Raw Thought

by Aaron Swartz

Why You Shop At Wal-Mart: Economics Eats Itself

Book cover

There is a theory (quite an elegant one, actually) that says that because we live in a marketplace of free choices we end up getting basically what we want — our dollars are like votes for the society we wish to live in. Many have challenged this view, from a variety of perspectives, but Tom Slee (who calls this notion MarketThink) has chosen to focus on just one: the economic subfield of “game theory”.

In his elegant little book, the poorly-titled No One Makes You Shop At Wal-Mart, Slee walks through the major discoveries of game theory, explains them in simple language with reference to a fictional town of Whimsley, and discusses how they refute standard economic conclusions while still playing by basic economic assumptions with effects that appear to show up in the real world.

Take the problem of littering, for example. The town of Whimsley has a large park between its coffee shop and its office building. Residents can toss their empty coffee cups on the ground in the park, thereby saving themselves the trouble of carrying it but minutely spoiling the park, or they can carry it to the trash at the office, saving the park but bothering their hands. In the absence of anyone else, each resident is better off tossing their cup — the bother of carrying it is much more than the small amount of spoilage. But if everyone does this, the park is quickly full of litter. Each individual, acting perfectly rationally, creates a situation that none of them want.

A similar problem gives the book its title. Imagine you get some utility from having a vibrant downtown of independent shops. Then a Wal-Mart opens up on the outskirts of town. You begin shopping at the Wal-Mart because the prices are cheaper and you can still walk through the vibrant downtown when you like. But with everyone buying things at Wal-Mart, the downtown stores can no longer afford to stay open and the center of your city turns into an empty husk. You’d prefer to have the vibrant downtown to the Wal-Mart, but nobody ever gave you that choice.

The book is full of dozens of examples like this, each with careful analysis and clear writing. Perhaps the most odd feature of the book is its politics. On the one hand, Slee is plainly a committed leftist, with positive references to Naomi Klein and other capitalist critics. But on the other hand, he never gives up on the rational actor and methodological individualist assumptions of modern economics, and shows little patience for those (typically his political allies) who have more thorough-going critiques. Nonetheless, the book is a recommended read for anyone interested in these questions.

Online Bonus: Watch Tom Slee eviscerate Chris Anderson’s inbox-stuffer, The Long Tail on his weblog, Whimsley. Because, remember folks, “Abundance, like growth itself, is a force that is changing our world in ways that we experience every day, whether we have an equation to describe it or not.” (p. 146)

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March 13, 2007


Interesting that critics of neoclassical economics have almost caught up to what Ronald Coase said in 1937. The ‘park’ example is the classic “Assume nobody owns a given piece of property. Now, nobody treats it as though they own it. Clearly, ownership is the problem,” which is a bit like criticizing modern medicine on the grounds that if you don’t give anyone flu shots, lots of people will die from the flu.

The solution is to either make the park someone’s property, or set up your laws such that it acts as if it is someone’s property. That may not be the kind of world you want to live in, but it’s a world immune to Slee’s facile criticism.

posted by Byrne Hobart on March 13, 2007 #

It’s not clear to me how to turn air into property in order to stop air pollution, but I’ve added another example that’s more directly market-based.

posted by Aaron Swartz on March 13, 2007 #

Air-as-property is one of the few markets for which a government (or multi-government) initiative is clearly and intuitively the best solution: emissions credits distributed on a per-capita basis would pretty quickly ensure that the only firms that polluted were the ones that created net wealth by doing so.

As far as the Wal Mart example is concerned, it’s rather hard for me to take seriously. Homogeneity is a characteristic that one entity has relative to another — in an increasingly Wal Marted world, the funky and original shops are proportionately more interesting. I used to live in a city just barely big enough for a chain bookstore, and at the time I thought Barnes & Noble was fabulous. Now I live in a city with a dozen or so B&N’s, including their flagship store — so I prefer cozier shops like Strand and Shakespeare & Co..

