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The Economics of Beer Drinking

Lower the cost and more will be consumed

Here’s a trivia question for you: What does universal health care and drinking beer have in common?

Give up? Why, consumption, of course!

Allow me to explain. Once while I was in college, my mother, discontented to learn that I enjoyed going to house parties and bars more frequently than she’d have preferred, curtly asked me if I thought the world revolved around beer. (I could feel the glare through the telephone.)

Fast-forward to today. Over the Labor Day holiday I hosted a little gathering for a bunch of friends, and I noticed something rather interesting as I was cleaning up after the party: I’ve never seen so many abandoned, opened-but-barely-drunk beers in all my life. So, naturally, I set to thinking about how this could be. I mean, I must’ve junked a good 20 of these cans of beer — “refugees" or "grenades," as we called them back in the day. Alas, we’re not talking about “empties” here.

Considering the fact that there was every bit of forty people at this party, I suppose it’s reasonable to assume that half of them opened a new beer five minutes before they decided to go home but ultimately chose not to drink it, content not to overindulge or push their luck before they had to drive. However, common sense would suggest this was not the case.

What I do suspect accounted for this phenomenon was the fact that I provided all the beverages for the party. Put another way, all of the beer was free for all guests. Therefore, I’m guessing that some of my friends set their beer down throughout the night and forgot which one was theirs; or perhaps they didn’t like the taste of the one they were drinking; or maybe some even decided to exchange an unfinished beer for a new one because the one they were holding got too warm too quickly.

In short, my guests likely had little incentive to maximize the value of each particular beer because they paid no cost for failing to do so, and so the rate of consumption was irrelevant.

Now, don’t get me wrong. This isn’t to say I regret hosting the party, paying for the beer, or anything of the sort. Quite the contrary, what I realized as I held my nose and dumped perfectly good suds down the drain was that I’d just witnessed a completely natural human response to the law of supply and demand.

As George Mason economics professor Russell Roberts noted recently on the Cafe Hayek blog, "economics isn’t about money, it’s about how we live our lives." Roughly extrapolated, it logically follows that economics is about the decisions we make given the choices and circumstances before us.

So whether we’re talking about universal health care, price controls on gasoline, or free beer at a party, one thing is clear: The lower the cost of a good, the more it will be demanded and hence consumed. And when the price of this good is artificially decreased, where the provider cannot recoup the cost of his product or the consumer is freed of the burden of paying for it, a shortage will eventually ensue.

Taking the information before us, it is almost impossible to argue that there would have been as much discarded beer at the end of the night if guests had to bring their own to the party instead of having the luxury of drinking on the house. Indeed, it is virtually axiomatic that anyone who has a vested interest in his property (his beer) and the importance it holds for his own enjoyment, will be far less likely to engage in wasteful behavior than if the property belongs to someone else.

Suffice it to say, my party guests may not have departed so happily fulfilled that night had I not decided—just to be safe—to buy a couple extra cases of beer before they arrived. As it turned out, I had just about run out of beer by the time all my friends left. But if I hadn’t purchased extra, it is clear the supply would have been exhausted far earlier than it was—to the dismay of all—while nearly a case of open, warm, neglected cans of beer lingered around my bar wondering how they could be so casually cast aside before being so thoroughly enjoyed.

So remember this little story the next time you hear some politician singing the praises of government management or control over your life or property. Whether it’s health, happiness, or anything in between, scarce resources will be managed most efficiently when property owners have a vested interest in their distribution and use.

Who knew that after all these years, it turns out the world—the one I want to live in, anyway—actually does revolve around beer!

Thanks, Mom.

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Written By

Mr. Bothwell is a freelance writer living in Maryland and runs the web log, Who's Your Nanny? He welcomes comments at bothwelltj@yahoo.com.

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