your own bottle to a supper club that could only sell set-ups, or of having to buy a membership in a “private club,” are now mostly a thing of the past.
So, step by small step, it is getting more convenient to get alcohol. And we continue to abuse it. Research seems to be showing that education and treatment are better curbs on alcohol abuse than the sort of nitpicking regulation tried in the past. But the sorrows as well as the joys of alcohol will be with us for a long time.