I think the long lines may ultimately throttle the negative externalities here because most normal people just won't want to deal with them.
But there is some major irony buried in the food desert thing here. Isn't the whole idea around food deserts that normal small grocers were outcompeted by cheaper chains that had lower quality products, thus leaving vast areas of certain cities with worse access to nutritional food when the small grocers closed? Isn't the natural outcome here that these city stores will be shuttered in the next administration, and many bodegas will have closed in the meantime, leaving the resulting grocery landscape even more lacking than before?
I thought the idea was that food deserts do not have grocery stores at all and people rely on convenience stores/cheap take out. Maybe I should read more food desert literature.
I guess the story I've always heard goes something like, small town or neighborhood starts off well served by a few small scale grocers that provide a variety of products, Walmart or Dollar General put one big store in nearby, small grocers are put out of business because they can't compete on prices, now the area only has one big store left. I'm sure there are tons of variations on this story.
The problem is that Walmart didnt put small grocers out of business, the customers did. People chose to shop at the one big store because it suites their needs better and almost certainly saves time and gas (one big store to go to vs 5 smaller ones)
But in that scenario people in the area all have access to fresh produce (at Walmart) right? It might not be ideal (lack of competition, the store is farther away) but I always thought the idea of food deserts was that it is more convenient to buy processed packaged food than produce so people eat that instead.
I'm admittedly not an expert on this literature in any way. But just at a cursory glance at some papers, they define the food desert as any area with "low access" to retailers that stock fresh food, with low access meaning they are in excess of 10 miles from the nearest store. That fits the idea of the exurban Walmart going in a 40 minute drive away from a small town, which I guess is kind of the original idea I had.
That seems reasonable. I guess my point was just that the argument is not that Walmart has low quality produce but that Walmart is unavailable to people in food deserts (or less available than the hypothetical small grocers in this case).
2) the walmart puts everybody else out of business, and then closes, leaving nothing.
ETA: I think this is a much bigger problem in rural/small town scenarios. Most urban "food deserts" arise from the inhabitants of a neighborhood not patronizing full grocers with fresh produce enough to keep them in business, leaving them with only fast food and convenience stores with processed junk food, because that's what they choose to eat.
Another net benefit of city-run grocery stores is that it will increase the transparency and opportunity for public oversight in the food distribution process. If the stores prove to be a disaster, as you suggest, the public will have a clear course of action: vote out the administration that is mismanaging their city's food distribution. When the public has problems with the private grocery stores they rely on, they don't have this same recourse. This creates an incentive for public grocers that doesn't exist for private ones—responding to the people they serve. If it turns out city-run grocers are putting bodegas out of business, ineptly distributing food, or making food procurement a more tedious process, the Mamdani administration will have the opportunity to make adjustments to their system in order to best serve New Yorkers. If they fail to do so, they will risk losing popular support and being voted out. This seems like a clear advantage of city-run stores over private ones.
Credit to Mamdani: he's put this forward as a kind of experiment, and I do think the country will learn something from watching how this unfolds.
This post is my way of placing a bet. If I'm wrong, I'll have to change my economic views. If I'm right, everybody is morally obligated to subscribe to me. (I don't make the rules.)
Absolutely, it is his job - and credit for delivering on a campaign promise as well.
But - five public grocery stores in a city of 8.5 million people is at best a ridiculous vanity project, and sarcasm is a valid response to such absurdities.
The flip side is: what if the program is basically a success? What criteria would you use to recognize success, or at least non-catastrophe, and what would the implications be for your world views (at least for grocery stores in NYC)?
There's nothing specific about grocery stores in that argument. If you don't think nationalizing (cityizing) all business is a good idea--or maybe you do?--you might ask where you think the reasoning you just laid out goes wrong when we replace “grocery stores” with any other kind of store or business.
Let's just have ALL businesses run by one entity. It will make it so much easier to signal when we are dissatisfied as consumers. Especially in a two party system.
The difference between grocery stores and other businesses is simple: food is a basic necessity. While other businesses have to make a worthwhile proposition to consumers, grocery stores are more or less guaranteed their patronage. Consumers can switch between firms, but they cannot exit the market entirely. Such marketplaces can be functional, but are also prone to collusion, oligopoly, and perverse incentives (e.g., U.S. healthcare). By creating a limited public alternative, we can see two consumer benefits. First, consumers can divert money from poorly functioning grocers, giving the grocers incentive to improve (voting with your dollar). Second, consumers will have a democratic say in the operation of one the essential services they rely on (voting with your...vote).
If it were true that grocery markets are uncompetitive because food is a necessity, a possible result would be that staples (milk, bread, eggs, etc) have higher mark-ups, while more discretionary products (branded snack food, dessert, etc) have lower mark-ups. If the mechanism driving mark-ups higher is the need of the consumer, it stands to reason that the most needful products would be the most marked up. In reality these tend to be the cheapest items in the store and almost every grocery has a private label alternative that is much cheaper than the branded alternative in this category. There's also a pretty good body of both empirical and theoretical research suggesting this is a deliberate "loss-leading" strategy wherein the retailer accepts lower margins on these products to get people in the store. Evidence therefore suggests that grocers do compete and they specifically compete on "get staples as low as possible".
