Robert Frank responds on Black Friday

by on November 27, 2011 at 7:09 am in Economics | Permalink

Here is the email I received from Bob:

I enjoyed your observations about my Black Friday op-ed in Thursday’s NYT.  If you’d permit me to respond, I’d propose to post something like this:

Like Tyler, I think we needn’t worry much about consumers who elect to wait in line for hours in the hope of getting bargains.  That’s indeed wasteful, as one of the commenters pointed out.  But it’s fairly easy to drop out of that game, and some, as Tyler speculates, may actually enjoy the process.

But the arms race that’s led to longer store hours poses a more serious problem for employees, many of whom had little choice but to truncate their holiday time with family and friends.

I had a recent conversation about this issue with a friend in Ithaca who owns a wine store. Traditionally, New York State wine merchants were not allowed to do business on Sundays.  But last year that restriction was repealed, and I asked my friend how the change had affected him.

His overall sales were about the same, he told me.  The change had thus been a clear negative from his perspective, since it meant that he and his wife were no longer able to spend Sundays together with their children.  The upside was that customers who lacked the foresight to shop in advance for their Sunday wine needs could now be accommodated.  If we’re willing to discount the cost of an inconvenience suffered by those who could easily have avoided it, the costs in this case seem clearly to outweigh the benefits.

Even so, an econometrician might find it difficult to convince a skeptic that the former Sunday closing mandate was justified.  Fortunately, a definitive answer to that question isn’t required for an assessment of my tax proposal, which isn’t nearly as costly as a flat prohibition.

Arms races arise because, as Charles Darwin saw clearly, important aspects of life are graded on the curve.  It’s not how strong or fast you are that matters, but rather whether you’re faster or stronger than your direct rivals.  And for merchants, it’s not how early you open that matters, but rather how your start time compares with rivals’.  If the stakes are sufficiently high in such cases, arms races are inevitable.

If staying open longer hours is misleadingly attractive to individual merchants, the best solution is not to prohibit longer hours but rather to make them less attractive by taxing them.  My 6-6-6 tax proposal doesn’t prohibit earlier store hours on Thanksgiving.  It simply makes them less attractive to individual merchants.

Many on the Right are quick to denounce such taxes as “social engineering”–which they usually define as using the tax code “to control our behavior, steer our choices, and change the way we live our lives.”  But that’s what virtually all laws do.  Stop signs are social engineering, as are prohibitions against theft and homicide.  Laws restrict behavior because individuals often choose to behave in ways that cause harm to others.  For someone who cares about personal liberty, discouraging harmful behavior by taxing it should be far less objectionable than prohibiting it outright.

Yet many on the Right suddenly lose their ability to think clearly when confronted by proposals to tax harmful behavior.  The first message I received in response to my Black Friday op-ed, for example, came from a chaired professor of philosophy who had this to say:  “Another sad elitist call for government to butt in so as to promote your special interest.  Maybe there are those who judge the black Friday ride just right for them.  But do you care?  You just know it should be shut down and so you will empower the government to do just that.  Well, over my dead body.”

Oh, please. Perhaps this professor is among those who denounce all taxation as theft.  But mature adults realize that we have to tax SOMETHING.  Right now, we tax many useful activities.  The payroll tax, for example, discourages hiring.  The income tax discourages savings.  Every dollar we can raise by taxing activities that cause harm to others is a dollar less we must raise by taxing beneficial activities.

In my recent book, The Darwin Economy, I defend the claim that taxes on activities that cause undue harm to others could generate more than enough revenue to balance the federal budget and restore our crumbling infrastructure.  We should tax congestion, noise, and pollution.  We should tax passenger vehicles by weight.  We should replace the income tax with a more steeply progressive tax on consumption. But until we’ve done all that, no champion of liberty has any cogent reason to oppose replacing taxes on useful activities with taxes on harmful ones.

1 crankee November 27, 2011 at 7:19 am

I’ll trust Frank’s intuition on social taxation when he supports taxing things that make him uncomfortable.

How about severely taxing and fining employers found to have hired illegal immigrants? If those immigrants commit crimes, they must pay fines 5x the normal ones. Or how about just penalizing the sponsors of legal immigrants who end up on welfare? ( I believe it’s implicit in the law now but it’s never enforced).