I’d rather live in a city with cheap commodities and interesting alternatives than in a place where the ‘alternatives’ had a monopoly.

posted by Byrne Hobart on March 13, 2007 #

Per-capita emissions credits are a government-instituted form of regulation. Sure, they happen to work by distributing a new form of property, but they still require government action to get around a collective action problem created by the market’s lack of concern for externalities.

posted by Aaron Swartz on March 13, 2007 #

Almost. They aren’t a new form of property — they’re legal recognition of existing property. Clean air exists, and is enjoyed or exploited regardless of law. If our laws recognize that it’s a valuable resource, economic entities will treat it as such.

‘The market’ lacks concern for externalities if and only if you define it solely in terms of the two sides to any one transaction. Given that for any transaction, the vast majority of people are neither the party nor the counterparty, this is a limited definition — I’d say that the market is the sum of all transactions, and that in this case externalities are side effects that aren’t sever enough per participant to warrant negotiation.

posted by Byrne Hobart on March 13, 2007 #

A big part of the lesson of WalMart is that the commodities aren’t actually as cheap as they seem: many of the costs that WalMart avoids still must be paid by someone, and often local and state governments are the ones who pay, through channels like increased stress on emergency rooms for WalMart employees with no insurance.

I think if WalMart was actually held to the federal laws which are supposed to regulate it: laws on labor organizing, employee compensation, environmental factors, etc., there would be considerably less pressure on smaller local businesses.

I can only speculate what the American economy and US cities would look like if public policy advanced the interests of small businesses, consumers, workers, and the community at large, instead of being so skewed towards huge corporate entities. But to say these phenomena are purely the creation of the market, and government non-interference, etc. is to ignore quite a bit, IMO. Of course, in many ways, the success of businesses like WalMart has to do with meeting real needs: Big chain stores bring new goods that were previously impossible to find, and commoditize many others to the point that more can afford them. But that isn’t the whole story by a wide margin.

It surprises me that there isn’t more public discourse in America about these issues, because in Europe, for instance, local and regional products are heavily protected, advertising is deeply limited (roads aren’t plastered with billboards, television isn’t blanked by pharmaceutical ads, etc.), and labor and consumer groups have immense government influence. It’s an open question whether one or the other system is more desirable, but at least I would expect vigorous public debate on these issues, instead of a unitary focus on “cultural” issues like gay marriage.

In other words, that WalMart “wins” and local businesses and products “lose” is in large part in the hands of public policy, and is directly due to the current political conventional wisdom about markets and their role.

Almost. They aren’t a new form of property — they’re legal recognition of existing property. Clean air exists, and is enjoyed or exploited regardless of law. If our laws recognize that it’s a valuable resource, economic entities will treat it as such.

This is absurd. “Clean air” is not “property”, and to force it into such a framework is at best a way of hacking existing “market-based” mechanisms to deal with problems they aren’t really suited to. Pretending that this is the natural order is just buying into a deeply limited conceptual framework which has little to do with the actual problems faced by government.

posted by Jacob Rus on March 13, 2007 #

To add to the end of second section above. The focus of our political system is on “cultural” issues, (or problems so big they cannot be ignored, like the blatant political corruption and abysmal foreign-policy failures of the current republicans), but the assumptions about economics and policy that make up the conventional wisdom are very seldom discussed in political debate, or at least not directly. While particular policies are open to debate, there is little discussion of the need for the government to spend trillions of dollars on new weapons, the need to allow healthcare or media to be privatized and run principally for profits, the need for food companies to market directly to children, for drug manufacturers to market directly to consumers, or for need to subsidize coal and nuclear power.

These are taken as (more or less) fundamental truths in the current political climate, and this is deeply worrying to me. Hopefully the Democratic party can begin to question at least some of these assumptions. I’m not very hopeful, however.

posted by Jacob Rus on March 13, 2007 #

Substitute “Perhaps” for “Hopefully” in the second-to-last sentence there. :)

posted by Jacob Rus on March 13, 2007 #

I’m going to bn.com to add the damn book to my Barnes and Noble wishlist, because goddammit I am not going to shop at Amazon.

(Yes, I realize I am the last person on earth who cares.)

posted by Jamie McCarthy on March 13, 2007 #

The basic premise here seems to be one playfully described by Garrett Hardin as CCPP — commonize the costs and privatize the profits and I was delighted to find a bit of his writings on the subject available here.

