I think I understand one side of Bernie Sanders.
I returned a few minutes ago from shopping at the Lucky Supermarket in Pacific Grove, California. On the shopping list was a particular kind of cheese my wife wanted: Sargento Sharp Cheddar in slices. I had to look at a long row of similarly packaged cheeses to find the right one. It got me to realize that whether I shop for cheese, toothpaste, tortillas, olive oil, or numerous other items, I usually have to look carefully to find just the right one my wife wants or I want.
This time a little voice in my head said, “Why can’t they have a narrower choice so it’s easier to find what I want?”
That was my inner Bernie Sanders voice. If you don’t know what I’m referring to, it’s a comment by Bernie Sanders in May 2015 during his campaign for the Democratic nomination for President in which he complains about the large variety of deodorants available. Yes, he tried to make a tenuous argument that people are starving because of the large variety of deodorants, but I think he mentioned the variety because he thought it was a winning argument with people–and there are a lot of them–who decry variety.
But then, as I stood there looking at the cheese, two new thoughts came into my brain, maybe because I’m an economist or maybe because I care a lot about other people besides myself. (That’s somewhat redundant: to be a good economist you have to at least think, if not care, about a lot of people besides yourself.)
First, just thinking about myself, why do I think that if the supermarket had a narrower variety, it would have what I want? Maybe it wouldn’t and maybe the way to maximize the chance of getting what I want is to have a large variety.
Second, there’s thinking about others. Even if a narrower range of choices gave me what I wanted, there’s a very high probability that a large number of other people wouldn’t get what they wanted.
Now to my tentative conclusion: it’s tentative because I don’t know Bernie Sanders. My guess is that when he decries the variety that a relatively free market gives us, the second thought never pops into Bernie’s head.
READER COMMENTS
Maniel
Aug 25 2019 at 5:01pm
Professor Henderson,
Bernie, like all true Socialists, knows which deodorant is right for your wife and for you. If that makes you uncomfortable, never fear; it’s nothing that a little re-education can’t cure.
Mark Z
Aug 25 2019 at 6:54pm
I think people also tend to have conflicting emotional reactions to the choices they’re presented. I can imagine walking along the cheese section and thinking both “there are too many options here” and also, “and yet, the one I want isn’t here; if only they had a broader selection.” Perhaps if the store stocked a more limited array of cheeses, fewer people would be ‘overwhelmed’ by the number of choices, but also fewer people would find their preferred cheese, and the latter may outweigh the former.
My guess is that when people complain about the status quo, they don’t invest much thought in the tradeoffs that would come with the alternative, and so default to a mentality that sees an imperfect status quo as sub-optimal. I think you’re right though that people tend to overestimate the universality of their own preferences.
Phil
Aug 25 2019 at 7:29pm
Those who decry the overwhelming variety at most groceries can simply shop at Trader Joe’s. The market has adapted and provided a store whose competitive advantage is a more limited array. We don’t need to government to coerce it.
nobody.really
Aug 25 2019 at 9:16pm
Not following this one.
1: I don’t interpret Sanders’s remarks as Henderson does. To start, here’s the remark that triggered Henderson’s reverie:
“HARWOOD: If the changes that you envision in tax policy, in finance, breaking up the banks, were to result in a more equitable distribution of income, but less economic growth, is that trade-off worth making?
SANDERS: Yes. If 99 percent of all the new income goes to the top 1 percent, you could triple it, it wouldn’t matter much to the average middle class person. The whole size of the economy and the GDP doesn’t matter if people continue to work longer hours for low wages and you have 45 million people living in poverty. You can’t just continue growth for the sake of growth in a world in which we are struggling with climate change and all kinds of environmental problems. All right? You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country. I don’t think the media appreciates the kind of stress that ordinary Americans are working on. People scared to death about what happens tomorrow. Half the people in America have less than $10,000 in savings. How do you like that? That means you have an automobile accident, you have an illness, you’re broke. How do you retire if you have less than $10,000, and you don’t have much in the way of Social Security?”
