Is McDonnell Smarter Than a Fifth Grader?

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    The commission Bob McDonnell set up to justify his heart’s desire – privatizing liquor in Virginia – is  leaking out a bit more information about their discussions. According to the Daily Press, four options are being considered for privatizing ABC stores: selling the whole operation to one buyer (creating a private monopoly); auctioning off a limited number of licenses (guaranteed to bring in little revenue); selling ABC stores to several “competing” companies (setting up an oligopoly, compliments of the state); or offering licenses to more than 3,000 businesses that now sell wine and beer. (Note that the number of outlets keeps going up.)

    Mark Warner tried to find a way to do the same thing when he was Virginia’s governor, but he just couldn’t find a way to replace the revenue ABC stores bring in.

    “If we were starting from scratch, most of us would agree that the state shouldn’t be in the liquor business,” Warner said. But “how are you going to replace that revenue stream?” My answer? Sen. Warner, you can’t.

    The Canadian province of Alberta, the most conservative of Canada’s provinces, privatized their liquor sales in 1993 and 1994. The results have been pretty bad, in terms of lost revenue for the province. Alberta ended government retail and wholesale functions and switched from a percentage of price tax system to a flat excise tax on alcohol.

    Since then,

    the retail industry has evolved into:

    monopolistic competition with its inherent excess capacity and high costs. The government has lost effective control of the liquor industry which will likely continue to evolve into an oligopolistic market structure as chain stores get greater control. Against the trends in other [provinces], liquor consumption has increased (with its potential risks of increasing social ills), wholesale costs have risen, and retail prices have increased. Although retail prices have increased, the tax revenues to government have fallen significantly.

    Is this what we want for Virginia? A big jump in alcohol consumption and a deep drop in revenue from alcohol sales?

    Of course, if Virginia actually implemented either a sale to one entity of the whole wholesale-retail operation, or sale to several “competing” companies, creating an instant oligopoly, then we wouldn’t have to wait a decade or so to repeat Alberta’s example. The state would save business all that competing to kill off most market players.

    Alberta also found that “private retailing of liquor has required greater regulation and enforcement costs.” Some of the costs have been incurred by the provincial authorities, and some have been a drain on local police.

    I ask again, is this the sort of thing we want in Virginia? Do we really want another Republican governor to find a way to drain money from the state general fund and put us in a fiscal bind. Wasn’t Jim Gilmore and his “no car tax” debacle enough? Virginia still has to deal with that mess, finally having to cap the dollar amount of the state mitigation of the tax, in order not to bankrupt the general fund.

    I simply cannot understand why some people continue to buy into the Republican “free lunch” fiscal policy. You know, the one that is hell-bent on cutting taxes and ending revenue streams to the government, while not knowing how in the world the services supported by those revenue streams are going to function. That’s not conservatism. That’s economic ignorance and governance malpractice. That’s being economically dumber than a fifth grader.