Or how about laws that tax professors who publish more than 2 articles a year? After all academics are judged by their best work, so why allow this arms race for needless lines on one’s vita?

And how about taxing activities like the Peace Corps?
They’re often used as cv-burnishing activities for ambitious SWPLs who find it easy to do good and don’t need to earn income. These non-profits are an arms race that harms the proles who can’t take time off to have these “life enhancing” experiences.

I’m sure the readers can think of more examples to test the sincerity of Frank’s devotion to proper social taxation.

2 david November 27, 2011 at 7:26 am

I’ll trust your logic on taxation when you grok the difference between internalizing market inefficiencies (whose presence you then necessarily accept) versus enforcing punishment (to completely eliminate undesired some behavior).

3 Martin November 27, 2011 at 7:35 am

David, whether there is a market inefficiency is contingent on the particular Social Welfare Function (SWF) you have in mind. Frank here considers the welfare of store owners more important than the welfare of their consumers and the difference between the MC and the SMC that results from the SWF is what should be bridged by a tax or a regulation according to Frank.

Whether you eliminate that market-inefficiency by a tax or by setting standards is contingent on the relative efficiency of the instruments used and what you know about the market. Crankee is perfectly right in equating these two as the theory behind this is the same.

4 david November 27, 2011 at 7:59 am

You need an SWF either way, mind you. There is no One True Pareto Optimum.

And given internalization, with externalities one is then satisfied. With crimes, if the activity nonetheless persists one logically wants to raise the penalty. Do you think that crankee would be perfectly fine with employers employing illegal immigrants if they agree to pay the elevated fine?

5 Martin November 27, 2011 at 8:14 am

David, it doesn’t matter whether Crankee is fine with it for the theory behind the two to be the same. This is your point of contention. Do you deny that you could describe it that way, regardless whether Crankee is fine with it?

6 david November 27, 2011 at 10:02 am

The welfare economics of penalizing crime compared to internalizing externalities are not the same, no. As noted, in the former one wants to minimize the quantity of the activity, insofar as the costs of doing so permit; the idealized equilibrium entails zero of it. In the latter one merely wants to restore the efficient amount of the activity.

7 Ryan P November 27, 2011 at 10:33 am

David, I think you’re mistaken. Crime is just another externality, and the ideal amount is zero in exactly the same sense of “ideal” that one would use if saying “the ideal amount of pollution is zero” (i.e., only if we’re ignoring costs of reduction)

8 Martin November 27, 2011 at 7:28 am

Is it correct to read this as an efficiency argument for (partial) cartels granted by government – that is what this is in essence – when next to the market sector there is also a substantial non-market-household sector?

“His overall sales were about the same, he told me. The change had thus been a clear negative from his perspective, since it meant that he and his wife were no longer able to spend Sundays together with their children. The upside was that customers who lacked the foresight to shop in advance for their Sunday wine needs could now be accommodated. If we’re willing to discount the cost of an inconvenience suffered by those who could easily have avoided it, the costs in this case seem clearly to outweigh the benefits.”

I wonder though why the owner simply does not charge a higher price on Sunday and hires someone else to run his store on Sunday. I don’t see why this problem can only be solved in one way. Don’t we have evening stores? Don’t pharmacists switch who is open on what Sunday to serve clients too? Store owners don’t seem to have the same problem when they go on holidays, should the state however mandate that store owners sync their holidays as well now?

9 Ignacio November 27, 2011 at 9:39 am

I had a similar reaction. The example posted about liquor stores opening on Sunday presents the case of someone who already has a business, who wishes there were more restrictions to avoid having to work so much for the same income. However, the argument ignores that restrictions will, on the margin, reduce the ability of new businesses to enter the market, reducing overall competitive pressure on the market and reduce incentives to satisfy customers. If we buy his argument on the fact that these restrictions are reasonable because (on the short term, at least) there is no difference on sales, we ignore their aggregate effect in the long term.

10 figleaf November 27, 2011 at 11:17 am

Anybody here ever owned or worked for a really small business? There are dozens in my neighborhood, many of them small niche “boutique” style stores owned and operated by two people (usually married and/or partnered) and sometimes even one.

What most small businesses faced with market pressure to be open on Sundays do is simply close instead on Mondays. Which, at least for a wine merchant, would tend to be a very slow sales day anyway.

