January 23, 2008
A Hell's Kitchen Economics lesson
Today the Times covered Eliot Spitzer's proposal for increasing NY state revenues for the coming year, which is a strange blend of encouraging some problem behaviors for residents (thousands of video gambling machines installed at the racetracks) while trying to discourage other problems (raising taxes on malt liquor and, weirdly enough, illegal drugs.)
But the political is personal, and the Times is at its best when it captures the reactions of regular New Yorkers to otherwise dull legislative proposals.
So they went into businesses along 10th Avenue in Hell's Kitchen, a neighborhood where people love their 40s, which nobody knows better than bodega workers.
The Times asked some local residents what they thought about Spitzer's plan--specifically, his proposal to raise the tax on malt liquor from 11 cents to $2.54 per gallon. The responses they got perfectly illustrate a number of key economic concepts:
Inelastic Demand: Roman Isre, 28, a barber at Erik’s Barber Shop on 10th Avenue, said he bought malt liquor once or twice a week. "That's bad!" Mr. Isre said when told about Mr. Spitzer’s proposals. Would he buy less malt liquor? Mr. Isre smiled. "Nah. You got to do what you got to do," he said. "It’s like gas. You drive the same mileage for $2 a gallon or $3.50 a gallon."
Cost-Benefit Analysis: A and A Market and Deli, at 45th Street and 10th Avenue, used to sell as many as 40 cases of malt liquor a week, but it became too bothersome to stock. "We have arguments here, very loud arguments," said Mustafa Saleh, 27, the deli’s manager. "They don't want to pay." When customers did pay, it was annoying, he said. "They paid in change," he said, "$2.50 in nickels, dimes and pennies; that’s the kind of money they have."
You can argue that raising the price of a 40 through taxes will encourage people to stop drinking so many of them, but my guess is that this population isn't likely to respond to higher prices by quitting drinking. If anything, they'll just switch to beer, which will continue to be taxed at a lower rate due to its lower alcohol content.
But they won't be happy about it! Darryl, the bundled-up 50 year-old, was asked why he bought malt liquor rather than beer: "Darryl looked quizzically at a reporter and replied, 'You get twice as much, and it’s got a bigger kick to it.'" Smart shopper.
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