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Drink Up, It's An Expansion


Economic Trends

DRINK UP, IT'S AN EXPANSION

As tipplers will tell you, booze can ease many pains--including economic woes. Nevertheless, a new National Bureau of Economic Research study by economist Christopher J. Ruhm concludes that alcohol consumption and vehicle fatality rates (often due to drunken driving) are procyclical rather than countercyclical. That is, they rise when the economy improves and slow or decline when it worsens.

Using data for 48 states from 1975 through 1988, Ruhm found that a one-point rise in the percentage of people employed in a state boosted liquor demand by about 0.8% and a $1,000 rise in per capita personal income (1987 dollars) raised consumption by about 1.2%. Traffic fatalities also rose. On the other hand, rising joblessness and falling real income were associated with declining consumption and fewer fatalities.

Ruhm also found that drinking of distilled spirits was roughly twice as sensitive to changes in the economy as consumption of beer or wine--a finding in line with its higher average cost. "While some people may drink more in times of economic distress," he says, "for most people, this reaction is apparently more than offset by the constraints of lower incomes."BY GENE KORETZ


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