An Economist’s Ode to Scotch

Why I Started Loving Scotch

Scotch is a wonderful libation. I didn’t know this when I started my journey towards loving scotch, but 17 years later, here I am. How did I get here? My journey started in college. As one is wont to do in college, I would go out on the weekends to bars and clubs with my friends. Unlike many of my friends, I was uninterested in downing myself in vodka orange screwdrivers or other such horrendous drinks that pair fruit juice with cheap alcohol. Instead, I opted for a “known” known. Scotch, single malt, clearly labeled. When I started this, I didn’t know there were hundreds of different types of scotch, about how each region of Scotland produced different variants, what differences the cask itself made in the scotch taste, etc. Scotch was, at the time, simply a drink where “chugging” is an offense, where the drinker should sip and savor. I avoided hangovers and awkward mornings. My habit was probably better for my wallet and waist too.

Experiences

But, like many things, experience is a teacher. I did learn about each region, finding that I particularly enjoyed the coastal offerings such as Oban. I learned about Scotch that was given a second cask, typically wine, for extra flavorings (This process really creates very complex tastes with multiple phases). Becoming a scotch fan, it gave me impetus to travel to Scotland, twice so far. There is little more beautiful in this world than the Scottish Highlands. In addition, a few years after starting on my scotch journey, I did make one indulgent purchase: I bought a share in a full cask of scotch. 16 years later, my share of scotch arrived. Quite literally last week, I journeyed back in time and appreciated that mid 20s Motoconomist had pretty good taste.

Economics Lessons From Scotch

Scotch exemplifies the tradeoff. In my humble opinion, Scotch becomes better with age, but price rises faster than age than taste rises with age. Hence, a tradeoff, an inflection point that differs for every individual, but it exists. Call this the Scotch curve, and there is just as much science behind it as the Laffer curve. I kid, the Scotch curve has more science. Why this tradeoff exists is important, because it mirrors another economic concept, scarcity.

Scarcity impacts not just the price paid for a particular item, but scarcity impacts how we THINK and ACT about an item as well. For some, the age of scotch reflects scarcity and therefore MUST be better. But this is a value proposition. Scotch in cask loses 1-3 percent of its total volume each year, we call this the angel’s share. Because there is less of it, surely older scotch must be better. But it is better on a value basis. I find the inflection point occurs somewhere between 15 and 18 years of age. Beyond this, scotch becomes far too mellow, and before this, the back end is a bit too spicy.

Scotch also exemplifies how much branding, advertising, and entrenched interests have on what we consume. Distillers put age on their bottle not because it is perfectly correlated with taste, but because they’ve engineered a Pavlovian response to age by the modal consumer “Older is better.” And it is taken as given that scotch must age in an American Whisky barrel and that barrel cannot be reused (great employment for cask makers and designed obsolescence as a further job guarantee). Finally, scotch requires extensive capital investment with a very long time to before revenue is realized, talk about a barrier to entry and why we see so few new distillers open. For more discussion, see Simon’s blog.

PS: The best value for money Scotch today is the Glendronach 15 year Revival.