Franchonomics
The comptroller has some curious views on the relationship of price and demand when it comes to alcohol, unless it suits him to contradict himself
Our view:
In a recent meeting with The Baltimore Sun’s editorial board, Maryland Comptroller Peter Franchot offered an opinion with which we — and most reasonable observers — would disagree. Responding to a question about alcohol sales, the state’s chief tax collector said that raising taxes on alcohol (as Maryland did by increasing the sales tax on such beverages in 2011) had no impact on consumption despite the resulting price increase. None. Advocates who claim otherwise, he said, are simply mistaken.
We’ve heard that argument before, of course. It’s an extension of the old absolutist claim that “regulating alcohol through price or limits on volume amounts to a return to Prohibition and we all know how that turned out.” One sometimes hears that trope from certain quarters of the alcohol industry. In economics, the formal name for this is “inelastic demand” meaning that demand for a product is mostly unaffected by an increase or decrease in price. That’s maybe true of something like heating oil — you need to run the furnace in the winter whether it’s expensive or not.
But alcohol? Mr. Franchot’s claim is at odds with two things — common sense and personal experience. There’s a reason why retailers of all stripes and selling all kinds of products lower prices when they want to sell more of something — people buy more.
And how do we know this? Well, because Comptroller Franchot tells us so. Last week, Mr. Franchot was back in the news pointing a finger at Anheuser-Busch for marketing a 77-pack of Natural Light in just one town — College Park, Md., home of the University of Maryland. As it happens, the keg-like product (a marketing gimmick to celebrate the beer’s creation in 1977) sold out during the school’s homecoming celebrations last week. Mr. Franchot found the 77-pack offensive, an encouragement to binge drinking because — wait for it — it lowered the cost and availability of beer.
“The big brewers like Budweiser who are selling 77 cans of beer for 39 cents each to college kids, they don’t like craft brewers, unless they own them,” Mr. Franchot frothed to a local TV station.
So which is it? Do lower prices encourage over-consumption or not? Does increased availability lead to over-consumption or not? Or are both immaterial? We think Comptroller Franchot is closer to the truth when he expressed reservations about 39-cent beers plopped in the laps of college students. If young people are presented with an opportunity to act irresponsibly — to drink to excess on cheap booze — many will avail themselves. This isn’t just Economics101, it’s Parenting101. Prohibition is bad, but taking reasonable steps to ensure that alcohol is used responsibly is not.
Now, let’s grant Mr. Franchot some context. The comptroller made his contradictory remarks in context of his single-minded crusade to help Maryland’s craft brew industry. He wants to see these Maryland-based businesses prosper and alcohol laws that Comptroller Peter Franchot (right) says he does not believe that higher alcohol taxes reduce consumption. he perceives as unfair (and developed to preserve the market dominance of big companies like Anheuser-Busch) tossed aside. Heknows craft brewers aren’t charging 39 cents, they’re charging an average $8 per six-pack, according to one survey. But that doesn’t mean such beer can’t be consumed irresponsibly, too. It just requires a somewhat more affluent customer.
Mr. Franchot is not wrong that Maryland’s liquor laws are stacked in favor of certain entrenched interests, and we’ve backed him up on many of his proposed liquor law reforms — including those related to the craft beer industry — in the face of strong opposition in the General Assembly. But Mr. Franchot’s fixation with just one segment of the market isn’t helpful. Not when his real job is enforcing the tax laws — including those on alcohol. You expect the state’s tax collector to be above the fray and looking out for the interests of all Maryland residents. His overindulgence in lobbying for craft beer is not unlike his excess enthusiasm for temporary school air conditioners or his fixation with the school calendar and requiring public schools from Ocean City to Oakland to open later in the summer. All have had adverse impacts, and all distract from his actual job.
The irony, of course, is that Mr. Franchot’s complaints about the 77-pack only served to put Natural Light in the news (as, alas, we have now done as well). Raising so-called “sin” taxes on products for which there’s a legitimate public health concern when consumed to excess (chiefly tobacco and alcohol) is just good public policy. Why? Because the more you tax something (that is, the more you raise its price), the less the public is likely to consume. Granted, it’s an imperfect tool, but, in general, it works. Otherwise, cheap beer in 77-pack containers would not be cause for anyone’s concern.