– July 25, 2020
prohibition

There’s an old Chinese saying that, “The higher-ups have measures. Those lower down have countermeasures.” America’s liquor laws, and the public’s creative efforts to evade them, consistently prove that adage true. 

When governments pass laws that defy common sense, people often find ways to work around them. That is a major theme explored in my latest book, Evasive Entrepreneurs and the Future of Governance: How Innovation Improves Economies and Governments. America’s crazy quilt of liquor laws, many of which are vestiges of the Prohibition Era, provide a particularly good example because such regulations create powerful incentives for people to behave evasively. When people want to enjoy a drink, they are likely going to find a way to get one.

Gotta-Eat-to-Drink Mandates

In the wake of the COVID lockdowns, some state and local governments relaxed liquor carryout and delivery laws to give bars, breweries, and distilleries a chance to weather the forced closings. Unfortunately, many of those laws also required those establishments to sell food as part of every transaction if they wanted to sell or serve drinks. The results were comical in many states as evasive entrepreneurs devised creative regulatory work-arounds to deal with these “gotta-eat-to-drink” edicts. 

For example, before I could purchase a couple of bottles of very expensive, rare whiskey from Jack Rose Saloon, my favorite bar in DC, I first had to order some french fries for a couple of bucks. I told the staff to just eat the fries themselves. A staffer there told me that many people did not even wait around for their food to come out. Like me, most customers just wanted to buy their fancy whiskey and go, regardless of a silly city law demanding we order some finger food. 

Meanwhile in Pennsylvania, establishments took more amusing steps to deal with the gotta-eat-to-drink mandates. The Liberty Street Ale House in Franklin, PA, offered a “Wolf Dog,” a $1 hot dog named in honor of Pennsylvania Governor Tom Wolf. A lump of cottage cheese was also an option, again for just one buck. Others offered a single potato chip or an onion ring for pocket change. 

Laws like this actually predated the lockdowns in many states. To get around silly eat-to-drink regulations in Indiana, a now-defunct brewhouse once famously offered an “Indiana Statutory Compliance Restaurant Menu,” which included a can of Campbell’s Soup or powdered milk—“with or without water.”

In New York, some establishments responded more angrily to New York Governor Andrew Cuomo’s recent mandates. Handshakes Bar & Grille, located in Hopewell Junction, NY, offered a special “C.U.O.M.O” menu, which they said stood for “Cuomo’s Unnecessary Obligated Menu Options.” The selections included “Cuomo Fries” or “Few Chips Off Your Shoulder” (tortilla chips) for $1. The Village Line, a bar in Kenmore, NY, took the opposition to another level. They offered a “F.*.C.K. C.U.O.M.O.” dollar menu that included a Flour tortilla, Utz potato chips, a Carrot stick, a Kiwi slice, Chocolate chip cookies, Unsalted nuts, Oatmeal cookies, a Meat slice, and a single Orange slice. In a more light-hearted gesture of indignation, the Lafayette Brewing Co. in Buffalo offered patrons a single piece of meat, a handful of croutons, or the “Smallest Piece of Cheesecake in Buffalo” to get around the rules.

Gov. Cuomo responded by doubling down on the state’s prohibitionary policies, saying in an June 21st Twitter announcement: “Let’s be clear. Outdoor dining is now permitted statewide. Outside drinking is not.” He said he would suspend liquor licenses for businesses that did not comply without explaining why dining outdoors was fine while drinking was not.

Apparently, Gov. Cuomo has never heard of the “compliance paradox,” or a circumstance when governments ignore human behavior and just redouble regulatory efforts. Those measures often fail to slow unwanted behavior and instead lead to increased legal evasion and additional enforcement problems down the road. Most establishments will just respond to the harassing rules by offering more silly food items for a buck or two to be compliant. 

The New York State Liquor Authority doesn’t want to hear it. It just released a guidance document attempting to clarify which food offerings will be in compliance with Cuomo’s latest order. But the guidance only creates more confusion and includes laughable answers to questions that establishments have asked. 

For example, in response to the question, “Can a patron order only a dessert item along with an alcoholic beverage?” the Liquor Authority responds: “Yes, so long as the dessert item is a substantial item, such as a piece of cake/pie, an ice cream sundae, etc.; it should not be only a drink with whipped cream, a cookie, a piece of candy, etc.” No word on whether Lafayette Brewing’s “Smallest Piece of Cheesecake” will be substantial enough to comply. Perhaps regulators will next promulgate precise measurements regarding what constitutes a “substantial piece of cake” and then send in inspectors to measure each slice. 

