Thornton on Cook, _Paying the Tab: The Costs and Benefits of Alcohol Control_

[eh.net-review at eh.net]

Published by EH.NET (April 2008)

Philip J. Cook, _Paying the Tab: The Costs and Benefits of Alcohol 
Control_. Princeton: Princeton University Press, 2007. xiii + 262 pp. 
$35 (cloth), ISBN: 978-0-691-12520-6.

Reviewed for EH.NET by Mark Thornton, Ludwig von Mises Institute.


Philip Cook does not offer us an economic history here, but his book 
should still be of interest to American economic historians and 
anyone interested in addiction, alcohol and related problems. He ably 
reviews and dissects an extensive literature to make the case for 
additional alcohol control policies. Despite its scientific focus, 
Cook is openly normative and the Duke University economist opens his 
book (p. xi) with the remarkable statement that "an important remedy 
has been neglected -- the systematic regulation and taxation of the 
[alcohol] industry." When one looks back at the history of 
experimentation with alcohol policy in America, this statement seems 
both remarkable and curious. Have we perhaps left some stone unturned?

Chapter 2 recaps the history of alcohol reform policies and their 
inevitable failure. Some attempt is made by the author to make the 
case for Prohibition (i.e. the Eighteenth Amendment) in that 
estimates of alcohol prices, consumption, and abuse showed small 
gains. This seems quite implausible given that people could legally 
make their own wine and beer at a much lower monetary cost than 
before Prohibition. Given all the social problems that Prohibition 
created, it is difficult to consider it a success. This chapter does 
demonstrate that the "public choice" considerations cannot be ignored 
because they seem to have dominated policy throughout American 
history.

One thing that did come out of Prohibition was the Alcoholism 
Movement that sought to understand and treat alcoholism. Early 
scientific efforts moved the blame from the product (i.e. alcohol) to 
the disease (i.e. alcoholism) much in the same way as the earliest 
temperance movement. This time period also witnessed the emergence of 
Alcoholics Anonymous which has grown to become the most successful 
and widely used treatment method. Cook also covers other treatment 
approaches that have emerged on the market, but rightly cautions that 
alcoholism is not the sum total of the alcohol problem.

In Chapter 4, Cook puts drinking in quantitative perspective noting 
"a variety of pitfalls" and "that what we most want to know is the 
hardest to measure reliably." It seems in general that heavy problem 
drinkers consist of about 10 percent of the adult population. The 
empirical problem is how to identify and reform "problem" drinkers -- 
drunk drivers, binge drinkers, and those who just drink too much and 
ruin their own health. Another problem noted by Cook is that "it is 
unlikely that any available intervention (short of rigorously 
enforced rationing) would truncate the distribution in this fashion."

Anyone who has been at an "open bar" and "cash bar" event at the same 
location and with the same attendees knows that the law of demand 
applies to alcohol and in Chapter 5 the author reviews the attempts 
to empirically prove this fact. The evidence does indeed show that if 
drinking alcohol is made more expensive -- whether by higher prices 
or other means (e.g. strict drinking and driving laws) -- people will 
drink less.

Chapter 6 investigates the short-run consequences of drinking, such 
as vehicle accidents and violence. Obviously alcohol and injuries are 
related, but here the author examines the proportion of injuries that 
should be attributed to alcohol. For example, drunk drivers tend to 
be "reckless" people in general and to get into more fatal crashes 
_even when sober_. The studies examined here suggest that higher 
prices for alcohol would result in fewer injuries, but he neglects 
the work by Benson, Mast and Rasmussen (1999a and 1999b) on this 
subject, which finds that the impact is probably much less than 
currently thought.

In Chapter 7 the long-term effects of alcohol consumption are 
examined. It seems clear that long-term heavy consumption leads to 
cirrhosis of the liver and death and yet moderate adult consumption 
extends life by preventing circulatory diseases. The author does 
challenge the "French Paradox" thesis -- moderate red wine drinkers 
live longer than teetotalers -- on a couple of points. However, by 
this point I became completely disillusioned at the possibility of 
empirical testing such health matters. When you combine knowledge of 
how these studies are funded, with the inherent difficulties in such 
testing, one can only conclude that you have to take all these 
studies with a grain of salt.

