Brewing Economics

According to a report by the Brewers Association, the number of breweries in the United States reached an all-time high in 2015: 4,144 breweries were active in the country.  Mark Perry was kind enough to chart the data for us:

What’s really interesting is the explosion of breweries since 1979.  What happened in 1979 that caused such rapid growth?  Jimmy Carter.

A brief history lesson: in 1920, an Amendment to the Constitution was passed that made alcohol illegal in the United States.  In 1933, this Amendment was repealed, but beer brewing remained tightly regulated in the United States, essentially shutting out small brewers in favor of major players such as Budweiser, Coors, and Miller (another lesson: regulation protects big business, not hinders it).  In this climate, Big Beer produced only one type of beer: pale lager.  Homebrewing during this time period was effectively illegal.  While nominally legal, any homebrewed beverage with an alcohol content more than 0.05% faced steep taxes.  In 1979, Jimmy Carter signed into legislation HR 1337, which removed the taxation on home brew.

The repeal of the regulation of the beer industry opened the doors wide for home experimentation, and eventual commercialization, of new and exciting kinds of beer: IPAs, American pale ales, red ales, Belgium sour ales, fruit beer, and countless other types.  This vastly expanded the beer industry’s offerings and lead to greater consumer choice (and thus a higher standard of living for consumers), the destruction of the Bud-Coors-Miller stranglehold on the market, and effectively the development of a new industry in America.

The moral of this story is: regulation kills diversity in the marketplace.  Regulation artificially erects barriers to entry that prevents smaller, less-established participants from entering the market.  Regulation protects monopolists (and monopsonists.  Looking at you, minimum wage supporters) from competition, reducing their incentive to explore and innovate.  Regulation leads to mediocrity, not wealth.  It leads to a weaker consumer, not a stronger one.

Of course, none of this should be interpreted as all regulation is bad.  No.  Some regulation is good: regulation that enforces property rights is desirable.  Regulation that tells consumers what they can or cannot buy is not.

This post is dedicated to my brother, Dennis, who has taught me to love beer.