Want to Save Pubs?: Support Minimum Unit Pricing of Alcohol

13jour600.1The Economist is among the world’s indispensable newspapers, but it has a University of Chicago-style blind spot concerning any restrictions on psychoactive drugs. I therefore generally regard it as an endearing British relative who has one annoying quirk, but now I can be unambivalent in my affection: The Economist has endorsed minimum unit pricing of alcohol.

I describe the policy in detail here, but the gist is that regulators set a floor under the price of alcohol. The Economist describes this as a “windfall” for producers and retailers but this is not correct: The increase in price lowers volume of sales to the point that it’s a wash for sellers (fewer sales, but higher profit per sale). The true windfall goes to the public, who benefit from decreased deaths, accidents, crimes and emergency room visits.

Minimum pricing is also, as a member of the UK Parliament and I pointed out in submitted evidence, exactly what the ailing UK pub industry needs to get back on its feet. Some critics of minimum pricing howl that “responsible pub drinkers should not have to pay for the damage of boozing by violent yobs”. This is completely wrong-headed, because alcohol prices in pubs are already far above even the highest proposed minimum price. Minimum pricing is directed at rock-bottom price sales of alcohol in supermarkets, which are killing the pubs by undercutting the price of their number one product.

Pub-goers who are losing their beloved watering holes are thus suffering not from minimum pricing, but from a lack of it. Andrew Sullivan laments, as I do, the decline of British pubs, but his series of posts on the topic has not highlighted how Tesco and similar supermarket chains have hurt pubs by flogging high strength, low cost alcohol. Sullivan passed along the claim that anti-smoking legislation is one cause of pubs’ declining fortunes, which sounds like tobacco industry propaganda and has been empirically disproven. The return of customers who don’t like tobacco smoke isn’t hurting pubs; alcohol being sold at ultra-low prices by competitors who can make up the lost revenue on other products is.

Comments

  1. says

    Won’t pubs use this policy if enacted as a pretext to increase prices? Pubs aren’t charities amenable to absorb their higher input costs.

    Also, the scheme suggests that price-sensitive high-volume drinkers at whom this policy is targeted will still not flock to pubs as “alcohol prices in pubs are already far above even the highest proposed minimum price

    Pubs will need to lower their prices despite the new higher minimum cost to divert supermarket clientele.

    So, the efficacy of this policy will primarily be through overall moderation of consumption by high-volume drinkers, but boosting pub attendance is tenuous.

    • byomtov says

      This occurred to me also.

      Will the high-volume drinkers shift to the pubs in any number? It seems like a different experience, and if the price is the only thing keeping you at home you might have one or two beers at the pub, rather than two or three.

    • J. Michael Neal says

      Won’t pubs use this policy if enacted as a pretext to increase prices?

      Only if they think that the increase in margin will offset the loss of sales caused by the increase. This is what they already would do and I’m not sure how the policy would change that. People like to make the argument that businesses will use some event as a pretext to raising prices as if the pretext will somehow prevent that from reducing sales. That’s generally not how the world works. More often than not, consumers aren’t going to care why you raised prices, just that you did. So while this is possible, I think that it’s pretty unlikely.

      Pubs will need to lower their prices despite the new higher minimum cost to divert supermarket clientele.

      Aside from the fact that you’ve just contradicted your first argument, this still isn’t the way the world works. For a variety of reasons, prices in a pub don’t have to be as low as what you can pick up in a supermarket in order to survive. Many people are willing to pay a premium for the experience of drinking somewhere else. This is true all over the world.

      And this exists on a continuum, with different people willing to pay different levels of premiums. If you lower the gap in the prices between pub and supermarket, some fraction of the drinking population will now be more amenable to drinking at a pub rather than at home. So a policy that forces prices to go up at the supermarket but not at pubs will help pubs to some extent. And at the margin, this will make some pubs a going proposition that were not before.

      How many pubs will it save? I don’t have the foggiest idea but holding out the argument that so long as pubs charge higher prices they’re doomed has nothing to do with what will actually happen.

      • says

        Only if they think that the increase in margin will offset the loss of sales caused by the increase.

        Existing pub customers, ipso facto, demonstrate willingness to pay the high premium over supermarket, so they’ll likely accommodate the extra cost, which should be modest relative to current pub prices.

