A Free-Market Capitalist’s Take on Bourbon Shortages

Let’s get this first out of the way. Yes, I enjoy an occasional ice-cold stout beer, a glass of wine, or a dram of whiskey. That may surprise some of you, and to others, it might not be a surprise at all. There was a time in my youth where I drank more regularly – never became a problem, per se, but it was enough for me to decide to stop completely for a while. A few years ago, I’d started taking some wine when out at a nice dinner (a good friend turned us on to Malbecs). And even more recently, I started to try some whiskey.

Bourbon, the American whiskey, has become in vogue over the last decade or so. Some people see that as a bad thing. No matter what the fad or trend or hobby or activity, there’s always going to be those snobs that claim to have been here first (before you were born, back in my day, etc. when they could buy Pappy for $30 and Blanton’s was a bottom shelf throw away mixer). I guess in their worldview, they’re so edgy that when something they enjoy gains the attention of others, they feel like they’re no longer alone in their little exclusive club anymore.

As interest has been exploding on social media, some of the more popular and premium bottles of bourbon have become all but impossible to find for the casual shopper. Even the less than premium bottles, if made by a well know distillery, are disappearing off the shelves like it’s Black Friday every day. Many have resorted to clubs and groups to gain insider tips on where to find these so-called ‘unicorns’. Seriously, it’s pretty impressive how deep the rabbit hole goes.

I could write about the current phenomena more in detail, but many have already done so. If you google “Bourbon Pricing Is Getting Out of Control, and Only the Consumers Can Stop It” on Paste Magazine, you can read about the details of how shortages have driven up the prices and led to “price gouging” on some of the most popular whiskeys to date. (I don’t want to link to it and start a tit for tat war online with the author.)

The author actually points out many of the facts quite well – the cause of shortages, how much the landscape has changed over the years, how social media has added gasoline to the fire, and a behind-the-scenes look at the primary and secondary markets for bourbon. But as a Free-Market Capitalist, and a newly growing fan of bourbon, I wanted to share my thoughts on some of the factors driving the market today.

And as always, lets’ start from Supply and Demand.

The Demand-side is pretty clear in that it’s skyrocketing. See the article above.

For those that are old enough to remember a world before Starbucks circa 1980, think about your opinions of coffee at that time. You might have heard of espresso or a latte or cappuccino, but chances are you had never tried one. The idea of paying more than $2 for a small coffee would have been unheard of in those days. Maybe you drank McDonald’s coffee every morning with your breakfast-to-go or you brewed a pot of Folgers or Maxwell House at home.

And life was just fine. The Market had no Demand for Premium coffee or coffee drinks because we didn’t know of its existence.

I’m certain there were some coffee connoisseurs back then. They probably had to go to a specialty store or even had an inside source to import unroasted Columbian or Sumatran beans.

Then Starbucks hit the scene. And it introduced the world to a whole new way of enjoying caffeine. It exploded to become the global behemoth that it is today.

Some people still refuse to pay $8 for a hoity, over-priced dessert drink topped with caramel, mint, and whipped cream. (I’m one of them. But I do enjoy premium coffee straight up. Black. No sweetener or flavoring. Dark roasts are preferred.)

But these are products that didn’t exist 30 years ago. Now, there are countless people whose lives are better off because they do – and not just the consumers buying them, but those that produce and work in the coffee industry as well.

One of the byproducts of Starbucks raising Demand for premium coffee globally has been a huge development in Substitute goods. You might think Starbucks overroasts or even burns its beans. But there are literally now thousands of brick and mortar and online sellers of unique and interesting types and brands of coffee to choose from instead.

In other words, as the Market observed the growing Demand for coffee as evidenced by the skyrocketing prices, it reacted by bringing in competitors and substitute goods (aka Supply). No one had to tell these businesses to come. They observed the Price Action and wanted to grab a piece. And because there were relatively low barriers of entrance (like overregulation, licensing or copywrite / patent protection), many could enter the market and offer a better product for some pallets at competitive prices.

Now look at the bourbon industry. I don’t know all the details, but it is basically the exact opposite of the coffee market. Laws, restrictions, and regulations are chocking supply of a product that’s only growing in Demand. Who can produce it, who it can be sold to, who can distribute it, and who can consume it. All these factors are adding to the skyrocketing prices and depleting Supply.

Now I know, some of you are saying “well yeah, but we need to protect people from themselves because no one is dying from a coffee addiction, but they certainly are from drinking alcohol. And wHAt aBoUt ThE cHiLdReN?!?!

These are basically the same people that are waiting for the government to give them permission to go outside, declare the War on Covid-19 to be Mission: Accomplished. Those that know me and my writings know how I feel about all that. 😂

But Safetyness aside, the Market has proven time and time again that the only “Fair” way to address shortages of Supply is to allow it grow without hinderance. Without restrictive regulation and prohibition, the Market would provide ambitious, wonderful, amazing, and affordable alternative or superior competitive goods to the existing short Supply of bourbon.

Some, like the author of the article above, think the solution to short supply is basically not to participate. I don’t see that as a solution at all. In fact, I’ll be so bold to say that it would never work. It only incents those that are responsible for pumping up prices and hording rare bottles to continue to do so.

And even worse, many look to the government to try and solve the problem of scarcity. These fools actually believe there’s a static, “fair price” of a good that can be mandated as a maximum and that this would somehow solve our problems. (And no, that’s not what MSRP is.)

Anyone with any sense will understand that price ceilings don’t solve the problem of short supply — they only make matters worse. Without the market to innovate or establish prices naturally, you will never create the incentive for competitors to enter like we had observed with the coffee industry.

Whether you love or hate bourbon or alcohol or coffee or bitcoin, there’s no escaping Supply and Demand and the Law of Scarcity. The sooner we Free the Market to allow unobstructed, savy entrepreneurs to innovate and build the Better Mousetrap, the more people will benefit from the increased level of Choices rather than resigning to drinking bad McDonald’s coffee everyday.


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