Free Lunch is Sometimes Available
I generally enjoyed Laura Shapiro’s review of Ellen Ruppel Shell’s Cheap: The High Cost of Discount Culture. In particular, this is an important phenomenon:
“How are consumers to know whether the lower price of chicken breasts at Wal-Mart” signifies “a good deal on a superior product or a bad deal on an inferior product?”
That said, I’m leery of observations like this “Cheap chicken, cheap shirts, cheap sneakers — they’re all being paid for by somebody, even if it’s not the person taking them home.” The implication here is that the economic world is a purely zero-sum affair so if I make higher profits (win for me) by offering you lower prices (win for you) then someone (my suppliers, retail service workers) must be suffering precisely equivalent losses. Fortunately, the world doesn’t work like that. Innovations, including innovations in business processes, tend to produce gains that are larger than their losses.
One problem, directly raised in the review, is that sometimes things (electricity produced in coal-fired power plants) are only cheap because they involve enormous unpriced negative externalities. When we secure discounts by increasing our reliance on such things, we’re basically just borrowing from our future capacity to clean up messes rather than genuinely enhancing prosperity. The other thing is that the gains won’t be evenly distributed and individual people can suffer substantial losses. Over the past 30 years, a huge portion of the overall growth in the size of the economic pie has been concentrated in the hands of the highest earners. This constitutes part of the case for higher tax rates on high earners to finance generous, high-quality public services (schools, health care, buses and trains, parks) so as to ensure that “bargains” are really benefitting everyone.
27 Responses to “Free Lunch is Sometimes Available”
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July 20th, 2009 at 12:10 pm
If Michael Pollan and Omnivore’s Dilemma are to be taken as anything approaching the truth, that cheap Wal-Mart chicken is going to cause you massive health problems down the line, almost certainly outweighing the benefits of a few less cents spent on the breasts.
July 20th, 2009 at 12:16 pm
Unfortunately capitalism is defined as the use of capital to generate profits. Capitalism sucks profits out of an economic transaction. That is why we have terms like “cash cow”. The analogy is to feed and care for the cow, so that it produces milk. But such a system isn’t designed to care too much for the cow, or to worry about too much of the poop produced, that is for someone else. And if the cow gets to old to produce milk, you sell it off for meat and buy a new cow.
Capitalists know that they can’t invest too much in the cow because nobody else in a similar situation would invest too much either.
July 20th, 2009 at 12:17 pm
Fortunately, the world doesn’t work like that
Unfortunately, the world often does work like that.
Generally, Chinese workers pay for your cheap sneakers, computers, and furniture by enduring low wages and slavery-like conditions, or as often, with their health or even lives: http://extras.sltrib.com/china/ .
July 20th, 2009 at 12:25 pm
@Greg,TomJ,HaHaHa—Oh, you guys. Don’t you know that actually offering concrete counterexamples is completely antithetical to this kind of breezy, blanket-generalization punditry?
I hereby sentence each of you to be locked in a closet with Malcolm Gladwell for three days.
July 20th, 2009 at 12:26 pm
If the cheap goods are also inferior crap, then consumers pay the cost directly. Chicken is a little different, but I’ve bought $5 t shirts that wore holes after a dozen washes, versus $12 shirts that have lasted years.
That’s not an externality. That’s me wasting 5 bucks on a piece of crap.
July 20th, 2009 at 12:29 pm
“We can’t give our minimum wage employees health benefits, but our chicken breasts and sneakers are cheap”
July 20th, 2009 at 12:29 pm
Chicken is a little different
Actually a similar case to the T-shirt can be made in comparing free-range poultry to the antibiotic-filled, saline-injected kind. I suppose the nutritional and health effects are less immediately visible.
July 20th, 2009 at 12:31 pm
Actually a similar case to the T-shirt can be made in comparing free-range poultry to the antibiotic-filled, saline-injected kind. I suppose the nutritional and health effects are less immediately visible.
It will sure as hell leave you full of more holes than the t-shirt. Particularly after they drill your body to put all the necessary tubing in when you get to the hospital
July 20th, 2009 at 12:40 pm
“Unfortunately, the world often does work like that.”
The book admits that wages and conditions in the Third World could be significantly higher, and prices for consumers would only be slightly higher. So MY is correct that it’s not a zero-sum game–you can have both lower prices and good jobs in poor countries. The assumption that lower prices must necessarily come at the cost of higher negative externalities is wrong, or at least very crude. That’s the point, and it’s an important one for people who feel that they’ve escaped the “cognitive dissonance” of the irresponsible consumer simply because they pay higher prices.