        Aside from the fact that you’ve just contradicted your first argument

        You should reread the blogpost and then my comment. The Prof’s point is that the minimum cost should save pubs, ostensibly, by shifting customers from the mart to pubs. He’s not presenting the dynamics at the margin, but asserting the broad outcome of those dynamics realized under the new policy regime. The mart customers are quite price-sensitive because they like to, presumably, consume a lot, or can’t afford pubs and thus buy at “rock-bottom prices”. This, as per Prof, is “killing the pubs”, in direct contradiction to your contention that “prices in a pub don’t have to be as low as what you can pick up in a supermarket in order to survive“. To attract these off-license users, pubs would have to decrease prices enough. I don’t think they will, and didn’t imply that they would. They are likely to, in fact, pass off the input increases onto existing premium-accommodating customers. But even holding prices steady won’t attract enough mart patrons since the differential, again as per the Prof, would still remain substantial after the change. That doesn’t sound like a policy that reverses pubs being killed. More like brakes being applied a few feet from the wall.

        • J. Michael Neal says

          Your problem remains that you are casting this as either/or when it isn’t. Some existing pub customers will, indeed, continue to go to pubs if the prices increase. Some won’t. Raising prices is only effective if the former outnumber the latter by enough to offset the declining sales. But, again, whether the pubs offer a rationale for this is unlikely to have much of an effect on that calculation; consumers almost always don’t care whether there is such a rationale. So the probability of the pubs increasing prices doesn’t much change here. It would depend upon the pub, of course. Those that cater primarily to customers that order low priced drinks are significantly more likely to raise prices some because that’s always what will happen when more customers show up and the minimum pricing will more directly affect their clientele. But that’s less a matter of rationales than basic supply and demand.

          As for your second paragraph, all I can conclude is that you really have no idea what “at the margin” means because you still don’t seem to get that a marginal increase in traffic to pubs is likely from this and that will help to save them. And, if you are correct that this would allow pubs to significantly increase their prices, that, too, would keep more of them in business.

          Basically, your causes wouldn’t produce the effects you claim.

  2. Brett Bellmore says

    I have to say that I’m utterly indifferent to whether pubs continue to exist. I’ve never purchased anything but a sandwich in one, and found it an unpleasant place to have lunch, too boisterous to enjoy your meal in peace.

    I do, however, purchase cheap booze, at the supermarket. I don’t appreciate you setting out to make by beef burgundy more expensive in order to preserve an institution I don’t frequent.

    • Seriously? says

      Dude, if having the price of your 30-rack of Stroh’s go from $10 to $15 is going to break the bank, you’re probably drinking way too much, which is precisely the point. I seriously doubt that even the vilest of Burgundies would be affected under this scheme, although I haven’t checked the price of Franzia recently. The target here is more Thunderbird, which, if you’re cooking with that you probably do need to lay off the sauce.

      • Frank says

        Seriously?

        Two points:

        1. What’s the word?!? THUNDERBIRD!

        2. I understand the hate on Franzia. But box wine is upscaling like crazy of late. I tried some at a fancy grocery store in DC; it was pretty good.

        Frank

    • Laertes says

      I’d be surprised if the minimum pricing plans on offer had any effect on the retail price of the wine you’re cooking with if you’re taking your beef burgundy at all seriously.

    • Grumbles says

      “Tax the hell out of meat, I don’t eat it, so I don’t care. I got mine, Jack. But a general protein tax? You can have my tofu when you pry it off my cold, dead wok!”

  3. Frank says

    Keith,

    Wouldn’t higher alcohol taxes (applicable to both bar and supermarket alcohol sales) be preferably to minimum pricing?

    Just curious how this public policy question crumbles…

    Frank

    • Keith Humphreys says

      You don’t have to choose, you can have both. Ad valorem taxes do not deter purchasing when the price drops enough, as the experience of legalized marijuana is likely to show. Indeed, one way to ensure some reasonable tax revenue is to set a floor price.

      • Frank says

        Keith,

        I guess I would much rather have higher taxes than minimum pricing, since the former would be a good way to generate revenue and reduce worse taxes elsewhere, where in minimum pricing the increased costs have a less desirable incidence.

        I think Australia does a lot with alcohol taxes, although I don’t know if they enforce minimum pricing…

        Frank

        • Anonymous says

          While there’s nothing wrong with generating revenue, I think the main purpose of a “sin tax” should be to reduce the externalities associated with the sin. The minimum price allows policy makers to do that. It’s a good idea.

