The Capitalist Maven

It’s Monday, the weekend is over. Did you go out for drinks anywhere this weekend? Perhaps you didn’t because you couldn’t bring yourself to pay $4 for a beer. I grew up and spent the first few years of my adult life in Pennsylvania. I went to college at Penn State. I lived in North Carolina for 3 months. I’ve traveled to nearly half of the fifty states. Never before have I seen government get so involved in manipulating the free market for beer prices as they do in Massachusetts.

You could say in college I was spoiled. Fraternity and house parties were always free, never a cover or cup charge. Once you were old enough for the bars it’s not like the prices were that much higher than free. The student newspaper has a fine list of specials in downtown State College, for example we see specials like $3 Bud Light pitchers and $1 Miller High Life pitchers. You can bet the bar isn’t making a big profit on these but it gets people in the door where they can spend on things like shots and mixed drinks that aren’t always as cheap. For those still convinced of the horrible inflation, the prices were the same 10 years ago when I was in college.

After I graduated college there was an initial adjustment to somewhat higher prices in the city of Pittsburgh. But I and my friends quickly learned when and where the specials were. I remember nights spent at the Boardwalk and Rock Jungle with tables full of $1 drinks. We always had a great time and seldom had to bring along more than a single $20 bill. Visiting Florida and the southern states shows even more great prices. One would expect South Beach in Miami to carry a premium price, however walking the strip I found several places offering $6 pitchers and 2 for 1 drink specials. In New Orleans you just buy yourself a giant beer for $1 from some guy on the street and take it with you. In the Carolina’s if you haven’t found $1 beers you are probably blind.

Then I moved to Massachusetts and was in a for a rude awakening. I was in the habit of asking the bartender what the special was before I ordered my first drink. I got alot of looks like I was from a different planet. A few bartenders mentioned that they thought it was illegal to have specials?!?!? Eventually a few of my older coworkers mentioned that there used to be happy hours but then they were banned and they weren’t sure why or how or any particular detail. There seem to be few specifics on the law, nobody seems to know for sure how it works. All I know is that this law causes everyone to pay more. Aside from a few particularly dive type places, expect to pay at least $3 for a regular domestic beer and $4 for anything imported or darker in color than Bud. Looking for $1 Coronas on May 5th? Sorry… not in Massachusetts. It seems the copy cat neighbor states in New England all seem to have similar restrictions in place, in New Hampshire it seems bars are allowed to have specials (Live free or die!) but they aren’t allowed to advertise those specials(Can I see your papers please…). Since the point of specials is get people in the door, being unable to advertise them takes away the capitalist incentive for bars to offer them.

So the question is do people drink less because of restrictions like this? If you’ve been to Boston on a Saturday night, you’ll agree that it has not reduced drinking in any way. What it has done is made alot of bar owners rich. They no longer have to compete on price. There are several bars that have figured out how to work around these rules. They offer a certain draft beer for $1 all the time, however the keg always seems to conveniently run empty around 10PM when the special is over. These places are particularly dive and need to compete on price to survive. By and large though few bars try to offer low prices.

Regulating bar prices is one way that government can step into the free market and increase prices for everyone. You might also be familiar with Massachusetts’ highest in the nation insurance rates, which also come about because of its state controlled insurance rates. The examples of government intervention increasing prices just goes on. Take it from this capitalist, government intervention in capitalist markets is a bad thing.

Jon Economy, Money lessons beer, capitalism, government regulation, prices

Over at mymoneyblog, the author has been posting about money lessons learned as a child. This brought to mind the one significant lesson that I was ever taught in school about business, investing, and entrepreneurism. In 4th grade at my school, the lesson planned called for 4th graders to create “companies” to produce candy to sell to the entire school. Little did I know what I was about to learn.

The lesson started with us learning about the stock market and how buying shares of a company works. We printed up business plans describing the candy we would sell, created stock certificates, and set an offering price. Then one day all our companies made our IPO’s. We would bring in our allowances/savings/whatever our parents would give us and buy shares of whatever companies we thought would be most successful. There unfortunately was no stock market for the shares after they were all purchased so you needed to be quick to get in on the best candy companies. The classroom really started to look like the Wall Street trading floor as we rushed to buy the shares.

Here is what I remember about the the candy choices. There were various kinds of chocolate. Some companies centered around just creating chocolate with a specific mold and creating a clever brand name for it. My specific company decided to put Rice Krispies in our chocolate creating a Nestle Crunch type chocolate. There was a company producing rock candies and another producing a Chex Mix style snack. Then there was a company that was producing simple popcorn. How boring I thought?

We used the proceeds from the IPO to purchase our supplies to make the candy. Then another day of the lesson was spent actually making the candy. Needless to say everyone had fun doing this.

Then came the day of the sale. My company’s Nestle Crunch style chocolate did a steady business. At the end of the day I think we managed to sell all of the product we made, with a little help from our own purchases. Looking around the room, it was clear there were winners and losers. What surprised me the most was that the simple popcorn, whose business plan and product I had shunned was first to sell out. Clearly I had misjudged the market.

The next day the lesson called for analyzing the profits. We calculated our profit after all expenses, paid our employees, and then distributed the remaining profits to the shareholders. It’s obvious that selling candy to elementary school students is a great business. Every company turned a profit, I think the lowest performing company still managed to pay 30 cents to buy back the 25 cent shares. My particular company paid out 75 cents. The real shocker to me however was the popcorn company which paid over $2 a share.

It was at this point I realized my mistake. My parents recognized that popcorn was an extremely cheap and healthy food, so I always had access to popcorn anytime I wanted it. Others in the school must not have been so fortunate. Keep in mind that this was the 1980’s before microwave popcorn became commonplace, so making popcorn still involved some effort. Thus there seemed to be an insatiable desire for popcorn amongst my schoolmates. The raw materials for making popcorn are also insanely cheap. $10 of vegetable oil and unpopped popcorn will produce enough to feed a school. Chocolate was much more expensive to produce. A large bag of popcorn was priced similarly to a small bag of candy, however that large bag probably only contained about 1 oz of popcorn and cost about 1/10 as much to produce.

Thus this simple lesson taught me a great deal about capitalism. Just because something is undesirable to you doesn’t mean it’s undesirable to others. There is a great deal of profit to be made by recognizing something that you can produce cheaply and easily that others may be willing to pay a high price for.

Jon Money lessons 4th grade, capitalism, lessons, popcorn