But to an individual firm, a consumer switching to another firm is no different than a consumer exiting the market entirely. If I run a bodega that charges more than my customers are willing to pay, it's no consolation to *me* that they'll still buy food somewhere else. The fact that I'm offering necessities doesnt at all shield me from competition.
So again, why doesn't this imply that there should also be a public option for cars? Plenty of parts of the country are pretty hard to navigate without a car (eg, Texas). For lots of people, given their jobs (eg, Uber driver) a car is a necessity. Should the government be manufacturing and selling cars, at least in rural or suburban areas? If not, what part of your argument about grocery stores doesn't apply?
You're right that under ideal circumstances individual firms can face market pressure, but food distribution is not ideal. Realistically, consumers can only shop for groceries at the few options in their local area, so their demand is inelastic and held (geographically) captive by just a handful of firms. These are ideal conditions for grocery stores to settle into oligopoly pricing, without even needing to collude with each other. Car firms, on the other hand, do not benefit from captive demand. A car is an expensive, once-a-decade purchase that consumers invest great time into optimizing. They can travel to far away car dealers, buy used vehicles, or decide to delay purchase of a new car if they deem the market unfavorable.
Also, we do think transportation is a basic need that should be subsidized by the government. And we see this! Mass transit, suburban busing, para-transit, and school buses for rural children are all examples of the government stepping in and providing, at a loss, affordable options for transportation where the market fails to provide them. These public services alleviate demand from the car market, making it more favorable for those who do want cars, and provides citizens with a voting stake in one of their basic needs. This is fundamentally the path that Mamdani's grocery stores hope to follow.
There are many reasons we wouldn’t see higher profit margins even with oligopoly pricing—profit margins are not the same thing as price markups (gross margins are around 25-30% for grocery stores).
Jesus Christ on a crutch, this is delusional. I live in a very rural area — my driveway is half a mile long — and I have half a dozen groceries within easy driving distance of my house.
And if they really did all charge oligopoly prices, there are maybe 50 fast food places in the same radius.
>> When the public has problems with the private grocery stores they rely on, they don't have this same recourse.
Sure they do. They can shop elsewhere. This "vote with your feet" strategy works much faster than waiting for the next mayoral election, and it's not tangled up with all the other things City Hall deals with. If Mamdani does a good job keeping crime down, upgrading city infrastructure, and so forth, he might get re-elected even if his grocery stores suck. Private grocery stores have no such backstop -- they sink or swim by whether they bring customers in the door.
The one scenario where this doesn't work is when there is only one grocery store available in a given area. That's effectively a tiny monopoly, and there are various ways to address that, but the first question to be asking is *why* is there only one grocery store? Grocery stores are not a natural monopoly, quite the contrary; if there's only one in a populated area, something else is going on.
That's already true for existing for-profit bodegas. If they serve inferior food at inflated prices, people will shop elsewhere, and the mismanaged stores will go out of business.
A major advantage of capitalism is that it provides a higher-resolution signal for this type of institutional turnover. NYC mayoral elections only happen every 4 years, and there are any number of issues which can affect the outcome of an election. Individual voters know they most likely won't be the deciding vote. So there's not much incentive to pay attention and really understand the issues, which leads to relatively superficial campaigning. Political success is a very noisy signal.
And even this election signal doesn't allow us to delete *individual* public grocery stores which are mismanaged. Under capitalism, the well-managed stores can take over the poorly-managed stores, creating a steady march towards improvement, with occasional disruption from innovative newcomers. Under public administration, you just get a simple binary yes/no on the overall notion of public grocery stores.
The signal resolution problem is why it generally works better to leave things to the private sector when possible, all else equal. People are more careful with their own money than they are with public money. Voting with your dollars typically works better than voting with your ballot. This is part of why socialism consistently fails: https://iea.org.uk/publications/socialism-the-failed-idea-that-never-dies/
Note: I do think there are probably clever ways to address the "signal resolution problem" via non-capitalist means. I doubt Mamdani will succeed at this, or even make a solid attempt.
Public administration of a few businesses is not socialism. And I don't claim that public administration is always a disaster. Most public transportation systems are publicly administered, for example. There's a chance that the public grocery store idea will muddle through to something workable. But I agree with Daniel that it's generally a suboptimal way to achieve your objectives if things can be privatized.
Consumers vote with their wallets and prices are signals. The grocery business is very competitive, which is why Americans spend less money on food than they did in 1950. Low income Americans are much more likely to be obese because food is so cheap and plentiful, in the past the poor would starve or become malnourished.
