Why US lawmakers used smugglers
Published on: 31 March 2024
Bill McCoy’s boat-building business was failing.
He switched to a new business.
Smuggling.
He bought a fishing vessel. And he set sail for the Bahamas.
There, he loaded the cargo and sailed back towards America.
Bill was an interesting person.
He considered himself an honest man.
He was thorough with rules and regulations.
The vessel sailed towards the US. But it never actually entered the US waters.
He would wait outside, in the international sea.
The vessel was registered in the UK – not in the USA.
Why?
The US Coast Guard is allowed to search any vessel in the USA’s seas.
In international waters, the US Coast Guard can search US registered ships only.
They cannot search other countries’ ships that are in international waters.
While his own vessel waited in international waters, smaller boats would come from the US mainland and buy cargo from him.
That is how Bill got rich.
He bought more vessels. They were all used for smuggling.
What was he smuggling?
Drugs? Gold? Nope.
Whisky.
Alcoholic drinks were banned in the USA (between 1920 and 1933).
It was called the Prohibition era.
The US authorities wanted to stop Bill’s smuggling operations.
They ordered the US Coast Guard to capture his vessel even if it was in international waters.
In 1923, the US Coast Guard cornered one of his vessels – with him on board.
And that is how Bill’s career as a smuggler came to an end.
In an era when smugglers were mixing water in whisky, Bill was strict about quality.
Buyers loved him. His whiskey was called ‘the Real McCoy.
He was sentenced to 9 months in prison. When he came out of jail, he gave up smuggling.
The Prohibition era though continued for nearly a decade after that.
Prohibition Era
For hundreds of years, American men had a culture of excessive drinking.
It led to issues – unsafe neighborhoods, domestic violence, men spending all their earnings on drinks, etc.
Corruption of government officials took place over drinks.
For most of the 1800s, a few political groups wanted to solve these problems.
Some of these groups wanted a reduction in the sale of alcoholic drinks. Some groups wanted a complete ban.
One group was successful in getting what they wanted in 1920 – a complete ban on alcoholic drinks.
What Happened?
The Prohibition started on 17 Jan, 1920.
And with that started… a lot of things.
Secret bars, mafia criminals, illegal alcohol makers, smugglers, and a lot more.
Speakeasies.
These were secret bars.
They were small and packed with people. The doors were usually green. New York had thousands of speakeasies.
Why were they called speakeasies?
These bars were not open to everyone. That was too risky. Only known people and their friends were allowed in.
To enter, you had to say a password. And you had to say it softly.
Or, you had to speak-easy the password. Hence the name.
These bars were routinely raided and shut down.
Still, they thrived. There was enough money in the business and police were easily bribed.
Today, speakeasies are loved in America – it’s a part of their culture and history.
Crime.
The Prohibition led to the strengthening of the crime networks and gangs.
Powerful organized gangs formed. They supplied illegal alcohol and owned many speakeasies.
Rival gangs fought each other for control. It led to a massive rise in crime.
Bootleggers.
Bootleggers were smugglers.
They would supply alcoholic drinks in many ways.
Cars, trucks, boats, walking – you name it.
They were often surprisingly innovative.
Some of them installed a second ‘fuel tank’ in their cars to carry alcohol. Some modified their cars to be much faster than the police.
NASCAR racing actually started because of bootleggers.
They were a very ingenious bunch of people.
Medicinal alcohol.
Some people were allowed to legally drink alcohol even in the Prohibition era.
These were patients. Back then doctors prescribed some patients to drink.
During the Prohibition, the number of ‘pharmacies’ increased. The number of doctors allowing their ‘patients’ to drink also increased.
Corrupt doctors who wrote these prescriptions and ‘medicinal alcohol sellers’ made good money thanks to the Prohibition.
Industrial Alcohol.
Alcohol was needed for making paint and other chemicals.
An entire network of criminals and bootleggers worked to divert industrial alcohol towards speakeasies.
The government even tried to make these industrial alcohols poisonous to prevent their illegal use.
Removal
The Prohibition had failed.
People were still drinking heavily.
Even the US lawmakers had an alcohol supplier.
According to one supplier, 80% of all senators and congressmen drank smuggled alcohol.
When UK Prime Minister Churchill was visiting the US, he had a doctor’s note allowing him to drink alcoholic drinks for ‘medical reasons’.
