February 8, 2018

QotD: Minimum prices for wine, a thought experiment

Filed under: Economics, Quotations, Wine — Tags: , , — Nicholas @ 01:00

Consider this hypothetical (which, given the poor quality of today’s punditry and publicly discussed economics, is not as far-fetched as it might at first seem): Ostensibly to help raise the incomes of hard-working vintners of low-quality wines – vintners many of whom have children to feed and sick parents to care for, and many of whom also are stuck in their jobs as owners of low-quality vineyards – Congress passes minimum-wine-price legislation: no wine may sell for any price less than $1.00 per fluid ounce. Roughly, that means that the minimum price of a standard-sized – 750ml – bottle of wine becomes $25.00. Armed officers of the state will use deadly force against anyone and everyone who insists on disobeying this diktat.

If proponents of the minimum wage are correct in their economics, then the only effect of this minimum-wine-price diktat will be distributional. Consumers – including retailers and restaurants buying from wholesalers – will continue to buy as much wine, and the same qualities of wine, that they bought before the diktat took effect. The only difference is that, with the diktat in place, owners of low-quality vineyards earn higher incomes, all of which are paid for by consumers who dip further into their own incomes and wealth to fund this transfer. Easy-peasy! Problem solved!

But who in their right mind would suppose that a minimum-wine-price diktat would play out in the manner described above? Who would not see that a wine buyer, obliged to pay at least $25 for a standard-size bottle of wine, will buy only higher-quality wines – wines that before the diktat took effect were fetching at least $25 per bottle (or some price close to that)? Many wine buyers who before the diktat were confronted with the choice of paying either $8.99 for a bottle of indifferent but drinkable chardonnay and $25.00 for a bottle of much more elegant and enjoyable chardonnay opted for the less-pricey bottles. They did so not because they prefer to drink chardonnay that is indifferent to chardonnay that is elegant – they in fact do not have this preference. Rather, they did so because the greater elegance of the pricier chardonnay was not to them worth its higher price. So the low-quality chardonnay found many willing buyers.

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-06-02.

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