A good deal vs. a good life

One of the pleasures of living in the East Bay is the off-leash dog park at Point Isabel, where we will go with ours later today.  On the way home, the devil has placed a temptation. If there’s a parking place in the shade, we can stop at Costco and load up on staples at very good prices.  And not just staples: I discovered a new rather obscure and super-yummy Boschetto cheese there on a recent trip, and Costco’s wine selection goes from $6 plonk almost to triple digits. Not to mention my cool new Xoom.

Doing this of course hurts the merchants in our walkable Elmwood neighborhood. One of them, a new wine and cheese store, has a similar cheese that came with an informative lecture about it and its relatives, not to mention offers to taste things I wouldn’t know to ask about, and personal interaction with the manager. I don’t remember the prices but it’s hard to imagine Costco doesn’t beat the locals on everything they offer, so if my limits of analysis are tightly drawn around the cheese and my wallet, I’m better off at Costco: same eating experience and more money left to buy other stuff with.  If I add in my shopping time at some imputed money cost, Costco still wins, because I can allocate an hour of wheeling a cart around, and waiting in line reading a book on my phone, across maybe a hundred pounds of stuff.  To shop at Wine Thieves, I take a dog and also stop at Peet’s and the bakery next door, and because I leave the dog tied to  a parking meter and he is the world’s most sociable canine (if dogs sold insurance, he would be a millionaire), I have to chat with people petting him.  A half hour for a pound of coffee, maybe a latte I could make cheaper at home, a loaf of bread, a piece of cheese, and maybe a bottle of wine: if I’m not withdrawn into earphone intimacy with mp3s or the radio, it’s not an efficient use of my time by conventional accounting.

On the other hand, I could analyze this choice by drawing the limits of analysis for the cheese (for example) to include the hedonic experience of shopping itself; the good “cheese” when bought locally incorporates a share of an enjoyable experience that, unlike a concert, has no price, but a lot of value, indeed a different sign from the experience of schlepping around Costco.  From that perspective, things bought locally are worth more than the same things bought at Costco (Tibor Scitovsky has lots more on this point of view in The Joyless Economy, still a classic.)

Let’s say, enough more to be worth the price if paying the premium will keep the pedestrian, local, interactive shopping experience available to me and my neighbors.  Unfortunately, as Bob Frank explained at a conference more than a decade ago, I’m facing a prisoners’ dilemma.  I want the humane, interactive shopping experience in my neighborhood and elsewhere in Berkeley, and I’m willing to pay more for it sometimes, and for some things.  I’m willing to pay even more to assure that I can have it when I want to.  But my personal shopping is a blip at Wine Thieves or Peet’s or the bakery; the continued availability of that experience depends on what my neighbors do, and I’m better off saving money at Costco and only shopping locally when I want to walk the dog if I think they will step up and pay what it costs to maintain Elmwood commerce, and also if I think they will not.  Indeed, the best deal I can get is to just walk around the neighborhood windowshopping and chatting with people over the dog, and go to Costco for actual buying stuff.

There’s more: to buy cheese at Costco requires only that I reach into the cooler when I am already walking by.  To buy it at Wine Thieves I have to make a special trip of a couple of blocks; even if I’m already on the sidewalk I have to walk into the store.  It’s like driving: when you own a car, and it’s right there in the driveway, you’re a lot more likely to drive instead of walk ‘just this once’ than if you have to arrange a vehicle from Zipcar. Even though you would rather walk more  and drive less.

Away across town, in North Berkeley, this conflict is playing out explicitly (ht:  Steve Teles, on a listserv).  The Monterey Market, a beloved local institution, is accused of starting to sell the same things as the small shops that cluster around it in a nice local shopping center, but for less.  What’s not to like? Tyler Cowen posts the story wondering if it’s supposed to be parody.  If a piece of nice cheese is just a piece of nice cheese, this is competition doing what it’s supposed to do, and as long as it lasts, the Northbrae neighbors get their nice pedestrian center and cheaper cheese, which is obviously better than the nice center with expensive cheese.

