High-potency alcoholic beverages known as fortified alcohol have been the hallmark of urban package stores for decades. Due mainly to the fact that fortified alcohol produces a much greater level of intoxication at a significantly lower price than "regular" alcoholic beverages, they have become a favorite of low-income alcoholics and youths. The goal of this report is to analyze the cost that fortified alcohol poses to society. The particular costs that will be examined are the physical effects of those drinking fortified alcohol as well as the financial costs that are burdened on society.
I.
What is Fortified Alcohol?
Fortified alcohol comes in three main forms: wine, high-proof liquor, and malt liquor. When a regular wine is produced, the yeasts that are used in the fermentation process are normally killed by the higher alcohol content. Natural wine contains anywhere from eight to twelve percent alcohol by volume. However, when fortified wines are produced, extra brandy (distilled wine) is added to increase the potency of the wine. This process creates a high quality fortified wine. In order to cut costs and increase potency even more, most distributors of low- quality fortified wine add grain alcohol instead of brandy.
The end result is a low-quality wine that contains upwards of twenty percent alcohol. Natural wine usually is sold in one to one-and-a-half liter bottles and typically sells at varying prices based on age and brand. Fortified wine, however, typically is sold in 375 ml bottles, which is roughly equivalent to a can of soda. A second major difference between fortified and natural wine is the price.
Fortified wine usually sells for only one to two dollars per bottle. This low price means that individuals consuming fortified wine become much more intoxicated by consuming less, and at a significantly lower price than natural wine. These facts prompted Newsweek magazine to call fortified wine "the most seriously abused drug in this country." The more famous types of fortified wine are Night Train "Express" and Thunderbird, which are favorites among high school and college students. Richard's Wild Rose and Mad Dog 20/20 are favorite sellers in many inner-city package stores.
The second type of fortified alcohol is fortified beer, or malt liquor. Malt liquor is made in the same way as regular beer, with the one big exception that extra alcohol is added to increase potency. A regular beer typically contains anywhere from 2.5 to 4.5 percent alcohol by volume. Malt liquor, however, contains about 8 percent alcohol. The percentage of alcohol in malt liquor compared to regular beer is almost a two to one ratio. If a person consumes six 12-ounce bottles of malt liquor, that is equivalent to consuming twelve 12-ounce bottles of regular beer. Malt liquor comes in twelve and forty ounce containers. The forty-ounce containers or 40’s, as they are often called, are the more popular seller. The average price of a malt liquor 40 is one dollar and nine cents. For one dollar you get about seven regular beers. The most famous sellers of malt liquor 40's are Old English 800 (OE), Colt 45, and St. Ides.
The final type of malt liquor is Neutral Grain Spirits (Grain Alcohol), and High Proof liquors. Neutral grain spirits, more commonly referred to as grain alcohol, is almost one hundred percent alcohol. Although grain alcohol is typically used to make other alcoholic drinks, it is sold as a high potency beverage in its own right. Since taste is not the object of production, grain alcohol is very inexpensive to make. Most of the price of grain alcohol comes from the taxes imposed on it. Everclear is the most famous brand of grain alcohol. High proof liquors are very similar to grain alcohol. During distillation, water is removed to increase potency. The difference between grain alcohol and high proof liquor is that less water is removed in high proof liquors. Liquor is typically 80 to 100 proof, or 40 to 50 percent alcohol.
Grain alcohol and high proof liquor is usually 150 to 195 proof or 75 to 97.5 percent alcohol. The most famous high proof liquor is Bacardi 151 Rum. Grain alcohol and high proof liquors are almost always used in mixed alcoholic drinks and are very rarely consumed alone.
The worst part of fortified alcohol is the fact that the labels are not required to display alcohol content. High alcohol content may attract the poor, hardened alcoholic, but would probably deter others from purchasing the product. The U.S. Bureau of Alcohol, Tobacco, and Firearms claims that fortified alcohol is consumed too fast and is too strong. High alcohol content causes people to get very drunk, and may also cause people to develop an addiction much faster. Treatment experts claim that fortified alcohol promotes addiction, misery, and homelessness. The question then is who is becoming addicted, miserable, and homeless?
