Bootleggers & Baptists: LXI- SBF and the Fall of FTX

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Sam Bankman-Fried, the founder of the cryptocurrency exchange FTX, once masqueraded as the regulation-friendly face of the crypto markets. SBF was known for his openness to regulation and willingness to work with lawmakers; he not only wanted to graciously assist our elected officials in Washington with guiding policy but was also “socially conscious”. Sam was a vocal proponent of effective altruism and possessed a Benthamite concern for maximizing social benefits to help the most people. This wunderkind 30-year-old was too good to be true

Whether it was Bankman-Fried donating large sums of money to the Democratic party (the purported political advocate for the economically disadvantaged) or his views on veganism and charity, it was all a façade, a thin veneer masking his actual conduct. Per Reuters:

“… The turmoil at FTX has seen at least $1 billion of customer funds vanish from the platform, sources told Reuters on Friday. Bankman-Fried had transferred $10 billion of customer funds to his trading company, Alameda Research, the sources said.

New problems emerged on Saturday when FTX’s U.S. general counsel Ryne Miller said in a Twitter post that the firm’s digital assets were being moved into so-called cold storage “to mitigate damage upon observing unauthorized transactions.”

Cold storage refers to crypto wallets that are not connected to the internet to guard against hackers…”

As investors fled the platform and Binance pulled the plug on bailing out FTX, it is clear that SBF misrepresented the financial health of the exchange and its business practices. All of these developments are reminiscent of the Enron scandal. A corporation rubbing elbows with congress to engage in regulatory capture and foster a positive public image. While concurrently; creating a smoke screen obscuring the company’s off-color conduct.

The economist Bruce Yandle’s theory of Bootleggers and Baptist (1983) coalitions perfectly describes the Machiavellian tactics utilized by Mr. Bankman-Fried. After all, perception is what matters. If investors were not distracted by his social advocacy and success, they might have spotted the red flags. As observed by Yandle, there is often a demand for regulation. Often from parties that prima facie would oppose such measures (p.13). Why? This gives industry elites the to help shape rules that will benefit their bottom line and yield good publicity. Frequently, these scenarios are win-win for the firms involved. SBF proposed a licensing system for Defi (decentralized financial technology); per Erik Vorhees

“..self-enforced rules and blacklists would only serve established exchanges that could afford to pay for compliance…”

SBF simultaneously worked to craft regulation that FTX would benefit from while appearing to share some of the concerns of crypto-phobic politicians like Elizabeth Warren. Progressive politicians are the Baptists in this scenario. SBF’s arrogance ended up being his own Achilles Heel, ultimately revealing his true colors, those of a covert Bootlegger (p.190). 

Bootleggers & Baptist- LIX: California Fast-Food Bill (Did Someone Say Automation?).

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The advocates of worker rights have always been in a precarious position; reforms often do not align with the interests of employers. This is an enduring pattern that supporters of California Assembly Bill 275 need to consider. Most initiatives for economic equality tend to be more moralistic than practical and do not account for how firms will respond to such measures. Depending on how establishments defined in the bill as Fast-Food Restaurants (only the larger companies with 100 + stores) adjust to the requirements set by AB 275.

The law aims to establish a governor-appointed council (comprised of workers, union representatives, etc.) that reviews and amends workplace standards and wages. Even boasting a requirement where any measures would need signatures from 10,000  (consent of the governed?) fast food workers employed in California to move forward. On the surface, this new bill sounds like it will provide reforms that will improve the lives of millions of workers struggling to make ends meet on a low salary. However, the lofty aspirations of AB 275 may have the exact opposite effect.

When analyzed from the framework of Bruce Yandle’s Bootleggers & Baptists (1983) theory of coalitions, it is easy to see the fast-food workers as the proverbial Bootleggers. But such an assumption is flat-out erroneous; the hourly employees at the local Jack In The Box are the ones who will pay the price for this new labor reform.

