Tuesday, July 03, 2012

Key's TreasuryLogic on alcohol

One of the basic rules of economics is that if you increase the price of something, people buy less of it. But not in the case of alcohol, according to the Prime Minister:

Prime Minister John Key says he is not convinced a minimum price for alcohol would work because it could force people to drink poorer quality liquor instead of drinking less.


He said it was uncertain what a minimum pricing scheme would entail: "Does it mean a supermarket couldn't loss-lead ... or does it mean that there's actually a minimum price for a unit of alcohol?"

Mr Key believed that if a minimum price were set, it would change the quality of alcohol that people drank, but not the amount.

"What typically happens is people move down the quality curve and still get access to alcohol."

Which I think tells us firstly that Key doesn't understand the concept of a minimum price (it is a minimum price per standard drink, which would basically double the cost of budget drinks like cask wine and discount beer; switching drinks doesn't escape it, because they're also subject to the same minimum price); and secondly, that like Treasury he is willing to deny basic economics when it serves his political goals (in this case, coming up with a reason to oppose a Labour party policy). He is both ignorant, and intellectually dishonest.

The evidence is crystal clear: the most effective method to reduce social harm from harmful products is higher prices. It works for tobacco. It would work for carbon (but instead the government subsidises pollution). It will work for alcohol. But that would mean that the booze barons make less money, and we can't be having that now, can we?