So, no, having the state run a store does not give ppl more say...its far easier to pick a different store than to vote out a government or leave a city or state
There are three stores here. It’s not existential. I think people are getting a little excited with the “vote out” enthusiasm. A city administration should have the freedom to try a politically popular idea at small scale from time to time, so the public can see the costs and benefits. That’s actually good politics and good policy, provided the results are course corrections rather than damage by panic.
I think a lot of people just assume that every big business is charging arbitrary prices and sitting on Scrouge McDuck piles of cash. In reality, grocery stores compete their margins nearly to zero. If they're inefficient, they will quickly lose money, so the average grocery store is very efficient. Food stamps, other equivalent voucher programs, or even cash transfers are all great specifically because they let poor people access the efficient market-run stores.
I am not familiar with the details of this plan but one factor you may not be considering is some people desperately need cheaper groceries while others could care less about saving 30% and will still choose the grocer with their preferred items and shopping experience. I think the old rules of econ don't always apply with today's income gaps
It’s possible that wealthy New Yorkers aren’t price sensitive. But usually wealthy people are! Who doesn’t want an extra $1000 a year? (Mamdani’s estimated savings.)
True, but this also cuts the other way to some extent. It's inconvenient to have to shop at multiple stores. Perhaps rich people will be more willing to pay to avoid the inconvenience. But it's also a burden being placed on the poor (which could be avoided with UBI, food stamps, subsidies for stores, etc.).
Yes; to the extent you're trying to target a benefit, implicit means-testing by effectively seeing who has the lowest cost of time is less direct and more wasteful than explicit means-testing. For one thing, making people prove that they're needy by wasting time (ie, waiting in line, taking a long commute, cutting coupons) has the downside that it wastes their time. Also, you probably get a bunch of old people who aren't particularly needy, but also have a lot of spare time because they're retirees.
Consider a poor person who's working two jobs to keep their head above water. They won't have time to wait in line, but Mamdani's new stores may well destroy the discount grocer they were previously shopping at.
Split shopping is very common in urban areas where you don’t make huge hauls with your car. It’s not unusual to stop by the grocery store 2-3x a week, so having to split isn’t necessarily a detriment
There is definitely a significant group of people who wouldn't be caught dead in poor people grocery stores, even if they would never admit this to themselves.
Many years ago, Graydon Carter of Vanity Fair sent various NYC billionaires cheques of decreasing amounts to see whether they'd cash them in. Some ended up cashing cheques for under $1.
I 100% agree that for many people the savings won't be worth it, depending not just on their income, but how close they live to the stores, and also their cost of time (given the lines Daniel notes are likely to be long). But I would definitely disagree that this is a situation where the old rules of econ don't apply. The idea that people differ in their price sensitivity, and so differ in the extent to which they're willing to spend time (e.g., commuting, cutting coupons) for monetary discounts is very old and familiar to economists.
I don't doubt that some in Mamdani's faction have self-interested motives (as does everyone in politics). But I do think many of Mamdani supporters genuinely want to help the poor, so I wanted to grant as much for the sake of argument.
30% cheaper means the city stores sell at less than bodegas' wholesalers' prices. Therefore, they will become the new wholesaler. Net transfer from taxpayer to small business owners.
I think you're right, but I look forward to seeing how the experiment plays out!
One thing that will be interesting is the tension between cheap food and urban liberal values of organic, local, artisanal, non-GMO (which ain't cheap, I'm sure there's at least a 30% difference). If they don't primarily stock such high-quality food, there will be people in Mandami's base who don't like it; if such food is the main focus it will look like pandering to elite tastes and annoy working class folks who thought they were gonna get really cheap staples.
Someone on FB posted a reply to the news announcement wondering if they were allowed bulk purchase of these discounted products? The plan if OP was allowed to purchase in bulk was to resell for a small profit elsewhere. Someone replied to the post suggesting recruiting friends and family to buy the products if bulk purchase was not allowed. I thought it was interesting how people are already thinking of this scheme in terms of price arbitrage and profit making.
I don't understand why they don't just subsidize existing grocery stores, with the extent of the subsidy decreasing with price increases. Canada uses schemes like this all the time (e.g. to ensure airlines and mail carriers serve remote communities at affordable rates) and they generally work very well.
Great post. I was hoping you might be more concreate about your bet. The (very reasonable) prediction is that this policy will make things worse, but it would be good if we could get some people publicly agreeing on what verifiable measures we would be able see that that occurring. Thus, making it harder to cook the books after the fact.
Yeah I think it's a bad policy, but I'm agnostic leaning skeptical about whether it will be obviously/verifiably bad. I do think long lines are a pretty plausible verifiable prediction, but I'm not sure supporters of the policy would see that as a surprise, or indicating failure. Maybe also you can also make an easily checkable prediction that private grocery stores near the public ones will go out of business at a higher-than-typical rate, or perhaps just stop selling the staples with the price-pegs, but that too strikes me as something supporters are expecting.
