669. Why Is 95 Percent of the World’s Bourbon Made in Kentucky?

Most products can be sold pretty much as soon as they're made. And that's important if you are in the business of making things because you can start earning back your investment right away. But some products require a further investment of time after they've been manufactured. It could be years worth of time. Certain cheeses come to mind. Wine occasionally, but especially spirits. The most famous example is Scotch Whisky. The older, the barrel, the dearer, the bottle. And the most famous American example is bourbon. I don't happen to drink much bourbon but the bourbon industry started to sound interesting when we did a three part series on the horse industry. That series is called the horse is us if you'd like to listen. One interesting feature of the thoroughbred horse market is how concentrated it is in one relatively small area, the bluegrass region surrounding Lexington, Kentucky. Can you guess another industry that is concentrated in one small part of Kentucky? Correct. Bourbon. So we thought we'd poke around that industry to see what we can learn. Just one episode though, not three. We will look at how time functions as an investment input. And along the way, we will ask a lot of questions like, why is bourbon manufacturing so concentrated in Kentucky? They talk about the limestone, the same thing that makes fast racehorses. But do we also detect a note of protectionism? You do have to admit it's a bit convenient. That said, the industry has a problem. We don't have a quality problem. We have a quantity problem. Demand for bourbon is shrinking. New tariffs are scrambling global trade, and bourbon is getting a little bit bloody. Currently, there are 16,000,000 barrels of bourbon aging in the state of Kentucky. So how concerned is the industry? Well, it should be very concerned. The good news is that there will be a lot of well aged bourbon in the future. Today on Freakonomics Radio, let's pour one out for things that age well. L'chaim. This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner. Okay. This show has economics in its name. So let's start with an economist. My name is Ken Trotsky. I'm a labor economist and chair of the economics department at the University of Kentucky. Trotsky grew up in Washington State, got his PhD at the University of Chicago, and he moved to Kentucky about twenty years ago. 95% of bourbon made in the world is made within a forty five minute drive of the house I live in. It was Trotsky we heard from a minute ago saying that there are 16,000,000 barrels of bourbon aging in Kentucky. That is up from 4,000,000 when Trotsky arrived. When I got there, bourbon was just starting to recover from a long period of time of when it was in decline. And I was hearing about this bourbon called Pappy Van Winkle's. I told my …