Wednesday, May 18, 2005

Good Economics vs. Originalism (The Wine Dilemma)

On Monday, May 16, the United States Supreme Court issued its opinion in a matter of some interest to wine-lovers everywhere. This case, Granholm v. Heald, addressed a tension in Constitutional law between the 21st Amendment, which repealed prohibition and granted extensive rights to the states to regulate the sale of alcohol, and the Commerce Clause, which constrains the states from discriminatory treatment of in-state and out-of-state actors with regard to commercial sales.

The laws of Michigan and New York were both challenged in this case. Though both differed in details, they essentially either prohibited or set up a barrier that made it more difficult for out-of-state wineries to ship their products to customers in their states, while allowing in-state wineries to make such shipments. On one hand, this seems to be facial discrimination against out-of-state wineries, which is problematic under the Commerce Clause. On the other hand, clause 2 of the 21st Amendment provides:

"The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."

Who is harmed but such laws? Well, for one thing, Michigan citizens are harmed. They can receive direct shipments of Michigan wineries, or they can buy from the retail establishments though in-person purchases. This means they are deprived of access to great products. Though I have had some Michigan wines that were very good (we have vacationed there often), I would not want to deprive myself of the products of small wineries elsewhere. Thus, if I were a Michigan resident, I would be hammering my local representatives to change this law.

However, some Michigan wineries might well think otherwise, as this law kept them from having to compete with some of the smaller wineries, which could not convince retailers to give them shelf space to market their products, and given their small output, may not even be able to do so. Their scarce output could be rationed efficiently, however, if they could ship to their customers directly. Thus, the smaller wineries were harmed, and they would not be protected by the political process in Michigan. They could not conceivably induce their customers to seek political change for them, so they chose the judicial route.

There is much that could be said about this opinion, but one point that really interests me is the tension between good economics and originalism. In this case, the barriers to trade erected by the states are inefficient and bad for consumers and business alike. They are protectionist measures, which may have some redeeming qualities (such as ensuring tax collections for the state), but on balance mean people are less well served in their quests for a product that they want. Such laws are prime targets for judicial action under the Commerce Clause, as Congress may always intervene and allow the states to do crazy things like this if they really want to do so. It keeps the states from competing unfairly, and benefits business and consumers alike. Five judges came down on this side of the decision, and majority rules.

On the other hand, originalism serves a valuable function, particularly if you are of a conservative persuasion, in providing a constraint on judicial power. Here, four judges on the court focused on the language of the 21st Amendment, which includes “in violation of the laws thereof”, as giving significant power to the states to structure laws governing liquor transportation. Though we moderns may look at a bottle of wine as just another product and no big deal, it was certainly a big deal to lots of people when the 21st Amendment was enacted. After all, only a few years before a majority voted to ban alcohol! This issue is raised in the dissent, and it presents a real dilemma for conservatives. Most of us want economic matters to be free from silly government constraints. But we also want to stick to the rules as they were written. Some more puzzling needs to be done here.


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