        • Keith Humphreys says

          Frank: Why choose between the two? And don’t forget an unique advantage of minimum unit pricing — it targets the purchasing of truly heavy drinkers (heavier drinkers favor low cost beverages, paying about 80% less per unit consumed) whereas a tax falls on everyone.

          • byomtov says

            But the tax could be based on alcohol content, rather than retail price, couldn’t it? US federal excise taxes on alcohol work roughly like that.

          • J. Michael Neal says

            Alcohol content is largely orthogonal to unit price. Taxing on that basis does not really target the lowest priced booze because at any given alcohol content you can find products at both the rock bottom and super premium end of the spectrum.

          • byomtov says

            JMN,

            I don’t understand what you are saying. It’s true that expensive beer and cheap beer may have the same alcohol content. But the guy who wants to drink a case is going to pay more tax than the guy who just wants a few, no matter their brand preferences. And the drinker who looks for higher alcohol content products isn’t going to save anything.

            In other words, while the tax does not inherently target the lowest price booze, it does target the heavy drinker.

            Maybe we have no disagreement.

          • J. Michael Neal says

            In other words, while the tax does not inherently target the lowest price booze, it does target the heavy drinker.

            Only in the same sense that any tax at all on alcohol will target the heavier drinker. It could be by volume, alcohol content, color of the bottle, whatever. What minimum pricing does is focus specifically on the types of alcohol that heavy drinkers tend to buy a puts the cost almost exclusively on those. So if the goal is to target the heavy drinker, minimum pricing is more focused.

            It’s also worth noting that most of the minimum pricing schemes that have been mentioned are built such that a seller must charge at least the minimum amount per unit of alcohol, so they are actually targeted on the amount of alcohol consumed rather than volume of liquid or price paid.

  4. Ebenezer Scrooge says

    You’re being way too kind to The Economist. It is little more than a big helping of neoliberal conventional wisdom, served with a large side-dish of intellectual arrogance. Every policy prescription of theirs is totally predictable, once you understand their neo-liberal faith is somewhat reality-based, unlike contemporary American “libertarianism.” It reads like it was written by a group of smart 26-year-olds, each one desperately trying to impress the other.

    If you want smart grownups, read the FT. The Times contains a lot of good stuff, despite its German-Jewish starchiness of style and its constant f-ll-tio of plutocrats and Brooklyn hipsters. The WSJ will take a long time to destroy, although Murdoch is working hard at it. If you read those, you don’t need The Economist. Me? I stick with the blogs and Jon Stewart.

    • Keith Humphreys says

      I do read the FT, excellent paper. I assume you realize that they are of a piece. I think one of them owns a big chunk of the other, though I can’t remember which is which.

      The Economist in my view has more comprehensive foreign reporting than any other newspaper; also outstanding coverage of British issues. And it’s also got an impish sense of humor.

    • Grumbles says

      You don’t have to agree with the policy to enjoy well reasoned, interesting articles. Sure, Stewart is great, but when is the last time he spent the equivalent of 32 pages surveying a country you’ve never been to?

      Yes, the Economist is absolutely, resolutely dumb on policy, frequently. It is still great.

  5. EST says

    Minimum pricing sounds like decent idea. One problem I see (I guess this depends on the city you live in) but do we really want to drive people to pubs or bars to drink? In my city that means driving a car, so I would rather a heavy drinker or set of drinkers do there partying at home. So is that a potential cost, and is there any evidence yet of how this changes drinking and driving? Maybe the overall decrease in drinking will balance it out?

    • Keith Humphreys says

      @EST: I would say yes, we want people to drink in pubs presuming they are going to drink at all. The late Ron McKechnie did some wonderful work on this. Pubs constrain abusive drinking and are a good place to learn how to drink moderately. In your village pub, you are in a neighbor’s house (pub = public house), kids may be running around, grandparents are there too, people you know. That socializes in a way that downing a quarter of hard cider in your living room does not.

      • KLG says

        Which brings up something tangentially related. Raising the drinking age from 18 to 21 did not stop students from drinking in Athens, Georgia. But it did drive it underground, where no effective socialization moderated consumption. Back in my day, which spanned the change, there were plenty of drunk students about, but I never heard of one case of alcohol poisoning caused by some dumbass chugging a pint of cheap bourbon with his fellow dumbasses in his dorm room. And we could walk, or stagger, to all the large clubs that died with the increase in legal age.

