In 1989, Russian President Boris Yeltsin took a famous trip to a grocery store in Texas. The event lives on in popular history because of this famous photograph.
Yeltsin was amazed by the food availability in the US, in contrast with the breadlines of the Soviet Union. Markets successfully catered to customers, whereas government central planning performed miserably by comparison.
Despite this recent example, politicians in the US have begun to wonder whether centrally planned grocery stores are superior. New York City mayoral hopeful Zohran Mamdani has recently proposed a municipal grocery store.
Previously, I wrote a story about Chicago’s plans to create a municipal grocery store. Luckily for residents of Chicago, the plan was scrapped, and the city has decided to focus on enabling private food vendors.
Let’s examine why municipal grocery stores are a bad idea and consider the potential impact if Mamdami implements the system.
The Power of Profit
The major difference between a municipal grocery store and private grocery stores can be summarized in one word: profit.
To make a profit, businesses must do two things: maximize revenue and minimize costs. Higher business revenue indicates customers are willing to spend more at the business. In other words, more revenue means more value provided.
In order to minimize cost, businesses must cut back on the number of scarce resources used, and this frees up the resources to be used elsewhere in the economy.
Profit represents the value a business creates for customers. If businesses make losses, the resources being used are worth more than the value being created. In other words, the business is destroying the value of resources. Thankfully, if a business makes losses for long enough, it must shut down, preventing further destruction.
Government-run grocery stores, on the other hand, have no legal owner. That means no individual or group collects profits. If a state-run store has revenues greater than the costs, those revenues must be spent on something. Why does this matter?
Profit is a means to evaluate decisions. For example, should a grocery store buy a new software system for more efficiently managing inventory and deliveries, or should it invest in a physical warehouse? Without profit and loss calculation, there is no rational way to make the decision.
A for-profit store can calculate profits and losses and evaluate if the chosen option creates more value than cost. Without profit, there is no way of telling ex-post if the decision was value-creating. This insight was pioneered by economist Ludwig von Mises and has been dubbed “the calculation problem.”
This is the major problem with Mamdami’s proposal.
What Will Happen?
You might think that this would mean an NYC municipal grocery store would go out of business, but the result would be worse.
In state-run enterprises, value can still be lost. If the costs of a grocery store are higher than its revenues, value has been destroyed, but the money to make up for the loss must come from somewhere. Private businesses can run out of money, but governments can tax their way out.
In the Soviet Union, where the economy was centralized, there wasn’t enough wealth sitting around to tax its way to success. In New York City, most businesses are private. That means there is plenty of money for the government to seize via taxation to keep inefficient operations afloat.
It gets worse. Since politicians and bureaucrats are not personally responsible for the losses created by their policies, they have no incentive to ensure stores operate at reasonable prices.
If all food at grocery stores were given away for free, there would be an obvious problem. The shelves would clear out, and there’d be no incentive to restock them. Charging money is necessary to incentivize the people associated with producing food.
Politicians and bureaucrats, contrarily, will have an incentive to manipulate prices to suit their political ends. If political desires drive prices too low, this could mean actual value-producing grocery stores will be unable to compete.
I can already hear people ask, “Well, wouldn’t it be good if prices were being lowered?”
No! Prices serve an important function. They compensate for work, they incentivize consumers to be conservative with consumption, and they communicate knowledge about the value of goods. Disturbing prices by government fiat ruins these functions and ultimately would require the city to increase taxes to make up for the losses.
It’s possible to create a municipal grocery store that leeches off the healthy economy, but it comes at a cost to taxpayers. The larger the state-run program becomes, the smaller the value-producing economy becomes. You ultimately run into Margaret Thatcher’s final constraint on socialism: “The problem with socialism is that you eventually run out of other people’s money.”
Peter Jacobsen is an Assistant Professor of Economics at Ottawa University and the Gwartney Professor of Economic Education and Research at the Gwartney Institute. His research is at the intersection of political economy, development economics, and population economics.
READER COMMENTS
Craig
Sep 17 2025 at 9:22pm
Back in the day, NYC ran OTB – Off Track Betting. The city lost money. They couldn’t even make money as a bookie.
Robert Ferrell
Sep 17 2025 at 9:56pm
When I lived in Moscow in the early 70s, as a kid, one of my chores was to buy bread every day. I didn’t speak much Russian. There was no predicting which kind of bread the store would have each day. The process for me was: go to the bread counter, see what bread they had (usually only one kind each day), wait for somebody else to say it so I could learn the word; go to the pay counter, tell the lady what kind of bread I wanted, pay for it, and she’d give me a ticket; then go back to the bread counter and collect my bread. (Even when they had only a single kind of bread for sale, if I didn’t say the right thing the cashier lady would say Niet, no bread for me.)
I appreciate the economics explanation for why government stores are no good. But I’ve also felt that non-economist should experience it themselves for a bit and make up their own mind. Government run stores are bad for everyone. And the poor captive citizens had no idea. Many of my parents acquaintances expounded how great shopping in Moscow was.