Prima Facie, it sounds like the hourly fast-food employees of California make out like bandits. The prospect of escaping penury wages and making $22/hour. Then there is the bonus of having a voice in shaping the regulation that will impact your work life. These benefits will be short-lived; because the titans of the drive-thru will eventually respond to the monetary and transaction costs of fulfilling these new legal mandates. Few (if any) companies in any sector of business can whether a significant increase in labor costs ( there is a potential for labor costs to increase by 60 %). Depending on how large the increase in worker compensation becomes, menu prices stand to increase by 22 %. (p.7). Some may speculate that firms such as Mcdonald’s would benefit from passing along labor costs to the consumers at higher prices; there is a strong likelihood that patrons may just opt for cheaper or higher quality alternatives. There is also an increase in transaction costs because of the additional layers of complexity added to the relations between the management of franchise owners and hourly employees. AB 275 may discourage smaller regional fast-casual restaurants from expanding to avoid the onerous conditions of this new law.

Ultimately, our Bootleggers, the established fast-food eateries will gain from decreased labor costs. How? These firms will decide to automate operations and benefit from long terms savings in not having to pay salaries and benefits or cope with the loss in productivity from theft or employee absence. Only increasing the minimum wage is enough to drive many firms to reduce costs. Creating a price floor is a price control that causes disruption throughout the market. Because businesses will attempt to avoid the artificial increase in labor costs. For the workers that are lucky enough to keep their jobs, certain nonmonetary forms of compensation disappear (p.10-11); no more free coffee in the breakroom.

Editorial Graveyard- Part III: The Bootlegger and Baptists of Woke Capitalism

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Op-Ed submission was rejected by the Foundation For Economic Education for being too “abstract” and “academic”. The corresponding paper proposal for George Mason was also rejected. I am currently working on another proposal for GMU focused on intellectual property.

Introduction:

Bruce Yandle’s Bootlegger and Baptist (1983)  theory of regulation presents a practical explanation for why such unorthodox coalitions are effective vehicles for camouflaging rent-seeking behavior by a firm. In brief, armed with the public appeal of the moral arguments posited by the Baptists, the Bootleggers can quietly lurk in the shadows, funding initiatives that will advance their self-interest. In other words, the ethical advocates create a smokescreen that provides cover for the business interests, superficially obscuring the stigma of corporate advocacy, since few examples of political action invoke the ire of the average citizen than policy campaigns that line the pockets of big business.

           The trend of “woke capitalism”, however, is bringing the Bootleggers out of shadows and into plain sight. CEOs are now openly standing in unison with political activists, speaking out against topics ranging from police brutality to environmental issues. The Bootleggers can work openly with the Baptists to promote a positive image while still silently providing monetary support in the background. Moreover, the social justice messaging of “Woke Capitalism” extends beyond corporate activism and is observable in the product market and advertising. Some companies, for example, adopt marketing that emphasizes social consciousness to secure the business of Gen-Z. A clear example is Gillette’s 2019 advertising campaign addressing “toxic masculinity”. Typically, companies use this tactic to target younger consumers with higher preferences for ethical products and brand authenticity, requiring companies to go beyond philanthropy and mandating community services hours for their employees; their woke ethics are thereby conveyed in their branding.

The Four Main Categories of Woke Capitalistic Coalitions:

           The most recent alliances forged between business interests and political activists take the form of four main taxonomical categories. Some of the various types of Bootlegger and Baptist coalitions feature collaboration between firms and activists. Other coalition types  form within the technocratic structure of the corporation or emerge between different departments within the organization. Woke coalitions thus have several notable classifications of “woke” corporate alliances. Two further subcategories include proactive and reactive forms of rent-seeking.

Reactive Coalition Models:

           The reactive models for “woke” coalitions include two subtypes of collective action organization, the interaction between external actors and collaboration between internal employees. The first variety of reactive coalitions are rent-seeking alliances formed to restore the company from a sullied reputation caused by criticism, the objective being to mitigate the loss of sales and reputation amid public controversy. Some firms thus attempt to distance themselves from the controversy through their activistic partnerships. By way of example, Bank of America in the past was accused of engaging in “discriminatory” lending practices. To counteract this negative publicity, last year BOA pledged to donate $1 Billion over the next four years to community programs to address economic and racial inequality. Such an act of philanthropy can easily make the general public forget about the firm’s past indiscretions.

