Craft Beer Economics

Moneybox
A blog about business and economics.
June 10 2013 11:00 AM

Are Microbrewers Causing Inflation or Making Better Beer?

lambic
A Gueze lambic.

Creative Commons photo by Henna.

My first day in Brussels for a study tour of the European Union institutions was yesterday, and, it being Sunday, there wasn't a ton of official business to transact. Instead, we had the opportunity to visit Chez Moeder Lambic and learn about artisanal beer production in Belgium (short version—there is some delicious artisanal beer), which I thought raised a question of pretty general economic interest.

One of the points the proprietor made is that a huge difference between industrial and artisanal beer making is the time involved. Something like a Budweiser is brewed up in about three days, he said, while Carlsberg is done in just one day. Artisanal beers, by contrast, can take months to make and a Brussels-style lambic requires years.

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Now in a super-literal sense, this is just another example of how industrial-scale activity increases productivity. Obviously the artisanal beer guy talked about the rapid pace of industrial beer production with a look of horror on his face, but a huge increase in the speed at which beer can be made is a huge win for beer output. The issue in this case, however, is the tricky question of quality. And, of course, he was pleased to announce that in both Europe and the United States the trend is in the direction of smaller-batch production, revival of artisanal methods, neo-traditional beer making, and increased quality. And, certainly, my perception is that he's correct, and the beers he was selling are much better than mass-produced beer, and the same is true of the finer microbreweries in the United States. At the same time, in light of the more arduous nature of the production, these beers are more expensive.

So far, so banal. But it is interesting to ponder this kind of trend through the lens of government statistics. A slow-food cheerleader would say that what we have here is an increasingly wealthy society in which people are increasingly willing to pay a price premium for a higher-end product. But this is very difficult to distinguish, as a matter of data and NIPA aggregates, from a scenario in which a "negative technology shock" causes productivity in the beer industry to fall, and, consequently, people begin to pay an inflationary price penalty. We're losing the ability to produce beer efficiently, and, therefore, prices are rising and living standards are falling. On a ground level, it seems easy to distinguish between these possibilities—you just need to drink the beer and see which one is better. But, obviously, "deliciousness of beer" is not something that easily tracks onto a BLS index. When it comes to basic commodity production, there's a very clear practical and conceptual distinction between a scenario in which aggregate coal spending goes up because we're buying more coal and a scenario in which aggregate coal spending goes up because coal is becoming more expensive. But in sophisticated service industries, we tend to see a lot of price differentiation that's meant to exist on a quality spectrum.

But whether those locally sourced organic carrots are "really" better than conventional carrots or not is a somewhat imponderable question. You're going to see intersubjective disagreement. And you're also going to have to consider that some people may just be made happy by the idea of eating a locally sourced carrot. And, yet, fuzzy as all this gets, it's downright straightforward as compared with trying to measure quality of outputs in the health care or education sectors.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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