II. Who is being targeted to consume Fortified Alcohol?
There have been many critics of fortified alcohol that claim these companies are purposely targeting African Americans and Hispanics. During the early 1990's, Malt Liquor had numerous ad campaigns featuring rappers such as Ice Cube, Snoop Dog, and the Ghetto Boys. Many of these ads were designed to be appealing to the youth and glamorize gang activity. Such commercials received heavy criticism from federal, state, and local governments. St. Ides was fined so much that they completely removed their television commercials. Guns N' Roses, another band, includes the fortified wine, Nightrain, as lyrics in one of their songs. Whatever the case, it is the contention of this author that most of these critics are wrong. This author believes that fortified alcohol's target is low-income urban citizens, not a specific race or ethnicity. Simple economics explain that producers will supply a good where there is strong demand. In the case of fortified alcohol, the producers know there will be strong demand in low-income areas. Once a low-income area is targeted, it is the job of the marketers to create campaigns most appealing to potential customers. The marketers’ job explains why in Hispanic parts of Hartford one will see billboards reading "Bebes Coors", and in Black and White parts of Hartford the same billboard will read, "Drink Coors." These campaigns are simply a function of profitability, not a function of race. In a previous study on crime in Hartford by this author, it was found that whites, blacks, and Hispanics of a control age group all had a very similar probability to commit a crime (Moore). Raw figures would suggest that African Americans would commit the largest percent of the crimes in Hartford. However, when proportions were calculated, the conclusion was simply that there were a much larger number of African Americans than whites and Hispanics living in Hartford. While it is proven that African Americans and Hispanics consume proportionally more malt liquor than whites, and whites consume proportionally more fortified wine than African Americans and Hispanics, it is in the best interest of this study to leave race out of the discussion. The issue is income, not race or ethnicity. It is poor urban males who are consuming fortified alcohol, regardless of race.
For the purpose of this study, this author is going to use the city of Hartford, Connecticut, as the sample population. It is quite possible that facts and percentages may vary from city to city and even state to state, but not to the point that would make Hartford an outlier from the norm.
III.
Hartford Connecticut and Welfare
IIIa. Connecticut is the nation's richest state, yet Hartford is the second poorest city in the US. There are approximately 123,000 people living in the city of Hartford. Twenty-six (26) percent of the individuals living in Hartford are white, thirty-six (36) percent are African American, and thirty-eight (38) are non-white Hispanic. While this report is not focusing on race, it is interesting to note that there are more Hispanics than African Americans, with whites’ only ten percentage points behind. While poverty levels have been decreasing slightly over the past few years, Hartford still has twenty-eight (28) percent of its citizens living below the poverty line. When compared with the Connecticut and US averages of 7.9 and 12.4 percent respectively, one can see why Hartford is the second poorest city in the US. The per-capita income in Hartford is $13,271. This, too, is well below the Connecticut and US averages of $28,766 and $21,587 respectively. These per-capita incomes show the contrast of Connecticut and Hartford. The average Connecticut citizen makes fifty-four (54) percent more than the average Hartford citizen. Though a large portion of Hartford's residents live below the poverty line, welfare reform in the last decade has left many of these individuals without any financial help.
