How You Should Buy Wine

An advert from a company called Naked Wines came onto my newsfeed this evening, stating that:

"The average £5 bottle of wine sold in the UK only contains about 40p worth of wine. The rest goes on marketing, duty, shipping and packaging. Spend £10 and you get £2.76 worth of wine - SEVEN TIMES more. That’s because every single extra penny is now going towards the juice."

True or false? Well, while one can acknowledge that this is a marketing ploy from a company that appears to be doing very well, there is some truth in it. Given that a proportion of wine's retail price goes towards marketing, duty, shipping and packaging, you will get qualitatively better wine if you spend a few pounds more.

But only up to a point - you'll get to a stage, probably in prices that exceed around £25, whereby you are trading off additional quality for enhanced brand reputation, and it's not always worth it. As we know from past testing, it’s unclear whether anyone can actually tell the difference between a £2,000 Lafite Bordeaux and a £10 bottle of Merlot, as blind tastings and academic studies demonstrably show that neither nascent consumers nor so-called expert judges can consistently differentiate between fine wines and cheap wines, nor identify the flavours within them. So choose your wine carefully - not too cheap but not too expensive either.

To finish, I want to tell you something in economics that may interest some of you. It's to do with how the ancillary charges attached to wine actually create a surprising truth about who drinks the best wine. Consider Burgundy wine, which is shipped from France to the UK. Now ask yourself this question: where do people, on average, drink better Burgundy wine, France or the UK? The obvious answer is France, since that's where the wine is produced. But like many obvious answers, it is likely to be wrong. In actual fact, there is a good reason why people, on average, may drink better Burgundy in the UK. Here's why.

Let us suppose, for ease, that there are only two types of Burgundy wine - wine A and wine B. Wine A is very nice and wine B is quite nice. In France, wine A is £8 per bottle and wine B is £4 per bottle. The relative price of a very nice wine in France is two bottles of quite nice wine. The opportunity cost of a Brit drinking wine A is not drinking 2 x wine B.

However, in the UK the price of wine involves the price of shipping large quantities of wine. Suppose it costs £4 per bottle to ship wine from France to the UK; A Brit must pay £12 for a bottle of wine A and £8 for a bottle of wine B. The relative price of wine A in the UK is only 1.5 x wine B

In other words, a French person who chooses a bottle of wine A passes up 2 bottles of wine B, whereas a Brit who chooses a bottle of wine A passes up just 1.5 bottles of wine B, making wine B more attractive to a Brit than a French person. Because of this, the average quality of Burgundy wine in the UK will likely be higher than it is in France.

Now on that note, drink and be merry, and enjoy your not too cheap but not too expensive wine!! :-)

Government Spending: A Convenient Fact That Keeps Getting Forgotten

Who is most entitled to the money a government spends?  That's a question often asked, with everyone from young people, old people, unemployed people, incapacitated people, students, and creative people being said to be strong candidates.  The proper way to ask the question is the way that a lot of people do not ask it - by considering the expenditure as being borne by the taxpayers' not the government (the government is basically a repository for spending our money). In other words, while most people realise that government expenditure is really taxpayers' expenditure, they don't seem to give enough weight to the correlation (or lack thereof) between government expenditure policy, and where we, the providers of that money, would actually like the money to be spent. 

For example, when Iain Duncan Smith says that no individual should receive more than £26,000 in benefits (i.e. not more than the average wage of workers, even though that's a figure in excess of most workers), the question of whether the policy is a good one for the taxpayer is for the greatest part a question of whether this is what the majority of people want.  Given that government spending is made up of taxpayers' contributions, any claim of entitlement by any candidate for the money should not be taken for granted, as such a claim must be considered in terms of whether the public would want to finance such a venture. 

Here's a good way to illustrate this.  Imagine an island called Appleville 1 which has only four citizens (Pete, Lisa, David and Jenny), and nothing but apple trees for food. Pete, Lisa and David each work to collect 3276 apples per year (63 per week), ensuring they have enough to survive.  Realising that Jenny is not able to collect enough apples to survive, the good ship Welfare decides she needn't collect anything herself, and hence it sails in once a week and gives Jenny 70 apples per week (remember that's 7 more than Pete, Lisa and David who work for theirs). 

Now a rule change; Pete, Lisa and David get to vote on how many apples the good ship Welfare gives to Jenny - they can vote:

A) 70

B) 63

C) 56

If we assume that Pete, Lisa and David have views that are pretty consistently shared by the wider UK demographic, I'd wager that they'd either vote for B or C.  They'd either feel that a non-worker should be getting fewer apples than someone who actually works for their apples, or if they're feeling kind and generous they might agree to give Jenny the standard 63 that they are able to earn and she is not. I can't, however, think that very many would opt for Jenny having 70 apples, particularly as what the good ship Welfare gives to Jenny on Appleville 1 it does so at the expense of other citizens on Appleville 2 who've worked to acquire theirs. On those grounds, Iain Duncan Smith's proposal seems to be a pretty good one, if 'pretty good' means a policy that reflects the wishes of the people the government represents. 

So the wisdom that should always be employed is this: whenever we consider to whom the government gives our money, the relevant question is not " How much (if anything) do we require the government to pay to x, y or z?" but rather "How much (if anything) do we require the UK taxpayers to pay to x, y or z?". 

These are the kind of real life issues that pop up all over the place in society. Jenny is disabled and unable to work, and Lisa works in a bank.  Does Jenny have any sense of entitlement towards Lisa's earnings because Lisa is able bodied and Jenny is not?  Jenny is a university student, and Lisa runs a bakery.  Does Jenny have any sense of entitlement towards Lisa's earnings because Jenny chose to study instead of going straight into employment?  Jenny is a single mum, and Lisa is a police sergeant.  Does Jenny (and her baby) have any sense of entitlement towards Lisa's earnings because Jenny fell pregnant by an unreliable man? 

Whatever your views are on the government's redistribution of wealth, these are the kinds of questions you need to ask yourself. You should never just pass off government money as an abstract figure that comes from on high. Understanding how money changes hands is the first good step in understanding how you think it should be spent. Politicians don't think this way very often because the money they are spending is not their own. Thinking about the money being spent as you would like it spent increases your likelihood of making politicians accountable.