Meanwhile, at a press conference this week, Gov. Cuomo said that chicken wings did not constitute a substantial food item, even though the Liquor Authority guidance says they do! 

Presumably, once the Governor and his Liquor Authority are on the same page, every establishment will need to prominently post a long list of regulator-approved “substantial food items” versus verboten ones. 

Where does this insanity end? Apparently with questions like, “Must I force customers to eat a food item?” Incredibly, the Liquor Authority already has an answer to that question in its guidance document. “Food must be ordered and served,” the liquor overlords demand, but, “We cannot require you to force someone to eat what they have ordered.” Well, that’s a relief! But to be clear, the government is now forcing people to produce and sell food that many people have no desire to purchase or eat. It is a wasteful, stupid policy. 

History Repeats

What is the point of forcing these establishments to make and sell food when that’s not what they are in the business of doing? While we’re at it, why not make everyone buy a book or magazine to encourage improved public literacy? 

Gotta-eat-to-drink laws are almost as ridiculous, and efforts to evade them will likely continue. Indeed, laws like these have been tried—and failed—many times before. Even before Prohibition took effect, state and local governments were attempting to use taxes and regulations to discourage alcohol consumption. People found creative work-arounds every time. 

The most amazing example comes, once again, from New York. In 1896, New York imposed a new liquor tax that tripled the cost of an annual liquor license and imposed a variety of restrictions, mostly focused on Sunday drinking. The act was known as the Raines Law after its sponsor, NY legislator John Raines. 

Raines believed his law could help address the chronic abuses associated with existing state licensing regulations which he felt left too much discretion to judges or regulators. In an article for The North American Review, Raines argued that “The exercise of this [licensing] discretion, as is natural, results in abuses of various kinds, whether the power be conferred upon judges or upon excise commissioners.” He almost sounded like a modern public choice scholar when he wrote: “It is but natural that the trade should use every effort to protect itself, and so long as discretion can be exercised by any local authority, the effort will be made to control the power which designates or appoints the persons who are to limit or extend its rights, whether those persons be judges or excise commissioners.”

Amusingly, Raines apparently thought New York could avoid such rent-seeking shenanigans by simply having the legislature exert greater control over liquor and strictly define limits on sales. The legislature still needed to specify terms of compliance, however, and so began another cat-and-mouse game of legal evasion. 

For example, The Raines Law specified that only hotels or lodging houses with at least 10 rooms could serve drinks with complimentary meals on Sundays. Journalist Darrell Hartman notes that just days after going into effect, establishments found ways around the law by creating “Raines law hotels” and “Raines sandwiches.” “By the following weekend, a vanguard of downtown saloon-owners were gleefully testing the law’s limits” using private clubs, he notes. “[P]roprietors converted basements and attic spaces into ‘rooms,’ cut hasty deals with neighboring lodging-houses, and threw tablecloths over pool tables” to be in compliance with the law. Any establishment that wanted to serve liquor simply became a tiny hotel.

Also with each sale, bars would serve small “Raines sandwiches” made with substandard bread, meat, and cheese, but then would take the sandwich away and move it to another patron when they ordered a drink. “Some sandwiches were kept in circulation for a week or more,” or even made of rubber, Hartman notes. 

In essence, these are the same sort of games New York establishments are playing today in an attempt to counter Gov. Cuomo and his State Liquor Authority’s silly mandates. 

A Never-ending Cat-and-Mouse Game

Of course, once Prohibition made all alcohol sales illegal, far more rampant and creative evasion techniques began. The story of Prohibition is, in many ways, the ultimate tale of cat-and-mouse legal evasion—accompanied by massive criminality, of course. 

Even after Prohibition ended and booze flowed again, so too did many crazy state and local liquor laws. The rationales for these rules lie in the marriage of paternalism and economic protectionism. Many misguided and counter-productive regulations are disguised as “public health” or “consumer protection” efforts, even though they accomplish nothing of the sort. This is how many liquor laws have been sustained for decades. Because the rules work to the advantage of both moralizers as well as people seeking protection from innovation and competition, an unholy alliance of interests will line up to defend nonsensical liquor regulations and taxes. 