Thus the only real disadvantage would be further erosion of the small business owner’s social and spiritual lives, and to some degree economic lives since they’d be unable to go to church (spiritual) enjoy traditional weekend activities with family and friends (social) and be unable to consume weekend activities such as sports events (economic.)

Unless you’ve worked in small retail you might not realize how stupid the idea of repricing everything twice a week sounds (marking up for Sundays, and again back to normal for Monday.) What would make more sense would be to simply suspend various markups and promotions for Sundays. Which would work, of course, only as long as one’s competitors didn’t actively promote Sunday discounts.

And unless you’ve worked in small retail you probably don’t realize how economically logical but pragmatically irrational it is to suggest one can magically hire a third employee capable of independently and competently running your entire store, for only one day a week, for market wages. Never minding, of course, that you’d be undertaking the additional expense of hiring them to do so for no additional net revenue! (In fact net revenue would be decreased by exactly however much you chose to pay them.)

Remember, we’re talking mostly about increasing hours by ~14% while increasing aggregate sales ~0%.

I agree in principle with Frank’s idea of shifting taxes away from laudable activities such as labor and savings towards less valuable (but possibly no-less avoidable) activities such as polluting, consuming, and working one’s employees to an early. I agree with others here that there are devils in the details. For instance it sounds like certain people believe that working one’s self or one’s employees to an early grave is laudable rather than deplorable, and thus should not be subject to taxation. (On the straw-man basis that “but why punish employees who want to be worked to death!?!?!)

figleaf

11 Thomas November 27, 2011 at 12:12 pm

When Sunday sales were allowed in my state, after a long struggle against the small liquor store owner cartel, most of the small stores added Sunday hours from noon to 5 or noon to 6.

If they hired labor and reduced their profits at the same time, wouldn’t that be a good thing?

12 n=1 November 27, 2011 at 7:39 am

Does the proposed remedy then propagate to online sales? The people who really do want to shop at off hours will be served by Amazon. The local merchant will then have strictly lower sales, versus ‘roughly equal’ sales (of course, wine merchants are largely protected from mail order competition thanks to state legislatures. What is the Darwinian explanation for lobbying?).

13 Andrew M November 27, 2011 at 8:19 am

Wine is a special case, because most people who buy wine today want to drink it today. Mail order can’t compete with that.

Looking at the wider implication of Amazon / mail order, for employees it’s mostly Monday-to-Friday 9-5 work. Certainly more family-friendly than working evenings and weekends in a physical store.

14 Rahul November 27, 2011 at 11:53 am

Wine’s even more special. Till recently across-state-line retail shipping of alcohol was a strict no-no. Courtesy idiotic laws. I think they relaxed those laws a bit but I still don’t see people buying beer or wine online so I assume ATF and brethren left enough headaches in place.

I never understood why ever efficient US corporate lobbies never succeeded in repealing the restrictions on online domestic alcohol sales. What’s the counter lobby?

15 Duracomm November 27, 2011 at 1:24 pm

Counter lobby is mostly state level liquor distributors.

Which is another reason to oppose proposal’s like Bob Frank’s. Taxing “activities that cause undue harm to others” often morphs into taxing “activities that cause undue harm to politically connected business interests”

Alcohol Wholesalers: We Must Protect Our Profits the Public

But when it comes to direct shipments by out-of-state retailers (including wine-of-the-month clubs and online auctions), the picture is much different: Thirty-seven states ban such transactions, insisting that the wine go through government-appointed wholesalers, who vigorously resist any regulatory changes that would cut into their artificial profits.

It’s a familiar theme in alcohol regulation: Rules ostensibly aimed at promoting public health and safety create vested interests that resist change even when the official rationale no longer seems persuasive.

16 Brian Donohue November 27, 2011 at 2:14 pm

This is a very interesting argument- viz. online/mail-order stores are family friendly. Of course, working for Amazon has zero nostalgia value. How about momandpop.com?

17 A. November 27, 2011 at 7:44 am

The problem is government will expand to spend all of these clever ideas for new taxes, we’re not starting from scratch and finding something to tax. But Frank always defends his ideas with reference to “crumbling infrastructure”

18 R. Pointer November 27, 2011 at 1:32 pm

11.5 percent of all bridges in the US are structurally deficient. That is over 60k bridges. Have you ever left the US? Our infrastructure is total shit compared to other countries.

