Tag Archives: regulation

Regulators Chase “Five Wives” Out of Idaho

Ben Winslow from Salt Lake City’s own Fox 13 reports on the decision by Idaho liquor regulators to bar sales of vodka from Ogden, Utah producer Ogden’s Own. In a letter to the distillery, Idaho Liquor Division Deputy Director of Procurement Howard Wasserstein notes that:

Social responsibility is very important aspect of the marketing and sales of distilled spirits in the State Idaho. The Idaho State Liquor Division is responsible for the safety and well-being of the citizens of the citizens of our State.

Products we feel are marketed toward children, or are in poor taste with respect to our citizens will not be authorized for distribution.

We feel Five Wives Vodka concept is offensive to a prominent segment of our population and will not be carried.

Ogden’s Own replies:

“We have a product that has sold nearly 1,000 cases in six months in Utah,” explained Steve Conlin, partner and vice president of marketing at Ogden’s Own Distillery. “If the reaction is because of a religious concern, we think they are extremely misguided.”

“We can only presume he means Mormons,” Conlin continued. “Though that makes little sense as they allow Polygamy Porter from Wasatch Beers of Utah to be sold. We’re a little dumbfounded by it all.”

According to the U.S. Census, 27 percent of Idaho’s population are members of The Church of Jesus Christ of Latter-day Saints.

Ogden’s Own Distillery applied for general listing and was rejected two months ago. The state’s position now blocks establishments from even receiving ‘special orders’ of the product.

 Idaho has one of the most restrictive liquor licensing laws in the nation, according to this study done by Michigan’s Mackinac Center for Public Policy. The study, written by Michael LaFaive and Anthony Davies, finds that:

Graphic 1 shows total alcohol-attributable deaths per 100,000 residents in 48 states during the period from 2001 through 2005, the most recent years for which data are available from the Centers for Disease Control and Prevention.[†] The data include deaths of both adults and children. The states in Graphic 1 are grouped from left to right by the four degrees of liquor control: heavy-control, moderate-control, light-control and license states.

The four groups are essentially indistinguishable. If state alcohol controls worked in proportion to their scope, the bars would tend to rise like stair steps from left to right across the graphic. Instead, to take just one example, the average alcohol-attributable fatality rate is lower in the license group than in the low-control group (28.46 vs. 29.95 deaths per 100,000 people, respectively). The same holds true for the under-21 fatality rate, where the average in license states is 1.70 and the average in light-control states is 1.84.[8] Statistical tests do not indicate that a state’s alcohol control regime affects average alcohol-attributable death rates.[‡]

Note that of the 10 states with the lowest fatality rates, eight are license states. The two others are a light-control state, Iowa (eighth), and a moderate-control state, New Hampshire (10th); none of the top 10 is a high-control state.

Perhaps it is time for Idahoans to re-evaluate the goals and aims of their public policy, and to particularly consider abolishing Idaho’s restrictive alcohol-control regime with something more sensible that focuses more narrowly on the public safety issues that are really at stake.
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Regulatory Arbitrage and Mom and Dad

As I was just walking to the library I had the quick thought that I could analogize part of what happened in this financial crisis through the dynamics of a typical family. Bear with me here (and also note that since my family is something I am particularly familiar with I will use my family as the example, which is sure to be funny). Of course the story is a stylized one and bears only a loose relationship to reality.

So I’m the oldest of 7, which means that my family is fairly large. So let’s adopt this conceptual schema: Imagine us children as citizens/market participants and our parents as government. During the early years, government passes prohibition on candies and other sweet things to protect the public health and maintain an orderly populace. But as in any market, prohibition of a substance like candy isn’t always effective: in this case, the market for candy becomes a black market, with candy being obtained from illicit sources (Sunday School, neighborhood friends, etc). Government sees the candy ban hasn’t resulted in the desired outcome and implements further regulation, specifically regulations detailing how external interactions may happen so as to preserve the benefit of external contacts without allowing the trade in black market candy.

Of course, this isn’t effective because kids are sneaky and good at getting what they want. Government eventually adopts a rather nasty and prickly web of regulations that ends up being functionally unenforceable because of their size and complexity while the market develops cavities. Also, since everyone’s strung out on sugar all the time, public order suffers. Private cartels (shifting alliances of siblings) emerge to internally regulate the access and trade in illicit candy, creating a situation where fights break out over the control and allocations of a scarce resource. Eventually, government had no alternative to imposing martial law and borrowing against the future because a dental bailout of the market was urgently necessary.

What are the lessons to be learned here? Well, first, it’s that markets innovate and arbitrage around undesired regulations. If you have difficulty understanding what I mean by that, it may help to think about regulations as goods in a market: people desire good regulations and flock to the best suppliers. Second, it’s that government is bad about thinking in incentive-compatible terms. Solutions like bans rarely work and end up being prohibitively costly to enforce. Other solutions that might be more incentive compatible are ignored because of the incentive structures government faces, that is to say, government likes to maintain the illusion that it is really in control and refuses to lose face through the perception that laxer regulatory structures imply a loss of control and legitimacy. Of course, governments that look past that illusion are usually the ones that do the best.

Instead of banning candy, government could have tied comsumption to the performance of some other activity, like doing homework or chores (of course, this doesn’t work in markets where participants think they can arbitrage around doing homework or chores). But an outcome where government can monitor consumption is preferable to a situation where it can’t since crises are more predictable instead of less and also because you leverage some control over the incentive structures that market participants face, so markets don’t reach dangerous and unsustainable levels.

Think about the war on drugs or the financial meltdown in this way. It’s clear to me that the politicized debates over regulations typically miss the point: the debate is not over more vs. less regulation but about what is good regulation.

Any thoughts?

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