The second type of reactive “woke” coalitions are the intracompany factions designed to divert attention from potentially costly internal controversies. In instances of hostile work environment ligation, the legal team, the human resources department, and executive management band together to deescalate the publicity nightmare. Human Resources and management work together to legally distance the company from a harassment incident and shield executive management from more scrutiny and accountability. Legal navigates the statutory and tort concerns and works internally to establish an anti-harassment campaign intracompany. A prime example of an internal diversionary coalition was Vice media’s response to sexual harassment claims. After settling several cases, the company decided to form an advisory board to educate employees on diversity and proper workplace deportment. Even if such an initiative on the part of the human resources department failed to soften the bad publicity, at least it may decrease the probability of another incident.

Reactive Coalition Models:

Finally, the last two variants of “woke” coalitions aligning business interests with moral advocates to facilitate proactive forms of rent-seeking. Similarly, these proactive coalitions can be delineated into examples of internal and external collaboration models. Proactive partnerships form to capture potential gains and avert the costs of prospective controversies. The most salient example of such external cooperation would be firms standing behind a woke cause, anticipating that such an alliance will obscure the firm attempting to shape current regulation (regulatory capture).  A notable example was detailed in the Fall 2021 issue of Regulation magazine, which showed how providers of cloud computing services IBM and Oracle joined forces in 2017 to advocate for the passage of  the Stop Enabling Sex Traffickers Act (SESTA) and the Fight Online Sex Trafficking Act (FOSTA); effectively becoming bedfellows with various factions of human rights activists. Both laws intended to attribute liability to digit platforms for any user content that promotes sex trafficking. The article’s author Thomas A. Lambert speculates that IBM and Oracle could have done this with the hopes crafting potential exceptions to the platform liability portions of SESTA and FOSTA.

Additionally, we cannot forget the proactive inter-department coalitions that are emerging within corporations. For example, several companies are hiring diversity and inclusion “coaches” as a peripheral subset of human resources. The demand for this job role has become so prevalent that a number of colleges offer programs to become a certified “diversity practitioner”. The human resources department defends the existence of these staff members by emphasizing the need to educate employees to avoid instances of harassment and discrimination. The diversity coaches preach the virtues of cultural sensitivity and other tenants of the “woke” philosophy, thus producing a self-reinforcing spiral justifying further diversity initiatives.

Conclusion:

 Superficially, these alliances between big business and “woke” activists seem relatively benign, but in reality, these coalitions have profound consequences for the integrity of capitalism and the rule of law. The four types of woke B&B coalitions described above undermine capitalism and the rule of law because woke capitalism has made it easier than ever for business interests to create the façade of morality but are unjustly bending the rules-of-the game in their favor. Wokeism provides the veil obscuring corporate America’s hand in the legislative till. Generating more anti-competitive laws that undermine both the rule of law and free trade. 

The emphasis on firms getting involved with “woke” causes not only disguises crony capitalism and rent-seeking behavior, but also distracts companies from their primary custodial duty to their shareholders. As Nobel laureate Milton Friedman expresses in his own Friedman Doctrine , a firm has a duty to maximize its profits for its shareholders. After all, these individuals have invested in the company expecting a higher return. Without this financial support the firm could not achieve its current level of success. Diverting funds that could be used for investment in capital to increase productive efficiency for political activism is tantamount to theft.

Bootleggers & Baptists: XXXVI- Woke Capitalism and Coalitions of Opportunity

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            The Bootlegger and Baptist (1983) theory of regulation present a practical explanation for why these such coalitions are effective vehicles for camouflaging rent-seeking behavior by a firm. Armed with the public appeal of the moral arguments posited by the Baptists, the Bootleggers can quietly lurk in the shadows, funding initiatives that will advance their self-interest. The ethical advocates create a smokescreen that provides cover for the business interests, superficially obscuring the stigma of corporate advocacy. Since few examples of political action invoke the ire of the average citizen than policy campaigns that line the pockets of big business.