One nontrivial prediction is that the stores will have to monitor and enforce rules on who gets to shop how much (or else there’s opportunity for arbitrage, and we can expect rich buyers to DoorDash lots of staples, etc.).
We would need measures of success too. Do fewer people go hungry? (or something). Some predictions about both the upsides and the downsides, some commitments of what success means in terms of how the upsides outweigh the downsides.
Is it too much to ask (probably yes) to have policy such that it is treated more like registered reports in science, with preregistered predictions and planned analyses, and a precommitment to publishing the results?
Right now, measuring success is always post hoc, and warped by the ideologies the analyst or writer was already precommitted to. We already know why preregistration is so important in science, and politics usually comes with much stronger ideological commitments.
Probably too idealistic. Or something something prediction markets or something ....
I conceptually understand every point you made, and appreciate you going on the record with a prediction. Takes are always better when they're falsifiable.
However, I’m going to go ahead and predict myself we won’t see the kind of closures you’re predicting at anything resembling scale, because I think you’re engaging in too much Econ 101 and not enough Behavioral Economics.
There are just so many factors that go into one's decision about where to buy groceries, and while prices are certainly a prominent one, my guess is a 30% delta won't be enough to drown out convenience, taste preference, and any number of other random things that lead people to choose a store. You said yourself that the lines at the municipal stores might get unbearably long...well, guess what many peoples' reaction to that will be?
I mean, it's not like there aren't current examples of price deltas among grocers. To my knowledge, Aldi and Trader Joe's didn't decimate existing grocers. Hell, there's a bodega across the street from the Trader Joe's near where I live in Brooklyn. People still go there because it has some stuff Trader Joe's doesn't have, and while they're there I'm pretty sure they often buy some stuff Trader Joe's does offer for cheaper too, in order to avoid making two trips. And yes, I get that Aldi, Trader Joe's, et al. don't use the same pegging mechanism to literally ensure lower prices than their competitors, but while I admittedly don't have the empirics on this, it sure seems to be the case that they consistently achieve lower prices anyway.
None of this is to say I think this idea is the best way to spend a marginal municipal dollar. In fact I highly doubt it is, but I'm also open to the possibility I'm wrong about that and it turns out that it distributes goods *relatively* progressively, with poorer customers being more willing to wait on the lines.
In any event, I don't think the scale and likely consequences of the idea justify some of the apocalyptic opinions out there, and everyone could stand to be a bit more humble when trying to predict the future.
"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."
The first firms to die will be the extreme discount grocers, e.g. Chinatown grocers
Tragic, since those Chinatown grocers have been working their butts off for decades to provide New Yorkers with groceries at absolute bargain prices.
With these extreme discount grocers going out of business, it will be more difficult to find affordable food. Working-class New Yorkers who work long hours and don't have time to stand in line, or monitor the public grocers to check when food is actually in stock, will get shafted.
Since prices at the public grocers are indexed to private market prices, elimination of discount grocers will raise prices at public grocers as well. But the discount grocers won't necessarily come back if the public grocers are later shut down.
I never understood the selling point when the poor are already eligible for food stamps. And call me a technocrat, but I also don’t like the fact that this seems like an idea drawn up at random on the back of a napkin, or produced over a beer, rather than the result of any carefully studied need or plan. It will probably end up being a waste of political capital, which people who are already against the mayor will in fact welcome. Anyone who wants the mayor to be successful should quietly persuade him to abandon this plan.
I realize that this article is about "policy" and so the responses tend to be policy-centric, but has anyone considered that the non-government stores have a say? For example, what happens if they all run their prices up to +100% on the 30 staples, then have a perpetual BOGO sale at the register?
One key aspect you leave out: who will be operating the stores on the city's behalf and how will they be selected. In such a situation, and given the backend supply chain costs of running a grocery, the city will likely on 1 or 2 large players who will demand something in return for these regulated upside stores: likely monopoly rights to other, owner owned and operated sites...driving up prices for everybody in the end
I think the long lines may ultimately throttle the negative externalities here because most normal people just won't want to deal with them.
But there is some major irony buried in the food desert thing here. Isn't the whole idea around food deserts that normal small grocers were outcompeted by cheaper chains that had lower quality products, thus leaving vast areas of certain cities with worse access to nutritional food when the small grocers closed? Isn't the natural outcome here that these city stores will be shuttered in the next administration, and many bodegas will have closed in the meantime, leaving the resulting grocery landscape even more lacking than before?
I thought the idea was that food deserts do not have grocery stores at all and people rely on convenience stores/cheap take out. Maybe I should read more food desert literature.
I guess the story I've always heard goes something like, small town or neighborhood starts off well served by a few small scale grocers that provide a variety of products, Walmart or Dollar General put one big store in nearby, small grocers are put out of business because they can't compete on prices, now the area only has one big store left. I'm sure there are tons of variations on this story.