IIIb. Prior to 1996, the federal government ran the welfare system in the US. The main programs were the Aid to Families with Dependent Children (AFDC) and post-welfare reform programs. First started in the 1930's, the welfare program was experiencing many social problems in the late 1980's and early 1990's. Prompted by growing concerns voiced from the states, the federal government handed over control of the AFDC program to the states through a TANF (Temporary Assistance to Needy Families) block grant. Prior to 1996, adults who may not have even been parents were allowed to receive federal aid. Seeing this program as a way to literally do nothing and get paid, some concluded that many able-bodied individuals were taking advantage of the system. In some cases, two people who had a child together were both given federal aid separately (Cohen). The early Welfare program created a problem that is very similar to free-riding in the economics world. The states dubbed this problem "illegitimacy." With the new TANF block grant, there were radical changes in who was eligible to receive federal aid. These changes were due to the provisions that accompanied the block grant. The three main provisions were; (1) ending the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; (2) preventing and reducing the incidence of out-of-wedlock pregnancies and establishing numerical goals for achieving such; (3) encouraging the formation of two-parent families. The states were provided large incentives by the federal government to accomplish these goals. The top five states at reducing out-of-wedlock births without increasing the number of abortions receives $20 million annually. This grant rises to $25 million if there are less than five states eligible for the grant. The act also permits state governments to deny aid to unmarried teen parents, although Connecticut has not to date exercised this option.
The end result of this welfare reform is a drastically changed program that is much more efficient. As one may have noticed, the TANF program is largely geared toward families and more importantly, children. There is now a time limit of twenty-one months for any employable recipient. People with disabilities, or more generally anyone deemed unemployable, do not face a time limit of receiving benefits. There are many benefits for married couples with children and single mothers. Medicaid, which is health insurance for the poor, has similar guidelines for those who can receive benefits. This information is very important when one is determining the costs of fortified alcohol to society. Tax dollars from Americans pay for federally funded programs such as Medicaid. Surely money used to pay for fortified alcohol, or for people who are sick and on Medicaid, would be a huge cost to society. As the above written text has demonstrated, however, the face of common welfare recipient has changed. Gone are the days of "anyone who is poor can be on welfare." Those who reap the benefits of welfare today are single mothers, children, and those with disabilities. The main group of people missing is poor males. The largest consumers of fortified alcohol also happen to be poor males. From this information we draw a major assumption. Those who are on welfare, and particularly Medicaid, are not consuming fortified alcohol. The small percentages of people who are on Medicaid and do in-fact consume fortified alcohol; will be added to the social costs in the 'Costs of Insured' subgroup, not the main medical costs. The 'Costs of Insured' subgroup will be explained further and in great detail in a subsequent section.
IV.
The Costs imposed on Society by Fortified Alcohol
In order to determine a dollar value of the cost of fortified alcohol to society, one must determine and break apart the separate costs that will ultimately determine the entire social cost. The following section will discuss each separate cost as well as the assumptions that will influence the final answer.
A. -
Medical Costs
i. Medical Costs of the Uninsured
Our first assumption is that the largest portion of medical costs caused by fortified alcohol is attributed to those who are without their own private insurance or Medicaid. Any medical care received then, is a cost to society for these individuals, as society ends up paying for their medical care. There are a great number of medical costs associated with fortified alcohol. Physical problems such as liver cirrhosis, heart disease, and cancer can be attributed to prolonged alcohol abuse. Besides internal physical problems, fortified alcohol can cause much harm to individuals when they are drunk. Physical altercations, passing out and hitting one's head, regular drunken behavior, and physical damages done to others can all result in a trip to the emergency room. Unfortunately for this study, hospitals are very strict with the release of patient information. Some information is available though, however. In the past fiscal year, Hartford Hospital spent $17 million on what they call charity care (Sorbo).
As the name charity care suggests, this is the total cost of medical care for individuals who could not pay for the services rendered. Though this information is available, it is still very difficult to pinpoint exactly which cases were related to fortified alcohol. Therefore, the first part of the medical costs is going to be equal to the average cost of an emergency room visit times (multiply) the number of emergency room visits by uninsured individuals per year. Note: The relevant emergency room visits by uninsured individuals, are those that are directly caused by fortified alcohol. These medical costs will give us our first variable, Mu, which is medical costs of the uninsured. While the medical costs of the uninsured are the largest portion of the total medical costs associated with consuming fortified alcohol, the medical costs of the insured are as well a cost to society.
