The decline of the microbrews, and other adventures in economics theses

After a decade of explosive growth, production and sales of American microbrewed beer leveled off in the late 1990s. In his senior thesis, “Growth in the Microbrewery Market,” economics and computer science major Nikolay Dakov ’02 showed why.

Dakov began with the assumption that microbrewers’ premium prices and relatively small size (Anheuser-Busch sells nearly as much beer in a week as the 10 largest microbrewers combined sell in a year) make them sensitive to market forces that don’t affect mass producers. But proving his case was difficult: In the microbrewing industry, sales data, like recipes, are treated as trade secrets. The 10 largest microbrewers did, however, agree to give Dakov state-by-state lists of their distributors. This gave him an indirect measure of demand for their product, which he used as a proxy for the microbrew market. Dakov found that what he thought were the three most likely suspects behind the slowdown—market saturation, the economic downturn, and overinvestment in company expansion—were insignificant. Instead, something far more worrying to the brewers appears to be at work: a major demographic shift.

Craft beer, it turns out, is primarily the nectar of the middle-aged. “They’re the only ones who can afford it. And older people drink wine,” Dakov explains. In the late 1990s, the largest cohort of middle-aged people in U.S. history—the baby boomers—started to become the nation’s largest-ever group of retirees. The very people whose rise to economic and social dominance in the 1980s had fueled the growth of the craft beer industry are now, apparently, forsaking their bottle openers for corkscrews.

The larger microbrewers—Sam Adams, Sierra Nevada, and Red Hook are the top three—have recognized this shift, Dakov says, and are beginning to target a younger audience in their advertising. All three have requested a copy of Dakov’s thesis.

Claire Anderson ’02 looked at the link between religious faith and financial prudence in her senior economics thesis, “Religion and Savings.” Mining demographic data contained in the University of Michigan’s mammoth Health and Retirement study, Anderson found that to a statistically significant degree, the faithful invest more of their income and are less likely to be in debt than the non-faithful. They also retire wealthier and bequeath more to their offspring.

As Anderson points out, one of the few early studies of this issue was Max Weber’s hugely influential The Protestant Ethic and the Spirit of Capitalism (1904), which related Protestant moral virtues of temperance, modesty, and hard work to the explosive growth of the German entrepreneurial middle class in the 17th and 18th centuries. But Anderson suggests that the modern relationship between religiosity and savings is even simpler: “Religions are future-oriented,” she writes, in that they stress responsibility for one’s behavior and the virtue of forging a good life for oneself and one’s children. Economically speaking, that outlook translates into a personal pattern of deferred spending and sober investment.

In his senior thesis, “The Effect of Thinness on American Wage Markets,” Tony Beirne, Jr. ’02 gave a long-standing truism another look. Several studies have famously shown that for a given job the obese earn significantly less than employees of lower weight. Marked on a graph comparing wage to weight, the trend line looks something like a wedge: a slow, steady upward slope indicating wages increasing with weight, followed by a sharp downward turn where obesity begins to detract from earnings.

It is an overly simplistic model, long criticized for lacking a cohesive logic. (Why is the break between “obese” and “non-obese” so sharp? And why are the relatively skinny paid less than the moderately heavy?) Beirne’s analysis, based on income and body mass data from the ongoing National Longitudinal Survey of Youth, paints a more nuanced picture. In it, the trend line looks like a rounded mesa, with wages dropping at both ends—the extremes of low and high weight—and with a more or less level section of higher wages near the middle.

The implication is that deviation from a perceived “norm” of weight, and not obesity per se, is what gets punished in wage markets. The very thin, like the very heavy, are underpaid—vigorous signals from the fashion world notwithstanding.

Since August 1997, when the U.S. Food and Drug Administration loosened restrictions on advertising for antidepressants, the use of those medications has risen 172 percent. And the drug companies’ expenditures on advertising antidepressants have doubled, now topping $250 million annually. To Shannon Finnegan ’02, that coincidence begged a question: Has aggressive marketing pushed antidepressant use beyond the level at which responsible medical care would keep it? She addressed the issue in her senior thesis, “The Effects of Direct-to-Consumer Advertising on the Antidepressant Market.”

Finnegan looked at a wide range of information: drug companies’ marketing plans (including rebates to insurers), patterns of antidepressant sales, even the nuts and bolts of depression treatment. Many psychiatrists, she reports, now feel that advertising has undermined the objectivity of the doctor-patient relationship by creating among patients unrealistic expectations for drug treatment. Meanwhile, patient advocacy groups complain that cheaper—and no less effective—treatments are being displaced. Perhaps more telling, says Finnegan, is the fact that some older drugs are now being renamed and promoted as new treatments for psychological ailments unrelated to depression. Finnegan takes pains to avoid a blanket condemnation of antidepressant marketing. But she stands by her question: Does America need to be a Prozac nation?

Tim Heffernan

Nik Dakov is now a software developer for Tritech Solutions, in Boston. Claire Anderson has returned to her hometown, Chicago, where she is seeking work as an economic analyst. Tony Beirne is an underwriter at Liberty Mutual in Portsmouth, New Hampshire. Shannon Finnegan is a research analyst at Cambridge Finance Partners in Cambridge, Massachusetts.

Photo by Jason Wallengren


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