I don't think Mamdani's grocery stores are going to work

The road to policy hell is paved with good intentions.

Martijn Baudoin

At last, Mayor Zohran Mamdani has unveiled his plans for city-operated grocery stores in New York.

Today, I am proud to announce a collection of essential staples that will be predictably 30% cheaper at all five of our city-run grocery stores. This core set of goods will include all fresh produce, meat, and seafood, along with 20 other essential items like cheese, milk, and bread.

Here’s how it will work. Once a month, our five city-run grocery stores will set prices for this core set of goods at 30% below typical retail prices. No exceptions, no gimmicks. The savings will last for the entire month. That means no weekly fluctuations or sticker shock at the checkout line—not for our seniors living on fixed incomes, nor for the parents who rely on a regular supply of apple slices to keep toddler tantrums at bay.

In short, the city will use public funds to subsidize five stores to sell goods well below market prices. A small-scale endeavor. But will the effects be positive or negative?

An obvious problem is that these stores will make life harder for existing bodegas and grocers. How can you stay in business if the city is using tax dollars to beat your prices? Mamdani’s solution is to limit his stores’ wares to a handful of staples—no alcohol, cigarettes, hot food, or scratch-offs.

We are not looking to compete with bodegas or grocery stores when it comes to their ability to survive. What we’re looking to do is to provide affordability that is guaranteed to New Yorkers.

But it doesn’t matter what the city is “looking” to do. What matters is the outcome, which is not hard to predict given basic economic principles. Any nearby stores that rely on selling staples to survive will die out, because they can’t possibly compete with a subsidized alternative that uses public funds to undercut their prices. It bears repeating: Mamdani’s stores are not just cutting their prices by being efficient or innovative. They are designed to systematically undercut the competition’s prices no matter how low they go, because the city’s prices are pegged to 70% of the prevailing market rate. There is no possible way for local stores to compete, no matter how well they operate or how sharply they cut their own profit rates, because every cut they make will cause the city to cut their prices even further (at taxpayer expense).¹

This point was flatly ignored by some of Mamdani’s defenders. For example, Gustavo Gordillo, co-chair of the NYC DSA, had this to say:

If one publicly owned grocery store that brings prices down in the neighborhood is enough to put someone out of business — maybe they shouldn’t have been in that business in the first place.

This response would be reasonable if Mamdani’s stores were cutting prices by being efficient. In general, it’s good when bad firms get replaced with better ones. But that’s not how the program is designed. (If it were, there would be no need to peg the prices below market rate, and I wouldn’t be so pessimistic.) The program is designed to cut prices below any sustainable market rate by drawing on subsides from city hall. Mamdani’s stores will beat out local stores even if the local stores are more efficient. That means replacing good firms with bad ones. If this happens, more of New York’s resources will be spent operating grocery stores without any improvement for the average New Yorker.

In fact, New Yorkers will be stuck with another cost: lines. If a store is 30% cheaper than everywhere else (with comparable quality), people will flock to buy there. That means long, time-sucking lines.

Now, if Mamdani’s stores were run like normal grocery stores—i.e. without big subsidies—this problem would take care of itself. Mamdani could just open more stores, which would be profitable, and so the city would enjoy cheaper groceries and higher tax revenues. Life would admittedly be tough for the grocers who get outcompeted—but also, they’d be replaced by better stores, so on the whole the city would enjoy more prosperity. Lines would then shrink, because Mamdani stores would be more plentiful. Win-win-win.

But, by design, Mamdani’s program can’t work like this. Thanks to subsidies from the city, Mamdani’s stores can afford to be less efficient, so opening more of them would likely make the city less prosperous. The more Mamdani stores there are, the worse the overall economy of the city. That means no easy solution to the problem of lines.²

(Well, there is one booby prize. If the lines are bad enough, local grocers will still be able to compete for customers—but that’s just to say that the lower prices may not be worth the wait.)