The problem is that Walmart didnt put small grocers out of business, the customers did. People chose to shop at the one big store because it suites their needs better and almost certainly saves time and gas (one big store to go to vs 5 smaller ones)
But in that scenario people in the area all have access to fresh produce (at Walmart) right? It might not be ideal (lack of competition, the store is farther away) but I always thought the idea of food deserts was that it is more convenient to buy processed packaged food than produce so people eat that instead.
I'm admittedly not an expert on this literature in any way. But just at a cursory glance at some papers, they define the food desert as any area with "low access" to retailers that stock fresh food, with low access meaning they are in excess of 10 miles from the nearest store. That fits the idea of the exurban Walmart going in a 40 minute drive away from a small town, which I guess is kind of the original idea I had.
That seems reasonable. I guess my point was just that the argument is not that Walmart has low quality produce but that Walmart is unavailable to people in food deserts (or less available than the hypothetical small grocers in this case).
I think the story is often either
1) the walmart is too far away, or
2) the walmart puts everybody else out of business, and then closes, leaving nothing.
ETA: I think this is a much bigger problem in rural/small town scenarios. Most urban "food deserts" arise from the inhabitants of a neighborhood not patronizing full grocers with fresh produce enough to keep them in business, leaving them with only fast food and convenience stores with processed junk food, because that's what they choose to eat.
Another net benefit of city-run grocery stores is that it will increase the transparency and opportunity for public oversight in the food distribution process. If the stores prove to be a disaster, as you suggest, the public will have a clear course of action: vote out the administration that is mismanaging their city's food distribution. When the public has problems with the private grocery stores they rely on, they don't have this same recourse. This creates an incentive for public grocers that doesn't exist for private ones—responding to the people they serve. If it turns out city-run grocers are putting bodegas out of business, ineptly distributing food, or making food procurement a more tedious process, the Mamdani administration will have the opportunity to make adjustments to their system in order to best serve New Yorkers. If they fail to do so, they will risk losing popular support and being voted out. This seems like a clear advantage of city-run stores over private ones.
Credit to Mamdani: he's put this forward as a kind of experiment, and I do think the country will learn something from watching how this unfolds.
This post is my way of placing a bet. If I'm wrong, I'll have to change my economic views. If I'm right, everybody is morally obligated to subscribe to me. (I don't make the rules.)
Yes, credit to Mamdani for putting your money where his mouth is!
That's the expression, right?
The mayor of New York using taxpayer dollars to implement the policy proposals he ran and was elected on to benefit taxpayers is sort of his job.
Absolutely, it is his job - and credit for delivering on a campaign promise as well.
But - five public grocery stores in a city of 8.5 million people is at best a ridiculous vanity project, and sarcasm is a valid response to such absurdities.
They will learn not to repeat the disastor.
The flip side is: what if the program is basically a success? What criteria would you use to recognize success, or at least non-catastrophe, and what would the implications be for your world views (at least for grocery stores in NYC)?
Trader Zoh's. Trader Zoh's.
Let's all shop at Trader Zoh's.
Don't say No. Let's all go,
Shop at Trader Zoh's!
There's nothing specific about grocery stores in that argument. If you don't think nationalizing (cityizing) all business is a good idea--or maybe you do?--you might ask where you think the reasoning you just laid out goes wrong when we replace “grocery stores” with any other kind of store or business.
Let's just have ALL businesses run by one entity. It will make it so much easier to signal when we are dissatisfied as consumers. Especially in a two party system.
The difference between grocery stores and other businesses is simple: food is a basic necessity. While other businesses have to make a worthwhile proposition to consumers, grocery stores are more or less guaranteed their patronage. Consumers can switch between firms, but they cannot exit the market entirely. Such marketplaces can be functional, but are also prone to collusion, oligopoly, and perverse incentives (e.g., U.S. healthcare). By creating a limited public alternative, we can see two consumer benefits. First, consumers can divert money from poorly functioning grocers, giving the grocers incentive to improve (voting with your dollar). Second, consumers will have a democratic say in the operation of one the essential services they rely on (voting with your...vote).
If it were true that grocery markets are uncompetitive because food is a necessity, a possible result would be that staples (milk, bread, eggs, etc) have higher mark-ups, while more discretionary products (branded snack food, dessert, etc) have lower mark-ups. If the mechanism driving mark-ups higher is the need of the consumer, it stands to reason that the most needful products would be the most marked up. In reality these tend to be the cheapest items in the store and almost every grocery has a private label alternative that is much cheaper than the branded alternative in this category. There's also a pretty good body of both empirical and theoretical research suggesting this is a deliberate "loss-leading" strategy wherein the retailer accepts lower margins on these products to get people in the store. Evidence therefore suggests that grocers do compete and they specifically compete on "get staples as low as possible".
https://www.nber.org/papers/w7981
https://www.nber.org/papers/w8426
But to an individual firm, a consumer switching to another firm is no different than a consumer exiting the market entirely. If I run a bodega that charges more than my customers are willing to pay, it's no consolation to *me* that they'll still buy food somewhere else. The fact that I'm offering necessities doesnt at all shield me from competition.