ii. Medical Costs of the Insured
While a large percentage of those consuming fortified alcohol are low-income individuals without insurance, there are many other people who consume fortified alcohol as well. The medical costs of the insured individuals will include any medical care or treatment required as a result of consuming fortified alcohol. Since these people are insured, these costs are not limited to emergency room visits, as visits to doctor’s offices and clinics are possibilities. The possible physical damages associated with these individuals are very similar to that of the uninsured individuals, except that the new element of drunk driving is now more relevant. Also, any damages done to others, through drunk driving, which require medical attention, will be counted as medical costs in this section. However, damage done to items -- such as public property -- through drunk driving, are not included in this cost group. These damages will be included in the 'other costs' section that will be discussed later. This section of costs is making a big assumption. Since these individuals largely have their own private insurance (except for the women on Medicaid), there is no direct cost to society. In other words, society does not have to pay for their medical care. Our assumption is that these insured people are members of society, and as such, any medical costs directed on them from fortified alcohol are medical costs to society. Also, there are negative externalities associated with the medical costs of the insured. Constant, or extra, use of medical insurance will drive up prices for other consumers. What this all boils down to, is that if an individual is hospitalized due to the use fortified alcohol and his/her firm pays for the insurance coverage, that medical cost is a cost to society in two ways. The variable for this cost to society is Mi, which is medical costs of the insured. When combining the medical costs of the uninsured with the medical costs of the insured we come up with Mu + Mi = EMs. EMs is equal to the sum of the medical costs to society. Next we will investigate the problematic costs associated with consuming fortified alcohol.
B. -
Problematic Costs
This section of the costs to society will include time and money spent dealing with the problems caused by fortified alcohol. This will include the costs of the police, as well as the judicial process.
i. Police Costs
Any time a police officer has to deal with a problem caused by fortified alcohol, it is considered police costs. These problems can range from assault, domestic violence, public drinking, and to just about any negative behavior correlated with the consumption of fortified alcohol. Between the years of 1999 - 2001, there were 1737 summonses due to public drinking in Hartford. The type of alcohol these individuals were consuming was not documented, but it is probably a fair assumption to say that most of the alcohol was fortified. The best way to measure the costs of police officers is their time. Many would argue that a police officer's job is to deal with problems such as public drinking. This is true, but we make the assumption that the time police officers spend dealing with problems caused by fortified alcohol is a cost to society because they could have been dealing with something more important and not caused by fortified alcohol.
The police department in Hartford categorizes their arrests. Violent crimes and Larceny are two examples. They do not, however, release information beyond that. So, for example, if a sober individual murders someone, and an intoxicated person murders someone, both cases will go under the title of violent crimes. It is, therefore, hard to determine how many crimes, other than public drinking, are related to fortified alcohol. POc (Police Officer Costs) then, will equal the total Hartford Police department budget divided by the percent of time spent dealing with problems caused by fortified alcohol. Another way of determining this number would be to add the time it took to deal with all arrests and summons in which fortified alcohol was a factor and multiply that by an hourly rate (which would differ depending on an officer's salary). Since much of this information is not readily available, some educated guessing would have to occur. The second part of problematic costs includes judicial costs.
ii. Judicial Costs
For this particular category, we assume that any judicial costs in which fortified alcohol is a factor are a loss to society because the entire judicial system is better served doing something else. By judicial costs, we mean the time and money spent in the courtroom and its entire process, the costs of a court-appointed attorney for those who cannot afford one, and those who are incarcerated. Individuals who are incarcerated because of fortified alcohol, whether for a drunken murder or assault, are definitely a cost to society. Society's tax dollars pay for the prison system. The Judicial Cost then, is equal to the sum of all the costs of judiciary process, including prison costs (Jc).
The sum of problematic costs to society is Poc + Jc = EPs. Combining problematic costs with medical costs, gives us two-thirds of the total cost to society of consuming fortified alcohol.