19 Jamie November 27, 2011 at 6:41 pm

An under appreciated point.

I wonder how much the Great Stagnation could be eased if we actually tried to have decent infrastructure? How much is wasted on insurance, tires, and crime that could go towards building a better country?

20 AndrewL November 28, 2011 at 7:59 am

The structurally deficient rating is an early warning sign for engineers to use to prioritize funding and to initiate repairs or to begin the process to replace the bridge. The rating applies to three main elements of a bridge: 1) the deck (riding surface); 2) the superstructure (main supporting element of the deck, usually beams, girders, trusses, etc.); and 3) the substructure (supports to hold up the superstructure and deck, usually abutments and piers). These elements are rated on a scale from zero (closed to traffic) to nine (relatively new). If any of the three elements is rated as a four or less, the bridge is categorized as structurally deficient by federal standards. This does not mean that the bridge is unsafe. If a bridge becomes unsafe, it will be closed.

http://www.roads.maryland.gov/Index.aspx?PageId=148

This is really not as big of a problem as you make it out to be.

21 chuck martel November 27, 2011 at 7:50 am

Is the wine merchant REQUIRED to be open on Sundays? Aren’t other businesses also open on Sundays, C-stores, movie theaters, restaurants, saloons, etc.? Don’t they also have employees? Plenty of police and state troopers on the highways during holiday hours, how about banning driving on Sundays so they can have some time off to be with their families, too? Frank’s whole premise is ridiculous. In the land of the free and the home of the brave, I should be able to open my business any time that I wish.

22 A. November 27, 2011 at 8:04 am

Then what about these businesses that stay open until 9 pm? Ridiculous! Some are even later! He should really stick to more plausible externality arguments.

23 Bill November 27, 2011 at 8:10 am

Yeah you’re right. If the wine merchant values per hour leisure time more than his expected per hour earnings from alcohol sales on Sundays, he will elect to stay closed. A wine merchant who is sad and lonely might choose to stay open. Both scenarios are welfare improving.

Concerning the Black Friday arms race, the employee wage rates should adjust for the inconvenience of working on Thanksgiving. Stores with holiday hours would see a decline in the supply of labor as less people would be willing to work for the company. This would drive wages up such that the wage increase exactly compensates the employees for the inconvenience.

24 FYI November 27, 2011 at 9:54 am

hey, it took a few messages but finally someone mentioned the obvious.

I propose a tax that prevents people from writting articles that make no sense.

25 Ricardo November 27, 2011 at 10:36 am

A key fact you miss is that police officers as well as employees of certain private sector retailers are unionized and can earn time–and-a-half on every hour they work on a Sunday. On holidays, some people earn double-time. You think that cop minds earning $50 per hour on a 12-hour shift patrolling the empty streets on Christmas Day? For a certain kind of person, that’s like hitting the jackpot.

26 Tom November 27, 2011 at 10:57 am

About 10% of the population is unionized. Don’t think it’s that big of an effect.

27 Foghat November 27, 2011 at 3:51 pm

Even a lot of non-union jobs get time-and-a-half for overtime– not sure, but I think that might actually be a law for certain types of work (?). I used to work as an EMT, which is a classic non-union, low-wage high-turnover type of gig, and even WE got time-and-a-half for overtime, which in practice meant for working on weekends since all regular shifts were scheduled on weekdays. And yes, at the time I was in need of money and was the “certain kind of person” for whom this was like hitting the jackpot. I am quite sympathetic to Frank’s general argument about externalities, but his proposal clearly hurts existing business owners to the detriment of prospective business owners, consumers AND employees. If someone had told me I couldn’t work those overtime shifts I would have been PISSED, as it would have meant probably looking for another job which would have not paid overtime.

28 JWatts November 28, 2011 at 4:28 pm

Chick-Fil-A is a restaurant chain which is closed on Sunday. Nearly all of their competitors are open on Sunday. Yet, they are profitable. The wine owner doesn’t need to be open on Sunday and we certainly don’t need regulation to enforce his desires.