Admittedly, I lack Henderson’s credentials, and so perhaps I lack his capacity for caring about others. But I read Sanders answer to the question, and I interpret it as if Sanders were answering the question—specifically, a question about the trade-off between economic growth and wealth distribution.
Sanders uses the numbers of deodorants as a symbol of economic growth. (Indeed, Americans returning from a year in the Peace Corps something similar will often remark on the jarring variety of consumer goods in US stores.) Sanders favors policies to provide lower classes with more resources. And if this resulted in the US having lower growth—symbolized by a reduced number of deodorant choices—then that’s a sacrifice, but a sacrifice he thinks society should be willing to bear.
Henderson reads this and, powered with an economist’s concern for people, concludes that Sanders clearly has not considered the crushing burden that consumers might bear if they had to choose a second-favorite deodorant—because only someone who has never contemplated such a fate would ever toy with the idea of causing such a calamity.
I suspect that Sanders would concur with this much: Clearly someone in this discussion has failed to consider the plight of others and the pains of deprivation. But the agreement might end there.
Mark Z
Aug 26 2019 at 2:09am
Then perhaps we’re being too charitable here and Sanders is committing an even more elementary error: thinking that restricting a luxury market (if deodorant is to be considered a luxury) somehow funnels resources into the production of more necessities. If, say, certain luxury goods were outlawed, consumption effectively capped at the boundary of whatever we define as luxury, would they really keep working full time just as before because they get as much joy out of filling the Sanders Administration’s coffers as consuming luxury goods? Because I suspect if that were so, then the very ‘problem’ Sanders describes wouldn’t occur in the first place.
I would also be incredulous that anyone familiar with how much the US government spends on food programs could sincerely believe that children being hungry in America could be attributable to insufficient revenue/funding, though the simplest explanation may just be that Sanders doesn’t know such details. I’m reminded of people who demand higher taxes on ‘the rich’ to solve urban homelessness problems, unaware that their city is spending over 50k a year per homeless person on homelessness. Or someone who’s wineskin keeps running out and they keep demanding more wine, oblivious to the fact that there’s a hole in it and all the pouring in the world won’t cauterize it.
dmm
Aug 26 2019 at 4:50am
A few points:
Sanders’ point about increasing GDP not necessarily helping the worst off is correct – especially the implication that the financial system is rigged to surreptitiously transfer wealth to the well-connected (via inflation, bailouts, regulatory capture, etc.) – but then
he used a false dichotomy (extra choice for some vs. hunger for others) to create a very weak (IMO) metaphor (extra choice = increased GDP) which he pilloried in answering the question.
Henderson correctly identifies the false dichotomy (“Yes, he tried to make a tenuous argument that people are starving because of the large variety of deodorants”), but goes on to state his own opinion as to why Sanders used that particular metaphor (“but I think he mentioned the variety because he thought it was a winning argument with people–and there are a lot of them–who decry variety”).
In Henderson’s conclusion, I think he is wrong about Sanders’ intentions, because Sanders has considered “the second thought” that a lot of others won’t get what they want. He simply doesn’t care about any of the negative consequences his policies would create. They are features, not bugs, as long as he, being in charge and above the melee, is not affected by them.
MarkW
Aug 26 2019 at 7:09am
But I read Sanders answer to the question, and I interpret it as if Sanders were answering the question—specifically, a question about the trade-off between economic growth and wealth distribution.
But in that view, the comment is nonsensical. There’s simply no connection between wealth distribution and the variety of products found in an ordinary grocery store. Or if there is, it’s the *reverse* of what Sanders imagines. The array of cheeses, breakfast cereals, and toothpastes he decries are not exclusive luxury goods for billionaires, they’re for rest of us. If billionaires truly had almost all the money and left everyone else with scraps, there would be no cornucopia of choices for the masses.
It’s one thing to look at the lives that the poor lead in the U.S. and argue that more should be done for them. It’s quite another to conclude that the free-market system that produces our wealth is the problem but that once Bernienomics has been implemented and society as a whole is poorer and the economy is no longer growing, we’ll somehow have more resources to provide for the poor.
