The PA government reports on their liquor monopoly

The full report is here.

The Commonwealth Foundation does a nice job summarizing the report here.

One point they raise is worth expanding:

• Of the $512 million transferred to the Treasury, a whopping 83 percent was simply tax revenue. Private stores would generate that same amount and more in taxes as outlets arise.

A couple points:

1. I understand the point the CF makes in their "profits vs. tax revenue" argument, but all the money the government makes on overcharging for this product could be classified as tax revenue.  Yet, since other firms have to pay sales tax into the state and don't get to call it profit, it is worth examining the pre-tax profits.

It is a sign of inefficiency that with a government monopoly on alcohol, the profits are only about $100 million across the entire state.  That's under $10 for every person in Pennsylvania.  I think Wal-Mart earned more in only Pennsylvania last year.  I wish we could claim the low profit's for the state were because Pennsylvania prices were lower, but prices here aren't low.  It's because of their inefficient operations.  Speaking of that ...


2.  Look at this organization chart, pulled from the report

I find this stunning and think about how much it must cost. I think the answer is on page 50, listed as "Central Administrative Support".  That totals $68.5 million.  That's outrageous.  Before you state: "but even if we privatize liquor, we'll need some support people in the government who we'll have to pay anyway", they already have an additional line-item for that.  (I think.)  There is a line for "Commonwealth-Provided Services" for $12 million.  Therefore, the $68.5 million is the administrative cost for the PLCB.

If liquor is privatized, prices would likely be lower, and with a slight increase in the tax rate (looks like about 15% more than the current rate), the state could keep making the same amount of revenue.  The overall price to consumers would likely fall, and firms would increase their profits.

An oped urging the left to support privatizing liquor, and other Assorted Links

1. The claim that Spanish productivity is low because they're in the wrong time zone.

2. Jayson Lusk's The Food Police now has a study guide!

The book was great, and the study guide is good too.  My 12-year old has the book but only read a bit before he stalled with it and stopped.  Perhaps I'll print the study guide for him.

3. A liberal discusses the benefits of liquor privatization (via Commonwealth Foundation).

This is a well-written piece explaining why those on the left should support private liquor.  I agree that this isn't a left-vs-right issue. Its a unions-buying-corrupt-politicians issue.

Fracking Links

1. Washington Post story on Democrats embracing Obamacare.

2. The consequences of low gas prices

3. Calling for loosening of endangered species laws.  (May need to use the cached copy).

These laws are ridiculous, overly burdensome, and give government bureaucrats at the EPA and elsewhere way too much power.  As we've seen, these government agencies will abuse their power way too often for this to be viewed as an unlikely outcome.

Review of The Social Costs of Fracking by Food and Water Watch

Food and Water Watch released a study on the negative consequences of fracking.

This study asks some good questions.  However, any study done by an organization called "Food and Water Watch" obviously isn't objective.  This organization actually would like to ban fracking.  I've only done a quick review, but I have a couple questions/concerns:

The authors claim:

1. "Fracking is associated with more social disorder arrests: Disorderly conduct arrests increased by 17.1 percent in heavily fracked rural counties, compared to 12.7 percent in unfracked rural counties."

Is this percentage increase controlling for the increase in population?  Heavily fracked counties would have greater population growth. With a greater population, you'd expect more disorderly conduct arrests.  Especially when they're young men.

That being said, I've heard anecdotal information of more bar fights in towns where there is a lot of fracking, so this wouldn't shock me if it holds, even after controlling for the population.  We don't have enough information yet to know, however.

The authors also claim:

2. "Fracking is associated with more cases of sexually transmitted infections: After fracking, the average increase in chlamydia and gonorrhea cases was 62 percent greater in heavily fracked rural counties than in unfracked rural counties."

Once again, does this control for the population of younger people of young men in the areas?  More younger people, more STIs, right?  Further, this seems to be a cost that is mainly borne by the individual who contracts the STI, right?  It really doesn't concern me whether a person has an STI, as that doesn't impose a cost upon me. Economists would call this a private cost.

Without controlling for the population, it could be that the percentage of these cases, while increasing, is increasing at a smaller rate than the population of young people!  It could be that fracked counties actually have a lower STI/population rate!  Further, what does a 62% increase mean?  It could mean three more people, right?  Or does that mean an additional 0.02% of the overall population?  The report doesn't explain.

Related to this, the authors of this study use actual numbers at times (reporting on driving crashes), but only display the percentages at other times (STIs).  This weakens their credibility.

I would also like to know what other factors the authors examined but found no social costs in "fracking counties"?  In theory, if the authors assess 40 items (like health outcomes, property values, etc.), and they could only find two or three where there were negative consequences, the social "costs" of fracking, might actually be better labeled as the social "benefits" of fracking.

I respect that this organization is attempting to answer tough questions.  Objective research on the costs/benefits is needed.  This organization isn't creating objective research, however.

Three fracking links

1. Energy companies giving up on NY.

I don't blame them.  Why try in NY when so many states are open to fracking?

2.  A call for a moratorium on new fracking permits in PA.  

and

3. A call for a 6-month moratorium on fracking in Arkansas.

For those proposing the moratoriums, I would like them to answer the question, "what specific results would cause you to advocate lifting the moratorium in the future?"  I fear that the response would be "that fracking is safe" or some similar answer without quantifying what results would make them think it is safe.  (Remember, 20 years after GM foods, there are plenty who advocate against this perfectly safe food process.)  This would allow them to continue the moratorium indefinitely.

