Can craft brew industry success be repeated elsewhere?

Derek Thompson wrote a piece in The Atlantic on the immense success of the craft been industry of the last decade:

Between 2008 and 2016, the number of brewery establishments expanded by a factor of six, and the number of brewery workers grew by 120 percent. Yes, a 200-year-old industry has sextupled its establishments and more than doubled its workforce in less than a decade. Even more incredibly, this has happened during a time when U.S. beer consumption declined.

The boom has come in a time when overall been drinking is actually down:

Preliminary mid-2017 numbers from government data are even better. They count nearly 70,000 brewery employees, nearly three times the figure just 10 years ago. Average beer prices have grown nearly 50 percent. So while Americans are drinking less beer than they did in the 2000s (probably a good thing) they’re often paying more for a superior product (another good thing). Meanwhile, the best-selling beers in the country are all in steep decline, as are their producers. Between 2007 and 2016, shipments from five major brewers—Anheuser-Busch, MillerCoors, Heineken, Pabst, and Diageo, which owns Guinness—fell by 14 percent.

Thompson finds that much of the credit behind the success can be traced back to the repeal of prohibition, which included stringent laws against monopolies, which were seen as a thread to safe-drinking. This helped establish a three-level system of producers, distributors, and retailers.

By dividing the liquor business into three distinct groups, these state-by-state rules made the alcohol industry deliberately inefficient and hard to monopolize. “The great effervescence in America’s beer industry is largely the product of a market structure designed to ensure moral balances, one that relies on independent middlemen to limit the reach and power of the giants,” wrote Barry Lynn, the executive director at the Open Markets Institute, a nonprofit that researches antitrust issues.

If the U.S. had long ago allowed a couple of corporations to take over both the distribution and retailing of wine before the Napa Valley renaissance, Lynn told The Atlantic in an interview, Americans would be exclusively sipping three varieties of Gallo table wine. “The reason that didn’t happen 50 years ago is because you had this system that was designed to promote deconcentration, to incentivize [retailers] to go out and find the new, the different, the alternatives,” he said. “It was effective in achieving that aim.”

Thompsonsays there are 3 lessons to be learned here:

First, just as research shows that gargantuan companies are bad for innovation and job creation, the craft-beer boom shows that the burgeoning of small firms stimulates both product variety and employment.

Second, sometimes consumers have their own reasons to turn against monopolies—particularly in taste-driven industries—just as they are moving away from Budweiser and popular light beers toward more flavorful IPAs and stouts produced by smaller breweries.

Third, even in an economy obsessed with efficiency, sometimes it is just as wise to design for inefficiency. Alcohol regulations have long discouraged vertical consolidation, encouraged retailers to leave room for new brands, and more recently made it easier for individuals to introduce their own batch of beer to the market. Those are the aims the country should adopt at the national level, both to make it easier for small firms to grow and to make it harder for large firms to relax.

Arguing against efficiency seems counter-intuitive to progress. Then again, it’s also hard to make argument against an industry that has thrived like craft brewing. Can this model be repeated in other, less-regulated industries?

Read the full post Craft Beer Is the Strangest, Happiest Economic Story in America at The Atlantic

Universal basic income may have merits, but not a longterm solution for job displacement

On Bloomberg, Noah Smith writes about the ideas of a basic income for everyone. Opining that a universal basic income is something that “can unite socialists and Silicon Valley libertarians”, he cites one possible implementation of what effectively would be a guaranteed income:

One potentially helpful analog is the negative income tax. This is where a government guarantees you a certain minimum income, which it takes away gradually as you start earning more money on the job. Negative income tax  is not a basic income, since it’s not unconditional — the phase-out of benefits acts like an income tax, which economic theory says should discourage work. But it’s a good starting point for thinking about universal basic income, because if a negative income tax doesn’t discourage work very much, then a similarly sized UBI almost certainly wouldn’t.

Smith also cites one particularly apt example of a guaranteed payment in the way of the Alaska Permanent Fund, which has been found not to discourage people from getting jobs.

Economists Damon Jones and Ioanna Marinescu found an example of a truly universal, unconditional transfer — the Alaska Permanent Fund. Since 1976, a percent of the revenues from natural resource extraction in Alaska is paid out to all state residents. This acts just like a universal basic income. In research presented at the American Economic Association meeting earlier this month, Jones and Marinescu compared Alaska to other states, and found that the introduction of the fund had no effect on employment in Alaska (though interestingly, it did cause a small shift from full-time to part-time work).

This finding represents convincing evidence that a true UBI doesn’t discourage people from working — at least, if it’s small. The Alaska Permanent Fund dividends are usually about $2,000 to $3,000 a year — not enough to live off of. A basic income of $10,000 or $20,000 might look very different, however.

The merits of a universal basic income for certainly segments can be debated, but it’s certainly not a productive longterm solution for job displacement due to automation (or any technology). The cited study already found that a guaranteed income did not discourage those from looking for employment, and there’s no apparent reason it would be any different now. The key is developing those new jobs in a way that they aren’t continually obsolete.

Read the full post A Basic Income for Everyone? It’s Not a Crazy Idea at Bloomberg.com