Monday, July 23, 2012

Why Markets Are Smarter Than Mayor Bloomberg

Leaving things to the markets  would never result in the problem facing Honest Tea. Adam Ozimek explains:
Remember a few weeks ago when defenders of Mayor Bloomberg’s move to ban large sodas simply could not imagine how it was going to seriously inconvenience anyone? These paternalists guffawed anyone who objected, pulling a neat little trick of advocating for a petty law and then attacking critics for getting upset over a petty law. (Ignoring the obvious fact that if nobody objected to petty paternalistic laws then we’d be drowning in them.) Critics warned that laws which may seem on the surface to not matter much may be consequential in ways that the laws creators don’t foresee, but defenders simply could not imagine this being the case. Unfortunately, but not surprisingly, we have a pretty textbook example of this occurring in the case of Honest Tea.
Seth Goldman, the founder of Honest Tea, has a great op-ed in the WSJ today describing how the regulation, which bans drinks over 25 calories per 8 ounce serving from being served in containers larger than 16 ounces, would be costly and damaging to his business:

We initially went with 16.9 oz. (which is 500 milliliters) because it is a standard size that our bottle supplier had in stock at the time. We subsequently invested several hundred thousand dollars for 16.9 oz. bottle molds. Is 16.9 ounces the perfect size? Who knows? As a beverage marketer, we willingly submit to the unforgiving judgment of the market. What we did not anticipate was an arbitrary decision to constrain consumer choice.
One response we considered was putting 0.9 ounce less liquid in our bottles, but that would create a separate set of complications. We fill our bottles to the brim—not just because we like to deliver an “Honest” value, but also to ensure quality since we do not use preservatives. Then there is the costly prospect of having to change all of our UPC codes (those complicated black bars found on every product on a grocery shelf) because we would be offering a different liquid volume—all for 0.9 ounces!
In addition to losing the several hundred thousand dollars in machinery they invested, they won’t switch to 16 ounces because, as Seth puts it “what if next year, Cambridge, Mass., comes up with a ban on 15.5-ounce containers?”.


  1. And what if Seth does invest in some arrangement that he would not have except for the petty law? Why, then he may become a defender of the law. It wouldn't be "fair" to repeal it when he paid the price and others who objected didn't. If it's a cost every new entrant pays, then it becomes a "moat" to be defended for its value at keeping competitors out. Ad nauseam.... (I'm not accusing Seth of this; it's just such a common story)

  2. Regime Uncertainty!! Paging Dr. Higgs!
    You gotta have Bob Higgs on your show!

  3. It ain't that difficult - I've got a hamster that's "smarter than Mayor Bloomberg".