Between 1921 and 1933 the United States government introduced “Prohibition laws”, which prohibited the production, distribution and consumption of alcohol. However, despite the ban on booze the demand for the product did not fizzle and this gave rise to the illegal act of bootlegging (concealing alcohol in the legs of boots). Recognising the gap in the market new producers entered, but these were no ordinary individuals because what they were doing was illegal. The risks for entering this line of business were high –people were shot and often landed up in jail. But the rewards were also high because the competition had been significantly curtailed by the legislation.
Eventually the US government sobered up and realised that their laws were promoting lawlessness and general mayhem. Similarly, the act of “buttlegging” also arose due to bad laws. Buttlegging occurred in the State of New York where there was a tax on cigarettes that was very much higher than the taxes in neighbouring South Carolina. Some people recognising the artificially created arbitrage opportunity would go to South Carolina to buy cigarettes at the lower price then bring them back to the state of New York re-package them and sell them at the higher price.
According to an article which appeared in Times Live (Eleven arrested for cigarettes in Gauteng, May 20, 2011), "The first raid was carried out at midday [on Thursday] at a warehouse in Isando, outside Johannesburg, where the officials found suspects loading cigarettes into three vehicles," spokesman Malerato Sekha said in a statement. Apparently, the packaging did not have the required diamond stamp and the three people who were arrested could not produce clearance documents for the cigarettes. Bad laws create a situation where it is socially virtuous for people to break those laws and this in turn breaks down respect for laws in general. Milton Friedman describes the situation as “bad laws make socially advantageous acts illegal and therefore leads to undermining of morality in general”.
Author: Jasson Urbach is an economist with the Free Market Foundation. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.
FMF Policy Bulletin/ 24 May 2011
Jasson Urbach is an Economist and director of the Free Market Foundation.
Publish date: 03 June 2011
The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.