10 February 2012

Unhealthful News 202 - Annoyed by demand, attacking supply

My colleagues in the UK are currently reporting on the disturbing proposed regulation that would impose a minimum retail price on drinks, on a per-unit-of-ethanol basis.  This is justified based on (false) claims of increasing public health impacts of alcohol, but it is immediately obvious to any clear thinker (a group which apparently includes 0.3% of members of that country's parliament) that the penalty will fall on those who buy inexpensive drinks, not those who drink inadvisably.  That is, this interference in the market by rich people will have almost no effect on rich people who already choose expensive drinks instead of the bargain brands (including those who are problem drinkers), but it does take money from the poor and gives it to corporations.  It would probably financially punish poor people who drink too much without substantially changing their behavior, though I suspect that inflicting punishment is what a lot of the proponents really want anyway.

In the US we famously love the free market.  Unfortunately those who want to intervene to stop demand they do not like still think they should blame supply, but the free market leaves them using the free-market version of regulation, lawsuits.  Specifically, it was reported that a Native American nation located in the state of South Dakota
sued some of the world’s largest beer makers on Thursday, saying they knowingly contributed to devastating alcohol-related problems on the Pine Ridge Indian Reservation. The tribe said it wanted $500 million in damages for the cost of health care, social services and child rehabilitation caused by chronic alcoholism on the reservation. The suit ... also names four beer stores in Whiteclay, a Nebraska town near the reservation that, despite having only about a dozen residents, sold nearly five million cans of beer in 2010. The suit names Anheuser-Busch InBev Worldwide, SABMiller, Molson Coors Brewing Company, MillerCoors LLC and Pabst Brewing Company.
Make no mistake:  Being concerned about problem drinking in many North American aboriginal population is reasonable.  But the solutions lie with the consumers or the circumstance that create the demand, not the merchants.

What exactly were the defendants in this case supposed to have done?  What would have happened if one of those manufacturers had refused to supply towns near the reservation?  No doubt their local distributor would raise an outcry, prompting concern nationwide about possible future arbitrary cutoffs.  Moreover, there would inevitably be cries of racism, quite possibly by the same people who are leading the lawsuit.  But the most important effect would be that the others on the targeted list would increase their shipments to the area to make up the shortfall.

So, could all manufacturers agree to stop the shipments?  That would almost certainly be a violation of US antitrust laws, for good reasons.  And even if they could, this would all depend on the assumption that no one in Nebraska owns a truck and can figure out the nearest place that they are still shipping to.  I have seen Nebraska, and there are a lot of trucks.

What about those retailers.  Surely they must have known that most of their sales were going to people who live on the reservation and not the other eleven guys in town.  Of course they did.  So should they have been saying "we don't serve your kind in here" when someone from the reservation walked in?  Yeah, that would be a great plan. 

But, the argument might go, it was not that they were treating Native Americans equitably, but that they existed to serve them.  Fair enough.  But what could any of the four do?  Shut down?  That would just boost the sales of each of the others by 25%.  What if they all agreed to shut down (setting aside the problems of illegal collusion, accusations of racism, etc.)?  Well, gee, I wonder if perhaps there might be another enterprising soul around who might want to open a new store.

Of course, all of these speculations are absurd, because these merchants had no reason to want to curtail their operations, even apart from the fact that it would not work.  The suppliers responded to the demand created by the residents of the reservation.  When the tribal elders decided that their own people were not being properly obedient about drinking, they decided to re-aim their commend-and-control approach.

Undoubtedly the lawsuit will invoke a comparison to the gun manufacturers who supply a few retailers with an absurdly huge quantity of their product (a product that is intended to kill people, despite that silly claims you hear about cigarettes being "the only...when used as intended").  But in the gun case, it is evident that the sales are being illegally diverted.  The huge supply of alcohol is arguably used unwisely much of the time, but this is not illegal activity that the suppliers are obliged to stop.

So that brings us back to the UK solution:  Since the private market will not (indeed, cannot) attempt to thwart these consumption choices that someone in power does not like, some believe is up to government to use force.  Government could theoretically shut down sales in Whiteclay, Nebraska, or impose a minimum price there.  That would make the aforementioned guy with the truck a black marketeer, but that would not change his existence as a profitable entrepreneur. 

So they would need a bigger law, like the one we have that keeps people from unwisely consuming heroin.  Oh wait, oops.  Well perhaps, as with heroin, the US military could just invade and occupy the place that grows the raw material.  So where do they produce the raw materials for beer?  Really?  Nebraska and South Dakota?  Well I suppose that is convenient.  Maybe as long as they are there, they could pick up where they left off in the 19th century and massacre those annoying problem drinkers, solving the problem once and for all.

I can hear my colleagues in the UK cringing as they read that, fearing that someone in their government might read it and think it is a good plan.

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