Of course, the question is how long it lasts.  And to understand what’s going on here, I think we have to think of the whole shopping center as an ecology of enterprises providing something much more valuable than the merchandise in its stores collectively, but whose value is an integral, not an intensive, property of the ensemble, and also value that there’s no way for any individual shopper to signal by market messages.   An analogous example is a hardware or computer gadget store with stuff to browse around in that you didn’t know existed, and a deep inventory including stuff you only want very rarely in addition to the fast movers.  No one of those slow-moving items can justify itself on the shelf alone, and an accountant will be quick to get rid of them.  But as a group, as the good “this store will have the odd item you need to fix your sink on Saturday”, they provide so much value that CompUSA curled up its toes because the accountant and his inventory software killed it. Not to mention a clerk you could actually find to talk to in person, and who knew anything beyond when his break was due to start.

Monterey Market, assuming it’s not just using predatory pricing specifically to kill its neighbors, is doing what a merchant should do, by the conventional market model, and if that model is really bankrupt we are in terrible trouble.  But Monterey Market is a car destination merchant, draws from most of north Berkeley, and can probably survive as a vegetable and deli Costco, with customers who don’t go beyond the parking lot and a few who walk in.  (Not necessarily; it’s quite possible that MM will kill itself if this torpedo turns around and the surrounding stores actually bring it important trade now.)  Will a Northbrae with no or few local, quirky, diverse merchants who provide each others’ foot traffic, and one big Monterey Market, provide more value to society through its lower money prices than the existing and rather delicate Northbrae neighborhood ecology?  My strong guess is, no, any more than a planet four degrees hotter with cheap gasoline provides more value than a cool planet with gas at European prices. YMMV.

This is where I should obviously preach that we should all go out with or without the dog and shop locally, just as I wish to preach that California should implement global warming programs even though their benefits are immediately diluted 1:200, which is a very high hurdle for a benefit-cost argument. Not everything has to be accomplished by money or even private utility maximization, especially short-run utility; a lot of good in the world just depends on people acting like grownups and doing the right thing.  But a prisoners’ dilemma is a real mismatch of private action incentives and private payoffs from collective behavior.  Someone who pays extra for everything locally while his local neighborhood shops go broke anyway is a chump or a luftmensch, right?

My wife is land use planning manager for the City of Berkeley, which has some planning regulations that would make Tyler sign up in the local anarchist chapter (I believe we still have a parking lot that’s unbuildable as a landmark because at one time there was a garden there).  It’s a meddlesome system with things like quotas for different kinds of retail that fight legitimate market signals about highest and best use.  But it’s also the result of an implicit, not always correctly-analyzed, recognition that not everything of value has a market in which to coordinate supply and demand, nor money prices to demonstrate that value.  An ecology of retail will not maintain itself for maximum social value creation without some government steering.  The conflict brewing in Northbrae is not another excuse to ridicule Berzerkeley; it’s a collision of legitimate values in a world in which the market is not chopped liver, but also not a sufficient machine to best guide the behavior of ordinary flawed people, of the type Berkeley (and everywhere else) is populated with.

 

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

14 thoughts on “A good deal vs. a good life”

  1. Thank you for this. Two things:

    Not everything has to be accomplished by money or even private utility maximization, especially short-run utility; a lot of good in the world just depends on people acting like grownups and doing the right thing.

    Yes, of course. But you will see some people – dependent solely on a crude tool – argue vehemently otherwise. I would argue this vehemence is due to an inordinate dependence upon a crude tool. Such arguments based on this crude tool should be considered, and most of them rejected.

    But it’s also the result of an implicit, not always correctly-analyzed, recognition that not everything of value has a market in which to coordinate supply and demand, nor money prices to demonstrate that value. An ecology of retail will not maintain itself for maximum social value creation without some government steering.

    Indeed. My profession is your wife’s. It is very hard to implement policy for humans, based on laws, empiricism and past policy made by flawed humans. Our ideals clash with the reality that humans and societies don’t really know how to go about doing things, and we continually make the same mistakes and relearn stuff. It’s like a slowed-down version of the Keystone Kops trying to get in the car. I find most private companies are like this too. And there’s no better alternative.

