Tag: granholm

The CARE Act Doesn’t Care About Consumers

Last month, I described an unfortunate court ruling that let stand a Texas law designed to protect that state’s in-state liquor retailers from out-of-state competition, a holding that disregarded recent high-court precedent.  This built on a podcast I had recorded about a year ago about the relationship between state alcohol regulation under the Twenty-First Amendment (which ended Prohibition) and the Commerce Clause.

As the Wall Street Journal describes today:

The federal government and states have been in a tug-of-war over alcohol regulation since the 21st Amendment passed in 1933. That amendment gave states the right to decide whether to go wet or stay dry. But the Supreme Court in 2005 came down decisively in favor of the feds in Granholm v. Heald. The Court struck down laws in New York and Michigan allowing in-state wineries to ship directly to consumers while forbidding out-of-state wineries from doing the same. The Court ruled that while the 21st amendment gives states the authority to regulate alcohol within their borders, the Constitution’s Commerce Clause bars them from erecting such protectionist barriers.

Still, many states have tried to circumvent Granholm, and the Texas law I previously wrote about is one example.  Just like countries erect trade barriers to “help” domestic industries – at the expense of consumers and the economy as a whole – states engage in similar tactices.  While the World Trade Organization doesn’t have any authority to police such internal matters, the U.S. Constitution sets out a perfectly good institution for dealing with these blatant Commerce Clause violations: the federal judiciary.  And indeed, with some exceptions, courts since Granholm have “corked” protectionist state legislation.

But because Congress can’t leave well enough alone, and at the behest of liquor wholesalers (whose no-value-added middleman profits are obviously threatened by eliminating interstate trade barriers), we now have pending federal legislation called the Community Alcohol Regulatory Effectiveness (CARE) Act.  This cutely titled bill purports to give more local control over alcohol regulation – to protect Baptists and bootleggers community values, children’s health, etc. – its actual purpose is to prevent out-of-state producers from selling directly to consumers around the country.

The CARE Act would eliminate the ability for alcohol producers and related businesses to challenge Commerce Clause violations in federal court.  That’s not a good thing, as we’ve noticed in every other industry, such as insurance, where Congress has abdicated its constitutional authority to maintain the channels of interstate commerce clear of state interference.  As the Journal again puts it:

You can bet your favorite case of California cabernet that Care will reduce choices and raise prices for consumers, just as McCarran-Ferguson has done in the insurance market. From what we’ve gathered through the grape vine, the main groups backing this bill are alcohol wholesalers. They serve as the middlemen in over 90% of transactions between wineries and retailers, and they account for up to 25% of the price of every bottle of wine. Wholesalers have convinced 57 Members of Congress, including 28 Republicans, to co-sponsor Care. Last year 153 Members, including 94 Democrats and 59 Republicans, co-sponsored a similar bill.

The trick here is that the wholesalers lobby is trying to play the “state sovereignty” clause, explaining that they’re just federalists trying to fight a one-size-fits-all national regulatory Leviathan.  A clever maneuver in the Tea Party era, to be sure, but one that forgets that one of the main purposes of the Constitution – the very reason James Madison called the Constitutional Convention – was to eliminate interstate barriers to commerce; how else could the fledgling republic’s economy grow? 

Congress would never give states the power to stop Apple or J. Crew or any other retailer from shipping its products directly to consumers.  It should be no different with alcohol.

On the Interstate Shipment of Green Beer

Today being St. Patrick’s Day, it seems appropriate to revisit the unlikely juxtaposition of two of my favorite legal policy topics: alcohol and the Commerce Clause.  (Listen to my podcast on the subject or read its transcript.)  The point of all this is that alcohol is no different from any other commodity in that states cannot erect arbitrary regulations that privilege in-state interests (be they retailers, wholesalers, or producers) ahead of their out-of-state counterparts.

But St. Paddy’s Day is not the only reason the issue is topical.  Last week, the Supreme Court declined to review the Fifth Circuit’s indefensible decision in Wine Country Gift Baskets.com v. Steen. It did so despite the Fifth Circuit’s upholding of a Texas law designed to protect Texas’s in-state liquor retailers from out-of-state competition, a holding that disregarded recent high-court precedent.

In Granholm v. Heald (2005), decided together with the Institute for Justice’s Swedenberg v. Kelly, the Supreme Court struck down a similar protectionist law. Both cases challenged laws that permitted in-state wine producers to sell directly to consumers while prohibiting similar sales from out-of-state producers. The Court held that, notwithstanding a provision in the 21st Amendment (which repealed prohibition) that allows states to regulate their own liquor industries, the Commerce Clause prohibits states from disrupting free trade by discriminating against out-of-state businesses in favor of in-state businesses. This interpretation of the Commerce Clause grew out of the common-sense understanding that, if left unchecked, state governments have strong incentives to protect in-state businesses (who are voters) at the expense of their (non-voting) out-of-state competitors. Without constitutional checks, such laws could eviscerate Congress’s constitutionally enumerated power to “regulate [make regular] commerce … among the several States.”  