           The trend of “woke capitalism” is bringing the Bootleggers out of shadows and into plain sight. CEOs are now openly standing in unison with political activists speaking out against topics ranging from police brutality to environmental issues. The Bootleggers can work openly with the Baptists to promote a positive image while still silently providing monetary support in the background. The social justice messaging of “Woke Capitalism” extends beyond corporate activism and is observable in the product market and advertising. Some companies adopt marketing that emphasizes social consciousness to secure the business of Gen-Z. Typically, companies use this tactic to target younger consumers with higher preferences for ethical products and brand authenticity, requiring companies to go beyond philanthropy and mandating community services hours for their employees; their ethics almost be conveyed in their branding.

           The most recent alliances forged between business interests and political activists take the form of four main taxonomical categories. Some of the various types of Bootlegger and Baptist coalitions feature collaboration between firms and activists. Other coalition types that form within the technocratic structure of the corporation; are between different departments within the organization. Woke coalitions have several notable classifications of “woke” corporate alliances. The main subcategories include proactive and reactive forms of rent-seeking.

           The reactive models for “woke” coalitions include two subtypes of collective action organization, the interaction between external actors and collaboration between internal employees. The first variety of reactive coalitions are rent-seeking alliances formed to restore the company from a sullied reputation caused by criticism. The objective being to mitigate the loss of sales and social currency amid public controversy. Some firms directly attempt to distance themselves from the controversy through their activistic partnerships. The second type of reactive “woke” coalitions are the intracompany factions designed to divert attention from potentially costly internal controversies. In instances of hostile work environment ligation, the legal team, the human resources department, and executive management band together to avoid a publicity nightmare. Human Resources and legal work together to legally distance the company from a harassment incident. Legal working on navigating the statutory and tort concerns while HR works internally to establish an anti-harassment campaign intracompany. All the while shielding executive management from more scrutiny and accountability.

           Finally, the last two variants of “woke” coalitions aligning business interests with moral advocates to facilitate proactive forms of rent-seeking. Similarly, the proactive coalitions can be delineated into examples of internal and external collaboration. Proactive partnerships form to capture potential gains and avert the costs of prospective controversies. The most salient example of such external cooperation would be firms standing behind a woke cause, anticipating that such an alliance will obscure the firm attempting to shape current regulation (regulatory capture). However, we cannot forget the proactive inter-department coalitions that are emerging within corporations. For example, several companies are hiring diversity and inclusion “coaches” as a peripheral subset of human resources. The human resources department defends the existence of these staff members by emphasizing the need to educate employees to avoid instances of harassment and discrimination. The diversity coaches preach the virtues of cultural sensitivity and other tenants of the “woke” philosophy.

           Superficially these alliances between big business and “woke” activists seem relatively benign. However, there are profound consequences for the integrity of capitalism and the rule of law. This paper will demonstrate how the four types of woke B&B coalitions undermine capitalism and the rule of law. Woke capitalism has made it easier than ever for business interests to create the façade of morality but are unjustly bending the rules-of-the game in their favor. Wokeism provides the veil obscuring corporate America’s hand in the legislative till. In effect, generating more anti-competitive laws that undermine both the rule of law and free trade. 

Bootleggers and Baptists XXXIII- The Three-Tiered Distribution of Beer in the “Bible Belt”

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The southeastern region of the United States has a peculiar relationship with alcoholic beverages. Southern states such as Kentucky and Tennessee have a long history of whiskey production. The south is also the home of many conservative Baptists that view alcohol consumption as being immoral. The result of the ethical opposition has been the formation of dry counties and onerous laws governing alcohol production and sales. Presenting more opportunities for interest groups (Bootleggers) to find ways of strategically gaming the system from multiple points of the supply chain (p.386). Often the Bootleggers, operate as a source of backdoor funding for morally justifiable policy campaigns (Regulation Magazine, Vol 44, No.1, p.14-15). The geographic “chessboard” strategy of keeping dry counties adjacent to wet counties dry is far from the only approach deployed by various interest groups (p.397).

