Today the Supreme Court will hear Granholm v. Heald, to determine whether a state that allows in-state wineries to ship directly to consumers can ban similar shipments from out-of-state. (Here is a news story.) The Constitutional issue will hang on questions that would put most Americans to sleep. However, wine drinkers have a serious stake in the case, because it could strike down substantial protectionist barriers against wine industry competition.
The FTC documented the substantial cost to consumers of state restrictions on direct wine purchases in a 2003 study. It found that purchasers could not only access a far larger selection of wines online for direct delivery, but they could save 8-13% on wines costing $20 or more per bottle and 20-21% on wines over $40. In-state wine wholesalers, in-state wineries and their political patrons, who are the primary beneficiaries of direct delivery restrictions, claim that they really exist to restrict underage drinking and to allow states to collect taxes. But the FTC study rejected those claims as fig leaves for protectionism, as well as revealing other restrictions that make sense only as ways to hinder competition. Why are those restrictions not about restricting underage drinking?
First, minors can rather easily buy alcohol from local stores. Second, there is little evidence that minors actually buy alcohol online, and liquor enforcement agencies in states allowing direct shipment report very few problems. In fact, such complaints come primarily from competing sellers and wholesalers. Third, the FTC study showed that low cost wine, which underage drinkers would almost exclusively buy, is actually cheaper at local stores than delivered directly. Fourth, on-line purchases require a credit card and a several-day wait for delivery, unlike local stores. Fifth, many states impose added restrictions and controls, such as requiring adult signatures for delivery. Sixth, many states excluding interstate direct shipments allow in-state shipments, even though they would create the same underage access problems.
As underage drinking has been increasingly exposed as a protectionist ruse, proponents of restrictions have shifted toward arguing that the restrictions are necessary for states to collect taxes. But that claim is no more credible. States allowing interstate direct delivery utilize far less restrictive policies, such as requiring registrations or permits from out-of-state wineries, and report few problems collecting taxes. Some work directly with other states to solve any problems. Those allowing direct in-state shipment similarly express no major difficulties collecting taxes. In addition, legislation passed in 2000 now lets states bring actions against violators of state liquor laws in federal court.
All salesmen, whether marketers of products in the private sector, politicians selling policy claims to the public, or lawyers making cases before the Supreme Court, strive to present their wares as attractively as possible. However, when the best those insulated from competition by restrictions on interstate wine shipments can do is employ blatantly false arguments involving underage drinking and tax collection, those cannot be the real reasons. Instead, they are just examples of what Ambrose Bierce once described politics as: “A strife of interests masquerading as a contest of principles.” Economist Daniel McFadden described the interstate wine delivery restrictions to the FTC as “another example of the abuse of the regulatory process to protect concentrated economic interests, going far beyond the minimum regulations needed to maintain the integrity of taxation and to protect minor consumers.” That conclusion is reinforced by the fact that the FTC has received more complaints about those restrictions than any practice in any other industry.
Unfortunately, the clear anti-consumer nature of state restrictions on interstate wine shipments will not determine the Supreme Court’s decision. If the Court finds them unconstitutional, wine consumers will gain substantially. But if not, that will not exhaust the issue. Consumers in those states can still realize that those restrictions’ only real purpose is raiding their wallets to give to others, and give those politicians facilitating the transfer the boot.