Nevertheless, the Fifth Circuit decided to limit Granholm to wine producers. As is evident by the name, however, the Wine Country Gift Baskets.com case concerns a wine retailer. Yet Granholm explicitly said that states “may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses.” It is dismaying that the Supreme Court didn’t care about the Fifth Circuit’s neglect of this language.

Granholm was an important blow against the heavily protectionist and cartelized liquor industry. As was documented in a pre-Granholm article in Cato’s Regulation magazine, the prohibition on direct shipment has been used to strangle small wineries as they struggle to access larger markets without having to go through the state-controlled distribution networks. Despite an explosion of wine-drinking and -making in this country in the last 30 years – with consumption increasing by nearly 50% between 1991-2001 and wineries quadrupling between 1974-2002 – the small winery still fights against an old-boy network of producers and distributors. In 2003, the top 30 wine companies still provided 90% of U.S. wine although they were less than 1% of the producers.

This is, of course, exactly how the top 30 wine companies want it.

Granholm dismantled some of this network. Unfortunately, Wine Country Gift Baskets.com will allow this unconstitutional infringement of the right to earn an honest living (see Timothy Sandefur’s excellent book of the same name) to persist in some states.

But Americans, like most of the world, appreciate their booze. During prohibition, Americans endured Tommy-guns, corruption, gangsters, and speakeasies just for a drink. If the government made it illegal to drink responsibly, many Americans were willing to thwart the law and drink irresponsibly.

The negative effects of prohibition were too visible to deny and, after 13 years of waging war on a non-compliant population, prohibition ended. In its wake, however, prohibition left another war, an 80-year “on-going, low-level trade war” (in the words of Granholm) between states and their three-tiered monopolies over the production, distribution, and sale of alcohol. And so, 21st Amendment or not, prohibition lives on – though the  colorful characters in spats carrying Tommy-guns have been replaced by iPad-wielding lobbyists and politicians who do their bidding.

Thanks to Trevor Burrus for his help with this blog post.

Bad Advice from Gov. Polar Star

In 2006, Michigan Gov. Jennifer Granholm told citizens, “In five years, you’re going to be blown away by the strength and diversity of Michigan’s transformed economy.” When those words were uttered, Michigan’s unemployment rate was 6.7 percent. It’s now almost 13 percent.

Although Michigan’s economic doldrums can’t entirely be pinned on Granholm, her fiscal policies have not helped, such as her higher taxes on businesses.

The Mackinac Center’s Michael LaFaive explains why Granholm’s grandiose proclamation in 2006 hasn’t panned out:

In this case, Gov. Granholm was promoting her administration and the Legislature’s massive expansion of discriminatory tax breaks and subsidies for a handful of corporations. The purpose and main effect of this policy is to provide “cover” for the refusal of the political class to adopt genuine tax, labor and regulatory reforms, which they shy away from because it would anger and diminish the privileges and rewards of unions and other powerful special interests.

LaFaive’s colleague James Hohman recently pointed out that “Michigan’s economy produced 8 percent less in 2009 than it did in 2000 when adjusted for inflation. The nation rose 15 percent during this period.”

Granholm has written an op-ed in Politico on how federal policymakers can “win the race for jobs.” This would be like Karl Rove penning an op-ed complaining about Obama spending too much. Oh wait, bad example.

Granholm advises federal policymakers to create a “Jobs Race to the Top” modeled after the president’s education Race to the Top, which as Neal McCluskey explains, has not worked as she claims. Granholm’s plan boils down to more federal subsidies to state and local governments and privileged businesses to develop “clean energy” industries.

Typical of the dreamers who believe that the government can effectively direct economic activity, Granholm never considers the costs of government handouts and central planning. A Cato essay on federal energy interventions explains:

The problem is that nobody knows which particular energy sources will make the most sense years and decades down the road. But this level of uncertainty is not unique to the energy industry—every industry faces similar issues of innovation in a rapidly changing world. In most industries, the policy solution is to allow the decentralized market efforts of entrepreneurs and early adopting consumers figure out the best route to the future. Government efforts to push markets in certain directions often end up wasting money, but they can also delay the development of superior alternatives that don’t receive subsidies.

Granholm recently received “Sweden’s Insignia of First Commander, Order of the Polar Star for her work in fostering relations between Michigan and Sweden to promote a clean energy economy” from His Majesty King Carl XVI Gustaf. Unfortunately, her prescription for economic growth would be a royal mistake.