  2. In your accounting, the cost of the car that takes you to Costco and back appears to be zero. How do things change when you factor in the cost of the car, and do you really need it? Those of us who live in neighborhoods where everything you mention can be reached by walking (including dog parks) probably save a bunch of money, even if the stuff we consume is a bit more expensive.

  3. At 50c/mile, the RT to Costco costs us about $4, much less than we save with a big shop. The stop at Costco on the way back from the dog park is free. Owning and insuring the car already, the marginal cost of the drive is much less, just gas, time, and depreciation which is small on our old cars. As the car already has not only insurance but also a tank full of gas, driving it feels practically free, which is a problem. If I had to feed quarters into a slot in the dashboard every time I used it, I bet my perception of its cost would be much higher.

  4. Very fine post. The two big going holes in most all free market theorizing it seems to me is the assumption that contractual property rights can internalize all relevant externalities, at least in principle, which assumes a world of atoms and we just need to get the molecules right, and that what is profitable in the market accurately reflects people’s ‘preferences,’ which Mark Sagoff devastated to my satisfaction years ago in The Economy of the Earth. I think you did a good job of showing these weaknesses in a example I also wrestle with often. The pure free market types can be counted on the ignore the implications of these issues.

  5. @ Gus:

    Interesting interpretation, thank you. I see it as millllllyuns of individual rational decisions don’t raise our social capital and don’t provide certain societal goods. That is: The Market (TM) doesn’t provide everything we need.

  6. On the other hand, you might want to throw in that Costco (specifically, and not so much others of its ilk) also fights the impulse to cut all short term costs. It pays its store employees far above the industry standard (about twice what Sam’s Club does) and is genuinely a good employer. Now, they argue that this really is a cost savings approach, in that it builds a happier, more productive workforce in which turnover is an order of magnitude lower than the competition. Wall Street, though, hates it and is basically salivating for the time when its founder finally dies and they might get their hands on control in order to cut wages to the bone and save a few pennies for three quarters.

  7. I don’t know why Tyler Cowen considers this a parody. It is most definitely unusual in the American economy, but a similar process was what led to the introduction of the Loi Lang. Small booksellers were being massively underpriced by supermarkets that were using books as loss leaders and went out of business at a worrying rate, so the French parliament stepped in and passed a law that disallowed discounting beyond 5%.

    Obviously, books are a fairly special case, and I very much doubt that this could be extended to other goods without serious harm to the free market; but that does not necessarily mean that small store owners still can’t have issues with predatory pricing by big markets without being taken seriously.

  8. The Fujimoto kids were childhood friends, lived on my street, and I remember what a huge deal it was when their parents took the risk of buying the defunct Lucky Supermarket and moving from their overcrowded old store across the street. I love Monterey Market, and go to see it whenever I return to Berkeley. My memory is that the secret of their success in those early, pre-foodie days, was that Tom Fujimoto, and after him, Bill, now Gloria, knew everybody at the wholesale market, and was willing to take on actual ripe-on-the-tree peaches which Safeway and Co-op couldn’t deal with in their multistep warehouse process. People came from miles around, and the rest was history. Monterey Market history is David vs Goliath, and David won. It’s sort of exotic to see MM now painted as Goliath…

    I tend to think it’s kind of nuts for Cali to do its own global warming program – additional cost moves a lot of businesses which ought to be in Sackamenna to Reno, or Houston and the contribution, to harm reduction is about zero. If California wants to most effectively reduce CO2 emissions, its best mechanism is probably to fund research on alternative energy production (the ‘silver birdshot’ of one of your long-ago posts) and make the results available free, in hopes that this would persuade against BRIC choices to lift increasingly expensive petroleum.

  9. Dave, having left Sackamenna I see much more clearly now that CA policy drives others to adopt similar policy. I’ve lived in two states since I escaped the GCV, and I see both slowly adopting CA environmental policy. Think of it as a test bed for trying out what needs to be done.