The bulk of the book is an attempt to convince the reader that 
alcohol is a social problem in this country and it succeeds in this 
task. The second task of the book seems to be to convince the reader 
that alcohol taxes reduce alcohol consumption. On this issue I am 
likewise convinced. The third task is to make the case that higher 
excise taxes on alcohol will help address the problems of alcohol 
consumers. On this point I am not convinced. Taxes apply to all 
consumers, not just those who cause problems and therefore are too 
blunt an instrument to solve problems in anything other than a 
marginal manner.

The author believes that a small tax will have a small impact and a 
large tax will have a large impact. I believe that a small tax will 
have no impact on problem drinking and that a large tax would 
stimulate substitution and an underground economy in alcohol. Higher 
alcohol prices drive people to substitute some prescription 
medications, legal substitutes and illegal substitutes, for some 
alcohol. In addition, large tax increases would stimulate the 
underground economy for alcohol products. There are a surprising 
number of people who are already making homemade beer and wine and 
that number would balloon with significant tax increases.

The final chapters discuss policy options. At this point it is clear 
that the author has committed one crucial error of omission in that 
he almost completely neglects non-governmental approaches to the 
problems with alcohol. Taxes, regulations, and restrictions are 
considered and evaluated but market and social solutions are 
downplayed and the moral hazard created by the social safety net is 
completely ignored. For example, in today's society medical and 
emergency room services are provided to everyone, even illegal 
aliens. As a result people can behave recklessly and know that their 
injuries will be addressed. The government also provides welfare, 
food, unemployment insurance, and disability payments in its 
comprehensive safety net. People would behave differently if they 
were totally dependent upon employers, private charities, family, and 
social institutions and had no access to government provided or 
mandated benefits. Social institutions would be stronger and more 
important and people would fear being alienated, stigmatized, or 
ostracized from such institutions.

The market carefully monitors people's behavior with a wide body of 
mechanisms. Employers now effectively forbid employees from drinking 
on the job or prior to coming to work, especially for jobs such as 
airplane pilot. Labor law restricts their authority in these matters. 
Problem drinkers are also forced to pay a heavy price in terms of 
lost wages and fewer promotions, but the safety net diminishes the 
effect of this punishment. Tax-advantaged, employer-provided 
comprehensive health insurance is no check on alcohol consumption -- 
it encourages it, but individually-purchased health and life 
insurance coverage in the market would discriminate against smokers 
and problem drinkers, just as auto insurance companies discriminate 
against drunk drivers today.

This is not to suggest that such a radical change in policy is likely 
to happen, but it does suggest that additional government 
interventions are unlikely to solve the problems in an effective way 
and that such interventions will have "unintended consequences." 
Furthermore it does provide an outline of policy reforms that could 
provide marginal benefits at low cost. The market works because it 
directly targets the bad behavior associated with irresponsible 
alcohol consumption.

References:
Bruce L. Benson, David W. Rasmussen, and Brent D. Mast, "Deterring 
Drunk Driving Fatalities: An Economics of Crime Perspective," 
_International Review of Law and Economics_, Vol. 19, No. 2 (June 
1999): 205-25.

Brent D. Mast, Bruce L. Benson, David W. Rasmussen, "Beer Taxation 
and Alcohol-Related Traffic Fatalities," _Southern Economic Journal_, 
Vol. 66 No. 2 (Oct 1999): 214-49.


Mark Thornton is a Senior Fellow of the Ludwig von Mises Institute 
and the Book Review Editor of the _Quarterly Journal of Austrian 
Economics_. His works include _The Economics of Prohibition_, 
_Tariffs, Blockades, and Inflation: The Economics of the Civil War_ 
with Robert B. Ekelund, Jr., _The Quotable Mises_, and _The Bastiat 
Collection_. He is currently working on a new English translation of 
Richard Cantillon's _Essay on the Nature of Commerce in General_ 
(1755) and a book on Cantillon's _Essay: New Discoveries from the 
Founder of Economic Science_.

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