The Prohibition had given birth to smugglers, illegal alcohol makers, thieves, ‘medicine shops’, and a large organized crime network.
Towards the end of the 1920s, the USA entered an economic depression (because of reasons not related to Prohibition).
Joblessness and a poor economy were making matters hard for the US government.
Alcohol was selling rampantly. But the government was not earning a single dollar in taxes from it.
The US started legalizing alcoholic drinks in 1933.
The 13-year experiment with Prohibition ended.
The speakeasies became legal. Alcoholic drinks makers reopened factories.
The crime network did not end. They just changed the industry they worked in.
Some good things also came from the Prohibition era.
Speakeasies had become cultural mixing grounds.
New music was discovered. New friends were made. People of different cultures and races mixed.
The Prohibition era has many fascinating stories. There are books dedicated to different parts of the Prohibition period.
Each sub-topic of this era itself is vast – the bootleggers, the crime network, the smuggling ships, etc.
Do read more about it.
2nd Order Effects
This Digest is not about alcohol – or its positives or negatives.
It is not about the Prohibition.
It is not even about making rules or changing rules.
It is about 2nd order effects.
The lawmakers who banned alcohol in 1920 had a certain goal in mind.
They did not think about the other things that would happen as a consequence of this ban.
Every action has a reaction. Often, there are many reactions.
And those reactions have even further reactions.
Some reactions – we are able to think about.
Some reactions – we need to think more about.
The lawmakers failed to think about the second-order effects of the Prohibition.
All the things that happened because of the Prohibition – good or bad – were not exactly what the lawmakers had in mind.
Actions have 2nd order effects.
In Finance
The world of investing and finance has to deal with 2nd order effects.
Billionaire investor Ray Dalio is most famous for preaching about 2nd order effects.
You got news that a company has bagged a big order. So its stock price should go up.
But many other investors also got the same news. So everyone starts buying causing the share price to become very overvalued.
This is just one example. Take another broad example.
When the pandemic struck, so many unexpected second-order things happened.
Running out of toilet paper before running out of milk (in the US), quick recovery of the share markets, increased spending on tourism after opening up of the countries, the examples can go on and on.
There can be many situations like this.
We have to train our brains to think about second-order effects.
Even though we will never be 100% right.
The illustrations used above are made using an AI tool (DALL-E).
Quick Takes
+India's foreign exchange reserves rose by $140 million in the week that ended on 22 March. In the week before that (ended on 15 March), forex reserves had increased by $6.4 billion.
+E-insurance will be mandatory from 1 April. All insurance policies (including life, health, and general insurance) will be issued electronically.
+The growth rate of India’s 8 core sectors (ex: coal, cement, steel, etc) was 6.7% in Feb vs 4.1% in Jan. It was 7.4% in Feb 2023.
+Mumbai has become Asia's billionaire capital (92 billionaires), crossing Beijing's 91 billionaires. Country-wise, India now ranks 3rd (271 billionaires) following China (814), and the USA (800).
+India has started an anti-dumping investigation into the import of aluminum foil from China.
+India Yamaha is planning to double its overall market share in India to 10% by 2027.
+Sales of luxury homes in India (priced above Rs 50 cr) stood at Rs 4,319 cr in 2023, over 150% growth year-on-year: JLL India.
+Amul is planning to launch fresh milk in the US within a week.
+Airtel’s subsidiary Bharti Hexacom's IPO will open on 3 April. Telecommunications Consultants India will sell 15% of its stake in the company.
6-Day-Course
Theme of the week: UPI Payments
We’ve reached the end of this week’s course that started on Monday.
Here’s a test you should take. Get pen and paper!
Question 1:
While making a UPI payment, what information is needed?
-Name of the receiver
-UPI ID
-IFSC code of receiver
Question 2:
The handle part (ex. ‘@oksbi’) of your UPI ID is the same for all UPI apps.
-True
-False
Question 3:
How many bank accounts can be linked to a UPI app?
-Only one
-More than one
Question 4:
How can you verify if you are making the payment to the right person?
-Check the details at the top before entering PIN
-You can only check after making payment
Question 5:
There is a limit on no. of daily payments you can do on UPI apps. But there is no daily limit on requesting the money.
-True
-False
Answers:
Q1: Only UPI ID
Q2: False
Q3: More than one
Q4: Check details at the top before entering PIN
Q5: False
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest