Category: Food and Drink

Facts about Prohibition

When browsing Nathan Miller’s recent New World Coming: The 1920s and the Making of Modern America, I came across the following nuggets:

1. Prohibition was originally a popular policy.

See this link for more background:

Temperance was not, as is sometimes thought, the campaign of rural backwaters; rather, temperance was on the cutting edge of social reform and was closely allied with the antislavery and women’s rights movements. Always very popular, temperance remained the largest enduring middle-class movement of the nineteenth century (‘Leaven 1978, 1984; Tyrell 1979; Gusfield 1986; Rumbarger 1989; Blocker 1989).

2. At first Prohibition advocates did not think enforcement would be very costly. The Anti-Saloon League estimated a sum of $5 million a year, Congress provided slightly more than this to hire 1500 agents.

3. A major setback came when a federal judge rule that physicians could prescribe whiskey for medicinal purposes. By the end of Prohibition, there were 10 million such prescriptions each year.

The higher the bill, the lower your tip percentage

Two psychologists studied nearly 1000 tips for restaurants, hair salons and with cab drivers. The larger the bill, the smaller the percentage tip. This is consistent with a reciprocal “payment for service” model. You pay the waiter enough to get the job done, but you don’t feel he has to work much harder to bring you a more expensive entree. Or you might simply be feeling poorer, the larger the bill.

Note that the effect levels off for sums larger than $100. After that point larger bills don’t lead to smaller tips in percentage terms. Servers also get bigger tips when they split the bills for large groups. Read here for more detail. Other research shows that servers get bigger tips if they resemble or can mimic the customer.

Mom works, child eats

Childhood obesity rates have tripled since the early 1970s. Television, junk food, and fast food are all reasons. A recent study from the Chicago Fed highlights the role of working mothers in this problem. When the mother works, the child watches more TV, eats more junk food, and has fewer good meals at home, thereby becoming heavier. A causal impact is found, however, only for families in the top quarter of income distribution. Could hired nannies bear some part of the blame? The authors also note that schools have a financial incentive to encourage children to eat meals that are not very good for them (an argument for more school choice I might add), click here for more on that topic.

The economics of diets

Meat sales are up and bread sales are sluggish. The Atkins diet tells us to dump bread, pasta, and rice, and allows us to eat plenty of meat. Could it be driving this trend? Slate examines the economic impact of diets and offers a cautionary note. Only six million people –about three percent of national population — have tried the Atkins diet. Most people are buying convenience, the growth is beef sales is centered in ready-to-serve products. By the way, sales of Krispy Kreme donuts grew last year. In case you didn’t already know, they are forbidden under the Atkins plan. Cookie and potato chip purchases are up as well. When it comes to weight gain, some economists blame sedentary jobs and cheap, readily available foods.

Addendum: Today’s Wall Street Journal reports that Krispy Kreme sales are now sagging, though keep this in perspective, the company has averaged a 63% growth in operating earnings, per quarter, over the last ten quarters.

Restaurant economics

It has long been a puzzle why certain commodities receive a higher “mark-up” than others. Why is popcorn so expensive at the movie theater? Why is wine so expensive in fine restaurants?

Daniel Boulud, one of New York’s leading chefs (Daniel, Cafe Boulud, and DB Bistro Moderne), addresses this question in his recent memoir Letters to a Young Chef. Boulud tells us that wines make up 30 percent of revenue in his restaurants and have a mark-up of two to three hundred percent.

John Lott and Russ Roberts (yes, that is the John Lott) once raised the possibility that a high drinks price is a way of charging those people who wish to linger at the table longer. Boulud offers another explanation based on price discrimination. He (p.62) claims that drinkers of fine wine are “a great clientele,” and are “willing to indulge.” They will expect “only the finest ingredients,” such as good truffles, and are willing to pay for them. By offering these people fancy wines at high prices, you induce them to pay a higher net price for their meal. At the same time you need some acceptable, cheaper wines: “Those [other] customers are your future and you cannot afford to drive them away with the sticker shock of a Greatest Hits wine list.”

Boulud also claims that good restaurants are well-situated to invest profitably in wine, thus the special importance of wine for revenue.

The book contains many kinds of advice. Keep your knives sharp, we are told, and if you want to make other chefs happy, serve them a pig’s head, not caviar.