Another strategy used by business interests in the south’s beer industry is regulatory capture. A means of leveraging market power to mold regulations to the benefit of corporations; is a typical extension of soft-political power used by corporations throughout the United States. States such as Georgia have long prohibited direct-to-customer sales from breweries, historically referred to as tied-house (p.390). States that have permitted self-distribution by smaller brewers since 1978 have seen more growth in craft breweries (p.392). These restrictions date back to the legally sanctioned distribution arrangement of tiered distribution systems. In this system, beer is distributed to retail outlets via a licensed distributor. Favored by larger breweries such as Pabst and Miller since the market share they lost in the years before the Volstead Act from smaller breweries self-distributing their beer (p.390). The reason why bigger breweries still favor these archaic laws is that they would rather not have to compete with the dizzying array of microbreweries for shelf space (p.395).

However, has the moral argument of limiting direct sales reduced the instances of problematic drinking held up to scrutiny? That would be resounding no. Empirically, restricting direct alcohol sales has had little influence on overall alcohol consumption (p.399). It also should be noted that craft breweries have stronger connections to their communities. As stated by the executive director of the Georgia Craft Beer Guild:

“….I would like to think that craft breweries, because of the community connection, aren’t nearly the threat to intemperance that multi-nationals are, or Wal-Mart…”

Bootleggers and Baptists XVI:Delta-8- Addendum

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Some additional thoughts regarding the Marijuana industry’s response to the emergence of Delta-8. It is irksome to hear invested interests claiming that a competing product is unsafe. Sure, it is well within their right to free expression to do so. Doing so in the context of political advocacy takes on a completely different tone. Any concerns expressed by Cannabis trade associations regarding public health can only be seen at best suspicious, if not outright spurious. If a similar rate of taxation and the same regulatory requirements that Marijuana sales are subjected to were applied to Delta-8 it would provide Cannabis sellers and producers with an anti-competitive advantage. Because the overall psychoactive effects of the compound are less intense than Marijuana. Subjecting it to similar regulations could effectively put many Delta-8 producers out of business. There may be some individual that prefers this neutered variant of Cannabis, however, this would be a very shallow niche market.

The true travesty of the thinly veiled advocacy of the Marijuana industry is perplexing. It is mirroring the same public health campaigns championed by alcohol producers when states were initiating legalizing recreation pot. Back in 2016, the Beer Distributors PAC of Massachusetts funded and advocated for an anti-legalization initiative. It wasn’t that the beer industry was really concerned about public health, rather they were concern about their bottom line. From a shortsighted perspective is a rational response to competition. This approach is morally and economically flawed. You beat the competition by producing a better product not using political channels to erect more barriers to market entry. If you can’t beat them, join them. Many beer producers have started producing “beers” infused with Cannabis. Some notable examples include Hi-Fi Hops from Lagunitas and Ceria (from the creators of Blue moon). Why can’t Marijuana producers just jump on the Delta-8 train and ride it out until the DEA invariably crackdown on it? If producers are able to manufacture a wide array of edibles and extracts they can figure out how to synthesize Delta-8. No need to engage in false posturing under the guise of “public health”.

Success By Default is Not Truly Success

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In terms of formulating effective rules, one needs to have a panoramic understanding of the potential consequences. Even the downstream outcomes are not easily foreseen. Providing some validation of F.A. Hayek’s notion of the Pretense of Knowledge. No one person, organization, or collection of governing institutions has all of the information required to plan for every scenario. Making it foolhardy to enact inflexible rules that operate as if the definite outcomes can be methodically calculated. Treading down the path of the socialist calculation debate is fruitless as the refutations on both sides of the aisle have already been exhausted. The fall of the Soviet Union alone should serve as a historical anecdote of the fallacy of planned economies.