C. - Other Costs
There are many things that can be placed in the category of other costs. The main costs that should be included in this category are those that have been mentioned earlier but did not fit into either medical costs or problematic costs. A good example would be a drunken driving accident in which fortified alcohol is a factor. This category would include the cost of any repairs that would have to be made to public property or private property, such as a guardrail or fence. In conjunction with damages to public property, this category includes all unsolved damages/crimes. The previous sentence does not mean that all unsolved crime and damage should be attributed to the use of fortified alcohol. Rather, it should be recognized that a certain percent of unsolved crime and damage to public property is, in fact, due to the use of fortified alcohol. That percent is added in this category. A final example of other costs is one that is difficult to measure. Suppose that “gang bangers” were drinking on a street corner. Surely this would deter some individuals from stopping at the local mart, due to fear. This fear has caused the mart to lose potential business.
This report has tried to give a thorough explanation of the costs of fortified alcohol; however, there are without doubt small costs that have been overlooked. These costs, whatever they may be, should be included in this category. The other costs of fortified alcohol are any costs not included in medical and problematic costs plus any costs not included or recognized. The symbol for other costs is Os. It should be noted that it would be very difficult to measure the costs of unsolved damages and crimes caused by fortified alcohol. As unsolved denotes, it would be very hard to determine how many unsolved crimes and damages, if any, should be attributed to fortified alcohol.
D. The Value of Human Life
Over-consumption of anything is not good. In the case of fortified alcohol, over-consumption can be deadly. Alcohol in general is not good for an individual's health. Fortified alcohol is even worse. There is one undeniable fact about fortified alcohol, it will kill a person when it is used the way many use it. Many economists determine the value of a person’s life by the money that person would have made had they still been living, or through lifetime earnings. This theory has caused much debate in the controversy over cigarettes and its accompanying taxes. This author believes that this theory is wrong for two reasons. First, many of the individuals who consume fortified alcohol are homeless and do not have a steady income anyway. The second reason why that theory is wrong is that you cannot put a value on any human life. Every human is someone's son/daughter or father/mother or brother/sister. Whether this person is the richest or poorest person in the world, he/she may be valued a great deal higher than the income they make to their family. No individual can put a dollar value on someone's life.
The fact that the value of human life cannot be calculated accurately makes it impossible (even in theory) to derive a dollar amount for the cost of fortified alcohol to society. In the interest of this paper, the cost of death that fortified alcohol poses will not be included in the cost to society. It should be noted, however, that death is by far the largest and most important cost that fortified alcohol poses to society. In the final formula, this will be denoted by *, which means the Value of Life is not included. It is now time to test this theory.
V.
Theoretical Example
The following section will derive the cost of fortified alcohol to society (Hartford) for one year had all the necessary information been available.
Assumptions
1. Low-income males are the largest consumers of fortified alcohol.
2. The
largest portion of medical costs caused by fortified alcohol, are attributed to
those without their own private insurance or Medicaid.
3. The medical costs of those individuals who have their own insurance are still costs to society.
4. The time police officers spend dealing with the problems caused by fortified alcohol is a cost to society.
5. We
assume judicial costs spent dealing with cases of fortified alcohol are a loss
because problems caused by fortified alcohol are created problems.
6. Since the value of human life
is un-measurable, it cannot be included in a model that hopes to derive an
actual dollar amount.
Model
The cost of fortified alcohol to society = Cs =
(EMs + EPs + Os + *)/ (EFW + EML + ENgs)
EMs = The sum of all medical cost to society
EPs = The sum of all judicial and police costs to society
Os = The sum of all other costs to society
* = The value of human life, which is not included
EFW = The sum of all Fortified Wine sold
EML = The
sum of all Malt Liquor sold
ENgs = The sum of all Neutral Grain Spirits sold
Note - All costs and sales are theoretical in the city of Hartford for one year.
Example
EMs = $3,250,000
EPs = $2,750,000
Os = $1,500,000
EFW = 200,000 bottles
EML = 800,000 bottles
ENgs = 25,000 bottles
With the above costs and sales of fortified alcohol, we come up with the following:
Cs = $7,500,000/ 1,025,000 bottles = $7.31707 ~ $7.32
This figure means that in the said year, it costs society seven dollars and thirty-two cents per bottle of fortified alcohol sold in Hartford. To get the appropriate cost of fortified alcohol in different cities or even the nation, one would only need to get the same numbers, but for the appropriate city or country. Also, to save from calculating the cost to society each year, one could add the costs and sales from various years to come up with number every five or ten years.
