New Jersey state officials recently completed a sting operation against 29 bars and restaurants uncovering their alleged substitution of cheap liquor for premium brands while continuing to charge premium prices.  From the Asbury Park Press:

“Officials say the establishments allegedly filled premium brand bottles with non- premium brands in an effort to fool customers and increase their profits. The customer paid for the premium brand, but was instead, unbeknownst to the customer, poured the non-premium brand.”

Can’t a guy get an honest drink in this town?

Getting screwed by watered drinks of underwhelming quantity is nothing new to Garden State imbibers. We’re spending more to get less of a buzz all the time. Atlantic City casino regulars have seen their second-favorite floor attraction – the complimentary gambler’s cocktail – get phased out.

But the switcheroo scandal is out-and-out fraud. Ordering my favorite Lagavulin 16 single-malt or Belvedere vodka and running the risk of getting some swill out of a five-gallon jug is a crime against humanity. But it’s not as if I wouldn’t notice – until maybe the seventh or eighth.

When people pay premium prices for a premium product, they should get what they pay for even if they can’t tell the difference. That’s business ethics 101. Anything else is stealing.

Some would say the sting is a testimonial to the need for government regulation of the unscrupulous private sector. Some would – but I’m not one of some. Instead, I attribute causation of the underlying consumer deception to government regulation of the private sector, specifically New Jersey’s bizarre set of liquor laws that make Obamacare and the Internal Revenue Code Dick-and-Jane simple by comparison.

Getting a liquor license in Jersey is severely restricted with cities and townships having final say on whether they’ll allow liquor-by-the-drink at all. Here’s how the state’s Division of Alcoholic Beverage Control  explains it:

The number of licenses to sell alcohol for consumption on a licensed premises (restaurants and bars) and to sell alcohol for off premise consumption (packaged goods) within a municipality is determined based upon the population. A municipality may issue one consumption license for every 3,000 of its population. As to distribution licenses, which allow the sale of alcohol for off premise consumption, a municipality may issue one license for every 7,500 of its population. A municipality is allowed to ban all sales of alcohol within its borders if it so desires.

Practically speaking,  nobody really knows how the formula works, which makes it more problematic

Licenses are so much in demand that the current prices to buy one from an existing license holder are as high as $225,000. That’s for the license alone – no real estate, going business, equipment, good will or anything else.

In 2006, one license sold for an astounding $1.6 million.

License restrictions are defended as necessary for public sobriety – other blue laws in some areas mandate the closure of all retail businesses on Sunday – but they are more entrepreneurial  barriers to entry than anything. With barriers, you have fewer in the business, which means fewer competitors and leads to near or actual monopoly.

Without competition, there’s no incentive to improve products or services. Since your customer has no alternative but your cheesy over-priced bar, why should you? And heaven help anyone who wants to increase the number of licenses in a given area because those who have them will come out of the woodwork to oppose it claiming, with straight faces, that competition will hurt their business.

BYOB restaurant owners have been complaining about this for years to no avail. In Jersey, reform comes slowly if at all. So the government that created the problem comes in claiming white-knight status when it polices the inevitable result of limiting options and then sends taxpayers the bill.

Limiting liquor licenses does nothing but line the pockets of those who have them, stifle job creation and restrict economic growth. If you’re the only game in town, go ahead and switch to the rotgut. What’s the customer going to do – find another bar in a one-bar town?  

Bottoms up, sucker.