How moonshine became the new luxury spirit

And is fuelling a whisky renaissance.

"Moonshiners are united in a solid mistrust of the government", distiller Justin King proclaims. He’s the master with the secret recipe for Ole Smoky moonshine, also known as hooch, white lightning or, as the industry calls it, unaged corn whisky.

Diehards say the high-proof distilled spirit should only be called moonshine if produced illicitly, but the legal version, made from corn mash, is leading a whisky renaissance in America. And the mystique of moonshine is part of its popularity. Author and journalist Max Watman, who chronicled the history of it in his book Chasing the White Dog, says the cachet of illegal moonshine is the bit of outlaw it carries, yet without the stigma. 

"You get to dabble on the other side of the law, but your friends, your in-laws, your boss won’t think badly of you for doing so," he explains. "One can show up with a mason jar of moonshine and get a little frisson out of that, take a quick detour into lawlessness without serious social consequence."

Commercial distillers large and small are tapping into that. In the last three years, artisan producers in New York, New England, California and other states have been marketing their ’shine to sophisticated consumers driving the push for "farm to table" goods.

"Throughout America, there are people who want to connect to their sources. They want to eat and drink things that are produced locally, by people they can name, people they might meet. This is true at farmers’ markets as well as liquor stores. That’s a driving force for small-scale distilling," says Watman.

Another driving force for the entire moonshine market is the entrance of Jim Beam’s Jacob’s Ghost white whiskey, helping to define this new category.

"It’s a local point of pride, a big part of eastern Tennessee family tradition," says Robert Cremins, a college student from Knoxville. Many in the region identify themselves with moonshine, Cremins says. "I grew up hearing stories about moonshine."

In the land that surrounds the lush Smoky Mountains, with their towering white pine trees, moonshine — or whatever you call it — has a rich heritage. Neighbouring states also lay claim to the moonshine tradition, "but the one that centres around the Smoky Mountains is the most traditional," says Watman, who grew up in Virginia’s Shenandoah Valley.

"Some regions like southern Virginia clasped on to the historical aspect of moonshine to try to promote it, but it hasn’t become as central to the character of the region as it has with the Smoky Mountains. In eastern Tennessee and the Smokies, you find people who respect the production of moonshine as a craft and its folkloric traditions. That’s what’s different about it."

That history has even been memorialised in Rocky Top, one of Tennessee’s state songs, which references moonshine stills hidden in the hills. But until four years ago, tough laws made it virtually impossible for distillers outside three counties to get a licence for alcohol production. Entrepreneur Jim Massey acted as an independent lobbyist to change the law in 2009, making it easier for small distillers to enter the market.

"It was less about alcohol production and more about a business we’re famous for, that we have a competitive advantage in,’ Massey says. His efforts were well-timed, coming as Tennessee and other states were looking for ways to generate taxable revenue and job growth to fight the recession.

Joe Baker, a criminal lawyer who traces his roots to the earliest settlers of eastern Tennessee, corralled two lawyer buddies to open the Ole Smoky distillery in Gatlinburg. Most of the town’s 4,000 residents earn their living from the tourists who come for the Smoky Mountains and the endless fudge shops. 

"I thought it would be cool if we could do something involving moonshine and tourism and share this heritage,’ Baker says. ‘We have an incredibly rich history with making liquor, and a lot of it stems from the land and the geography. It’s an important part of who we are.’ Baker’s own family moonshine recipe is 200 years old.

Of course, moonshine has long been important to the local economy. The forested mountains were a canopy for Baker’s ancestors and other moonshine distillers who made their home in the Smokies. Many of them were immigrants from Scotland and Ireland who settled in the area for its familiar terrain, well before the mountains were named a national park. Undocumented rumours have it that Al Capone used to store his liquor in the Smokies during prohibition before transporting it to Chicago.

Ole Smoky’s distiller Justin King says that beyond a traditional recipe, families also made a flavoured moonshine called Apple Pie, a more palatable version: "Every east Tennessean has their own version of Apple Pie moonshine, what it tastes like, what proof it is." The recipe is basically cinnamon, apple juice, apple cider and a few spices — it tastes like a sweet after-dinner drink. The flavouring extends to other locally grown fruits, like cherries or peaches soaked in moonshine, King says.

"For Christmas, my family always used to give out moonshine cherries," he says. "A lot of people down here are poor, so to give a jar of moonshine cherries or peaches was a nice thing. Any fruit we could find, we would use."

That connection between farmers and distillers is still thriving and has helped many battle the recession, says Max Watman. "It’s a market that’s very focused on staying local. I can’t tell you how many stories I’ve heard about peach farmers’ crops being knocked down by a storm and the local distillery buying up that fallen crop because they don’t care what the peaches look like."

Baker sources his corn locally and employs more than 150 people. And there are tangential economic impacts — such as the glass jars and paper labels he buys for his spirits from local producers and the truck drivers paid to deliver the goods. The packaging is decidedly simple: glass mason jars, in which moonshine was traditionally served, celebrating the ritual of ‘passing the jar’ round at gatherings of family and friends. 

As for Baker’s hopes to marry tourism with moonshine heritage, the proof is in the dozens of tourists sitting in rocking chairs outside Ole Smoky’s bottle shop on Gatlinburg’s main street, toe-tapping to the daily bluegrass band — no purchase necessary. Inside, hordes of people crowd the tasting room. Baker has created one of America’s most visited distilleries, distributing to 49 states.

For moonshine proponents such as Massey, Ole Smoky’s success is the ultimate payoff. "Just look at Ole Smoky,’ he says. "They have more tourists coming through their craft distillery than Jack Daniel’s in Lynchburg."

Amy Guttman is a writer at Spears. This piece first appeared in Spear's Magazine.

"Moonshiners are united in a solid mistrust of the government". Photograph: Getty Images

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?