Show Me the Way to the Next Whiskey Bar: Whiskey Shortages and Austrian Business Cycle Theory
By Art Carden
According to a report in the Tennessean by way of AL.com, “gains in whiskey sales are outpacing increases in production by ‘at least’ a 2-to-1 margin…The Jack Daniel distillery announced a $100 million expansion in distilling and warehouse space.”
Reports of “shortages” like these make my eye twitch because prices will adjust to eliminate the shortage, and anticipating the ability to sell more whiskey in the future firms are hustling to expand current production. Markets fix shortages, in other words, but this is where things get interesting when we’re talking about goods like whiskey. It takes a long time to produce good whiskey, and from what little I know about the production process making premium whiskey requires a lot of specialized knowledge and people with very sensitive palates. Whiskey production should also be interest rate sensitive because it’s a product that ages for up to thirty and forty years before being sold.
I believe that the Austrian business cycle theory is correct as a matter of logic, but we need a lot more detailed empirical work before we can know just how quantitatively significant it is. The whiskey industry provides just such an empirical setting given the length of the production processes involved, the global market for whiskey, and the different places and ways in which different whiskies are produced. What are the dynamics of the market for whiskey? Do we see unusual rates of success or failure relative to industries that don’t involve such lengthy production processes? Do we tend to see asset bubbles in the market for premium scotch?
Right now, I have so many projects on my plate that I probably won’t be able to study this in detail for a very, very long time. If you’re a grad student looking for a dissertation topic, though, here you go. It might require extensive field research, but I think it could be a fun and informative project.