David R. Henderson  

Tyler Cowen on Prohibition

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Tyler Cowen has written an excellent review of Daniel Okrent's new book, Last Call: The Rise and Fall of Prohibition. Cowen summarizes how the stars lined up in the late nineteen teens for prohibition to occur. One thing he misses, and I'm not sure whether Okrent does also, is a factor that, along with the influences he mentions, made Prohibition easier to implement. That factor is that a milder version of Prohibition was enforced by the federal government during World War I. Robert Higgs, in his book, Crisis and Leviathan, discusses this. Higgs points out that when price controls were imposed on grain during WWI, causing shortages, it was hard to justify using grain to produce alcohol. So the feds banned the use of grain in alcohol.

Also, Cowen misses the public choice aspect of drug prohibition when he writes:

You also need to consider whether drug dealers and users will ever achieve enough social respectability to support a change in regime.
Drug users? Sure. But drug dealers? No way. The vast majority of them want some degree of illegality because, as I have written elsewhere [part of it is quoted halfway down in Jack Shafer's article in Slate], having drugs illegal enhances the return to their illegal skills. This is Bruce Yandle's justly famous "Bootleggers and Baptists" idea.

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CATEGORIES: Economics of Crime



COMMENTS (10 to date)
BucketofFried writes:

It depends on which group you are defining as "drug dealers." Generally speaking, those entrepeneurs that have a very high risk tolerance would indeed support prohobition as they have no issue with assuming high levels of risk if it earns inflated returns. If you define the relatively lower risk tolerant entrepeneurs (think Anheuser Busch and Seagrams) as the drug dealers, then they would support repeal.

In terms of the specific case, we are only hearing from the high risk group. Why haven't we heard from the low risk group? Becasue they haven't had a chance to form yet since it's not legal (in its entirety). Do we really think the bathtube gin distillers in the 20s were the same people managing legal corporate distilleries in the 30s?

John Szydlo writes:

Coincidentally, this post falls upon the 494th anniversary of the Reinheitsgebot. Of course, the decree only applied to commoners' beer.

http://www.wired.com/thisdayintech/2010/04/0423deutsche-reinheitsgebot-german-beer-purity-law

BucketofFried writes:

Despite popular opinion, the Rheinheitsgebot was bad governmental regulation. While it's held up as an example of German commitment to quality, it was the vehicle that introduced a culture of boringness and lack of creativity among German brewers. Contrast the homoganeity of German beers with the diversity of Belgian beers. Although it's no longer binding, the culture it fostered lives on. Many great German beer styles either died out or almost died out because of it.

Contra the Wired article, I don't think most craft beer enthusiasts give a rip if a beer complies with the Rheinheitsgebot, especially given the enthusiasm for many Belgian beers and American craft beers that would not come in sniffing distance of passing its edicts.

However, thanks for the link John Szydlo.

ThomasL writes:

Prohibition is interesting on several levels. One, often overlooked, is that it was the last time that when the government wanted to ban something they did it the "right" way.

That is, Prohibition went through the torturous process of amending the Constitution, with all the congressional votes, state approval, etc. that an amendment entails. Every time something similar has been done since, the USG has simply asserted it already possessed whatever authority it needed--it had just chosen not to exercise it before.

Another is the disobedience that results when a law is [legitimately] passed but which a large percentage of the population regards as illegitimate by its nature.

I think the latter may have some lessons for the modern day, particularly since much of what is done now lacks anything like the aura of legitimacy that a constitutional amendment would have had.

spencer writes:

Are you really trying to tell me that legal alcholic beverages disapeared during WW I?


Do you have another source on this besides Higgs?

David R. Henderson writes:

@spencer,
No. I'm not. Read what I wrote.

Jim Glass writes:

One thing he misses ... made Prohibition easier to implement. That factor is that a milder version of Prohibition was enforced by the federal government during World War I.

More than that: Most of the states in the USA had already banned alcohol, with state-level prohibition, before the feds acted.

So Prohibition was already in effect for most of the country before constitutional amendment. The fact that it was already in effect across most of the nation, via victorious political bases in most of the states, surely made it a lot easier to enact at the federal level.

