Protectionist Law Proposed In New York Would Hit Wine Consumers Hardest

by Michelle Minton on April 8, 2013 · 3 comments

in Deregulate to Stimulate, Nanny State, Personal Liberty

While most states are desperately trying to figure out ways to encourage business development and reduce the cost of consumer goods, New York is considering a proposal that would benefit one particular group of large businesses at the expense of smaller outfits and consumers. The reason, it appears, that lawmakers are considering the proposal is because those large in-state businesses set to benefit from the law changes donated very large sums of money to those very lawmakers.

“At-rest” laws, which require alcohol being shipped from out-of-state spend 24 hours in a distributors warehouse in the state where it is to be sold (sometimes for up to three days) are an effect of the mandatory three-tier system that separates alcohol producer from retailers by forcing both to use a middle man. As I have stated in the past, wholesalers can provide and invaluable service for both retailers and alcohol producers, but by making their use mandatory it has given that middle tier an immense amount of control over the market and with it power and money. Over the decades, wholesalers have been able to buy or pressure their way to favorable laws. For example, 33 states have these “at-rest” laws which really serve no greater purpose than to act as a way to protect in-state wholesalers from out-of-state competition and raise costs (and thus the prices) of out-of-state alcohol. Now, New York is reportedly considering adding this provision to its alcohol control laws. Why? As others, like Walter Olson over at Cato have noted, the only explanation seems to be that large in-state wholesalers donated thousands of dollars to lawmakers in order to convince them to get on board — State Sen. Jeff Klein (D-Bronx), who is pushing the proposal, S3849, received no less than $33,000 from Empire Merchants, a distributor that already has warehouses in New York.

Small and out-of-state wholesalers are up-in-arms about the proposal, claiming that the cost of buying or leasing warehousing space in New York could put them out of business which would reduce the choices for consumers in the New York market. Furthermore, for those that manage to survive the change, the increases in operating costs would necessitate an increase in the prices they charge to consumers. According to wine writer Jesse Nash, the new requirement could add $7 or $8 to bottles.

As noted by Tom Wark at Senator Klein’s office brushed off accusations of bribery, claiming that the Senator supports the bill only as a way to create jobs. Of course, as Wark points out, even if Empire and Southern Wine & Spirits hire some of the employees that will lose their jobs as small wholesalers go out of business, it’s unlikely they’ll be able to hire all or even most of those displaced workers.

Despite the lip service to job creation, the purpose and motivation of this bill are fairly obviously. Lawmakers are doing what they have done for the last century; acting as the puppet to one of the most powerful lobbying groups in our nation. As Wark so eloquently put it:

The truth is this: Wine, beer and liquor wholesalers across the country, particularly the larger ones, are the biggest rent seekers in America. They have for decades continually lobbied for and paid for legislation that diminishes competition, hurts others in the industry, and hurts consumers but allows them to continue to stay in business when Economics 101 tells us that their simplistic services would not be used nearly as much as they are today if they did not hide behind the skirts of the lawmakers they support and who in turn mandate the use of wholesalers.

A similar bill went through the legislature last year (though it did not have the support of Klein), but meetings between industry and legislators resulted in convincing lawmakers that the issue wasn’t worth pursuing. Let’s hope, for the sake of discerning New York wine connoisseurs, that we get a similar outcome this time around.

R. Johnson April 10, 2013 at 1:47 pm

Does New York have a gallonage tax on alcohol? If so, how does the state collect it if it’s shipped straight to retailers or consumers? The “honor” system? Good luck with that. It’s been proven throughout the world for more than a century that liquor taxes will not be paid if a strict regulated system is not enforced.

But, too many state legislatures seem to be falling for the simplistic argument that liquor is like any other consumable product. De-regulation (regulation can only occur if all tiers are licensed and regulated) will eventually cause great harm to the liquor industry at all levels and the consuming public will suffer greatly. History will simply repeat itself.

But the “free enterprise” crowd promotes the idea that the “free market” will be best for consumers. However, that crowd never explains how quality, purity, label accuracy, tax enforcement will occur. Apparently, that will happen by magic; similar to the idea that Wall Street can self-regulate and be trusted not to destroy the world’s financial fabric.

This naiveté simply chooses to ignore the remarkable human tenacity to hold onto greed as a primary human motivation. Our wise forefathers understood the perfect intersection of the physically addictive qualities of alcohol and the morality-numbing human addiction to greed; greed of money and the things money can buy including power.

The “free enterprise” crowd either can not comprehend or simply ignores the fact that uncontrolled greed will destroy any society. The “free market” is a euphemism for uncontrolled, unregulated greed. The intersection of greed and unregulated alcohol can destroy a society more quickly than any other product. (That’s why it’s the only consumable addressed by our Constitution…)

Michelle Minton April 12, 2013 at 10:33 am

The “free enterprise crowd” is the only crowd that really recognizes the significance of human greed. We understand that greed, because it is human, isn’t limited to the marketplace and businesses; it’s also present in the bodies that regulate markets. The difference is, in a free market when greed results in negative outcomes for consumers, consumers have a way to act by either suing the makers (in the case of false advertising/bad products) or simply not purchasing their products anymore. When greed corrupts the regulators (e.g. favor trading) there’s very little that consumers can do about it.

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