So again, why doesn't this imply that there should also be a public option for cars? Plenty of parts of the country are pretty hard to navigate without a car (eg, Texas). For lots of people, given their jobs (eg, Uber driver) a car is a necessity. Should the government be manufacturing and selling cars, at least in rural or suburban areas? If not, what part of your argument about grocery stores doesn't apply?
You're right that under ideal circumstances individual firms can face market pressure, but food distribution is not ideal. Realistically, consumers can only shop for groceries at the few options in their local area, so their demand is inelastic and held (geographically) captive by just a handful of firms. These are ideal conditions for grocery stores to settle into oligopoly pricing, without even needing to collude with each other. Car firms, on the other hand, do not benefit from captive demand. A car is an expensive, once-a-decade purchase that consumers invest great time into optimizing. They can travel to far away car dealers, buy used vehicles, or decide to delay purchase of a new car if they deem the market unfavorable.
Also, we do think transportation is a basic need that should be subsidized by the government. And we see this! Mass transit, suburban busing, para-transit, and school buses for rural children are all examples of the government stepping in and providing, at a loss, affordable options for transportation where the market fails to provide them. These public services alleviate demand from the car market, making it more favorable for those who do want cars, and provides citizens with a voting stake in one of their basic needs. This is fundamentally the path that Mamdani's grocery stores hope to follow.
If groceries were benefiting from oligopoly pricing, wouldn't we see much higher profit margins?
There are many reasons we wouldn’t see higher profit margins even with oligopoly pricing—profit margins are not the same thing as price markups (gross margins are around 25-30% for grocery stores).
Jesus Christ on a crutch, this is delusional. I live in a very rural area — my driveway is half a mile long — and I have half a dozen groceries within easy driving distance of my house.
And if they really did all charge oligopoly prices, there are maybe 50 fast food places in the same radius.
>> When the public has problems with the private grocery stores they rely on, they don't have this same recourse.
Sure they do. They can shop elsewhere. This "vote with your feet" strategy works much faster than waiting for the next mayoral election, and it's not tangled up with all the other things City Hall deals with. If Mamdani does a good job keeping crime down, upgrading city infrastructure, and so forth, he might get re-elected even if his grocery stores suck. Private grocery stores have no such backstop -- they sink or swim by whether they bring customers in the door.
The one scenario where this doesn't work is when there is only one grocery store available in a given area. That's effectively a tiny monopoly, and there are various ways to address that, but the first question to be asking is *why* is there only one grocery store? Grocery stores are not a natural monopoly, quite the contrary; if there's only one in a populated area, something else is going on.
Ahh yes, because publicly run businesses are known for doing so much better at serving their customers than private ones.
That's already true for existing for-profit bodegas. If they serve inferior food at inflated prices, people will shop elsewhere, and the mismanaged stores will go out of business.
A major advantage of capitalism is that it provides a higher-resolution signal for this type of institutional turnover. NYC mayoral elections only happen every 4 years, and there are any number of issues which can affect the outcome of an election. Individual voters know they most likely won't be the deciding vote. So there's not much incentive to pay attention and really understand the issues, which leads to relatively superficial campaigning. Political success is a very noisy signal.
And even this election signal doesn't allow us to delete *individual* public grocery stores which are mismanaged. Under capitalism, the well-managed stores can take over the poorly-managed stores, creating a steady march towards improvement, with occasional disruption from innovative newcomers. Under public administration, you just get a simple binary yes/no on the overall notion of public grocery stores.
The signal resolution problem is why it generally works better to leave things to the private sector when possible, all else equal. People are more careful with their own money than they are with public money. Voting with your dollars typically works better than voting with your ballot. This is part of why socialism consistently fails: https://iea.org.uk/publications/socialism-the-failed-idea-that-never-dies/
Note: I do think there are probably clever ways to address the "signal resolution problem" via non-capitalist means. I doubt Mamdani will succeed at this, or even make a solid attempt.
If socialism consistently fails how did I just buy my evening tofu from a state-run grocery store here in Shanghai?
Public administration of a few businesses is not socialism. And I don't claim that public administration is always a disaster. Most public transportation systems are publicly administered, for example. There's a chance that the public grocery store idea will muddle through to something workable. But I agree with Daniel that it's generally a suboptimal way to achieve your objectives if things can be privatized.
Consumers vote with their wallets and prices are signals. The grocery business is very competitive, which is why Americans spend less money on food than they did in 1950. Low income Americans are much more likely to be obese because food is so cheap and plentiful, in the past the poor would starve or become malnourished.
