ShareThis Page
Gov. Wolf’s economic incompetence & financial idiocy |
Featured Commentary

Gov. Wolf’s economic incompetence & financial idiocy


It’s difficult to decide whether Gov. Tom Wolf is incompetent or duplicitous. The reasons he gave for vetoing a long overdue plan to privatize Pennsylvania’s state-run liquor system do not pass the smell test. Any introductory-level economics student would know as much.

The governor asserts fantastically that ending the state monopoly on liquor sales would harm consumers by causing higher prices and decreased selection. He never explains how this might happen, though, because he can’t. When a monopoly ends — and the state most certainly holds a monopoly in liquor sales — entrepreneurs rush into the market to satisfy demand. What results? Lower prices or better service or more convenience or increased selection or a combination of all four. Every time. Look no further than Google Fiber vs. the Comcast monopoly, or Uber vs. the taxi cartel. When competition does lead to higher prices, it’s because the protected monopoly’s product is so bad that customers are happy to pay more to be rid of it. FedEx vs. the postal service and private vs. public schools come to mind immediately. Look anywhere that a protected monopoly has lost its protection and you will see entrepreneurs bending over backward to please customers. Has the DMV ever been described that way? Has any government-run entity?

In his veto announcement the governor wrote, “In … another state that pursued the outright privatization of liquor sales, consumers saw higher prices and less selection.” Notice that the governor didn’t mention which state. It’s Washington. When Washington privatized, it simultaneously slapped a massive tax hike on liquor, making its tax the highest in the nation. Yes, Governor, Washington’s prices did rise with privatization — not because of privatization but because of the government’s tax.

Wolf’s display of economic incompetence is rivaled only by his display of financial idiocy. He also claims that “It makes bad business sense for the commonwealth and consumers to sell off an asset, especially before maximizing its value.”

Incorrect again. If the sale price exceeds the current value of expected future profits, it makes perfect sense to sell off the asset. According to its financial statements, over the past six years the Pennsylvania Liquor Control Board has contributed an average of $95 million annually to the state’s general fund. The authors of the House bill for privatization estimate that selling the state store system would generate $1.2 billion in the first year, then $30 million each year thereafter. At a 5.5 percent rate of return (the average return on triple-A corporate bonds over the past 15 years), selling the state stores would generate the same $95 million annual income that the state store system generates now. And it would do so without taxpayers having to bear the risk and expense of running one of the country’s largest liquor store chains.

There are excellent arguments for privatization and even a couple of good ones for maintaining the state-monopoly, none of which the governor addressed. Tom Wolf leaves us to assume that he is either an economic and financial incompetent or another prevaricating politician. But we repeat ourselves.

Antony Davies is associate professor of economics at Duquesne University. James R. Harrigan is director of academic programs at Strata in Logan, Utah.

TribLIVE commenting policy

You are solely responsible for your comments and by using you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.