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Posts Tagged ‘minimum price’

Alcohol-related stupidity

January 25, 2011 17 comments

Alcohol is famous for its ability to cause stupidity. As with most other drugs, this property doesn’t solely apply to chronic abusers – it also applies to policymakers and opinion writers, even the sober ones. Drugs and alcohol are second only to immigration as a leading cause of utterly stupid articles.

Now, I’ve written plenty on this blog in the past about how nannyist fools lie about the levels of drink-related violence and disease, and adopt completely the wrong policies for cutting alcohol consumption even if it were a good idea to do so.

So, in the interests of balance, today I’m looking at a piece from Harry’s Place that opposes a minimum price for alcohol. Now, there’s nothing wrong with opposing a minimum price for alcohol, mostly because it’s an attempt to solve a problem that doesn’t exist. But the piece in question manages to seize upon all the stupidest grounds for doing so that it possibly could.

Its starting point is that alcohol is price-inelastic:

Certain products – the classic example being alcohol – do not respond in the typical way to price changes in the market. A price increase does not lead to a significant drop in demand. People simply grin and bear the price increase.

There’s only one small problem: this is bollocks. According to actual evidence (Table 7), the price elasticity for alcohol is around -1; in other words, a 1% rise in price leads to a 1% fall in consumption. While the various studies vary in terms of total magnitude, all show that price elasticity is significant. A rise in the price of alcohol does, empirically, lead to a cut in alcohol consumption.

Impressively, the article goes on to get worse:

Far from reducing alchol-related social ills, arguably, it may even have the opposite effect. It will make social drinking at pubs even more expensive relative to wholesale drinking. People will end up drinking more at home, quaffing back the artificially inflated (but still cheaper) supermarket booze in the environment most likely to encourage them to destroy their livers, beat up their spouses and neglect their children, and to cause accidents at work even more than before.

The problem here is that alcohol minimum pricing proposals that have been made for the UK by even vaguely serious organisations have been talking about a minimum price to the consumer.

Let’s assume the minimum price at retail is set at 50p a unit. If I’m a manufacturer of gin, I don’t have to worry whether Tesco are paying me 50p a unit when they buy a truckload of gin from me to sell in their shops, and I don’t have to worry whether Mitchells & Butlers are paying me 50p a unit when they buy a truckload of gin from me to sell in their pubs. Rather, it’s Tesco’s responsibility not to sell you a bottle of gin for less than GBP14, and it’s M&B’s responsibility not to sell you a shot of gin for less than 50p.

Now, at the moment you can buy a bottle of gin for way under GBP14 in any supermarket, but you certainly can’t get a shot of gin for under 50p in any pub. The same would apply to beer as well: a 50p/unit minimum price would ban pubs from charging less than GBP1.25 for a pint of Kronenbourg, which none of them currently do, while banning supermarkets from charging less than GBP1 for a tin of Kronenbourg, which all of them currently do.

In other words, there’d be a significant impact on supermarket prices, but no impact on pub prices. So there’d be a significant decline in home consumption, but no decline in pub consumption. Which, if you believe that there’s a binge drinking problem with evil effects that are made worse by drinking at home (not, of course, that any evidence is produced for this one either), would be a good outcome.

Rather depressingly, Tim cites the HP piece as an example of lefties understanding economics. Which I suppose is true, in that it’s using the cargo-cult sense of economics that glibertoonians often base their arguments on – relying solely on half-remembered theory from the sixth form, missing obvious theoretical points out (whether because they’re inconvenient or because you’re slapdash, who can say?), not testing your theory against empirical data because you can’t be bothered, not doing sums because they’re hard, and coming up with clownish bullshit that even a GCSE economics teacher would grade as “F minus, see me”. In that sense, it’s absolutely spot on.