The American Economy and Addiction

Addiction has always been at the core of America’s economy and the present is no exception.

Photo of South Carolina sharecroppers preparing tobacco taken by the Farm Security Administration.

Economists love exogenous preferences. After all, being able to abstract away consumer desires sure makes model building easier. But—and before I say this, kindly prepare a soft resting place for your jaw—the real world rarely resembles ideal economic theory.

Friedrich Hayek himself readily pointed out how much real markets diverge from perfect competition: “Advertising, undercutting, and improving (‘differentiating’) the goods or services produced are all excluded by definition—‘perfect’ competition means indeed the absence of all competitive activities.”

Advertising in particular is a good sector to single out. Thanks Hayek.

Adbusters style paranoia is more than a little overblown, but the industry still enjoys significant stigma amongst those members of the left who view it as companies manufacturing desire for their products. (And not, as Hayek may have argued, the simple dissemination of information.) More interesting still, though, is the role of addiction in the American economy. At least to me.

It (debatably) remains unclear whether someone chooses to buy a Big Mac because the hundreds of millions of dollars McDonald’s spends on ads every year incepted them with new desires, or they always would have wanted a hamburger and the ads just let them know McDonald’s does in fact sell burgers. But we can say with some confidence that our society’s various addiction peddlers actually do manufacture consumer demand.

Within living memory no one in the States had ever heard of a “Zyn.” Now nicotine pouches are a multibillion dollar industry. And, according to one industry funded report, the average user burns through almost five cans a week.

The initial seed of demand for an addictive product may be internal to a consumer—needing to stay up to study, wanting to relax after a tough day at work, etc.—but typically most sales end up being to people who are hooked, in one sense or another. The products create their own demand.

Because of this peculiar quality, addictive industries (widely construed) have been a key part of American economic development, encouraging economic development, industrialization, and specific forms of agricultural production. In one especially filmic tale, Jimmy Hoffa used the Teamsters’ pension fund to bankroll the construction of modern Vegas. (Morgan Stanley moved the fund to a more conventional allocation in 1983.)

Before the dominance of a single national currency, distilled spirits served much the same purpose as gold, both “some lasting thing that Men might keep without spoiling.” Merchants and farmers in the early American economy relied upon alcohol both to facilitate trade in the cash poor West and to pay laborers.

Producing sufficient liquor for all these varied needs was one of the most essential and wide-ranging (geographically speaking) economic undertakings. W.J. Rorabaugh’s The Alcoholic Republic: An American Tradition, a short but dense volume, provides a neat summary:

“Distilled spirits had long played an important role in the American economy. Before the Revolution, molasses and rum accounted for one-fifth of the value of all goods imported from British possessions, and from Philadelphia northwards the distillation of rum from imported molasses was the leading manufacturing process” (61).

“A merchant might buy molasses in the French West Indies, ship it home, distill it, trade the rum in Africa for slaves, transport the slaves to the Caribbean cane plantations, and trade them for more molasses” (63).

Alcohol aside, the slaveholding South would boldly declare that “cotton is king” in the 1850s, but addictive tobacco was always a major plank of several Southern states’ economies (and a key consumer of slave labor).

According to the 1840 Census, the state of Virginia produced over seventy-five million pounds of tobacco, compared to just three-and-a-half million pounds of cotton. Nigh a century later, the 1938 Report on Economic Conditions of the South still recorded that “the farming South depends on cotton and tobacco for two-thirds of its cash income” [emphasis mine].

Taken in 1936, the photo I selected from the Library of Congress’ digital archives for this post is a nice visual reminder of the long historical tail of the tobacco industry in the South. On a personal note, as a kid I actually went to summer camps in an old tobacco processing plant.

Of course, alcohol and tobacco companies, while still significant political donors, constitute a somewhat smaller fraction of the economy than in their respective heydays. Paul Krugman, formerly of the New York Times and presently of the same website as me, has written a couple pieces recently about social media and gambling as the addictive industries of today.

I’ll recommend you read both pieces in their entirety (and subscribe to his Substack of course) but here are two key excerpts:

“So what’s a society to do when many people engage in an activity that is often self-destructive? Saying that it’s just a matter of individual choice is naïve; the assumption that people can be trusted to make their own decisions has a lot going for it in many situations, but it really breaks down when it comes to addictive behavior like heavy drinking and gambling.”

“How much damage will the national gambling epidemic do? We won’t know the full extent of the damage until those natural Ponzi schemes collapse, which they will.”

Krugman, like me, doesn’t believe outright bans are necessarily the way to go anymore, but does think we need much more regulation of these addictive industries. Regulations we are hardly likely to see, for reasons I’ve spelled out before, under a second Trump administration. (For a lightly pro-ban on social media case, see Katherine Alejandra Cross in Liberal Currents.)

One way or the other, if we’re going to address the social fallout of gambling, social media, and all the other addictive industries, we ought to start as soon as possible. We won’t see movement federally any time soon, but state politicians should shy away from legalizing gambling where they haven’t already done so (just raise taxes). Mobile gambling should be rolled back entirely. And maybe one place to start with social media would be changing platforms’ incentives by making it illegal to advertise to minors.

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Here are some of the best articles I’ve read recently:

• Luis Feliz Leon on the drive to unionize BlueOval for Labor Notes

• Matt Peterson interviewing Karthik Sankaran for Barron’s

• Matt McManus on Pat Buchanan’s Hitler apologia for Commonweal

• And Christopher Robbins on congestion pricing in NYC for Hell Gate

As well as a couple other things I’ve written:

• A description of the latest lawsuit Alabama’s AG filed challenging environmental regs

• And a short piece about a successful union election in Tuscaloosa