Hardin is best known for “The Tragedy of the Commons” which ought to have been called the Tragedy of the Mismanaged Commons, because there is nothing inherently wrong with a commons. Just that the mechanisms for controlling how individuals (and individual corporations) make use of them have more or less completely broken down.

I happen to think Hardin was one of the world’s great original thinkers who, alas, continues to be ignored.

posted by Jeremy Cherfas on March 13, 2007 #

“Then a Wal-Mart opens up on the outskirts of town. You begin shopping at the Wal-Mart …”

Even if you don’t shop there, the result is likely the same.

A person’s economic decisions are like one “vote” in the marketplace.

posted by Joe Grossberg on March 13, 2007 #

Byrne - You seem to be taking Aaron’s generous review as an exhaustive description of my book. I’m not the right person to judge whether the book is facile or not, but I do get a little bit beyond the point you are making. There are externalities beyond collective-action dilemmas.

I think Jacob Ruus’s sentence captures my own point of view well: “‘Clean air’ is not ‘property’, and to force it into such a framework is at best a way of hacking existing “market-based” mechanisms to deal with problems they aren’t really suited to.” - as market logic extends further and further away from the trading of commodities, its tendency to treat externalities as an afterthought becomes more problematic.

Chapter one, by the way, is online at http://www.tomslee.net/excerpt.html.

posted by tom s. on March 14, 2007 #

“You’d prefer to have the vibrant downtown to the Wal-Mart”

Well, I think that’s a case of inappropriate bundling. It isn’t that the “you” in this case prefers the vibrant downtown to the Wal-Mart, because that’s clearly contradicted by his actions — if, overall, he preferred the vibrant downtown, he’d have continued shopping there even though it was more expensive. People do shop at more expensive stores when they prefer them, so there’s nothing particularly weird about that.

But the hypothetical person here would still claim to prefer the vibrant downtown if you asked him on his way to pick up jeans at Wal-Mart. The problem is that there are two separate preferences here: he prefers to relax and enjoy the vibrant downtown as a place to hang out, but prefers to pay for actual goods at the Wal-Mart rate. Bundling these separate preferences into a single question obfuscates what’s really going on enough that entire books can (and have) been written about it (before this one, I mean, if that’s mostly what it’s about).

posted by Randall Randall on March 18, 2007 #

Randall, yes. But I think he was saying that there’s an ordering over the states of the world (Walmart + Downtown) > (Downtown no Walmart) > (Walmart destroys Downtown). There’s nothing really bizarre or unreasonable about that.

However, what I don’t understand is why we should be upset by this situation. Saying that you yourself want to shop at Walmart while still having a downtown to enjoy is basically saying that you’d like someone else, whether it be the proprietors or other customers, to subsidize downtown. But of course you’d like that; it doesn’t particularly trouble me that you can’t.

On the other hand, I’m not sure how much of the destruction of these downtowns is really inevitable. It seems to me that while Walmart does provide lots of low-cost goods, there’s all sorts of other things that they cannot (or at least probably won’t) provide. Given the desire people have for vibrant downtowns, it would seem that creative businesspeople and entrepreneurs could find something to fill that void, coffeeshops, restaurants, gyms, or I don’t even know what. Perhaps small-time stores tend to be complacent and reliant on a captive audience for their wares, and maybe that sort of situation is going away due to technology and other factors.

posted by on March 19, 2007 #

The proprietor may well cut this post, and I wouldn’t blame him. But just to respond to Randall and the following post, here is the Wal-Mart vs. downtown section. It is in Chapter 1, and is not intended to be a detailed or exhaustive analysis - so please don’t take it as such.

Jack lives in Whimsley. Some time ago Jack used to do most of his shopping in the downtown area—of course, he no longer does—and he also used to walk through the downtown before crossing Whimsley Park on his way to work.

Jack shares an eccentric trait with the other inhabitants of Whimsley: he has an odd way of making choices. As he goes about his daily life, when faced with a decision he assigns numerical points to the benefits and costs of the available options, and he chooses the option that gives the most points.