29 J Storrs Hall November 27, 2011 at 7:50 am

Frank has a history as an anti-consumer activist. Perhaps the best analysis I’ve seen of him and his ilk was recently done by Megan McCardle in WSJ:
http://online.wsj.com/article/SB10001424052970203699404577048012935449958.html

In his book, he’s setting himself up as a “devil’s chaplain” with respect to the quite real evolutionary component of the marketplace. But he makes a major category error with respect to “arms races”: although they are (by definition) not helpful to the species involved, that says nothing about their value to a third party. I’m looking at a stand of pine trees, their gorgeous towering trunks soaring over 50 feet, the result of an intra-species arms race. Their beauty (and utility!) tells me that that particular arms race has been for the good.

It’s particularly bizarre to suggest that the solution to economic arms races is to turn the management of them over to the same class of people who gave us the real, original, nuclear missle arms race.

30 Robert Levine November 27, 2011 at 8:07 am

I’m out of my depth when it comes to the economics issues at play here, but I will point out that almost all stores are closed on Sundays in Germany, where I now live. (There are exceptions, for convenience stores, business that cater to tourists, and some other things, but I don’t understand them all.) As far as I understand it – and this comes from a German who isn’t an expert – the idea is to allow mom-and-pop stores to compete with giant retailers. I don’t know if this has been measured, but Germany seems to have more small retailers than the U.S. or, based on limited observation, the U.K.

Whether this “works” depends on what you want to measure. I would guess that the relative scarcity of giant retailers makes some goods more expensive than they otherwise would be. On the other hand, it does seem to make it easier for smaller stores to compete – and many Americans bemoan the increasing scarcity of small stores, even as they drive past those that are left on their way to Wal-Mart.

No grand conclusion here – just thought this might be an interesting perspective.

31 Marian Kechlibar November 27, 2011 at 12:12 pm

The law you mention was partially pressed into existence by then-powerful German churches, which wanted to keep some attendance on Sundays.

Many Germans I know openly ridicule the law as “papist product”.

It also has a perverse and probably unintended effect of mass Sunday shoppings by Germans in Poland and the Czech Republic.

32 Rahul November 27, 2011 at 4:06 pm

Separation of church and state is a joke in Germany. Don’t they even have a mandatory “church tax” that gets collected via the regular income tax system?

33 Robert Levine November 27, 2011 at 4:53 pm

@Marian Is that the logic still used to maintain the law? I thought it was as I said – or at least it had evolved toward that. If not, apologies – I’m going by information from a friend, since my German is still pretty bad.

@Rahul, As far as I know, you can allocate some of your taxable income toward *A* church – or any organized religious group – but you don’t have to. But now I’m way out of my depth. In general, and paradoxically, there seems to be less of a clear, legal separation between church and state but also far fewer references to religion in the political sphere. Go figure.

34 John Bennett November 27, 2011 at 8:13 am

So, we have a single point of anecodtal “evidence” of market failure, and this is the premise for a heavy-handed government response to correct the problem? His friend’s wine store sales in Ithaca are about the same year-of-year this season? Maybe there’s more competition this year, or his friend raised his prices too high, or he failed to predict the “hot” wines this year. Maybe consumers are drinking less wine. Maybe next year the business owner will adjust his opening hours in response, or provide incentives for people to shop earlier in the week. Sheesh. He doesn’t sound like much of a businessman, and probably shouldn’t be used as the model for policy.

The obvious solution, of course, is for wine stores to open only on January 1, and remain closed for the rest of the year to give the owner and his family time to be together, If consumers can’t be bothered to stock up when the store is open, that’s certainly not the business owner’s fault.

35 Rahul November 27, 2011 at 8:15 am

I agree. I was with Frank on his Thanksgiving plan but I can’t sympathise with his wineseller friend.

Unless the wine shop owner is living at subsistance levels he has a lot more options to work around Sunday work. Worst case stay closed and take the hit in terms of income.

36 Urso November 28, 2011 at 1:17 pm

The parable of the wine seller reminded me of this MR post from a couple months ago

http://marginalrevolution.com/marginalrevolution/2011/05/vance-isnt-sure-if-this-article-is-sarcastic-or-not.html

37 Tomasz Wegrzanowski November 27, 2011 at 8:26 am

I lived in Germany for a year. Having shops closed 50% of time makes life a fucking nightmare to everyone except salesmen.
Once you subtract daytime when people are busy working or studying that leaves 10% of week time to do all the shopping.
If anything surprising happens and you miss your centrally planned shopping time, your next chance is in 2 days.

Of course salesmen would like competition to be legally prohibited, what do they care that customers suffer?

