by Tyler Cowen
on November 26, 2012 at 12:20 pm
1. Taxes and cliffs, excellent post by John Cochrane.
2. Arnold Kling’s book picks (at his new blog!)
3. An argument for the double marginalization of alcohol supply.
4. The future of education, especially the non-on-line part?
5. The new NYT blog on fiscal affairs, and are you more logical about money when speaking a foreign language?
‘are you more logical about money when speaking a foreign language’
Not in a bar on the beach under a lovely blue sky in Spain or southern France.
“These vertically integrated monopolies are very “efficient” in the economist’s sense, in that they do a very good job of minimizing the price and thereby maximizing the consumption of alcohol.”
????????????? so, efficient. What’s the problem?
“maximizing the consumption of alcohol”?
Letting people afford what they want! OH NOOOOOO!
I’m confused. Aren’t taxes what the government takes from me to fund the government? While I understand the idea that changes in income also effects how much a person receives in benefits and, in theory, this changes a person’s behavior. However the is a huge difference between me paying $50 to the feds and me not receiving $50 from the feds. Otherwise, can’t I claim that I pay a 1,000,000,000,000% tax rate because the IRS doesn’t send me a $1,000 trillion dollar check every April?
“Aren’t taxes what the government takes from me to fund the government?”
No, in a fiat system, the government can fund itself without taxes. All taxes are pigovian taxes to help internalize the cost that is the government.
I’m confused about your confusion. This is all pretty standard stuff. The calculation that matters in the real world is, “with the next dollar you make, how much will your take-home income actually increase.” Loss of transfer payments with increasing income counts exactly the same, incentive-wise, as taxes remitted. If you take the narrow view of marginal tax rate that you are espousing, then you make exactly the same mistake as the people who underestimate the progressivity of the US tax system because they don’t account for transfer payments. You can calculate such numbers, but they are totally irrelevant to taxpayers in the real world.
[C]an’t I claim that I pay a 1,000,000,000,000% tax rate because the IRS doesn’t send me a $1,000 trillion dollar check every April?
You tell me. Was the IRS planning to send you that check, if only you had made a dollar less in income? Answer that question, and the answer to your question should be obvious. Again, this is pretty basic stuff.
@3 — There’s a good take on this article over at coyoteblog. The idea in the article that the current system of state granted liquor-distributor monopolies is a good thing *because* it raises prices to consumers is really…nuts.
The idea is clearly that making alcohol harder to get is good because when people can’t be trusted with it. I thought that was fairly clear. But rather than just taxing it at a higher rate, the article says it’s better to have arcane laws that make both distributing and consuming alcohol more difficult. It’s this I find bizarre, not the fact that the author thinks people drink too much. The latter is a commonly held belief, even if I don’t agree with it.
Even if you want to raise prices — and given the externalities associated with alcohol abuse, it’s certainly justifiable — you should do it by slapping a transparent tax on alcohol and putting that money into the public coffers rather than maintained a Byzantine system that channels all the extra money into the pockets of middlemen who are either lucky or politically connected.
So let me get this straight, big businesses are throwing their weight around and some governmental groups are regulating them? Behind all the breathless verbiage, that seems to be the tale of Heffernan’s article. In my experience, oddly enough, it has never, ever been easier to get different types of craft beer than it is today, largely because of the relaxation of outdated blue laws that crushed small brewers. There’s a very strong local brewing component to a lot of states, and bars that cater specifically to those small brands. This is stark contrast to the state of affairs ten years ago, when finding a bar which carried something not produced by Miller or Anheiser(sp?) was an anomaly. Hell, a bar with more than five taps was insane! Now, every bar on the strip carries at least ten beers on tap, and yes, a lot of them do come from foreign arms of the big brewing companies. But it’s still variety, and the craft brewers are still hitting the market. Behind Heffernan’s doomsaying lies the reality of a vibrant part of the economy and the culture, one that is better today than I’ve ever seen it.
I was unable to get very far with #3… because it is simply wrong. Post-Prohibition, states did not wisely set up multi-tiered liquour distribution systems because the saw the evils of Britian. They did it for classic rent-seeking reasons. To discourage drinking, states have relied on a much simpler method… heavy taxation.
