Opinion: How microeconomic theory comes to life in Kentucky

Written by Brian MacColl

I’m not from Kentucky; I’m a New Yorker who has had a truly amazing visit to the Commonwealth. Like many visitors, I was struck by how welcoming Kentuckians are—and by how deeply bourbon culture is woven into local pride, work, and history. That’s why news that Jim Beam will pause distillation at its Clermont facility for 2026 caught my attention—not as a casual observer, but as someone who cares about what this moment means for Kentucky’s economy and for American manufacturing more broadly.

At first glance, a distillery “shuttering” sounds like bad news, full stop. For workers, suppliers, and communities built around bourbon, that reaction is understandable. However, this particular decision, with profound implications for the surrounding community, warrants a closer examination—because it provides a clear example of how economic theory is applied in real life, and why a pause can sometimes reflect prudence rather than decline.

At the heart of this decision is a fundamental principle from microeconomics: the distinction between fixed costs and variable costs. Fixed costs—such as buildings, equipment, and aging warehouses—remain regardless of whether production is running. Variable costs—such as energy, labor, and raw materials—vary in proportion to output. When demand drops sharply, as it has in the bourbon industry due to a global glut and reduced exports, firms often reduce variable costs while continuing to carry fixed ones. Reporting from Kentucky.com, the Louisville Business Journal, and industry groups such as the Distilled Spirits Council of the United States documents a sharp pullback in bourbon production in 2025–26, with Kentucky output down more than 25 percent amid elevated inventories, and export demand falling significantly in key markets—particularly Canada and parts of Europe—following trade tensions and retaliatory actions. That’s exactly what Jim Beam is doing by pausing distillation while continuing bottling, warehousing, tourism, and operations at other facilities.

Another key principle at work is marginal cost decision-making. Businesses don’t—and shouldn’t—decide whether to operate based on history or sentiment; they choose based on whether producing one more unit makes economic sense today. When the marginal cost of producing additional bourbon exceeds the expected revenue—especially in an industry where products take years to age—the rational response is to slow or pause production. Continuing to produce simply to “keep the stills running” would exacerbate oversupply and create more significant problems down the road.

This is where the distinction between a short-run shutdown and a long-run exit matters. A shutdown is temporary; an exit is permanent. Jim Beam is not exiting the bourbon business. It preserves capital, maintains workforce relationships, invests in site improvements, and keeps its brand and visitor operations alive. Those choices signal an expectation that long-term demand will recover, even as the company navigates short-term pressures.

There is also a critical industry-wide lesson to be learned here. Bourbon production decisions made years ago—during a period of booming demand—are colliding with today’s reality. Because bourbon must age, producers cannot simply adjust overnight. Pulling back now is how the industry prevents more profound disruptions later. From an economic standpoint, this represents supply adjusting to a leftward shift in demand, rather than a collapse of the market itself.

Why does this matter beyond one company or one state? Because how we interpret moments like this shapes public understanding and policy responses. If every production pause is framed as failure, we risk misunderstanding how healthy markets adapt—and we risk overreacting in ways that harm workers and communities rather than protect them.

Kentucky’s bourbon industry is a cornerstone of the Commonwealth’s economy and a symbol of American craftsmanship worldwide. Recognizing the economic principles behind today’s adjustments doesn’t minimize the real concerns facing workers and local communities—but it does help us distinguish between decline and deliberate course correction.

Sometimes, slowing down is exactly how an industry ensures it can continue to operate.