It also made things easier for the bootleggers -- they had spent decades ramping up, gradually building the illegal alcohol industry. With all the crime and violence that accompanied it building up too. (See the Portland Rum Riot of 1855 that followed Maine's enactment of prohibition.)

As it happens, I just learned this today from a two-hour documentary on Prohibition on the History Channel. I'd had no idea. Cable TV really can be educational!


Pandaemoni writes:

The premise that the "vast majority" of drug dealers want to keep the trade illegal to protect their artifically high profits is somewhat at odds with the notion recounted in Freakonomics that the typical drug dealer does not earn that much money, than his ultimate bosses capture the lion's share of those gains, and the lower levels (who should be the "vast majority") earn, in effect, very low wages.

What might keep then in line with the prediction nevertheless is the hope that some day they might rise to teh upper eschelon of their organizations, where the higher profits can be reached. Of course, under that model, for most of these lower level dealers, those premiums will never be obtained.

Jim Glass writes:

I haven't read Okrent's book, but having now read Cowen's review I have some issues with one or the other (whether the book or review I can't say).

First, since most of the US had aleady gone dry with state-level prohibiton during the prior 64 years, one can hardly describe the US as suddenly going "cold turkey" when the 18th Amendment took effect in 1920.

Also, the large number of state enactments before 1913 puts a crimp in the argument that "The introduction of the income tax made Prohibition fiscally feasible". All that revenue had already been lost, apparently feasibly enough, before there was any income tax.

Prohibition did work largely as intended. Alcohol consumption quickly fell to 30% of its previous level; by the time of repeal it was still no more than 70% of its pre-Prohibition level ... the U.S. didn't return to pre-Prohibition levels of per capita consumption until 1973.

Alcohol consumption per capita was five times today's level in the 1850s, when the state-level bans started being enacted -- and it has never returned to anything close to the level it was then. Measuring its fall from 1920, when most states were already dry, is misleading.

It's easy to think of the Temperance Movement back then as being crazed Puritan populists seeking to deprive average people of their fun, who somehow got their hands on the levers of government -- but it's important to remember that with 5x our drinking levels the alcoholism problem they were reacting against was far, far worse than anything we've experienced. Alcohol-related disease, crimes, family abuse, even child acoholism, were endemic. This was a popular movement that grew and succeeded politically at the state level steadily over a period of more than 50 years.

As to why alcohol use was so massive back in the mid-1800s when the movement began, and why it never recovered to anything close to that level after the repeal of Prohibition, I'd suggest two causes: health and entertainment.

In the mid-1800s water was not much more safe to drink in the US than it is in the third-world today. It sickened and killed people. Bad water has driven alcohol consumption from the beginning of history. (see the Pilgrims landing a Plymouth Rock because the Mayflower ran out of beer, George Washington's beer recipe, King Henry VIII drinking 10 pints of ale a day because water wasn't safe even for the King, etc., back to the Egyptians).

As to entertainment back then ... well, no exciting blogs to read. Nor television, radio, movies, or pretty much anything else for the working classes. What to do for fun? Get together and drink! Every day.

After the repeal of Prohbition, 70 years later, it was a different world. Plenty of safe alternative drinks everywhere, and lots of inexpensive entertainment too. Drinking on such a massive scale just wasn't so attractive any more.

So did Prohibition really work "largely as intended"? Certainly the massive institutional corruption and disrespect for law it created -- even, especially!, on the part of law enforcement officials -- with all attendant costs, wasn't intended.

It did reduce alcohol consumption, and many related ills, but I'd argue that the reduction was coming over time anyhow due to societal advances, and the reduction due to Prohibition laws is probably not as large as the drop in raw consumption numbers might make one think. So I'd say Prohibition was a mistake and a failure.

But it is also important not to patronize the past, and appreciate that the Prohibiton movement was a broadly popular and widely supported response to a very serious social problem, existing then on a scale nobody today has experienced. It was far from the aberrational episode of populist crackpottery that many today imagine it to be.

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