Does this signal deflation?

Boston City Councilman Chuck Turner was arrested for taking a $1000 bribe. State Senator Dianne Wilkerson is under investigation for corruption as well for having accepted up to $23,000. Allegedly, both politicians accepted payoffs to facilitate liquor licenses. Though race - both politicians are black - will eventually become a factor due to propensities to exploit the obvious, the key issue has to do with the price of graft. So why have politicians staked so much for so little? 

 

In Massachusetts, liquor licenses are both scarce and expensive, and as such pose barriers to entry for aspiring entrepreneurs. Since it is difficult to obtain a license from scratch, transfer of licenses is a more likely avenue to getting one. However, towns have their own zoning limits and liquor quotas. Because of the nature of the product sold, the market is not particularly volatile. Thus, the available number of licenses does not keep up with demand. 

 

At this stage, it is unknown whether Turner and Wilkerson were acting in concert. If the incidents are not part of a conspiracy, then they expose a glaring weakness in state law. Hearing about a political graft scandal will not shock even the least jaded. What is more alarming is how little politicians will sell out for.

 

Investigators have barely begun to discover the extent of the alleged corruption, but what they have revealed to the public ought to provide enough impetus to amend state liquor licensing procedure.

Fundamentally, a quota on licenses for anything is anti-libertarian and anti-market. Compelling state interest ought to exist for government intervention. There are no limits on the number of recreational hunting or fishing licenses, but the state restricts quarry numbers because of ecological concerns such as species population depletion. An age baseline for driver's licenses makes sense because of public safety. However, issuing fewer liquor license accomplishes little except putting an artificial brake on commerce.

 

Not all state liquor laws are incoherent, though. Some do provide a public benefit. According to Massachusetts statute, MGL CH. 138, SEC 15 regarding the number of licenses issued, "No person, firm, corporation, association, or other combinations of persons, directly or indirectly, or through any agent, employee, stockholder, officer or other person or any subsidiary whatsoever, shall be granted a total of more than one package store license in a town, two licenses in a city, or three licenses in the state." Such provisions limit the influence of organized crime and promote competition among the lucky that have licenses. 

 

So, why have politicians have sold out for such piddling amounts of money in such a high stakes, high margin industry? Helping someone procure a license that costs hundreds of thousands of dollars should come with a higher vig. Entrepreneurs aspiring to get a liquor license will have a sense of what the return on investment will be, and the timetable for actualizing the returns. Annual fee schedules in each municipality vary, but even the most expensive are no more than a few thousand dollars a year, so annual fixed costs are low after the initial investment. Getting the inside track on a brand new license should be worth a lot more. If the average cost of a liquor license in the state is a quarter million dollars (the license itself comes with the establishment, real estate, kitchen equipment, etc.), taking .o4% of the market price as commission hardly makes sense. Unless it was an installment in a residual payoff plan meant to keep police and authorities off the scent, taking so little was a bad play. Even if the amount concerned in the Wilkerson probe was for one liquor license, she still took less than 10%. 

 

Since the amounts in question are tiny compared to what was at stake, whatever information surfaces in the near future will shed light on the terms of trade for political favors in this state. Given what is known in the early stages, the bottom has seemingly fallen out of the political black market. That cannot be a good sign for all business, legitimate or not.