“Cheap Wal-Mart chicken is going to cause you massive health problems down the line, almost certainly outweighing the benefits of a few less cents spent on the breasts”
I’m all for hearing about knowing about food is made and how it impacts health, but the Omnivore’s Dilemma doesn’t really engage in the kind of cost-benefit analysis that would need to replace your hand-waving. What are the alteratives available to Wal-Mart chicken? Chicken at the other supermarket or even the farmer’s market (if you have one), might have basically the same problems that Wal-Mart chicken does. Paying more is no guarantee of anything. Typically it indicates lower volume, not better quality. The difference in cost between Wal-Mart frozen chicken breasts and free-range organic chicken is not “a few cents”, it’s about 50%. And the difference in healthiness between Wal-Mart and your other slightly more upscale supermarket is not very great. Sometimes the difference has nothing to do with health–it has to do with the ethics of how the animals are raised, or with how yucky the process of raising and killing the animals seems.
July 20th, 2009 at 12:46 pm
While I’m not in general a huge fan of Wal-Mart, they also save a substantial amount of money by having a superior distribution and inventory system. Of course, Cheap Goods From China do wonders for the bottom line, as well, and have clear negative externalities; better distribution means Wal-Mart is more ruthlessly efficient with its supply.
July 20th, 2009 at 12:57 pm
Typically it indicates lower volume, not better quality. The difference in cost between Wal-Mart frozen chicken breasts and free-range organic chicken is not “a few cents”, it’s about 50%. And the difference in healthiness between Wal-Mart and your other slightly more upscale supermarket is not very great.
I don’t know about that. My neighborhood grocery store in Chicago (not a Whole Foods or something like that) offers orgo stuff for something like a dollar more per pound in most cases. Unfortunately, I don’t know if it’s any better.
But dude, in Europe, they accept lower quantities of higher quality, higher price per unit food. I think one could argue that they also have higher densities which allows regional distribution unlike here where we have to cross over a thousand miles. I think that if we ate less – and I am often woefully deficient in this regard – we could then afford higher priced, better quality food.
I absolutely agree that Pollan offers a pretty pessimistic narrative, but I felt that his overall concern was with demonstrating that the factory farm industry is so awful largely because the quantity of food our population demands is ridiculously large.
July 20th, 2009 at 12:58 pm
What I do find intriguing is that Wal Mart is investing in energy efficiency as one of their many tactics in their race to be cheapest. Inefficiency costs money. An up front investment in more efficient lighting, trucking, etc. pays off in cheaper overhead costs down the road. This is the way that old fashioned capitalism should work to reduce emissions, and if you tilt the equation a bit further towards green through, I dunno, a cap and trade system, you spur more of this sort of thing.
So if the most significant factor in the low cost of chicken is that it was purchased more locally, delivered in a hybrid truck, and refrigerated using solar generated electricity, I don’t see that as a problem. The problem is in those parts of cheap that come from hormone-laden factory farming processes.
July 20th, 2009 at 1:07 pm
James Gary @ 4
I don’t accuse our host of breezy, blanket-generalization punditry. But I do urge people to ask their representatives and Senators why they haven’t passed HB 1910 and S 367 banning sale of products whose manufacture and import kill and sicken people, known together as the “Please Congress, let me buy a computer that didn’t kill or disable a Chinese worker” bills.
Although I must say, it’s not clear those bills would actually achieve that, but they could put Congress on a path toward recognizing and protecting workers’ human rights.
July 20th, 2009 at 1:14 pm
More bluntly, those are the “Please Congress, let me buy a computer whose supply chain isn’t littered with bodies” bills.
July 20th, 2009 at 1:21 pm
“I absolutely agree that Pollan offers a pretty pessimistic narrative, but I felt that his overall concern was with demonstrating that the factory farm industry is so awful largely because the quantity of food our population demands is ridiculously large.”
Is that really true, though? There are 300 million people in the U.S. Let’s assume we ate less chicken–say 40% less. You’d still have a massive, wealthy market where most people can easily pay $2-5 per meal-person. In that kind of market a factory farm offering you a $1 discount per family dinner could still do quite well. There would simply be fewer factory farms. We could be more vegetarian in which case our diets would be healthier and mostly cheaper, with less ethical problems. But we’d probably still see fierce competition over price and resulting problems with cutting corners in massive, industrial operations, like we currently see with bagged spinach and greens, as well as popular fruits like grapes, oranges and strawberries. We should be eating *more* spinach, not less, and yet we already have a lot of the same problems with spinach that we have with chicken.
