(Editor’s note: This is an edited version of a
commentary that appeared in The Detroit News on Dec. 1, 2011.)
As this commentary went to print, Gov. Rick
Snyder’s 21-member Liquor Control Advisory Rules Committee had met for the last
time to discuss ideas for alcohol control reform in Michigan. They would be
wise to think and reform boldly.
Michigan’s laws and rules governing alcohol
control have been the playthings of politicians and powerful special interests
for decades. They are not as protective of public safety as many believe, and
are actually protectionist in many ways. They may also hike the price of consumption
3.0 to 7.8 percent depending on the product.
The most important of these [reform ideas] is our recommendation to strip from lucky state beer and wine wholesalers the privilege of being granted territorial monopolies.
To better measure the relative degree to which
Michigan regulates alcohol consumption, the Mackinac Center collected state
control codes from all 50 and counted their word lengths. Code verbosity may
reflect the degree to which government “controls” alcohol and ultimately
affects prices and safety. Michigan’s code is second longest in the Midwest at
We then constructed a statistical model that took
into account the prices of five liquors and a representative six pack of beer
in 25 Metropolitan Statistical Areas scattered throughout 18 states plus the
District of Columbia, code lengths in those states and whether or not a state
was a “control” state.
A control state — like Michigan — is one that buys
nearly every drop of hard liquor legally consumed in the state. The model also
controlled for other variables that may influence prices, such as a state’s
proportion of population that are moderate or heavy drinkers.
First, and with regard to hard liquor, we found
that prices of the liquor in our model were 3 percent higher in control states.
We also found that a 10 percent increase in the length of a liquor control code
was associated with a 10.4 percent increase in price. Second, we found that beer
prices in control states are 7.8 percent higher than in non-control states. A
ten percent increase in code length was associated with a 3.2 percent increase
Our data set for spirituous liquor included two
popular vodkas, two popular rum products and Jack Daniels whiskey. Our beer
data included a representative six-pack of 12-ounce Heineken. The data was
provided by quarter from 1995 through 2009 by the American Chamber of Commerce
Research Association and the Beverage Information Group.
Our statistical output likely shows understated
price differentials because law length may be a crude proxy for control.
Indiana’s code is almost 24 percent longer by words than Michigan’s, but unlike
Michigan it does not impose minimum selling prices, allowing for greater
competition. There are key differences between Michigan and Wisconsin, too.
The Badger state doesn’t play liquor wholesaler
and its alcohol code does not mandate that suppliers of wine grant territorial
monopolies to wholesalers, as does Michigan. Including such nuanced variables
in our model might better distinguish the degree to which Michigan regulations
needlessly hike the cost of alcohol.
If the higher prices for alcohol in control states
actually bought greater public safety, then perhaps neo-prohibitionists would
have an argument for keeping the status quo. Research suggests otherwise.
In a working paper titled, “Does State
Monopolization of Alcohol Markets Save Lives?” economists John Pulito and
Anthony Davies examine control states and license states from 1982 to 2002.
They found that states with a lighter regulatory touch — license states, for
instance — “generally experience lower alcohol-related traffic fatalities.”
Theirs is not the only work to show that greater regulation does not
necessarily equal more and better public safety.
The Mackinac Center recently provided the advisory
committee a list of 15 substantial reform ideas. Arguably, the most important
of these is our recommendation to strip from lucky state beer and wine wholesalers
the privilege of being granted territorial monopolies on the sale of their
products by beer and wine producers.
Alcohol reforms advanced by the Snyder
administration should remove regulatory privileges emblazoned in state law.
Many of them advance the interests of narrow special interests while hiking the
cost of products to consumers.
Michael D. LaFaive is director of the Morey
Fiscal Policy Initiative and Todd Nesbit, Ph.D., an assistant professor of
economics at the College of Charleston, is an adjunct scholar with the Mackinac
Center for Public Policy, a research and educational institute headquartered in
Midland. Mich. Permission to reprint in whole or in part is hereby
granted, provided that the author and the Center are properly cited.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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