INSIGHTS: THE CASE FOR ALCOHOL PRIVATIZATION
By Guest Columnist Jason Mercier:
Government Reform Director, Washington Policy Center
In 2011, when 59% of Washington state voters decided to end the 78-year-old government monopoly on selling liquor by approving Initiative 1183, opponents said privatization would lead to an increase in alcohol-related arrests.
A year after Washington joined the majority of states in allowing the private sale of liquor, law enforcement data shows the worst predictions of opponents have not materialized.
According to the Washington State Patrol, most state alcohol-related arrests continue to trend downward, including in the first year since voters privatized state liquor sales. The private sale of liquor in Washington resumed on June 1, 2012.
Another concern expressed by opponents of privatization was that private store employees would not be able to do as good of a job as the government stores in preventing sales to minors. Upon the passage of Initiative 1183 the Washington State Liquor Control Board (WSLCB) touted the 94% compliance rate of no-sale-to-minors at state-run stores and said, “As the sale and distribution of liquor will soon be completely in the hands of the private sector, we hope it will treat this public safety responsibility with the utmost importance.”
Judging from the first year of data, the private sector has met this challenge. According to the WSLCB’s “Compliance Rates for Retailers Since 2012,” those stores with at least 10,000 square feet (as required by Initiative 1183) or former state contract stores have averaged just over a 92% compliance rate. The most recent check for August 2013 showed a compliance rate of nearly 94%. These numbers do not show a significant drop in compliance rates with private liquor sales.
Though concerns have been expressed about minors stealing liquor at private stores, hard data does not exist to document the extent of any problem. Recent legislative work sessions have focused on this question and retailers have testified that shoplifting prevention efforts has improved since private sales began.
Even with privatization, Washington State alcohol-related arrests have been trending down. This positive trend has not been reversed, as was predicted by privatization opponents. While more work can always be done to improve public safety, the data indicates the private sale of liquor has not resulted in an increase in the number of alcohol-related arrests.
While opponents may have exaggerated the potential public safety problems of liquor sale privatization, supporters underestimated the amount of revenue that would be generated from private liquor sales. This can partly be attributed to the fact that Washington State has the highest liquor taxes in the country. With most state alcohol related arrests decreasing, lawmakers may now want to consider whether liquor fees and taxes are too high. Either way, the data shows that, as far as alcohol related arrests are concerned, liquor privatization in Washington is on a successful path.
ON THE ECONOMY:
Turn Me Loose
You tried to tie me down, I was such a clown. You had to have it your way, well I’m sayin no way.
So why don’t you turn me loose, turn me loose, turn me loose. I gotta do it my way, or no way at all. Loverboy could have been talking about the Federal Reserve in this 1980 release from their debut album.
As in 1980, the Federal Reserve has been attempting to navigate a monetary path through a difficult recession. However, the types of policy pursued in reaction to the two periods have been very different. In the 80s, during a recession that was arguably worse than the recent downturn, tight monetary policy was pursued. After substantially reducing interest rates from an extremely high 18 percent, the Board of Governors mitigated the subsequent rise in inflation (to nearly 14 percent) by incrementally adjusting the interest rate higher. On the other hand, when the last recession began, inflation rates were approaching just 4 percent and the Fed responded to the downturn by taking real interest rates into the negatives. In addition, the Federal Reserve printed huge amounts of money with which it purchased longer term bonds to try to force down long-term interest rates. In doing this, the bank has nearly tripled the amount of debt that it holds, something that has no historical precedent.
If there were an actual relationship between the amount of money in circulation and economic growth, then the Fed’s response to the recession may have made sense; however, the 1980 recession provides an excellent example of why this simply is not the case. There is an almost religious belief among the economic orthodoxy that loose money policy with low interest rates boosts economic growth. But since growth is based on the amount of land, labor, capital and entrepreneurial spirits in an economy, this just does not make sense. Negative interest rates in Japan over the past 20 years have not brought robust growth to that economy simply because its population is declining so quickly.
Two decades of close to zero interest rates has been totally inadequate to give any stimulus to Japan’s sluggish growth. In fact, Robert Lucas examined the relationship between the money supply and economic growth and found that the only significant effect of increasing the money supply is increasing inflation. He won the Nobel Prize for this work.
Those who support loose money claim that the economy needs to inflate and that deflation will lead to rot and ruin. Again, this claim makes little sense. Deflation would suggest that prices are falling, and that consumers can receive more utility for less effort all things being equal. On the other hand, if prices and wages are falling in tandem, then, just like inflation where wages and prices are rising in tandem, there is little economic effect. What the Federal Reserve’s policy has done is create an economy where wages are falling while prices rise – which is inflation and which is slowly robbing creditors and savers and discouraging investment in the productive sectors of the economy.
In fact, easy money actually encourages investment in low productivity or even unproductive businesses and assets, like housing located in middle of nowhere or in marginal locations, or in low return projects and businesses. By doing this, loose money weakens the effectiveness of the recession and hampers the economy from moving away from the unproductive activities that led to recession in the first place.
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