INSIGHTS: WINEAMERICA AS POLICY PRODUCER
GUEST COLUMNIST: Jim Trezise, President, WineAmerica
Growers produce grapes. Wineries produce wine. WineAmerica produces policy.
Think of our industry as an incredibly strong three-legged stool which would collapse if any leg was missing. Each type of production requires investment, commitment, knowledge, teamwork, and passion, and taken together the whole is greater than the sum of its parts. Some people have asked what WineAmerica does, and how, so let me explain.
WineAmerica’s “product” is Government Affairs. It’s why we exist, who we are, what we do, and why we matter. Since wine is a farm product, growers and winemakers often talk about climate–from seasonal variations to natural disasters and long-term climate change. WineAmerica’ focus is on a different climate–the business climate that is shaped not by Nature but by people. Policymakers. They’re our “consumers”.
Our mission is to educate those people–legislators and Administration officials–about the economic importance of the grape and wine industry, and the benefits of creating a business climate conducive to growth. Those benefits include new investment, more jobs, increased tourism, and additional taxes accruing from economic development rather than increased tax rates.
Wine is the ultimate value-added product, boosting numerous sectors from agriculture to manufacturing, packaging, transportation, tourism, wholesale and retail, and many more–not to mention enhancing the quality of life. And virtually every transaction–from buying land for a vineyard, purchasing a tractor or wine press, and selling the wine–generates sales or excise taxes, or both, on national, state, and local levels. Wine is a piggybank for government.
In 2017, the American wine industry generated $220 billion in benefits to the US economy. The more we grow, the more all those sectors of the economy will benefit.
Like growing grapes and making wine, producing policy involves a process and teamwork. Step #1: Set priorities. WineAmerica staff works with our Government Affairs Committee (GAC) comprised of both Board and non-Board members to prioritize issues. For the first time ever, in 2020 we accomplished all our goals, so started 2021 with a clean slate.
Vice President of Government Affairs Michael Kaiser directs the public policy process, with support from Vice President of Development Tara Good and President Jim Trezise as needed. Michael also recruits individual winery and trade association members to weigh in with their Senators and Representatives at crucial times.
Our State and Regional Associations Council (SRAAC) is a unique asset for national grassroots public policy advocacy, representing about 40 states and the vast majority of American wine production. Our SRAAC members have been instrumental in helping us recruit cosponsors for bills like the Craft Beverage Modernization and Tax Reform Act (CBMTRA), which included 341 Representatives and 77 Senators, with nearly equal numbers of Democrats and Republicans.
Collaboration and coalitions are vital to success in DC, as evidenced most dramatically by the CBMTRA which is now permanent. WineAmerica worked closely with Wine Institute and several other trade associations representing beer, cider, mead, and spirits. WineAmerica also collaborates with coalitions focusing on agricultural issues, immigration reform, music licensing, trade and tariffs, and other policy areas.
Close and constant communication with policymakers is another key element in successful lobbying because situations can and often do change quickly. WineAmerica works in a bipartisan way with the staff of House and Senate leadership, key committee chairs, and bipartisan caucuses like the Congressional Wine Caucus and Problem Solvers Caucus.
The Covid era has radically changed lobbying from in-person group meetings in legislators’ offices to phone and Zoom meetings, but that new normal has been working. It’s uncertain if and when in-person lobbying will resume, but we’ve already cancelled our previously planned Spring Policy Conference in DC in June due to continuing restrictions. It makes no sense for our members to fly in from all corners of the country if we can’t meet with legislators and hold our “Taste the Wines of America” reception for Congress.
Finally, holding out hope and never giving up is key. In most legislative initiatives, there are inevitable setbacks and sometimes near-death experiences along the way, and many bills are not passed until the very last minute. Example: The CBMTRA and our other 2020 legislative and regulatory priorities were not passed until the last week of the year. December 28!
So what do we do? Improve the climate for wine.
ON THE ECONOMY: MODERN BLUE
John Dunham, Managing Partner, John Dunham & Associates
Everybody ’round here moves too fast, and it feels so good but it’s never gonna last. Everything I had is twice what I knew, but I don’t have nothing if I don’t have you. I keep down my head down, I keep my eyes on you. It’s a big wide world with a million shades of modern blue. This is the second verse to the song Modern Blue, written by Rosanne Cash and John Leventhal, and released on her 2014 album The River & The Thread. Rosanne’s son (and Johnny Cash’s grandson) Jacob makes his first appearance on a record as a background vocalist on this song.
The word modern has many definitions. The most common is probably of or relating to present and recent time; not ancient or remote. But modern also means of, relating to, or characteristic of contemporary styles of art, literature, music, etc., that reject traditionally accepted or sanctioned forms and emphasize individual experimentation and sensibility. In other words, songs without melody, paintings that are nothing but blobs, and literature with no meaning. It is this definition that describes a concept known as modern monetary theory (MMT), something that has now taken control in governments and central banks around the world.
Economic theories change over time, and these pages have often discussed how, as John Maynard Keynes once stated, Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. This is why no economist worth his or her salt would subscribe to just one theoretical framework (or school) of thought when trying to understand economic matters. Simply put, what Marx wrote described his time and how the economy worked in 1860s Europe, while Keynes described the economy of the 1920s and 1930s, and Friedman’s theories come from a time when post-war America was predominant.
There are also economic theories that proved to be dead wrong in almost any circumstance. Mercantilism is a great example that continues to rear its ugly head in trade wars and in popular thinking. Nobody ever did better by producing everything for themselves and only purchasing stuff from their own country, town or block. The Leninist theories surrounding central planning also proved to be unwieldly as has the efficient markets theory, first proposed by the French mathematician Louis Bachelier in 1900.
