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.