My response to State Senator Daylin Leach

State Senator Daylin Leach wrote a letter to the editor in response to my oped calling for a repeal of the prevailing wage. You should read the whole thing (academic debate is good!), but I think Senator Leach's argument can be summarized by his statement here:

The problem with this argument, of course, is that it completely ignores the impact on the workers themselves. In fact, Mr. Rousu explicitly dismisses any legitimate interest workers may have in earning enough to support their families when he says "whatever wage we can pay in which someone will accept the work." In a recession, or a soft economy such as we have now, workers might be forced to accept work at wages below the poverty level. Their lives would be dismal and their families deprived of even the basics of life. But heck, we'd have more cheap buildings.

I think the Senator is wrong for two reasons.

1. I don't think there is one single case where the government didn't pay "enough to support their families" without a prevailing wage. I will use the definition of the poverty rate. Can anyone come up with a example where the pay by the government would mean a worker is in poverty? If you're thinking about trying, save your time, as you won't be able to. Let's suppose that the wage offered was $12/hour. This is lower than almost any government would pay (even without prevailing wage), but it allows us to analyze Senator Leach's position. A person working full time at this wage, with no overtime, will earn about $24,000 annually.

That is higher the poverty rate for even a family of four! (Link here.) So when the State Senator is talking about wages being low, it's all either a) a hypothetical possibility that hasn't happened yet, or b) it's related to some wage in the Senator's mind that is already higher than the poverty rate. But we can go a bit farther in our analysis. Our $24,000 annual income assumed a single-earner family. With a 2-person family that both earn this wage, you're at about the national average for annual incomes. Without the prevailing wage, we are nowhere near the poverty rate. Why should any government official have the power to choose which workers should be getting paid artificially higher than their market value, and which ones won't? This puts way too much power into the hands of government and invites corruption.


2. One would hope that an elected official's goal is to best serve his/her constituents. It should be to provide as much government service as possible for as low a price as possible. By supporting the prevailing wage, the Senator is arguing that taxpayers deserve fewer services so they can pay some members of society more money than others. This is government at its worst.


The prevailing wage should be repealed. State Senator Leach's arguments that workers will be in poverty without it is incorrect. Further, it gives elected officials way too much power to choose winners and losers, for crony capitalism, and for corruption.

PLCB privatization foes are getting desperate

Link to Philly Inquirer article here.

An excerpt:

"Social issues were front and center in the Senate Law and Justice Committee, with privatization painted as a harbinger of doom by a parade of testifiers who promised everything from an increase in crime and disease to higher rates of unemployment and prostitution.

And all, they said, because a private retailer would be allowed to sell a bottle of wine instead of a state-run establishment."

 

 

You can't make this stuff up.  How stupid do these "testifiers" think we are?  Almost every state in the US has private sales of beer and wine.  Are those states suffering from higher crime rates, more diseases, more prostitution, and more unemployment?  Of course not. 

 

Hopefully Pennsylvania's politicians aren't dumb enough to believe the hype.  Or, hopefully they've been to any other state in the US (not counting Utah) with less restrictive liquor laws.

 

 

More on Pennsylvania Liquor Control Board

1.  The American Economic Review had an article about the PLCB:

Volume 103, issue 2, 2013

Public Monopoly and Economic Efficiency: Evidence from the Pennsylvania Liquor Control Board's Entry Decisions pp. 831-62 

By: Katja Seim and Joel Waldfogel

It shows an interesting model (well, economists may find it interesting), but the conclusion makes it clear that this paper has no relevance to the current debate on whether to privatize.  

In the conclusion, the authors discuss how their model assumes that government run stores are as efficient as non-government run stores.  I.e., they don't assume the case where government stores are less efficient.  That's the main argument for abolishing the PLCB: that these stores are inefficient and it likely would take fewer workers to sell the same amount of beer and wine if there was more competition.  So ... while the paper has interesting models, it unfortunately has zero bearing on the current debate.

2. As you may recall, the PA house passed a bill to privatize liquor sales.  Now the PA Senate is considering the bill.  

3.  A nice (new) oped on the issue.  Here's my old oped on the issue.

Privatizing Liquor

Pennsylvania's liquor stores are government run.  It, along with Utah, are the only two states in the US with this type of control.

Further, in most grocery stores, you cannot buy beer.  Governor Corbett proposed ending this setup recently.  Link here to article.

From an economics point of view, this is clearly a move in the right direction.  (See my oped)  I find it funny, however, that news outlets ask the existing stores about how they will feel about increased competition.  Of course they'll dislike extra competition.  Is this really news?

Edit - the video doesn't always show completely here.  Follow to WNEP to see the video more-easily

My oped on PLCB privatization

Here's a link to my oped on PLCB privatization.  It ran in today's Harrisburg Patriot News.

It begins:

"Gov. Tom Corbett’s proposal to end the state’s liquor “monopoly” is a good thing. One of the basic principles of microeconomics is that for most products, government interference in markets creates inefficiency. 

If the Pennsylvania Liquor Control Board’s monopoly on alcohol sales is broken, Pennsylvanians should enjoy lower prices without having to cross state lines. Therefore, this plan should be good for society."

For more, follow the link.