Bootlegging liquor and consequences of bad laws

Between 1921 and 1933 the US 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 out and this gave rise to the illegal act of bootlegging (concealing alcohol in the legs of boots).

Taking advantage of this ‘gap in the market’, new producers entered, but they were no ordinary individuals because what they were doing was illegal. The risks for entering this line of business were high. People, if caught, were shot and often landed up in jail but the rewards were extremely tempting because competition had been significantly curtailed by state legislation. Eventually the US government sobered up and realised that their well-intentioned laws were actually promoting lawlessness and general mayhem. Milton Friedman pointed out in his lectures that bad laws make immoral behaviour far more profitable. He noted that despite prohibition laws, people continued to consume alcohol even though it was illegal, and this had disastrous effects on other laws.

Similarly, bad law in SA has increased the incentives for people to behave in immoral ways. Consider, for example, tariffs applied to clothing, an essential commodity manufactured outside of SA. Some commentators have witnessed an increased level of smuggling. If we had complete free trade in SA, there would be no more smuggling and the primary beneficiaries of cheap clothing, poor South Africans, would be better off. Bad laws create a situation where it becomes socially virtuous for people to break those laws, and this, in turn, breaks down respect for law in general. 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.

FMF Policy Bulletin/ 15 February 2011