Let’s follow Jack’s reasoning as he thinks about what life was like when he shopped in the downtown area.

Value. I did much of my shopping at the two downtown department stores. They provided reasonable selection and price. They were worth two satisfaction points per week.

Variety. I liked the variety of the two stores. Sometimes I went to one store, sometimes the other, depending on what I needed, how much time I had, what other errands I had, and so on. The variety of having two stores was worth an additional two points.

Atmosphere. I assigned myself another two points each week from my enjoyment of the thriving downtown as I walked through it on the way to work.

Jack was happy to the tune of six points per week: two for selection and price, two for the variety of shopping options he had available, and two for the atmosphere of the thriving downtown.

A few years ago Wal-Mart opened a new store on the outer edge of Whimsley. Wal-Mart has huge economies of scale and tremendous bargaining power with its suppliers, and thus is able to offer the lowest prices. Like any consumer, Jack likes low prices. So Jack started shopping mainly at Wal-Mart.

For a while things were pretty good. Jack was happier because of Wal-Mart’s arrival in town. Here is his reasoning.

Value. By shopping mainly at Wal-Mart I not only continue to have a reasonable selection but I also get lower prices. So I give myself three points per week for price and selection, instead of the two I used to get by shopping at the downtown stores.

Variety. What’s more, Wal-Mart has extended my range of options: I assign myself an additional satisfaction point for the extra variety that Wal-Mart introduces, because on the days I don’t feel like trekking out to Wal-Mart I can still visit one of the other stores and get what I need.

Atmosphere. There is no change to the atmosphere of the city, so I still get my two points for atmosphere.

Soon after Wal-Mart arrived, then, Jack was getting eight points per week: three from Wal-Mart’s selection and everyday low prices, three from the expanded variety he has available, and, as before, two from walking through the lively downtown to work. Jack was happier than before Wal-Mart built its store.

    • *

Of course, Jack was not the only person in Whimsley to be making choices, and that is where his problems started. Like him, many other people started to shop at Wal-Mart. The smaller department stores downtown started to have troubles, and gradually they went out of business.

Wal-Mart became the only department store in Whimsley. Jack had to shop at Wal-Mart all the time, like it or not. As a result, Jack’s points for variety moved down to just a single point. Jack wanted more variety, but instead he got less. With the closing of the downtown department stores, Jack was down to six points per week again. He was as happy as before Wal-Mart came, but no happier. That’s not too bad. At least Jack was no worse off than he was before.

But Jack’s problems did not stop there. Once the downtown department stores closed, the slower customer traffic in the area meant that other stores closed too. Now downtown is not so interesting anymore: a number of shops are boarded up, others have been replaced by dollar stores, and the buildings are shoddy. Jack does not enjoy walking past the rundown area on the way to work. It gives him no pleasure. No points.

Now Jack has only four points per week. He is less happy than he was before Wal-Mart came.

In the beginning Jack made a choice that he believed would make him happier, but now he finds that he is less happy.

posted by tom s. on March 19, 2007 #

“The solution is to either make the park someone’s property, or set up your laws such that it acts as if it is someone’s property.”

I have an example why this doesn’t work in practice. I live by a city that burned to the ground in 1903 and was rebuilt in a peculiar architectural style called Art Noveau. The buildings are not the most glorious examples of Art Noveau (funds were limited), nor is it the place with most art noveau buildings (because it is a pretty small town), but the concentration is what makes the town unique.

Do you get my meaning? What is valuable is not any individual house, no matter how glorious, but the fact that there are so many of them in close proximity. Now how do we go about protecting this thing? I assert that it has great value for the local tourism business, and it’s probably worth a smaller amount to each of the city’s inhabitants, but how can we protect our interests? Who shall own that which makes the houses greater than its part?

It’s not a rhetorical question. The Art Noveau houses are being torn down at an alarming rate, because to each individual owner, that is a sensible ecenomic decision. Only a few particularly pretty building are protected by law, but that’s not where the value of the city lies.

posted by Harald Korneliussen on March 26, 2007 #

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