Daniel Sutter: Sunday sales, diminishing returns, and democracy

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Daniel SutterTroy residents will vote next week on legalizing Sunday alcohol sales. The measure surprisingly reflects an economic principle and raises an issue about the role of referenda in democracy.

Legality reflects our collective moral judgment. Making an activity illegal signals our collective belief of its impermissibility. Of course, people do not agree on moral values, and the law is sometimes unjust. But signaling right and wrong is important.

That said, Sunday sales, I think, involve almost no moral signal. Prohibition was a moral statement; when alcohol sales are legal six days of the week, we have already signaled its permissibility. Blue laws were enacted to restrict business activity on Sundays, but today stores and restaurants generally open. As a libertarian, restrictions on freedom anger me. But honestly, the restriction on freedom here is pretty slight.

The mild signal is a consequence of diminishing returns. The concept applies widely in economics. Diminishing returns means that as we consume a good, the value or utility from each unit falls. It also implies that as a firm hires more workers, the resulting increase in production declines. Similarly, the value of freedom to purchase alcohol declines with each day of legal sales per week.

Diminishing returns has numerous economic implications. For instance, it helps explain why a necessity like water is cheaper than a luxury like diamonds. Water is indispensable, but enough is available that the value of an extra gallon is small. We have few enough diamonds that the value of one for an engagement ring remains high.

For most of us, Sunday sales are a matter of convenience. If you go grocery shopping on Sunday, you currently cannot buy beer or wine. Or you cannot have an adult beverage with dinner. Sunday sales will create value for many people through added convenience. But anyone benefitting too much might want to look into a twelve-step program.

Sunday sales matter much more for businesses like bars and restaurants. Bars lose one day of business, while restaurants lose out on sales of an item with a high markup. Because of the NFL, Sunday sales are particularly important for sports-themed restaurants. Buffalo Wild Wings, for example, will not put a franchise in a community without Sunday sales. The law affects the range of dining options available, both on Sunday and throughout the week.

The Conecuh Ridge Distillery recently announced plans to build a distillery in Troy. They plan to offer tours and tastings, which offer a great opportunity to sell to interested customers. Sundays should be a prime day for people to visit Troy for a tour, so this is another affected business.

If you do not own or work for such a business, you might dismiss such impacts. And yet successful, value-creating businesses drive the prosperity of modern life. We benefit when entrepreneurs risk their savings starting businesses. Why make it harder for entrepreneurs to succeed?

So when do referenda contribute to government by the people? The question matters because the will of the people does not magically transform into concrete policies. We rely on representatives to avoid learning all about the affairs of government. But an election every two years provides only limited control, and representatives cannot talk to each constituent about every issue.

A referendum allows citizens to make decisions, eliminating a channel for special interest influence. Does this mean we should never have Congress, the state legislature, or city council decide anything? No, in part because elections are costly (although technology is significantly reducing costs). But even if we could securely vote on bills using smart phones, direct democracy involves us learning all of those details of government. Referenda work well on focused, transparent issues where voters can readily figure out where they stand.

We cannot decide every issue by referendum, but Sunday sales seem like an appropriate question to put to the people. Whatever the outcome, it will be our decision. And it may be hard to blame this one on special interests.

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Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

 

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