Streetwise Professor

December 25, 2014

Vova Really Needs to Drink More

Filed under: Economics,Politics,Russia — The Professor @ 10:24 am

Putin, the alleged personification of the Russian nation, is conspicuously un-Russian in at least one important way: he is a teetotaler. But I suggest that he become a true embodiment of the narod and take up heavy drinking. It might improve his understanding of economics.

There is no better illustration of Putin’s economic ignorance than his recent call to cap the price of vodka. His reasoning? If the current economic crisis causes its price to rise, Russians will substitute towards samogon:

“The overshoot of vodka prices leads only to increasing consumption of bootleg [spirits],” said Putin, who is known for promoting a healthy lifestyle. “I think the relevant structures [government bodies] should think of that,” he added.

Actually, price controls on vodka will have the opposite effect. Price controls reduce production, leading to shortages. The true price of vodka will rise above the officially sanctioned price.* The higher prices and shortages of licit liquor encourage the production and consumption of homemade moonshine made out of . . . well, you probably don’t want to know. (But if you do.) Alcohol poisonings will likely actually rise rather than fall.

This is Vova’s way of promoting a healthy lifestyle. His misunderstanding and mismanagement of the vodka market is a very symbolic of his misunderstanding and mismanagement of Russia’s economy generally.

No wonder Russians are such prodigious consumers of alcohol, in whatever form that is at hand.

*The “true” price could be the black market price. Alternatively, it could be the controlled price plus whatever costs are incurred (value of time spent in line, bribes, etc.) to get access to vodka at the controlled price. It can also be paid in the form of lower quality. Lower quality, of course, reduces the difference in value between store bought vodka and samogon, inducing a substitution towards the latter.

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  1. Putin is pandering to the alcoholic demographic by making a health argument. If the high taxes on alcohol are justified on health grounds, then this implicit tax should not be any different.

    Comment by aaa — December 25, 2014 @ 11:06 am

  2. […] Also quite so. And in standard circumstances Pirrong would be entirely correct in his statement: […]

    Pingback by Vladimir Putin's Vodka Price Controls Are Actually Pretty Sensible * The New World — December 26, 2014 @ 4:22 am

  3. I’m sure the “free market” ZeroHedge clowns will still fall over themselves to defend Putin’s statist intervention.

    Comment by Tex — December 29, 2014 @ 9:01 pm

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