It should be noted that information asymmetries and unforeseeable outcomes are a natural consequence of having limited information. Explaining phenomena such as cobra effects, because certain repercussions cannot be known until it is too late. These distorted outcomes as the result of flawed rules can happen on a much smaller scale than that of the national economy or a country’s legal system. Something as mundane as a birthdate cutoff to participate in youth hockey can spur some surprise inequities in the trajectory of young hockey players. This example springing from the pages of Malcolm Gladwell’s 2008 book Outliers gives us some keen insights into the potential for implicit flaws in rule formulation. Gladwell details the observations of psychologist Roger Barnsley (p.22-23) upon perusing the program of the Canadian national youth hockey championship. Barnsley noticed that the majority of the players had birthdays ranging between January and March. Is it possible that there is a certain qualitative factor distinguishing children with birthdays earlier on in the year? If we examine the zodiac symbols of those born in January and February there are characteristics that are conducive to success. However, there is little scientific merit to astrology anyhow. Barnsley had another explanation for this discrepancy between Canadian Hockey players born in January versus July. 

Barnsley astutely directs us towards the factor of birthday cutoffs for eligibility to play youth hockey in Canada. This fact was substantiated when Barnsley discovered that roughly 40 percent of all elite hockey players were born between January-March, 30 percent between April-June (p.23) Demonstrating the role of the individual player’s birthday in determining success. Having a January first cutoff, privileged prospective players born in the earlier months of the year (p.24). The main difference being that the boys born in earlier months were more physically mature. In turn, received more attention from the coaches lending this dynamic to an early delineation between talented and untalented players (p.25). Due to the difference in age eligibility cutoffs in American youth football and basketball leagues, they did not exhibit the same distortions in the distribution of talent (p.26). Engendering a Matthew Effect or what is otherwise known as an accumulative advantage. Adam Smith even points to the concept of accumulative advantage in The Wealth of NationsExplaining how in a sense the poor pay the price for the poor decisions of their forefathers. 

Many proponents of meritocratic social arrangements may scoff at the idea of making rules that are fair. However, if the rules are providing a lopsided advantage to one group, are the results truly the result of superior performance or the distortion created by the rules? Few would ever view the occurrence of instances of regulatory capture or rent-seeking as a triumph of free-market competition. Rather just the opposite, it is an example of interest groups bending the rules to suit their own needs. Careful consideration needs to be made in how we set and enforce rules to avoid distorted effects that handsomely benefit a few and harm a great many. Gladwell succinctly sums up this point very eloquently: 

“Because we cling to the idea that success is a simple function of individual merit and that the world in which we all group up and then we choose to write society don’t matter at all.” (p.33)

While variables such as luck, talent, ingenuity, and hard work can all have a role in success, we cannot forget that how the rules are written can also have an inseparable impact on outcomes. Even rules that are inadvertently written in a manner to favor one group over another without consideration of merit is a flawed rule. Marred by an unforeseeable blind spot that nevertheless has generated distorted outcomes. These outcomes are not truly the byproduct of talent or work ethic but by technicalities that create illusory perceptions of actual skill. 

Bootleggers and Baptists: XIV: Massachusetts Bans Menthol Cigarettes

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Introduction:

Legislators in Massachusetts recently passed a law prohibiting the sale of menthol cigarettes. The rationale behind this bold move, banning the sale of all flavored tobacco and vaping products. Presumably, to make tobacco products less alluring to children. The specific targeting of menthol cigarettes is slightly puzzling. This variety of cigarettes due have subtle flavoring of mint, it does not have the same degree of overt flavoring as a strawberry cigarette. In 2009, the FDA banned all flavored cigarettes excluding menthols. This prohibition was enforced under the Family Smoking Prevention and Control Act (FSPTCA). This act extended the ban to Kretek (colloquially known as a clove cigarette) cigarettes.  It is difficult to determine if methanol cigarettes were excluded from the 2009 legislation as a result of regulatory capture. Brands such as Kool, Salem, Newport, and so on have enjoyed immunity from the national ban.

All because the sale of menthol cigarettes is legal at the national level, does not mean that these products cannot be restricted at the state and local level. Case and point Massachusetts implementing a ban that included methanol cigarettes. Did the lawmakers in Massachusetts fully contemplate the consequences of this policy? Massachusetts is a relatively small state and borders several other states that still permit the sale of menthol cigarettes. Naturally, if a Massachusetts resident wants to buy a pack of Newports they just need to take a short drive to a neighboring state.  All because the Bay State’s government restricts the in-state sales through legislative fiat does not mean that smokers will not find alternatives.