This is the famous “bootlegger and Baptist” model of regulatory politics that Bruce Yandle first developed in 1983. Unsurprisingly, Yandle’s model related to other silly liquor laws—Sunday laws and “dry county” laws. Plenty of states still have similar rules governing how and where booze gets sold. Yandle explained how anti-liquor moralizers (aka, the Baptists) work with their apparent enemies (aka, the bootleggers) to implement and enforce liquor restrictions. The Baptists think they are doing the Lord’s work, of course. Meanwhile, the bootleggers benefit by being protected from above-board competitors, who must first receive formal permits to operate. 

Confessions of a Teenage Bootlegger

It’s time for a confession: I once profited handsomely from such silly laws myself! A patchwork of radically inconsistent state liquor policies can lead to some interesting bootlegging behavior across state borders. People have routinely taken advantage of them, as I once did.

In 1987, I started college at Indiana University in Bloomington, IN. The first and most obvious thing I noticed was that, despite the school having a “dry campus” policy, underage drinking was rampant. That was not surprising, of course, since “the drinking-age law would surely be a winner in a competition for the least obeyed law” both then and now.

But the second thing I noticed my freshman year was how many out-of-state students were angrily complaining about not being able to get their favorite beer in Indiana. At that time, a handful of big brewers (Budweiser and Miller in particular) and their distributors had a cozy cartel in the state. Incredibly, they had convinced Indiana policymakers to limit competition from potential rivals like Coors through silly laws that regulated the sort of water used to make the beer. When out-of-state Coors fans came to college in South-central Indiana, they were angry about not finding their favorite beer on any shelf anywhere around them. 

I sensed a wonderful arbitrage opportunity because my hometown was actually near the Illinois-Indiana border and I was able to easily get Coors whenever I drove back home. Thus began my brief career as a teenage bootlegger. Whenever I drove back home to see family or friends, I would drive over the border with someone over the age of 21 and purchase as many cases of Coors and other “illegal” beers as I could fit in my Mustang. I would haul those cases back to Bloomington and sell them for a markup to all my “customers.” My bootlegging business grew fast and I made enough cash doing this in 1987 that I was able to cover the entire cost of expensive tickets to see Pink Floyd and U2 in concert just one week apart and sit within the first 20 rows each time. Thank you, ridiculous government laws. 

I was breaking the law, but so what? The law was absurd and everyone in the state knew it. People were being denied their favorite beer because of a protectionist racket enforced on bogus moralistic grounds. Eventually, Indiana changed the law and allowed expanded beer competition in the state so that Coors and others could come in. But even today, a lot of dumb liquor laws remain on the books in my old home state and many others. 

These laws are particular idiotic in jurisdictions like my current home state of Virginia, where the government owns the liquor stores and forces us to go to multiple establishments to get our beer, liquor, and wine. Meanwhile, just a few miles north of me, Maryland offers another completely different set of rules about where, when, and what sort of liquor can be purchased in stores. Just across the border in the District of Columbia, a mostly free market prevails, and you can get almost any type of alcohol you want in a single liquor store. There is absolutely zero consistency or logic to any of these rules. There is also no proof that the more regulated, state-controlled approach in Virginia has done anything to improve public health outcomes relative to the less restrictive approaches in Maryland or DC. 

Signs of Hope

While plenty of dumb liquor laws remain in effect, the flexible carryout and delivery policies announced in the wake of the lockdown have proven extremely popular. In Northern Virginia, I can now get beers shipped directly to my doorstep from my favorite brewery in Richmond, VA, saving me a 3-hour round trip. Local breweries also have invested in delivery trucks to offer same-day or next-day beer delivery services. This is a great convenience. 

Some lawmakers, like Texas Gov. Greg Abbott, have already said they want to make such changes permanent. While they are at it, policymakers should start an inventory of other liquor laws and regulations that have outlived their usefulness, or which never made sense at all. Of course, many politicians are so drunk on power that they likely put up a fight and defend burdensome taxes and counterproductive rules regardless of what the public wants. 

The good news is that evasive entrepreneurs and an increasingly technologically-empowered public will keep pushing back and hopefully whittle away at the continuing vestiges of Prohibition Era stupidity. Bruce Yandle ended his famous 1983 essay on a note of optimism, reminding us that, “Bootleggers and Baptists may have been agitating for a century or more, but the saloon is still with us and usually on Sundays, too.” 

Where there’s a will, there’s a way, and when people want a drink, crafty entrepreneurs will usually find a way to deliver. 

Adam Thierer

Adam-Thierer

Adam Thierer is Research Fellow at the American Institute for Economic Research and a Senior Research Fellow at the Mercatus Center at George Mason University.

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