Friday, January 2, 2009

Jakarta's alcohol shortage, pondered

The Butterfly Effect holds that relatively small events often have unintended consequences, like a butterfly fluttering its wings in China leading to a hurricance in Florida.

A new real-life example of the theorem: Indonesia's recent alcohol shortage has caught the attention of one of the world's foremost economists.

University of Chicago prof Steven Levitt had a massive bestseller (three million copies) with his book Freakonomics, which sifted reams of data to come up with observations like the effect of legalized abortion on crime, the importance of word choice in selling real estate, and crunching numbers to discover cheating patterns in the world of sumo wrestling. (No, really.)

Anyhow, in a new post on his blog, he sets to thinking about Jakarta's alcohol shortage, caused in part by a crackdown on black-market importers, which is annoying non-Muslims and starting to have a very real effect on the tourism industry. The central question: Whether cutting down supply will actually have the opposite effect, in terms of making alcohol more desirable than ever (in the economics world, a so-called Giffin Good).

Like Prohibition in the U.S. in the 1930s, something scarce becomes even more valuable.

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