Amanda Macias

A few numbers on the economics of prohibition

Amanda Macias
A few numbers on the economics of prohibition

Prohibition did everything that it wasn't supposed to  — it provoked intemperance, eliminated jobs, created a black market for booze, and triggered a slew of unintended economic consequences.

For 13 sober years, Americans waited for the quality of their lives to improve while the federal government spent millions trying to enforce the dry era.

According to historian and author Michael Lerner, the social and economic impacts of Prohibition were largely negative:

When the law went into effect, they [the idiots in favor of Prohibition] expected sales of clothing and household goods to skyrocket. Real estate developers and landlords expected rents to rise as saloons closed and neighborhoods improved. Chewing gum, grape juice, and soft drink companies all expected growth. Theater producers expected new crowds as Americans looked for new ways to entertain themselves.

None of it came to pass.

Instead, the unintended consequences proved to be a decline in amusement and entertainment industries across the board. Restaurants failed, as they could no longer make a profit without legal liquor sales. 

The closing of breweries, distilleries and saloons led to the elimination of thousands of jobs, and in turn thousands more jobs were eliminated for barrel makers, truckers, waiters, and other related trades.

And yet, the greatest repercussion from the 18th Amendment was on government tax revenues.

See, before manufacturing/transporting/selling intoxicating liquors became illegal, state budgets were heavily dependent on excise taxes slapped on booze sales. 

Let's take New York for example.

Nearly 75% of its revenue came from liquor taxes until Prohibition waltzed in and obliterated the market.

¯\_(ツ)_/¯  ... whoops.

Nevertheless, in an admirable attempt to keep America on the wagon, the federal government threw $13.4 million at the (no joke), Bureau of Prohibition.

What's more, Prohibition cost the federal government $11 billion in lost tax revenue and another $300 million to implement. Ouch.

So, who benefitted from this hot mess?

Doctors and bootleggers.

It is estimated that doctors pocketed nearly $40 million by writing prescriptions for 'medicinal whiskey.'  

Meanwhile, annual bootleg liquor sales trickled in at $3.6 billion in 1926 (give or take $49 billion in today's dollars).

(Source: A gem of an exhibit in the Frazier Museum in Louisville, Kentucky called "Prohibition and Kentucky")