RPLong
Aug 26 2019 at 8:29am
I don’t see it that way. I interpret Sanders as saying that the economy produces too much of the wrong stuff and not enough of the right stuff. The main flaw in his argument is that low prices and wide selection are both dead giveaways that the economy is allocating resources correctly.
The more minor flaw in his argument is that he imagines that plenty of food could be produced if at least some of the deodorant producers just stopped what they were doing and started growing food instead. Only someone who has never done either — farmed or manufactured deodorant — would imagine that it’s all just a simple matter of putting the same people to work doing different things.
Hazel Meade
Aug 26 2019 at 10:48am
I think where Sanders goes wrong is in thinking that the number of different kinds of deoderant is in some way taking resources away from producing goods for poorer people. But why would we think that? Does it take more resources to produce deoderant in 2 different types than in 1? Or in 23 different types? The difference is probably marginal at best given the fact that these things are largely mechanized.
From a simplistic point of view you might think “why are we producing SO MUCH deodorant?” or that it would be more efficient to just have two kinds of deodorant to maximize production efficiency. But the problem with that is that it’s precisely the degree of competition in the deodorant market that drives prices down. More choices doesn’t equal less efficient production, it equals MORE efficient production, as the producers of deodorant are incentivized to become more efficient in order to compete for customers.
A government run system which produced only two kinds of deodorant at one big plant would ultimately produce deodorant that cost more and drew resources away from solving the problems of the poor.
nobody.really
Aug 26 2019 at 4:10pm
I did not understand Sanders to make that argument. I understood Sanders to argue that 23 different types of deodorant reflects a wealthy middle- and upper-class. And I understood Sanders to argue for shifting wealth to the lower classes. This might RESULT in fewer deodorants being produced for the middle- and upper-classes, because they’d be correspondingly poorer. This result was not Sanders’s goal, but a possible side-effect of his objective.
I kinda doubt this. Yes, I would expect more competitors to drive down prices. But frequently a single firm will market multiple different deodorants. I don’t expect that the firm does this in order to drive down its own prices. To the contrary, I expect a firm creates niche versions of its product in order to resist commodification that leads to competition solely on the basis of price.
Don’t get me wrong: I think consumers generally benefit from this practice. (That said, Consumer Reports notes that each mattress company produces a dizzying variety of mattresses—many of which have no obvious difference from their other mattresses—apparently with the sole objective of impeding a consumer’s effort to comparison shop. So maybe consumers do not always benefit from more choices, as discussed elsewhere.) My point is just that we should not confuse more options on the shelf with greater price competition.
These words get me thinking….
Economies of scale refers to the oft-observed dynamic that a firm grows more efficient at producing a good as it produces more of them. Diseconomies of scale refers to the exhaustion of this dynamic, when a separate production unit (worker, factory) can produce a marginal unit more efficiently than the existing firm can.
Generally I’d expect that a firm could produce a single variety of deodorant at a lower unit cost than 23 varieties. What dis-economies might prevail against that trend?
Well, perhaps you’ve maxed out on some aspect of production. Perhaps your deodorant using a certain ingredient, and you can’t increase the rate at which to receive that ingredient. Or perhaps you’ve simply maxed out the production capacity at a given location and must open a new one—and you know that inevitably that products produced in different batches will have slightly different qualities.
What strategy should you adopt when you are presenting multiple, similar things? One strategy is to attempt to achieve uniformity. But uniformity is hard to achieve, because deviations may be easy to detect. So another strategy is to conspicuously achieve variety. Thus, when hanging a row of identically-sized pictures, it may be easier to hang them at a variety of heights—because if you try to hang them at the same height, any failure will be conspicuous. Likewise, when matching shirt and pants, it may be better to wear colors that clearly contrast than to try to get colors that match—knowing that wearing two colors that are nearly-but-not-quite the same will clash more than simply wearing complementary colors.
In sum, perhaps a firm than must do something new to expand production—producing at a different location or with different ingredients—could achieve a lower unit cost by producing a distinct product rather than pursuing uniformity with an incumbent product. Rather than striving to meet a customer’s expectation of uniformity, it may be cheaper to simply avoid building that expectation in the first place.