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The fundamental problem with Mamdani’s grocery stores is that they are profoundly negative sum. They are destroying economic value (through deadweight loss and misallocation) in order to redistribute a chunk of what remains to those lucky few who live on the right block and shop at the right time of day.

That said, there are real benefits to progressive redistribution, which shouldn’t be gainsaid. The poor gain more from an extra dollar than the rich gain from two extra dollars. But that’s no defense of Mamdani’s stores, since they aren’t even well-designed for redistribution. Notice that anyone can shop there—there is no means testing. By contrast, food stamps are designed to help the poor, and they don’t cause long lines or put more efficient grocers out of business.

Let me also emphasize that none of my arguments rely on conservative, libertarian, or centrist moral principles. I’m just doing basic policy analysis based on boring, well-understood principles of economics—nothing up my sleeves.

My point is that the (legitimate) leftist aim of helping poor people get affordable groceries is not best achieved by plowing tax dollars into high-cost public grocers. There are other means to the same end that wouldn’t face the same problems: food stamps, a basic income, subsidies for competitive grocers—even certain kinds of state-owned enterprises, viz. those that have to compete fairly with the private sector (rather than being allowed to operate at a loss thanks to taxpayer subsidies).

I might be wrong. Maybe Mamdani’s managers will be public-spirited types who outcompete the private alternatives despite lacking an economic incentive to do so. It’s certainly conceivable. But given what we know about economics and psychology, it ain’t likely. Consider this post my confident prediction, to be revisited in a year or two.

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My takeway from Grocery-gate is that the US desperately needs better policy analysis. In general, we are suffering from a degradation of the means being proposed to our political ends. (See also: Trump’s tariffs.)

Mamdani, of course, is not the first person to squander their good intentions of feeding the hungry on policies that do anything but. Let me conclude with a tragedy on a much larger scale: the story of Ethiopia’s famine of the 1980s, as recounted by Stanford’s Leif Wenar.

Ethiopia received significant food aid each year during the decade after the famine of the mid-1980’s, normally equivalent to about 10% of its total food production. During this period, and despite the fact that there was enough food in-country to meet the nutritional needs of all Ethiopians, almost half of Ethiopian households remained food-insecure. A significant amount of food was distributed through food relief projects, yet relatively little of this food reached those in need. Well-off districts were just as likely to receive the imported food as very poor districts, and on average less than 23% of food-insecure households received any food. Moreover, much of the food that was distributed to food-secure households ended up being resold on local markets, depressing food prices and diminishing incentives for domestic production, thus increasing food insecurity and stimulating another campaign for food aid the next year.

Those who donated food to Ethiopia probably had good intentions. They were looking to help. But the actual effects of dumping food into the country were disastrous. The benefits were temporary and ineptly distributed; the shortage of food itself was ultimately exacerbated. The do-gooders’ fatal mistake, as Wenar sees it, was their incuriosity about the way local institutions actually function.

Ironically, this objection is one that we’re used to seeing from the left against effective altruists. When it comes to groceries, the Mamdani left should take its own advice. Instead of running gimmicky stores that waste money, give poor people food stamps or tax refunds.³

1. It’s worth mentioning that grocery stores don’t have anything remotely near 30% profit margins. Aswath Damodaran at NYU Stern puts US retail (grocery and food) as having net margins of 1.32% last year. The grocers themselves say their margin is 2.1%. In fact, even gross margins can be below 30%, which means Mamdani’s stores may end up selling their food for less than the price at which they bought it!

One more thing. Don’t expect Mamdani’s stores to pop up in so-called “food deserts” bereft of private grocers; these have turned out to be overhyped. The New Yorker got it right: “there is little evidence to support the idea that bringing supermarkets to neighborhoods that lack them has a measurable effect on what residents eat.”

2. The stores could avoid lines by running a lottery to choose who gets to shop there each month—but this would destroy the predictability that Mamdani is promising.

3. For a highly informative response to some of Wenar’s critiques of EA, see this post from Richard Y Chappell.