Guardianomics: another fusion of paternalism and bogus economics

If J.R.R. Tolkien’s classic The Lord of the Rings was re-made into a seasonable film today, it would probably look like this: The Dark Lord Sauron would be replaced by Sir Terry Leahy, while Tesco would take the place of Sauron’s dark empire Mordor. The threatened idyll of the Shire, where lovely Hobbits form a small-is-beautiful barter economy, would be replaced by a pastoral Merry England of some distant past. The titanic clash between the evil wizard Saruman and the wise wizard Gandalf could be replaced by the recent showdown between Tim Montgomerie who dubbed Terry Leahy a ‘champion of the poor’, and Guardian journalist Alex Renton, who thinks that “Sir Terry has done more damage to the fabric of British life than any other businessman in modern times”.


But let’s put the ‘culture war’ aside for a moment and look at the economic arguments. Renton does not dispute Montgomerie’s point that the spread of big discount supermarkets like Tesco has made essential goods such as food cheaper. But he believes that “Tesco and the other chains lowered prices because they never paid the real costs of what they sold”.

Those ‘real costs’ include, first of all, the revenue loss suffered by high-street shops and farmers, and their knock-on effects. Secondly, Renton argues, customers have often used the cost savings they realised through switching to discounters to purchase other things. This has increased consumption, and hence environmental damage.

Heads I win, tails you lose. Suppose that by switching from high-street shops to discounters, inhabitants of the Shire could save five gold coins per month. Now there are two options. They could bury their coins in their gardens, in which case Renton might accuse the discounter of being a jobkiller. Or they could use the five gold coins to, say, take out a gym membership, so that the gym would have to hire new trainers and receptionists. In this case, Renton would probably accuse the discounter of fuelling consumption, and thereby damaging the environment. Burying the gold coins creates a negative externality because revenue streams have been taken away from other shops and not spent on anything else. Spending the gold coins creates a negative externality because consumption is bad for the environment.

This assumes, of course, that Renton is serious about his economic analysis, which is doubtful. Let’s assume a scenario: the farmers of Inverness (a town which Renton considers part of Tesco’s blood trail) relaunch the local farmers’ market. Through some innovative strategy, they manage to reclaim a sizeable market share from Tesco, which then has to downsize and sack staff.

Would Renton then argue that the job losses at Tesco constitute a negative externality, and accuse the farmers of not paying the ‘real cost’ of what they do? Or does Renton define a market failure as a mismatch between the preferences of the average consumer and himself?

It just doesn’t make sense to hide a paternalistic agenda behind bogus economics. If you want to make an economic case, make an economic case. If you want to tell other people what to do, say that you want to tell other people what to do.

7 thoughts on “Guardianomics: another fusion of paternalism and bogus economics”

  1. Posted 18/06/2010 at 09:34 | Permalink

    Paternalists tend to try and hide their Authoritarianism under a cloak of do-goodery or to use disingenuous, manipulative and rabble-rousing rhetoric. The words “fair” and “change” can appear, often without warning.

    Alas, it DOES make sense to hide the paternalistic agenda. Fabians have been doing it for over 100 years. It boils the frog, softens up the trenches. Hoodwinks.

    p.s. if there is anything that is of Mordor, it is Socialism. Negative, forced collectivism, hatred of independence. All seeing eye.

    p.p.s. another said the Euro is the One Ring. 27 for the nation states, doomed to die…

  2. Posted 18/06/2010 at 10:12 | Permalink

    I suppose human beings just living could be argued to be ‘bad for the environment’ — but so what? Personally I’m with what Adam Smith might have said: ‘There’s a deal of ruin in a planet.’

  3. Posted 18/06/2010 at 12:01 | Permalink

    There’s an assumption here that Tesco operates in a free market – but it does not.
    Supermarket distribution relies on subsidised transport infrastructure to reduce costs. Also they benefit from the regulatory state – the marginal effect of compliance with regulation for a giant like Tesco is far lower than for a small business.

    Add in the lack of free market for labour, the dire state education system which serves to produce workers to be content with their lot rather than seeking to better themselves and you have a massive subsidy towards the supermarket’s business model.
    This is ignoring the subsidy of history.

    In many ways the ‘free market’ argument you present is just as paternalistic.

  4. Posted 18/06/2010 at 13:41 | Permalink

    Tristan, you’re reading far too much into my piece. All I’m saying is: Given that we have the economic system that we have, I’d prefer a situation in which the decision where Tesco opens a branch is made by Tesco, and the decision where I buy my wine is made by me, over a situation in which self-proclaimed moralists make those decisions. This holds regardless of who is a net beneficiary or net payer of public infrastructure provision and the like.

  5. Posted 19/06/2010 at 12:56 | Permalink

    Excellent last paragraph.

    It puzzles me who is behind the opposition to Tesco* – is it local businesses who want to raise barriers to entry or NIMBYs or authoritarians? I recently overheard a friend of my wife describing the area to which she had moved, and she said it was great – there’s an M&S, a Tesco, a Pizza Express and a Wetherspoon’s. Quite clearly, people like chains or they wouldn’t shop there or drink there.

    * I like Tesco. My only objection is that they game the planning system unfairly.

  6. Posted 20/06/2010 at 22:28 | Permalink

    “It seems to me that socialists today can preserve their position in academic economics merely by the pretence that the differences are entirely moral questions about which science cannot decide.” – Hayek

  7. Posted 21/06/2010 at 22:56 | Permalink

    Entertaining blog. Paternalism will be the death of this nation.
    Also, I have to say, the quality of IEA’s blogs has been really high.
    Keep up the good work!

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