  10. “I want the humane, interactive shopping experience in my neighborhood and elsewhere in Berkeley”

    What exactly does this mean? I hate to be contrarian here, but this really does strike me as one of these issues that makes no sense to me.
    Is the desire
    – for some sort of human interaction with the staff at shops? You see Bob the Baker every week and talk about the kids or something? Maybe I’m an autistic anti-social grump, but I personally feel no hole in my life from the fact that I don’t know the names of the staff at my local Ralphs, and I don’t see why the appropriate place to look for friends should be in the neighborhood shops rather than via World of Warcraft, the local book club, the local bar, or all the other ways people find company.
    – for something related to architecture? Is the assumption that, if these small shops close down, they’ll be turned into crack houses? Seems a little unlikely in Berkeley that ANY abandoned property will remain empty and undeveloped for longer than a week.

    Whenever I read this sort of thing, it strikes me as nothing but a variant on “Back in my day…”; in other words the complaint is not actually rational, it’s based on the fact that change is disliked. “I grew up with a milkman visiting every day, and I’m telling you buying milk at a supermarket is unnatural”. “Back in my day we used to meet girls by hanging out at the mall, none of this online-dating nonsense”. etc etc

    I’m not trying to be contrary here; I really do not see what the REAL issue is. All I see here is basically a replay of “Amazon is so horrible because it will kill the local bookstore”. True enough — the local bookstore is probably dead, or dying — but I’m not seeing why this was a tragedy. Sure, it may have been a tragedy for the bookstore owner, but we’re discussing here society, not one individual, and from where I stand, most people are better off with Amazon than that local bookstore.

  11. Maynard Handley: I am sure you are not such a grump!!

    Maybe these kinds of human-scale shopping districts simply don’t appeal to you. It’s a question of taste. I used to live in Berkeley and I know exactly what O’Hare is talking about and I loved those areas too, even though I was rather on the broke side. You get to look at neato stuff without trekking to a museum, enjoy the nice landscaping (those places always have it), and get a hot chocolate that doesn’t taste like water and coconut oil. There’s almost always a bookstore around. You can *walk.* (That’s a big deal to some of us.) There’s usually a few things that aren’t hugely expensive that you can’t get somewhere else (even with Amazon), easily.

    I have lately awakened to the fact that land use planning of these areas must be quite difficult indeed, since there are so few. And part of the reason they may not last is that powerful forces often try to cash in on the attractions of such places, which can kill them. We are fighting this battle right now in Hollywood, and we will probably lose. LA planning truly seems to be a sausage machine. And it’s funny because huge swaths of it are utterly anonymous and ugly, but no, people feel a need to *ruin* places like Fairfax and Larchmont. We don’t seem to have people like O’Hare’s wife to protect them.

    Those of us who like these things simply get run over, and I disagree that it’s the “market,” because the ugly cr*p that gets built doesn’t always succeed commercially. (Please someone kill the CRAs already.)

    Anyway, my solution is to buy some things in Costco and other things in the little stores. It’s the best I can do.

  12. I second NCG having lived in Berkeley and since moved to Sonoma County where a strong buy local” movement exists.

    But there is more to it than friendly relations. I will give just one example: a lively sidewalk life, as Jane Jacobs showed some time ago, leads to a safer urban environment. One city i North America was deliberately shifted from the American model to one ore in keeping with ideals of urban neighborhoods and the like: Vancouver. Today it is regarded by just about everyone who writes on such matters as one of the most successfull cities on earth. It’s biggest problem in some ways is that it is so popular it has become very expensive to afford rent or housing. Even in that area the city has acted to restrain the worst of one-sided gentrification.

    Vancouver i hardly antagonistic to business, but it is deliberately very very far from either a libertarian fantasy (gated communities are banned) or the kinds of places so many American cities are, where the downtown exists along with suburbs, and the health of the rest doesn’t matter so much.

  13. What frightens me is that in comparison to the local box grocery store Costco is not a disamenity. They have good quality, their aisles are well laid out, the staff is not-surly, and the prices don’t involve a complex calculus of how much the price was raised before the “discount”, whether there will be coupons next week, how chintzy the store brand really is or how much hidden rot in the fruit and veg. We also go to the local co-op and other small places as much as we can, but some things they just don’t stock.

    So you who live in rich retail ecosystems should treasure them and pity the rest of us.

  14. Jim Sinegal is one of my heroes. Not everything big is bad. Employees are treated well, and Costco isn’t trying to rip you off, that is the main difference. I trust it, frankly. So sue me!

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