Hazel Meade
Aug 28 2019 at 1:49pm
Exactly. Although you kind of answered your own objection – it’s not actually less efficient to produce multiple different kinds of deodorant, even if some niche products don’t compete directly on price. Deodorant manufacturers distribute production across their facilities as efficiently as possible, and consumers will substitute if there isn’t enough of the generic brand available. In other words, there’s not really excess or inefficient production of deodorant happening in order to generate variety.
nobody.really
Aug 25 2019 at 9:20pm
2: While Henderson expresses anxiety about the consequences if supermarkets withheld choices from consumers, he surely knows that supermarkets DO PRECISELY THAT—that is, that wholesalers offer more options to retailers than retailers choose to put onto their shelves. There are options that you and I never see. And precisely because we never see them, we never know how much they might have pleased us.
Thus, there as almost certainly never been a day in Henderson’s life when the very calamity he fears has not occurred. Sanders’s policies, if they resulted in reduced consumer choices, would exacerbate that situation—but they would not create it.
nobody.really
Aug 25 2019 at 9:28pm
3: As the Rolling Stones reminds us, you can’t always get what you want. Indeed, most people don’t even know what they want until someone informs them that it’s an option. And if they didn’t tell them that something was an option, would they feel deprived?
Moreover, there’s some research on choice paralysis. We expend effort in making choices. The more options we must consider, the more effort is required. The marginal benefit of each option may compensate for the effort—but it may not. As noted in Thinking Fast and Slow, choice fatigue has predictable (and arguably lamentable) patterns.
And on the other hand, people derive satisfaction from feeling that they’ve made a good choice. Having more options (and especially the option of undoing their choices) often leaves them feeling less satisfied with the choices they’ve made.
nobody.really
Aug 25 2019 at 9:30pm
Finally, here’s a REAL economic conundrum that Henderson missed:
“How much time should I invest in seeking for the precise thing my wife asked for, and at what point should I make a substitution (or call her about making a substitution)?”
Here we have a principle/agent problem, and a gatekeeper problem: The shopper will rarely shop as efficiently as the person who wrote the shopping list, because the writer will likely know not only what she wants, but how important that specific preference is, and what substitutes are good enough. The shopper likely does not have this information because it can be hard to convey—much harder than simply writing a list.
(To some extent, we encounter this problem when trying to measure inflation. Typically we analyze the change in a price for a “basket of goods.” Some shoppers would be willing to make substitutions, and thus maintain similar utility at lower cost than if the shopper bought the precise list of items in the basket. But the people who calculate inflation cannot know every shopper’s cross-elasticity of demand, and so cannot make such substitutions.)
If Henderson could solve THAT problem, he’d get the Nobel Prize and the thanks of husbands everywhere.
Jon Murphy
Aug 26 2019 at 5:51am
In a strict interpretation of neoclassical economics, I’d say you’re likely correct here. But in a broader, richer understanding of knowledge and information in the marketplace, I’d say you’re likely incorrect.
I’m willing to bet Prof. Henderson has that information. He’s known his wife for years. He likely knows what she wants, how much time should be spent, and acceptable subsitutes, as well as she does. This relational knowledge develops over time through our interactions with one another. It’s a type of local knowledge that Hayek discusses in Use of Knowledge in Society and Adam Smith discusses in Wealth of Nations and Theory of Moral Sentiments. It’s precisely the type of knowledge that gets assumed away, or flattened down to mere information, in neoclassical models.
In short: that problem was solved and won Hayek a Nobel Prize.
David Henderson
Aug 26 2019 at 12:48pm
Jon Murphy,
You write:
I wouldn’t take the other side of your bet. 🙂
On a related issue, see this earlier post. Even got a nice comment from Ezra Klein.
nobody.really
Aug 26 2019 at 1:14pm
Hayek indeed got a Nobel Prize–and also a divorce from his wife of 24 years. In 1949 he left the London School of Economics and moved his family to Arkansas to take a position as a visiting professor–and to take advantage of the state’s lax divorce laws. Divorce was a more stigmatizing event in 1950 than it is today.