So, no, having the state run a store does not give ppl more say...its far easier to pick a different store than to vote out a government or leave a city or state
There are three stores here. It’s not existential. I think people are getting a little excited with the “vote out” enthusiasm. A city administration should have the freedom to try a politically popular idea at small scale from time to time, so the public can see the costs and benefits. That’s actually good politics and good policy, provided the results are course corrections rather than damage by panic.
Lol, transparency. Liberals never cease to entertain.
The ability to vote disappears the further along one gets in a command economy.
I think a lot of people just assume that every big business is charging arbitrary prices and sitting on Scrouge McDuck piles of cash. In reality, grocery stores compete their margins nearly to zero. If they're inefficient, they will quickly lose money, so the average grocery store is very efficient. Food stamps, other equivalent voucher programs, or even cash transfers are all great specifically because they let poor people access the efficient market-run stores.
I am not familiar with the details of this plan but one factor you may not be considering is some people desperately need cheaper groceries while others could care less about saving 30% and will still choose the grocer with their preferred items and shopping experience. I think the old rules of econ don't always apply with today's income gaps
It’s possible that wealthy New Yorkers aren’t price sensitive. But usually wealthy people are! Who doesn’t want an extra $1000 a year? (Mamdani’s estimated savings.)
I do think there are plenty of people who wouldn’t split their shopping between two stores (one with long lines) to save $20 a week!
True, but this also cuts the other way to some extent. It's inconvenient to have to shop at multiple stores. Perhaps rich people will be more willing to pay to avoid the inconvenience. But it's also a burden being placed on the poor (which could be avoided with UBI, food stamps, subsidies for stores, etc.).
Yes; to the extent you're trying to target a benefit, implicit means-testing by effectively seeing who has the lowest cost of time is less direct and more wasteful than explicit means-testing. For one thing, making people prove that they're needy by wasting time (ie, waiting in line, taking a long commute, cutting coupons) has the downside that it wastes their time. Also, you probably get a bunch of old people who aren't particularly needy, but also have a lot of spare time because they're retirees.
Consider a poor person who's working two jobs to keep their head above water. They won't have time to wait in line, but Mamdani's new stores may well destroy the discount grocer they were previously shopping at.
Split shopping is very common in urban areas where you don’t make huge hauls with your car. It’s not unusual to stop by the grocery store 2-3x a week, so having to split isn’t necessarily a detriment
There is definitely a significant group of people who wouldn't be caught dead in poor people grocery stores, even if they would never admit this to themselves.
Many years ago, Graydon Carter of Vanity Fair sent various NYC billionaires cheques of decreasing amounts to see whether they'd cash them in. Some ended up cashing cheques for under $1.
I 100% agree that for many people the savings won't be worth it, depending not just on their income, but how close they live to the stores, and also their cost of time (given the lines Daniel notes are likely to be long). But I would definitely disagree that this is a situation where the old rules of econ don't apply. The idea that people differ in their price sensitivity, and so differ in the extent to which they're willing to spend time (e.g., commuting, cutting coupons) for monetary discounts is very old and familiar to economists.
Id argue this goes beyond price sensitivity. There are distinct groups of people who value different things.
"People who value different things" is exactly "price sensitivity"
What % of ppl who desperately need cheaper groceries are not already on SNAP?
The old econ rules always apply
I am reminded of the line “if the road to hell is paved with good intentions, where does road paved with bad intentions go?”
(I don’t think this policy is motivated by good intentions. I think it’s naked political performance.)
I don't doubt that some in Mamdani's faction have self-interested motives (as does everyone in politics). But I do think many of Mamdani supporters genuinely want to help the poor, so I wanted to grant as much for the sake of argument.
It will be hilarious if restaurants and bodegas show up monthly and then just buy the products and resell them.
30% cheaper means the city stores sell at less than bodegas' wholesalers' prices. Therefore, they will become the new wholesaler. Net transfer from taxpayer to small business owners.
I think you're right, but I look forward to seeing how the experiment plays out!
One thing that will be interesting is the tension between cheap food and urban liberal values of organic, local, artisanal, non-GMO (which ain't cheap, I'm sure there's at least a 30% difference). If they don't primarily stock such high-quality food, there will be people in Mandami's base who don't like it; if such food is the main focus it will look like pandering to elite tastes and annoy working class folks who thought they were gonna get really cheap staples.
Someone on FB posted a reply to the news announcement wondering if they were allowed bulk purchase of these discounted products? The plan if OP was allowed to purchase in bulk was to resell for a small profit elsewhere. Someone replied to the post suggesting recruiting friends and family to buy the products if bulk purchase was not allowed. I thought it was interesting how people are already thinking of this scheme in terms of price arbitrage and profit making.
I don't understand why they don't just subsidize existing grocery stores, with the extent of the subsidy decreasing with price increases. Canada uses schemes like this all the time (e.g. to ensure airlines and mail carriers serve remote communities at affordable rates) and they generally work very well.