Rather than making alcohol more expensive by mandating pointlessly inefficient distribution systems, why not just tax it? That way instead of dissipating the extra cost as waste heat, you can use it to fund the important functions of state and local government.
That’s too logical.
3. Maybe the legal drinking age has more to do with it? In the UK, high-school seniors can legally go to pubs. In the US, the drugs of choice for teenagers now are marijuana, Xanax, and Adderall, all much easier to acquire than alcohol. A couple of decades ago, minors in the US could easily purchase alcohol from convenience stores because, even though the law forbade it, there weren’t laws against minors trying to purchase alcohol back then (or, if so, they weren’t enforced), so a fake ID was all it took. Retailers used to not care if the ID was obviously fake, because they apparently weren’t getting busted much for accepting them. That’s changed.
But I guess it’s more interesting to blame efficient vertical integration in the UK.
In which case, does the US have much worse ” marijuana, Xanax, and Adderall” addiction statistics to compensate?
I don’t know, but it’s a point to consider in the legalize marijuana debate: illegal marijuana is much easier for American teenagers to acquire than legal but regulated-with-respect-to-age alcohol.
Apart from everyone on the internet saying it, what is the evidence for that? Given the under-21s have no problems getting alcohol whatsoever while they may be able to buy something that someone calls marijuana, but that doesn’t mean it is. Either way an irresponsible adult willing to buy them a beer, almost by definition, will be easier to find than a criminal adult willing to sell them weed.
I don’t get the post on alcohol. What’s the problem? Raise the excise tax on alcohol and then we are done. It is odd to scream at capitalism for delivering efficiencies and low prices. If the price is too low, hike excise taxes. The reality is that inflation adjusted excise taxes on alcohol has fallen substantially over the past half century, and beer is very lightly taxed relative to its alcohol content.
Last I checked booze in England is far more expensive than booze in the states. Especially spirits. And blaming glassing on liquor and not the fact that the UK is just a particularly violent country is ridiculous. Meh.
Its one of the most violent western countries. IIRC, it it and Australia trade the top spot.
This article strikes me as something you might use as an “Analyze this” exam question.
1. Why not just tax it if you want the price to be higher and have the government get the revenue rather than cronies.
2. Alcohol and drugs are known for having low priced elasticities of demand see: http://www.sciencedirect.com/science/article/pii/S0167629612001117
3. What is easier to regulate (shake down)? Thousands of independent businesses or a few large conglomerates? “But it made no sense either to go back to the world of pre-Prohibition America, in which big, politically powerful liquor producers owned their own saloons and were therefore free to pour cheap booze into communities coast to coast, sweetening the doses with enticements ranging from rebates on drinks to cash loans, and frequently tolerating in-bar gambling and prostitution.”
4. What will lead to higher prices? A vertically integrated 2 firm monopoly or a 3 level sequential distribution system with some competition. I think impossible to tell a priori.
5. Alcohol is almost certainly more expensive in the UK than the USA. Compared to the global average of 100, the USA is 120 and the UK is 223 http://www.mytravelcost.com/alcohol-prices/.
6. The countries with the highest prices have some of the heaviest drinking . http://www.liveleak.com/view?i=807_1299737292
This is not a complete list of issues.
Why did you post this link?
I agree with Rob, Scotty, BB and suntzuanime. (And I bet that’s the first time anybody ever wrote THAT sentence.) Blaming Britain’s alcohol problems on the structure of their alcohol industry is mildly bizarre, but arguing that the US structure is approaching the British structure is really odd, and the notion that a restructured beer industry (note: no talk of spirits in the article) of any sort would somehow be better at getting people hooked on beer is more than little mind-boggling.
And, if you receive a benefit from the government that phases out with income, so every dollar of income above (say) $30,000 reduces your benefit by 50 cents, then you face a 50 percent marginal tax rate even if you pay no “taxes” at all. Taxes and benefits — both in level and on the margin — need to be considered together.
Only if the benefit is worth the cost to you and it rarely does.
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