I recently went on a trip to Cleveland, Ohio. I live in New York City. When I went to the bar with some friends, I bought two tall beers (equivalent of two beers) and six shots. When I closed my tab at the end of the night, it read twenty dollars. Not because the bartender liked me, not because some of them were on the house but that was the cost at the bar. It wasn't happy hour, this was Thanksgiving weekend. I've drank in Cleveland before but it never ceases to amaze me just how cheap alcohol is there. The odd thing is, alcohol at the grocery store may run you about the same as I would find in New York. Restaurants are also dirt cheap in Cleveland. Is it because food has to travel a shorter distance, thus less transportation costs, forcing the price of food down? No, there's more farmland in New York State than in Ohio. So why? When I commented to my cousin in Houston he asked me about the price of alcohol in New York. When I answered, he said, "Those are the same prices we have here." Ah, so it's not a size of the city thing as New York is the biggest city in the United States and Houston is about the same size as Cleveland. So why?
Well, the answer comes from my favorite president, Ronald Reagan. He said that if the rich people have more money, it will have a top down effect on everyone else. I then thought to look for the United States demographics. Even though New York is the largest city in the United States, it is not the most expensive city in the United States. For that prestige belongs to San Francisco. To which I queried, where are there more billionaires and uber-rich people? Well the most amount of uber-rich people are, you may have guessed it, San Francisco. Why can Houston afford to be more expensive, the oil tycoons and NASA are there. They have their share of rich people too. The point isn't that these cities can be rich because the uber-rich can afford them. It's that the Uber-rich can afford to pay higher salaries to their employees thus creating a wealthier, by comparison, middle class than other cities. Since these companies pay their employees enough to afford higher prices, restaurants, bars etc. can afford to charge more because the demand is more inelastic (the effect price has on demand). Many bars in Cleveland closed down simply because Lebron James left. If they started charging $5 per beer and $7-10 per mixed drink, people would stop coming and they may be forced to close. The wholesale cost of alcohol is about the same everywhere in the United States, but a bar can make more profits when the citizens make more money. You see this in cities with the highest concentration of rich people. There is a direct correlation between the expensiveness of a city and the amount of rich people that live there. Therefore, rich people seem not to be as greedy as society makes them out to be. They pay more for their laborers, which in turn makes their employees able to pay more for recreation so that every part of the spectrum makes more money. Exactly how Reaganomics is supposed to work. So even though it's been 25 years since Reagan left office, his theory is still proven true in US demographics. Perhaps someone should tell our President this so he stops forcing the uber-rich to give more of their money to the government when they seem to be distributing the wealth much more efficiently than the government could ever dream of.
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