Prohibition Repealed 81 Years Ago Today

Similarities exist in cigarette market due to high taxes

On this date in 1933 the nation said goodbye to one of the biggest social experiments in its history: Prohibition of alcohol. The experiment was a disaster, but the remnants are still with us today in the form of archaic and unnecessary laws and regulations. (See the Mackinac Center’s work on alcohol control here.)

I’ve detailed — with co-author Todd Nesbit — Michigan’s experience with Prohibition in a 2008 appendix to a large study on cigarette smuggling. The purpose of doing so was to compare the many unintended consequences of well-meaning policy changes like Prohibition to high excise taxes on cigarettes, something we called “Prohibition by Price.” That Appendix, titled, “Prohibition in Michigan and the Avenue de Booze” can be read here.

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Technically, cigarettes are perfectly legal for adults today, but the price is made so artificially high by excise taxes imposed by governments that they encourage people to buy outside the legal market. These high taxes encourage smuggling by individuals and organized crime cells to escape high taxes or to arbitrage price differentials for profit.

Through 2012 we estimate about 27.6 percent of all cigarettes consumed in Michigan were smuggled into the state. But smuggling isn’t the only parallel with the actual era of Prohibition.

Nationwide we have seen high cigarette excise taxes lead to violence against police, property and people. We have seen police and other government officials corrupted by illicit profits, truckloads of product hijacked, murder for hire scenarios, adulterated products (Bathtub gin anyone?) and — not surprisingly — ingenious distribution tactics.

The distribution of “loosies” (single sticks of untaxed cigarettes sold illegally on the street) has been in the news recently. This, too, has a Prohibition parallel to when traffickers used to sell shots of whiskey to workers leaving auto manufacturing plants in the Detroit area.

Government officials frequently have good intentions. Prohibition of alcohol is one example. Unfortunately, the law of unintended consequence is at work always and everywhere and can serve to undermine the many laudable goals they pursue. The sooner lawmakers realize this the sooner we can see them avoid bad laws and write better ones. 

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