Saturday, December 09, 2006

All those cereals.

Virginia Postel finds Clive Crook nailing a liberal in the act of failing to appreciate the glory of markets sufficiently:
In his latest National Journal column, Clive Crook remembers Milton Friedman, whom he describes as "the formative intellectual influence of my life." I particularly like this passage, which isn't about Friedman per se:
Much of what is wrong with popular attitudes to capitalism comes down to one thing: a lack of wonder at what uncoordinated markets can achieve. Going to a grocery store for the hundredth or thousandth time is a pretty humdrum experience. As a rule it isn't going to elicit much of an intellectual response -- though if it does, the response might be one of two kinds. The commentator Robert Kuttner once wrote of his dismay at the great number of breakfast cereals on offer in his local grocery. What a waste, was his point; who could possibly need all these different cereals? Can't we arrange things more intelligently? This is a leftist kind of response: "Put somebody sensible in charge and plan things better." The liberal response (in the proper sense of "liberal") is different: "How amazing that all these choices are available, so that every taste is catered to, and it's all so cheap."
Most of my work these days derives from this sense of wonder [and?] the curiosity it arouses about the specific creative processes behind these results. That's why I write mostly about culture and commerce rather than about government policy.
Clive Crook puts words in Kuttner's mouth, and misses something important. Suppose the following: The breakfast-cereal market is highly concentrated. A small number of firms (e.g., Kellogg's, General Mills) have a very substantial market share, notwithstanding the profusion of brands to choose from in the supermarket. These firms find themselves competing for scarce space on supermarket shelves, which they occupy with all of these different cereals, the better to crowd out competing firms. Consumers choose cereals, but retailers allocate shelf space to manufacturers. In these circumstances, the many varieties of breakfast cereal do not reflect consumer demand.

I'm no expert in breakfast cereals, but I do recall reading descriptions of this market suggesting what I have written above. I probably like breakfast cereal more than most people, but very few of the cereals stocked in most grocery store interest me. So when I read Kuttner's comment, even as the object of scorn from Crook and Postrel, my thought is that he was dismayed as the specific array of cereals that he saw for sale, not at variety per se. Maybe, with all these cereals, not every taste is being catered too. (And did Kuttner express the wish for central planning that Crook ascribes to him? Not in what's said here.)

Virginia Postrel has a lot of interesting things to say, but this post strikes me as demonstrating the opposite of curiosity. It's difficult to be curious if you're busy congratulating yourself. Maybe Kuttner had some intuition that the breakfast-cereal market wasn't working well, and maybe he didn't, but Crook is too smitten with the notion of free markets to notice. Likewise Postrel. If I had to bet, I'd guess that Kuttner eats breakfast cereal and Crook and Postrel do not.

Comments:
Consumers choose cereals, but retailers allocate shelf space to manufacturers. In these circumstances, the many varieties of breakfast cereal do not reflect consumer demand.

Ouch. Yes, that sounds like would be a fatal flaw and stands to reason too. So the state in effect allows the job of central planning to go to the corporations that run supermarkets and the manufacturers that each make many foods and each of those in many varieties. It's completely centralized only to the extent the two kinds of corporations collude or fuse (as if foxes were to collude with rabbits or to adapt into rabbit parasites). I suppose we're not quite there yet, but very nearly. Still, the locus of centralization seems like an emergent property of the economy, which makes it seem economical, in the sense of optimizing. Unfortunately, this system simultaneously optimizes not just the price and variety of groceries, but CEO salaries, real estate prices, wages, transportation, investments in R&D, advertising and lobbying, and in what states and countries businesses operate and pay taxes. My hunch is cereals don't come out quite so optimal for price and variety as they would from a competition that was just about cereal.

We've designated unfair trade practices and minimum wages and campaign finance rules to keep the optimum from skewing too far too fast, but who's to say how far is too far? Corporate-funded researchers in economics and finance? Corporate-financed politicians? The corporate-communication-consuming/TV-watching electorate? In principle, we could forbid any company from owning more than one brand and variety of cereal. But it's not clear we can even limit ownership of newspapers, radio, TV and the Internet.



I probably like breakfast cereal more than most people, but very few of the cereals stocked in most grocery store interest me.

The diversity exists to allow everybody the cereal they like best, not to provide everybody redundant cereal choices.

P.S. Don't go postel (sp).
 
Well, perhaps the diversity exists to preclude real choice offered by other companies.
 
Well, perhaps the diversity exists to preclude real choice offered by other companies.

Yeah, I suppose that's true too. I was only speaking for the Invisible Hand.
 
Learned's brother?
 
Siamese twin, actually.
 
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