July 20th, 2009 at 1:31 pm
Hahaha: The thing is that workers in China endured slavery-like conditions and low wages before Walmart came around too. Walmart is probably an improvement overall, the problem is that Walmart could be providing significantly better conditions if they charged a little more.
July 20th, 2009 at 1:42 pm
Anonymous @ 16
Actually I was only countering Matt’s general propostion about the economic world not “being a purely zero-zum affair” and wasn’t thinking of WalMart. My example had to do with the zero-sum economics of manufactured products, particularly those with international supply chains. Walmart could be the closest thing to an analogue in retail.
July 20th, 2009 at 2:19 pm
Is that really true, though? There are 300 million people in the U.S. Let’s assume we ate less chicken–say 40% less. You’d still have a massive, wealthy market where most people can easily pay $2-5 per meal-person. In that kind of market a factory farm offering you a $1 discount per family dinner could still do quite well. There would simply be fewer factory farms. We could be more vegetarian in which case our diets would be healthier and mostly cheaper, with less ethical problems. But we’d probably still see fierce competition over price and resulting problems with cutting corners in massive, industrial operations, like we currently see with bagged spinach and greens, as well as popular fruits like grapes, oranges and strawberries. We should be eating *more* spinach, not less, and yet we already have a lot of the same problems with spinach that we have with chicken.
Of course, Colatina, my point only works when we join quality and quantity together. I’m not suggesting we spend lots less on food; the net would be zero, we’d still buy chicken, but that we’d put the extra cash normally used to buy four breasts into buying two that are tastier, healthier, etc.
July 20th, 2009 at 2:37 pm
HaHaHa: And my point is that it’s still not zero-sum. The people in slave labor conditions still benefit, just by a pathetically small amount.
July 20th, 2009 at 3:28 pm
One group paying for WalMart’s cheap chicken meat is of course the chickens.
July 20th, 2009 at 4:38 pm
Why do people assume the free range chicken will taste better and be healthier? Of the three free range chickens I’ve tried, all tasted bad and one made me sick. There is nothing about letting a chicken run around and eat whatever it finds that makes it taste good, and certainly how a chicken lived does not affect how sanitary the butchering and packaging processes are. You can drop a free-range chicken carcass on a dirty floor, or leave it in a warm truck for hours just as easily as a factory farmed chicken.
July 20th, 2009 at 5:14 pm
@Njorl
Your personal experiences are just that. Having a biological being live and eat the way its organs and body have been designed to for thousands of years will produce a healthier animal. A healthier animal produces better quality products.
July 20th, 2009 at 5:22 pm
Njorl,
The problem isn’t even that, as Gully says correctly, factory farmed chicken isn’t how nature designed them.
The massive, overriding problem is that our own digestive tracts have not evolved to eat the sort of shit that factory farms put out.
We’ve only had industrial food processing since, at best, tinned food in the early to middle 19th Century. It’s an evolutionary blip that our bodies have not yet processed.
July 20th, 2009 at 9:07 pm
Why do people assume the free range chicken will taste better and be healthier?
I’ve no idea. I’m not even clear about what’s so bad about “poor quality” chicken that you can buy for cheap. I mean, as long as it’s clean and not prone to infecting you with salmonella, who cares if people are buying “cheap” chicken? Certainly plenty of people would welcome the opportunity to spend less on chicken, even if maybe it was a bit chewier than they were used to.
Cheap shoes and cheap shirts wear out quickly and just end up encouraging a “race to the bottom” when it comes to the quality of our durable consumer goods. But if people end up paying less and less money for what is otherwise reasonably healthy food, that’s not some huge tragedy, it’s just the consequence of not having a lot of disposable income. Better that one can buy cheap chicken than, say, junk food.
July 20th, 2009 at 10:14 pm
Poorly compensated labor in the export industries of poor countries is a problem, but I’d say it’s not a bigger (or smaller) problem than poorly compensated purely domestic labor in poor countries, which is the typical alternative. On the other hand, *forced* labor for export oriented industries strikes me as a pretty serious problem. This strikes me as a pretty big moral issue with regard to importing from China (and not, say, Sri Lanka).
July 21st, 2009 at 1:34 am
I was being driven home by a friend recently after a round of golf and he asked if I minded a slight detour to stop at Wal-Mart. I said “no of course not. What are you getting?” “Groceries,” he said.
I started laughing. “We are riding in a $75,000 Cadillac Escapade and you are going to waste two bucks in gas to save, what, 49 cents on milk and cookies?”
July 21st, 2009 at 6:54 am
Gully:
plausible, but still: naturalistic fallacy.