In short, long marriage does not solve this problem–at least, not in my case, and perhaps not in Hayek’s. But on-line shopping might. If Sanders tries to clamp down on that, there will be hell to pay….
Jon Murphy
Aug 26 2019 at 2:29pm
The divorce doesn’t undermind my point; without knowing Hayek, I cannot say (nor can you) what drove the divorce. But after being married for 24 years, I doubt he knew nothing about his wife.
lat
Aug 25 2019 at 10:28pm
Reminds me of this paper that, I think, Marginal Rev linked to recently:
The Rise of Niche Consumption
We show that over the last 15 years, the typical household has increasingly concentrated its spending on a few preferred products. However, this is not driven by “superstar” products capturing larger market shares. Instead, households increasingly focus spending on different products from each other. As a result, aggregate spending concentration has in fact decreased over this same period. We use a novel heterogeneous agent model to conclude that increasing product variety is a key driver of these divergent trends. When more products are available, households can select a subset better matched to their particular tastes, and this generates welfare gains not reflected in government statistics. Our model features heterogeneous markups because producers of popular products care more about maximizing profits from existing customers, while producers of less popular niche products care more about expanding their customer base. Surprisingly, however, our model can match the observed trends in household and aggregate concentration without any resulting change in aggregate market power.
Brandon Berg
Aug 26 2019 at 6:24am
I think the simpler explanation is that Sanders is campaigning on an anti-capitalist platform. One area in which capitalism undeniably outperforms socialism is the wide variety of affordable products available for lower- and middle-class consumers.
As such, Sanders benefits by downplaying the value of having these choices available.
Note the same tactic in the disparagement of the superior economic growth delivered by capitalism, by claiming that 99% of the benefits go to the top 1%. As an aside, it’s hard to square this with the 23 varieties of deodorant, which surely are not stocked in grocery stores in middle class neighborhoods for the sole benefit of the top 1%.
Alan Goldhammer
Aug 26 2019 at 8:36am
My solution this apparent paradox is pretty simple. As a capitalist and stockholder, I always buy products manufactured and marketed by companies I own stock in. I’m always pleased to see all the North Face clothing worn world wide as my VF stock continues to appreciate!! 🙂
We also like Sargento cheese but the company is privately held so there is no possibility of investment. It was the great investor Peter Lynch who looked at what people were buying in local stores and made some great investments for the Fidelity Magellan fund back in the day.
nobody.really
Aug 26 2019 at 1:22pm
Oooooo … so you’re part of the cabal that suppressed The South Butt (“Never stop relaxing”), one of the best corporate parodies around. Might have known….
Giles Kemp
Aug 26 2019 at 9:34am
Anyone interested in in detail on this issue should read Barry Schwartz’s Paradox of Choice.
Econymous
Aug 26 2019 at 8:24pm
Agreed completely. This sounded like Bernie echoing portions of that book nearly exactly.
It’s also one of the few books I’ve read that often comes to mind in day-to-day life. He makes a very thorough case that choice can sometimes make an individual worse off. I’d recommend the book without reservation.
David Henderson
Aug 26 2019 at 11:18pm
You wrote:
The problem is that there are so many books to read that I can’t choose which one to read: I’m paralyzed and I wish the government would limit the number of books. 🙂
kakatoa
Aug 26 2019 at 10:22am
Is the Scottish Bakery still making wonderful baked goods in PG? We use to stop in when we were visiting the area. E.M. Smith had a post up recently about grocery shopping an hour north of PG.
https://chiefio.wordpress.com/2019/08/22/how-walmart-drove-me-away/
I shop at a local favorites of EM’s- Grocery Outlet. The cheese choices are one of the reasons I stop in frequently at my local GO. You never know what they will have sourced from local and regional wholesalers.
SNAP card holders, who frequent GO are likely eating a much healthier and quality of food diet having the free market make product available for them then if a planner in Sacramento or Washington D.C. tired to figure out the details.