A new modern, economic theory began to take hold during the Administration of George W. Bush and has arguably been fully adopted by the Biden Administration, Japan and the European Union. It is known as Modern Monetary Theory or MMT.
MMT can trace its birth back to an article written by economist Abba Lerner in 1947. It is an extension of an older concept known as Chartalism, which was developed by German economist, Georg Friedrich Knapp, who argued that governments could create paper money and recognize it as legal tender, allowing it to serve as a means of exchange in the same way as gold.
The MMT goes much further, suggesting that governments can create an unlimited amount of paper money as long as there is enough slack in the economy to tamper down inflation. In other words, the only limitation on printing more and more money is the specter of inflation. Of course, if a government really does not care about inflation (or better yet, can convince its population that prices are not rising) it can print money endlessly.
Proponents of MMT argue that the idea of governments having to tax before they can spend is incorrect and that the relationship between tax and spending works the other way. They use the massive increase in government debt over the past few decades as evidence. MMT proponents suggest that governments that have their own currency can simply print more money and spend it on whatever they see fit. Since the government prints the money directly, there is no need to pay interest on the debt, and as long as there is no inflation, everything is hunky dory. If inflation ensues, the same government can remove currency from the economy by taxing.
The popularity of the theory among political elites is obvious in that it gives them a blank check to spend on whatever their hearts desire – and better yet, they really don’t even need to collect taxes.
Like most economic theories, MMT does make good points. As Keynes pointed out during the Great Depression, there are times when it becomes important and even necessary for the government to use fiscal policy to help stimulate the economy. When there is a lot of slack in the economy (unemployment, depressed demand, low demand for capital), governments can borrow to invest in things like infrastructure, research, art, and even unemployment relief. This was what the Roosevelt Administration did in implementing the New Deal, which was basically a huge experiment in Keynesian economics.
While a case can be made for using government spending to dampen business cycles, MMT suggests that governments have a free lunch and can have the economy follow their bidding simply by printing money.
The problem with this wonderful theory is that like unicorn’s and leprechauns, there simply is no free lunch. Based on the MMT hypothesis, Americans should all be able to consume as much as they want without having to produce anything. The government can print valuable money and just buy everything from China. Obviously, this cannot happen, the value of the dollar would collapse. This thought exercise shows why the whole concept of MMT is – for lack of a better word – insane.
Hyperinflation arises when the supply of goods and services remains the same while the supply of currency skyrockets. Today, this is what is happening, in fact, the output of the economy is falling precipitously while the money supply is skyrocketing.
The entire concept of MMT is based on a completely wrong concept of what money and debt are.
Debt and dollars are merely tools used to transfer ownership of resources and products; they don’t actually create anything. MMT is based on the false presumption that money is inherently valuable, but money is simply a representation of value, not valuable itself.
The first purpose of money is to facilitate exchange. If money did not exist, transactions would have to involve barter. If I want a shirt but I only have a pig to pay for it, the transaction with the tailor becomes difficult. However, if I can represent the value of the pig using a generally accepted token, be it a shell, a gold coin or a Federal Reserve Note, and the tailor can do the same with the shirt, then we only need to trade tokens, not physical commodities.
The second purpose of money is as a representation of value – in effect a unit of measurement much like an inch, a pound or a gallon. Again, it is difficult to store, save, and often times use, physical commodities or the outputs of physical labor. I can pick hundreds of pecks of apples over the course of a week, but I can’t eat them all or even trade them all for the goods that I need to last the remainder of the year. I can, however, trade them to a fruit wholesaler for a certain measure of money. That money represents my week’s work, and can be easily stored in a mattress, a bank or traded for other goods and services over time.
Unless money has value in and of itself, then the ideas of MMT simply don’t hold water. It is true that the supply of money in an economy can and should grow along with the amount of value created. If it didn’t then there would be downward pressure of prices. On the other hand, if the amount of money in the system grows faster than the value produced, there would be upward pressure on prices. Neither is good, as they would in effect change the measurements represented by money. How could a building be built when the length of a meter changes every day, or milk be bottled when the volume of a gallon goes up and down with the wind? Neither can work, and neither can the economy when money no longer serves as a reliable unit of measurement.
Right now the growth in the production of actual goods and services in America averages about 2 percent per year, but the money supply is growing at 6 percent per year. It is only a matter of time before currency debasement sets in. Examples abound. Imperial Rome fell in part due to a debasement of its money, so too did Weimar Germany, and more recently Zimbabwe, Argentina and Venezuela. Just by looking at the news we can all see that simply printing Bolivars has not done much to grow the Venezuelan economy, and printing dollars will not create wealth in the United States.
Another interesting thing to consider is that under MMT, the economy will become a command economy just like that advocated by Mr. Lenin in the early 1900s. As the government prints more money, it spends it on the goods and services that politicians want. As inflation grows, MMT theory suggests that the government will then pull money out of the system by raising tax rates to soak up excess dollars. In short, the government would print money causing inflation, then stabilize prices by taxing. Even if MMT were to work, and inflation were to be held to zero, the economy would shift from one driven by what people want to one driven by what politicians want. How does this sound any different than Soviet Russia?
Economic theories can be powerful tools to help guide business, consumers, investors and government. Unfortunately, the public will always be susceptible to the siren song of charlatans selling snake oil, and a free lunch. Maybe Rosanne Cash got it right, it feels so good but it’s never gonna last.