        • J. Michael Neal says

          When I was a freshman/sophomore at the University of Minnesota it was right after the drinking age had been raised. Enforcement was somewhat spotty, especially in the dorms. What I thought was even better, though it has of course since disappeared, is that there was a bar about three blocks from my dorm that served nothing but 3.2 beer. They never carded and I assume that they had a tacit agreement with the Minneapolis police that they would never be raided.

          I thought that was a great idea for letting kids drink with the training wheels on.

  6. says

    1. Minimum alcohol pricing IS a windfall for producers because it increases the profit margin on their product. For it to be otherwise, you’d have to show a dramatic decrease in sales to offset that margin increase, and alcohol just isn’t that price-elastic.
    2. Maybe in the UK, people stay at home and drink if the price of alcohol is significantly less in grocery stores than in pubs, But in my experience, that’s never been the reason people go to pubs. It’s a social activity.
    3. Minimum alcohol pricing is a way of saying that poor people are incapable of choosing wisely for themselves and should therefore be guided by their wealthy betters. Of course, the likely result is that the poor recreational drinker will choose not to drink at all, while the poor abusing drinker will now spend a larger portion of their limited income on alcohol.

    • paul says

      On the contrary, minimum pricing is a way of fixing the incorrect signals currently delivered by a distorted market. It internalizes the costs of alcohol consumption that are currently borne by the public at large. Ideally, it would be matched by an excise tax that returned the internalized costs to the public, but for now we’ll settle for returning it to shareholders and employees and government in somewhat less-than-optimal distributions.

    • Anonymous says

      Any tax on anything hits the poorer purchasers more. But that doesn’t mean things should not be priced at their social cost.

      • Keith Humphreys says

        @Anonymous: Remember that the poor have the highest rate of abstention from alcohol and that the extrenalities of heavy use which taxes and MUP reduce(e.g., crime, property crime) are born by poor people.

        • Anonymous says

          That’s probably right. But the other thing about a tax is that despite what Pete says, it actually preserves freedom. We have high cigarette taxes in California. But if a poor person really wants to take the risk and smoke, he or she can, and I am sure many do. It does force trade-offs, and those trade-offs are going to hit poor users harder, but the only way policymakers could possibly avoid that sort of trade-off entirely is to give up any attempt to use pricing to account for externalities, which is ridiculous. All sorts of policies, from carbon taxes to the tort system, are based on the idea that the price of an activity should include the costs it imposes on other people. I don’t think Pete has made any sort of a case that society should not do this.

          • Brett Bellmore says

            A tax preserves freedom relative to an outright ban. But then, a stiff dose of influenza preserves health relative to a bullet through the brain.

            Shouldn’t the basis for declaring something preserves freedom be doing nothing, not doing something worse.

    • Keith Humphreys says

      @Pete

      1 The opposite of what you assert has already been demonstrated, see links, evidence trumps opinion (on this site anyway)
      2 Personal experience is not a sound basis to set national policy
      3 You equate being poor with being a heavy drinker. That’s a stereotype with no factual basis, the poor have the highest rate of not drinking alcohol at all.

  7. ResumeMan says

    So what IS this minimum we’re talking about? What is the proposed price, and what is the stuff going for now? In rough equivalent of USD if possible. Is it $1/drink? That’d make a sixer of Bud awful expensive. $.50? What does the Thunderbird alluded to upthread go for?

    • Keith Humphreys says

      The Scottish government passed a law at 50p per UK unit of alcohol (= to a typical half pint of beer), though the alcohol industry is now suing them at the EU level to try to stop it.

      • SamChevre says

        So translating, that’s about $1.50 for a 12-oz Bud. That would make the minimum price on bourbon about $25 a bottle if I’m calculating correctly–twice the US price for decent branded bourbon (Jim Beam or equivalent).

        That’s an extremely high minimum (approximately 2x the price of branded bourbon in a VA state store, 3x the US price for Bud in a supermarket, 5x the price of cheap beer.)

        A minimum at 1/3 that level would mean the current price for branded beer and branded bourbon was the minimum–that would seem a lot more reasonable.

    • Keith Humphreys says

      So do I. What I don’t love is one million alcohol-related assaults a year in the UK, clogged A&Es and unsafe streets on weekend evenings.

  8. Josh says

    Assuming this actually would shift drinking from private homes to public spaces, wouldn’t it also likely create certain undesirable policy consequences, such as increased DUI?

    • Keith Humphreys says

      @Josh: The link for the evidence submitted to Parliament reference the Sheffield group’s Lancet piece, which models the net effects of all likely impacts. That includes a drop in deaths, injuries and emergency room use.