We are all warned that the American economy is becoming more concentrated. There are fewer producers of any one thing, each of them thereby gaining more market power. It is this which explains the rise in the profit rate, the stagnation of the workers’ real wages. OK, I don’t buy the basic story as I’m, to put it mildly, entirely unconvinced that there is a stagnation in real wages – we’re not counting digital consumption properly. But, you know, let’s run with the story. So, here’s a lovely example of how that concentration happens, these calls for limitations upon the number of vineyards in the Napa Valley.
Another way to put this is to note Warren Buffett’s preference for a business with a moat. What he means is that both he and Berkshire Hathaway prefer to be in a business which has protection against competition. Less competition means that the consumer can be rooked a little more, raising profits. And the moat is the protection against that competition. That moat can come in many forms. See’s Candy has a brand name. Burlington Northern, well, no one’s ever again going to assemble the land rights to build a railway network in North America, are they? Geico is regulated at the state level, in 51 different ways (including DC) and an insurgent upstart has to overcome that – a decent enough moat.
To the vineyards:
Today Winiarski, 89, is speaking not of liberation, but of limits. A growing coalition of industry veterans and longtime residents fear that Napa has become a victim of its own success, pointing to the ecological transformation of the valley floor from dense oak woodland to a sea of vine-wrapped trellises. And they are posing a thorny question: has a unique agricultural region reached a tipping point at which agriculture itself becomes the threat?
“We’re not thinking ahead,” says Winiarski. “What’s at stake is a national treasure.”
Against this backdrop, a local environmental initiative has sparked fierce debate. The effort, known as Measure C, would cap the amount of oak woodland that could be cleared for future vineyards – in effect limiting the growth of some of the world’s most famous wine brands.
Hey, you never know, they might actually believe this guff. But then what people believe doesn’t change the economics of a matter. We can all believe that demand curves slope upwards, as many minimum wage proponents insist, but that doesn’t mean they do so.
The economics here being simple. Napa Valley is a brand. It’s possible to charge a premium for wine from the area. Just as being those few metres outside Bourdeaux, or inside it, makes rather a difference to what can be charged for the wine. So, the more people producing inside the area, claiming that brand premium, the lower the premium – other things being equal – is going to be. How do we protect that premium? We restrict the number of people who can claim the brand and the premium.
That is, whatever the environmental claims being made here this is simply the construction of a cartel – those who currently have Napa Valley land zoned for vines – to the benefit of the insiders and screw everyone else. The claims as to why make no difference to the economics at all.