VI.
Legislation
While there have been many efforts by local groups throughout the country to ban the sale of fortified alcohol, little has been accomplished. Ever since the days of prohibition, the government has noticeably made an effort to stay away from the topic of alcohol. This being so, we believe that the appropriate way to deal with fortified alcohol is through a tax rather than a ban.
Using the formula and answer above, we get a cost of $7.32 per bottle of fortified alcohol to society. If we add $7.32 to the average cost of a bottle of Malt Liquor ($1.09), we get $8.41. A tax would accomplish many things. First, while improbable, if low-income individuals could find the money to pay for the now very expensive fortified alcohol, the cost to society would be paid for by the tax. Second, since the price of the fortified alcohol has now drastically increased, over-consumption would drastically decrease. Finally and most importantly, the companies producing fortified alcohol would not target low-income individuals any longer if they expected to make a profit. Low-income people could no longer afford fortified alcohol. It is important to note that the tax imposed on fortified alcohol cannot increase the price higher than the cheapest alternative. Many people who consume fortified alcohol are addicted and looking for a cheap high. If the price of fortified alcohol rose too drastically, these people would look for another cheap high. This new cheap high could be something like crack. It is generally believed that crack is even worse than fortified alcohol. Therefore, it is imperative that the tax imposed on fortified alcohol remain somewhat modest, as so not to drive alcoholics to other addictions.
The suggested tax imposed by our theory is undoubtedly slightly high. We feel however, that when the appropriate numbers are used, the tax would still be substantial. We also feel that the tax would be superior to the ban, as a ban would put these firms out of business.
A firm going out of business is in itself a loss to society, as many people would lose their job. While it is true that a high tax such as this would decrease the sales of these firms, we feel they would still be able to stay afloat, or at least have less loss than if they were shut down.
VII.
Conclusion
Fortified alcohol is nasty stuff that has numerous costs to society. It kills people and has repercussions that cost millions of dollars of taxpayer’s money to fix. We feel that our formula can derive an appropriate tax that can be placed on each bottle of fortified alcohol that would cover the social cost it imposes. This tax would cover the cost, and more importantly, decrease sales.
If an individual had the necessary clearance to accumulate the required data, or could order the required data calculated, one could easily derive the formula. There are some areas that could not be calculated due to patient-doctor confidentiality. However, since we are trying to come up with a high tax to eliminate the sale of fortified alcohol, we could simply make an educated guess in those areas that are very difficult to calculate. These educated guesses would give us a higher overall social cost. The higher overall social cost is not a problem, as the tax will force those consuming.
We believe that our tax suggestion is very similar to the taxes imposed upon cigarettes. Alcohol is different than tobacco in that more negative behavior can occur as a result of its consumption. Research and analysis done be Jonathan Gruber, in his working paper entitled “Do
Cigarette Taxes Make Smokers Happier?” shows that it is possible to come up with costs to society that are somewhat abstract. Due to similarities in both cigarettes and fortified alcohol, we believe it is both plausible and possible to come up with an appropriate tax for fortified alcohol.
One thing is clear after researching this topic. Much more research is needed. Most of the research to date on this topic is simply explanatory in nature. In other words, everyone explains what fortified alcohol is, but no one suggests how we as society could fix the problem. Also, much of the data sets needed are not in existence. The non-existence of data is a clear demonstration of the low level of research on the topic. One can sure bet that they have data sets and studies determining how many over-doses and emergency room visits related to drugs occur each year. The bottom line is more research needs to be done. The end result may be that fortified alcohol is bad enough to ban. Since fortified alcohol is a derivative of regular alcohol, a ban is unlikely. In this case, maybe a tax would be best. Whatever the case, nothing is going to happen until more people start to acknowledge that fortified alcohol is a drug that is killing society in more ways than one.