Outside Edge: Priced out of an alcoholic stupor
“Supermarkets will no longer be allowed to sell alcohol as a loss leader under minimum pricing measures expected to be announced by the government on Tuesday. The UK coalition has been looking into minimum pricing to tackle alcohol abuse.” (Financial Times, January 17)
I wasn’t always an alcoholic tramp. I am a man of letters. I studied Philosophy, Politics and Economics at Oxford, like that David Cameron fellow. But when I looked at the options open to me – over-worked banker, castrated civil-servant or, worst of all, parliamentarian – I decided that the optimal course of affairs would be to begin building up my stock of addictive capital.
I don’t want to romanticise life as a rough-sleeping bum. It gets cold and lonely. I’m not sure what is keeping my underpants together, though I’m sure they wouldn’t survive contact with suds and warm water. But my boozy existence has a cool, calculating logic. I know that seems odd, but thankfully Gary Becker and Kevin Murphy, two of the University of Chicago’s most celebrated economists, have worked out the details in their theory of rational addiction.
For sure, not everything is perfect. But I’m a rational addict; a utility-maximising old soak. I drink because it makes sense to do so – by following an ex-ante optimal inter-temporal consumption plan, as they say. Speaking of which, let me crack open a bottle of strong cider … that’s better.
Where was I? Oh yes: you see, every drink I have contributes to my stock of addictive capital. I feel bad if I drink, but I feel worse if I don’t. Alcohol thus acquires what another drinking buddy once told me was a negative own-price elasticity across time. Put another way: Fred Astaire is a complement to Ginger Rogers; strawberries are a complement to cream; and Special Brew on your cornflakes today makes it quite rational to want to have even more Special Brew on your cornflakes tomorrow.
But I digress. The real problem for we rational drinkers is that, even if you don’t buy the idea, the evidence that people drink less when the price goes up is pretty strong. Even cirrhosis of the liver falls when liquor duty rises. So I’m in a bit of a state about these plans to put a floor under the price for booze. Admittedly, it’s not much of a floor, but it’s the thin end of the wedge. (Forgive the mixed metaphors. I am drunk.)
It isn’t that I’m cheap, or not just that. It’s that these plans threaten to impinge on my optimal consumption path. For a rational addict, every swig of Smirnoff planned for tomorrow reinforces the case for drinking Smirnoff today. I’m sure I don’t need to spell out the corollary: if prices will rise in the future, the time to quit is now.
This isn’t what I wanted, but when prices change, so does the optimal response. So I’m drying out, with immediate effect. I’ll get a job. I wonder if Mr Cameron needs a fresh voice on the frontbenches?
The writer is a recovering economics commentator
Also published at ft.com.