Hazel Meade
Aug 26 2019 at 11:05am
Yeah, I don’t think Sanders is thinking about the paralysis of choice or anything to that effect. I think he’s erroneously believing that the cornucopia of choices offered by the market and distribution of resources to the poor are somehow conflicting and mutually exclusive of one another. That choices of deodorant are wasteful of resources.
But really, in a free market multiple choices probably drives competition, which drives costs down and make more resources available to the poor. A better analogy might be “you don’t really need a fleet of F-35 fighter aircraft when children are hungry in this country”, or even “you don’t need a new prescription drug benefit under medicare, when children are hungry in this country”. The point being that government allocation of resources is less efficient not more, and hence leaves less resources overall available for raising the standards of living of the very poor.
I understand and even sympathize with Sander’s empathy for the working class. But his belief that government redistribution will make things better, rather than worse, is sadly mistaken. If there are market demands that are not being met, a better approach would be to analyze the market and determine what the impediments are to lowering costs to the point that poor people can afford sufficient food, etc.
JayT
Aug 26 2019 at 12:07pm
I would guess that the reason he thinks it’s a waste of resources is because he’s thinking about paralysis of choice, even if he wouldn’t necessarily use that term. He goes into a store and sees a wall of deodorant. He doesn’t need more than one type, and in fact all the others just add confusion, not value. So it’s obviously a waste of resources to make all those things he doesn’t need.
MarkW
Aug 26 2019 at 2:15pm
He goes into a store and sees a wall of deodorant. He doesn’t need more than one type and in fact all the others just add confusion, not value. So it’s obviously a waste of resources to make all those things he doesn’t need.
One wonders if he ever thought that when walking into Ben & Jerrys in Burlington.
TerryOtt
Aug 26 2019 at 2:32pm
Buy her the cheese, but also buy a package of some similar cheese that’s on sale or, better yet, says “close-out”. That way, you (or I, at least) feel better about having to waste all that time looking for the hard-to-find cheese. And I get to eat the other type of cheese at a 50% lower cost.
David Seltzer
Aug 26 2019 at 6:34pm
I don’t get it. If all those choices are a waste of resources, why do multiple Publix, Kroger, Walmart and Costco outlets in our town offer upwards of of 30,000 choices per store at narrow profit margins? Sanders’ plan for an economy leads to lakes of wine and mountains of butter.
Dylan
Aug 27 2019 at 1:22pm
One thing that has confused me for awhile now (although I have some recollection that I got a good answer to this question awhile back, and then just forgot it), is how/why your typical grocery store can carry such variety of products when they are only serving a small geographic market, while internet grocers that might serve an entire region from just a couple of distribution centers always have much less choice?
JayT
Aug 27 2019 at 5:03pm
Well, I’m not sure that internet grocers actually do have a smaller selection any more, but also I’m sure it has to do with certain items not being worthwhile to pack up and ship on a one by one basis, while it makes sense for a grocery store to stock 20 of them.
Jon Murphy
Aug 27 2019 at 9:59pm
Dylan-
It may be that the local shop can store things more easily; they know what moves and what doesn’t and they don’t need to worry about what ships easily or not. Conversely, an internet grocery store does need to worry about those things, especially shipping.
Phil H
Aug 27 2019 at 11:35pm
I think the one thing that I’ve read that made me feel most comfortable with market economics was this insight: all that choice of minutely differing goods *is* a waste – but it’s a necessary waste.
As well as the strict “waste of time” problem that Sanders and Schwarz identify, I think there’s another ethical problem that people feel when faced with masses and masses of consumer goods: That these choices are causing me to pay attention to my own consumption, and that is ethically unsound. Perhaps I am a good person who gives money to charity. But if I spend two hours per week food shopping, spending time thinking carefully about my own desires, that feels greedy and selfish.
As someone commented above, actually, there are quite easy ways to get out of this consumerist-ethical quandary, so it’s not something that libertarians should worry about too much. But I understand the aesthetic/ethical feeling that drives it.
Comments are closed.