38 prior_approval November 27, 2011 at 11:21 am

Strange – I too live in Germany, and the next town over has a Rewe grocery store open from 8am to midnight, Monday to Saturday. In about a 15 minute drive (in the opposite direction), there is a combination Edeka/department store (E-Center) with the same hours. Our local netto is open from 7am to 8pm, Monday through Saturday, though the local Edeka is ‘only’ open from 8am to 8pm.

Sundays are pretty much a shopping bust, it is true – the power that the Christian churches have in ‘secular’ Germany just shows how regionalism works where they are particularly strong – East Germans, a third who are atheists, don’t follow the Sunday closing rules with anywhere near the same religious devotion.

Here are some other things you aren’t allowed to do on Sunday – mow your grass (farmers are somewhat exempt), drive a truck on the autobahn (except for loads with special permission, like fresh fruit), or wash your car at a car wash (though the latest trick seems to be completely enclosed facilities – not sure if that worked out legally or not).

You get used to it. And you won’t believe how it is in Spain – they really close things down in the middle of the day. Amazing – different societies are different, and not mirror reflections.

39 figleaf November 27, 2011 at 11:29 am

I keep hearing this. But it seems as if there’s some optimal point between all businesses being open only during the 40 business hours per week (as in the case of Germany) and all 168 hours a week?

The impact second-shift shopping, banking, and services had on allowing women to enter the workforce beginning in the 1970s is hugely underrated. Prior to that, with stores, banks, doctors offices, etc. open only during normal business hours the bulk of domestic shopping and spending could be conducted only if there was a non-working partner at home. In Germany and elsewhere in Europe the “hausfrau” syndrome seems to still be very well entrenched, with, in my opinion, considerable negative social and economic consequences.

But again, it seems like there’s probably some optimal number of conventional hours that falls somewhere short of the maximum number of hours.

figleaf

40 Rahul November 27, 2011 at 11:58 am

The optimal number of hours is a distribution not a specific number. Not all stores need to be open all 168 hours and neither does it make sense for none of them to be open at any given time.

41 Robert Levine November 27, 2011 at 4:57 pm

Also worth keeping in mind that I think fewer women work here than elsewhere in Northern Europe. Again, this is based on my impression, but if it’s true it would explain why there isn’t as much pressure to keep stores open longer.

Also worth noting that there’s a decent number of pretty religious people in Bavaria. not so many elsewhere in the former West, and very few in the East.

42 zrzzz November 27, 2011 at 8:30 am

Punitive Taxation is a sorely underused tool. There are so many creative ways we could reduce unemployment. A punitive tax on corporations who shift jobs overseas, a punitive tax on small numbers of people sitting on large piles of cash that could kickstart the economy. None of these would need to kick-in until unemployment falls below a certain level. We get in as rut because people are incentivized to act against their best interests. For example, excessive off-shoring hurts your market by shifting spending power elsewhere, but a company whose competitors are doing it has no choice. This would level the playing field and make it easier to do the right thing.

43 Tom November 27, 2011 at 10:59 am

Punitive Taxation is used to punish wrong doing. Your examples don’t qualify as such. You you have a better example?

44 Rahul November 27, 2011 at 11:59 am

Is there a difference between a punitive tax and a fine?

What category is, say, a parking ticket or a public urination fine?

45 NPW November 27, 2011 at 8:34 am

Bandwagon much?
The wineseller example is illustrates a point; it isn’t the basis of the idea. Attacking the color instead of the structure isn’t constructive. The overall logic has merit to everyone except the idelogical purist. Government intrusion is acceptable to everyone except an anarchist.
Defining and enforcing ethical competition is historically a government function.

46 joshua November 27, 2011 at 8:37 am

Everyone saying that the wine merchant is free to stay closed on Sunday’s is missing the point that Bob thinks (I presume) that this is a prisoner’s dilemma: If the store stays closed on Sundays (or remains open with higher prices, etc), he loses the straggler sales to the other merchants, but if he stays open, he merely gets the same number of sales he had before. And it’s not complete nonsense to want the government to try to restrain prisoner’s dilemmas.