Mactoul
Sep 18 2025 at 12:03am
Maybe the Soviets were unusually bad in running state enterprises. There are many positive examples. Britain run rationing during the second world war which continued for several years post-war and was able to supply essential quantities. Indian govt, after passing Right to Food some fifteen years ago, has been supplying basic foodstuff to half the population. This is a huge program supplying 700 million people.
Matthias
Sep 18 2025 at 12:56am
As long as private competition is still allowed, a government run grocery store ain’t as bad as full blown Soviet Union.
Here in Singapore we have eg a government owned bank and airline. The bank is ok, and the airline is one of the best in the world.
Many cities around the world have government run tapwater supplies.
Government run institutions don’t have to be bad. And private organisations don’t have to be good.
It’s just that the market provides more timely and better sticks and carrots than politics can.
Compare, when states are under intense competition like in an existential war, many government run militaries can also innovate and adapt quickly.
Craig
Sep 18 2025 at 12:00pm
“As long as private competition is still allowed, a government run grocery store ain’t as bad as full blown Soviet Union.”
I think pricing might be an important issue as well. In US, private schools continue to exist but in many places they have to compete against public schools that have no tuition at all. The problem is that to attend the private school one must continue to pay the tax for the public school and then pay for the private school on top of that.
Mactoul
Sep 19 2025 at 12:06am
Grocery might be a trickier business for government compared with airline or railways. Grocery is much more complex, hauling in supplies from all over the world and satisfying shifting consumer preferences.
steve
Sep 18 2025 at 1:34pm
What you see, as was done with this piece, is that people choose the worst example of socialism they can find and compare it to the best possible example of capitalism. As I noted with Jon, when most people think of socialism they think of Sweden/Norway. That’s because the large majority of libertarians and nearly all conservatives call them socialist, but as Jon noted they are actually mostly market oriented.
Still, its not that government run entities cant be good or that they are all bad it’s just that they are much more likely to have a poor outcome. As most libertarians writing about this topic fail to note there is nothing to stop a government official from using the price signal generated by the markets to direct their planning. There is no reason why a government worker cant more effectively use that info than a CEO. (People forget that in a large corporation actually pricing decisions are made by one person or by a small group.) However, it’s much more likely that the person in the private sector will be competent having survived some competition and having tangible proof of success.
Steve
David Seltzer
Sep 19 2025 at 11:34am
Steve: How would any planner, central or otherwise, know the preferences of myriad market participants and allocate resources more efficiently than self-interested actors who establish market equilibrium spontaneously? Given the scale of market participants, equilibrium pricing in free markets represents all the information each individual possesses. The unintended and sometimes intended pretense of knowledge has the chilling effect of picking winners and losers, setting all prices where they “ought” to be. Jon Murphy commented on a short piece I wrote called Central Planning a Bowl of Cereal.
I like the idea you have, but it’s generalizable to all planners, not just central planners. All planners, including the manager of the restaurant, face the probability issue you discuss. So, a socialist could have an easy retort: “So what? This is true of all management. Socialist managers can be just as flexible as the capitalist managers.
The advantage of socialism is the inefficiencies are discovered without wasteful competition.” This is the point Oskar Lange makes in his paper “The Economics of Socialism,” and to which Hayek wrote “The Use of Knowledge in Society” to answer.
To stick with the mathematics, you could include a quick bit about the Law of Large Numbers (LLN). LLN indicates that, with a sufficiently diverse economy, errors will tend to net out and not have macroeconomic effects (eg, your restaurant may fail you, but others will not).
Macroeconomic effects will tend to only occur if there is a single large supplier in an industry (in the case of socialism, the central planner is the sole supplier of planning). Thus, while the market economy may face the planner’s problem, LLN indicates that the planning failures will not create systemic problems whereas a central planning network would.
steve
Sep 19 2025 at 3:01pm
The government planner can have access to the same data any individual corporation has. Specifically for grocery stores which is what we are talking about they could know the prices of everything being bought and sold and the quantities. We already track those so just in terms of the major advantage of markets ie pricing a private company wont have a major advantage. Heck, you could just copy the nearest local store, then adjust for stuff that doesnt sell or stuff you keep selling out of. The issue is more that the government run store isn’t going to be run by someone(s) who have achieved their position through competition in the system and they will be more beholden to their political boss. If the dont have and measure for profit they are less likely to change as fast as a private company, though again there is no reason they couldn’t effectively shadow another company. After all, the market sets prices.
Now if the govt run grocery store decide to ape the old Russian model it will be a catastrophe, but I don’t think that will happen.
Steve
Blackbeard
Sep 27 2025 at 4:40pm
Of course government run grocery stores are stupid. That’s obvious. The interesting question is how can a candidate stupid enough to make such a suggestion still going to be the next mayor of New York.
Perhaps democracy isn’t such a good idea?
Gene Laber
Sep 29 2025 at 11:22am
“To make a profit, businesses must do two things: maximize revenue and minimize costs. Higher business revenue indicates customers are willing to spend more at the business. In other words, more revenue means more value provided.”
Really? Every textbook I’ve looked at says a firm maximizes profit when marginal revenue equals marginal cost. That output doesn’t require revenue to be maximized or cost to be minimized.
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