Displaying the puritanical hubris of the Massachusetts state legislators. The state’s culture has long been a victim of its history. Outlawing the sale of Newports will not prevent people from smoking them. States such as New Hampshire and Rhode Island still selling menthol cigarettes will only serve to divert tax revenue away from the Bay State. Invariably, the state ended up shooting itself in the foot.  If the objective was to fill the coffers, Massachusetts provides every incentive to purchase cigarettes out-of-state. The state aggressively applies onerous taxes to tobacco products. Then takes it one step further and bars the sale of a tobacco product that is legal in every other state. Making it easy to suspect that these policies are not designed to generate state revenue. Rather operate as a confiscatory function.  A means of attempting to influence behavior through regulation and taxation. When it comes to victimless “crimes” these measures always fall short of the expected outcome.

The Baptists:

If we adhere to Bruce Yandle’s research on regulation, the Bootleggers and Baptists dynamic apply to this situation. The supposedly noble intentions of this law have created some passive beneficiaries. This benefit is obscured by the strong moral argument of banning menthol cigarettes to make smoking less appealing to kids. Regulation is never neutral or linear in its consequence. Health advocates, lawmakers, and the governor of Massachusetts are the Baptists. They obtusely champion this moral defense of this interdiction with no consideration of external consequences. Kids are not going to stop smoking cigarettes just because menthols are off the table. Only 36 percent of all brands of cigarettes are mentholated. It is highly unlikely that all underage smokers are reaching for menthols. This legislation places a burden on adults who actively choose to smoke mentholated brands. Adults are old enough to weigh the risks of smoking and should not be limited by legal restrictions. The Baptists in this scenario would claim that this is a small sacrifice for the greater good. However, shouldn’t it be the responsibility of the parents to thwart their teenager’s attempts to engage in the rebellious behavior of tobacco consumption?

The moral imperative of reducing teen smoking at all costs has a major blind spot.  If a child’s parents are willing to drive out-of-state to purchase mentholated cigarettes, couldn’t they just steal them from their mother or father?  The legal barrier of age restriction should pose enough of a bulwark to accessing tobacco products. If a minor opts to steal cigarettes or coax an adult to buy them a pack, what can you do? Any further action is either futile or unjustly punishes adults who possess the right to smoke. Adults also have the right to smoke whatever kind of cigarettes they desire, including flavored cigarettes. Investing tax dollars to enforce such an initiative is downright wasteful. Serves to penalize smokers and nonsmokers alike through a misallocation of their taxed income. The Baptist may be sincere in their efforts to curb youth smoking. Unfortunately, kids are still going to continue to smoke. Believing that this restriction is going to have any measurable impact is laughable. Everyone else pays the price for a policy that will not remedy the issue of youth smoking.

The Bootleggers:

There are two categories of bootleggers in this policy dynamic. On the microlevel, you have the state-line convenience stores that will see an influx in business. Even the grasp of the legislative body of Massachusetts cannot stifle the Invisible Hand! This operates on a similar principle as tribal smoke-shops. Since many do not apply state taxes to cigarettes, many non-Indians flock to the reservation to buy cheap-smokes. If Massachusetts bans, Newports, people will simple patronize establishments in New Hampshire and Rhode Island. Lawmakers such be all too aware of this phenomenon.  Considering  Rhode Islanders come in droves to Massachusetts towns on the state board to purchase alcohol. For the unacquainted among us,  Massachusetts does not have a sales tax on liquor.

I would never be one to advocate for taxation. However, if you are going to tax something you might as well do so in a manner that will generate some revenue. The true parties that benefit from this ill-advised law are the state governments of New Hampshire and Rhode Island.  In 2019, Massachusetts collected  $553 million in tax revenue from cigarette sales. That number is down by 9.7 percent as of the fiscal year 2020. The Department of Revenue projects that tax revenue will be down by  $93 Million in “FY 2021”. This large sum of money is filling the coffers of neighboring states.

Image courtesy of Tax Foundation