Great post. I was hoping you might be more concreate about your bet. The (very reasonable) prediction is that this policy will make things worse, but it would be good if we could get some people publicly agreeing on what verifiable measures we would be able see that that occurring. Thus, making it harder to cook the books after the fact.
Yeah I think it's a bad policy, but I'm agnostic leaning skeptical about whether it will be obviously/verifiably bad. I do think long lines are a pretty plausible verifiable prediction, but I'm not sure supporters of the policy would see that as a surprise, or indicating failure. Maybe also you can also make an easily checkable prediction that private grocery stores near the public ones will go out of business at a higher-than-typical rate, or perhaps just stop selling the staples with the price-pegs, but that too strikes me as something supporters are expecting.
One nontrivial prediction is that the stores will have to monitor and enforce rules on who gets to shop how much (or else there’s opportunity for arbitrage, and we can expect rich buyers to DoorDash lots of staples, etc.).
We would need measures of success too. Do fewer people go hungry? (or something). Some predictions about both the upsides and the downsides, some commitments of what success means in terms of how the upsides outweigh the downsides.
Is it too much to ask (probably yes) to have policy such that it is treated more like registered reports in science, with preregistered predictions and planned analyses, and a precommitment to publishing the results?
Right now, measuring success is always post hoc, and warped by the ideologies the analyst or writer was already precommitted to. We already know why preregistration is so important in science, and politics usually comes with much stronger ideological commitments.
Probably too idealistic. Or something something prediction markets or something ....
Two useful metrics to keep an eye on: average cost of groceries, rate of food insecurity.
So rationing?
I conceptually understand every point you made, and appreciate you going on the record with a prediction. Takes are always better when they're falsifiable.
However, I’m going to go ahead and predict myself we won’t see the kind of closures you’re predicting at anything resembling scale, because I think you’re engaging in too much Econ 101 and not enough Behavioral Economics.
There are just so many factors that go into one's decision about where to buy groceries, and while prices are certainly a prominent one, my guess is a 30% delta won't be enough to drown out convenience, taste preference, and any number of other random things that lead people to choose a store. You said yourself that the lines at the municipal stores might get unbearably long...well, guess what many peoples' reaction to that will be?
I mean, it's not like there aren't current examples of price deltas among grocers. To my knowledge, Aldi and Trader Joe's didn't decimate existing grocers. Hell, there's a bodega across the street from the Trader Joe's near where I live in Brooklyn. People still go there because it has some stuff Trader Joe's doesn't have, and while they're there I'm pretty sure they often buy some stuff Trader Joe's does offer for cheaper too, in order to avoid making two trips. And yes, I get that Aldi, Trader Joe's, et al. don't use the same pegging mechanism to literally ensure lower prices than their competitors, but while I admittedly don't have the empirics on this, it sure seems to be the case that they consistently achieve lower prices anyway.
None of this is to say I think this idea is the best way to spend a marginal municipal dollar. In fact I highly doubt it is, but I'm also open to the possibility I'm wrong about that and it turns out that it distributes goods *relatively* progressively, with poorer customers being more willing to wait on the lines.
In any event, I don't think the scale and likely consequences of the idea justify some of the apocalyptic opinions out there, and everyone could stand to be a bit more humble when trying to predict the future.
"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."
The first firms to die will be the extreme discount grocers, e.g. Chinatown grocers
https://www.youtube.com/watch?v=nHirMZO1w2s
Tragic, since those Chinatown grocers have been working their butts off for decades to provide New Yorkers with groceries at absolute bargain prices.
With these extreme discount grocers going out of business, it will be more difficult to find affordable food. Working-class New Yorkers who work long hours and don't have time to stand in line, or monitor the public grocers to check when food is actually in stock, will get shafted.
Since prices at the public grocers are indexed to private market prices, elimination of discount grocers will raise prices at public grocers as well. But the discount grocers won't necessarily come back if the public grocers are later shut down.
I never understood the selling point when the poor are already eligible for food stamps. And call me a technocrat, but I also don’t like the fact that this seems like an idea drawn up at random on the back of a napkin, or produced over a beer, rather than the result of any carefully studied need or plan. It will probably end up being a waste of political capital, which people who are already against the mayor will in fact welcome. Anyone who wants the mayor to be successful should quietly persuade him to abandon this plan.
I realize that this article is about "policy" and so the responses tend to be policy-centric, but has anyone considered that the non-government stores have a say? For example, what happens if they all run their prices up to +100% on the 30 staples, then have a perpetual BOGO sale at the register?
One key aspect you leave out: who will be operating the stores on the city's behalf and how will they be selected. In such a situation, and given the backend supply chain costs of running a grocery, the city will likely on 1 or 2 large players who will demand something in return for these regulated upside stores: likely monopoly rights to other, owner owned and operated sites...driving up prices for everybody in the end