Of course, in this case, we have limited evidence that this is a true prisoner’s dilemma, and even if it is I believe as many of you doubtlessly do that it’s neither within the government’s responsibility nor capability to determine the optimal outcomes for retail hours. So if Bob and others dislike the cost to employees of the Black Friday Midnight Prisoner’s Dilemma, I would much prefer if they would simply encourage people to “vote with their feet” and not give them business. (Anecdotally I heard that some stores were wastefully dead during the early morning hours between the post-midnight rush and the rest of sane humanity’s waking hours, so it’s possible that even the merchants will realize this PD is leaving them worse off than before. On the other hand, we have reports that BF sales hit records this year…)

47 Bill November 27, 2011 at 8:51 am

Doesn’t the prisoner’s dilemma, and the rest of game theory, apply to oligopolistic markets? The market in wine is competitive, and there are so many sellers that price is given.

48 n=1 November 27, 2011 at 9:04 am

Competitive market in wine? You’re kidding, right? Have you tried to open a wine store lately, or order wine online from out of state? Competitive, indeed!

49 gorobei November 27, 2011 at 10:59 am

This is simply not the prisoner’s dilemma:

1. Both actors have full information about each other’s behavior
2. The payoff function is monotonic

The system settles into the optimal equilibrium. The risk of defection by seller A does not driver seller B to need to defect first.

The government has just broken a regulated oligopoly – efficiency gains for all.

50 MP November 28, 2011 at 9:43 am

Seems like the PD to me. If the competition cooperates, i.e. closes on Sunday, you defect, i.e. open on Sunday, and boost sales. If the competition defects, you defect too, maintaining your sales but losing a day of leisure. If you could credibly coordinate, say via government diktat, you would both stay closed Sunday, maintain sales, and get the extra day off. But without the government, you’re both defecting, pushed to a worse state than you would have been in if you’d cooperated.

Of course, this whole view ignores the customers. What about the externality imposed on the customers by closing on Sunday? Clearly, we need to tax merchants who would do such a thing, so they fully internalise the impact of their actions on those who want wine on Sundays.

51 Dan Weber November 28, 2011 at 12:17 pm

I agree it’s prisoner’s dilemma.

Likewise, if all wine stores colluded to keep the price of all wines over $100 per bottle, the wine stores would all be better off.

52 Rahul November 28, 2011 at 4:19 pm

Most cartels arise from a prisoners dilemma.

53 Curt Doolittle November 27, 2011 at 8:41 am

Wow. That’s absolutely insane.

If you want to spend sundays with your family, CLOSE YOUR BUSINESS AND DO IT. THat is a cost you pay for having your own business. Your competitor may in fact, bear additional costs, because as is stated above, he’s open extra hours for NO BENEFIT. If customers want something on sunday they can buy from your competitor. AT some point you are not open enough hours and your customers leave you in some amount for the other location.

This entire thread is incomprehensible to me. It’s disturbing. If employers want to be open, they should be. If they want to stay home then do so. If employees don’t want to work at those companies, then don’t.

What kind of madness is this?

54 NK November 27, 2011 at 11:48 am

Well said, sir.
It’s incredible how someone can even come up with that kind of idea!
Command economy par excellance!
Why not at the same time order consumers to buy and buy organically grown food and drink water instead of wine, that’s surely “better” for the society!

55 Richard F. Belloff, DBA November 27, 2011 at 8:50 am

Robert Frank’s is consistent in his efforts to impose his values (which he assumes are superior and correct for everyone) on society. Ever the interventionist, he cannot seem to tolerate the notion that others might make choices that he cannot or will not understand. Thus, he can only operate with an on or off switch mentality. “If I like it, I should make it free, subsidize, or mandate it. If I don’t like it (Frank dislikes a lot about capitalism and markets) then, I will tax it or prohibit it.”

This way of thinking pretty much leaves “liberty” out of the equation. To wit: in the example of the wine store, the owners of the store are free to stay closed on Sunday. This allows them the time to spend with each other and family, which Frank assumes is “good.” They can also open up and hire someone to man the store. In fact, there are many choices but Frank HATES choice unless it goes his way.

That is apparent, as is his loose grasp of economics. I guess that is what it takes to write for the NY TImes?

56 Tom West November 27, 2011 at 11:05 am

Outside of anarchists who thinks we should have no laws, we all divide activity into things we approve of, things we are indifferent to, and things that we believe are destructive enough to warrant banning. Frank’s divisions are different from yours. Mine are different from his.

However, it appears that you aren’t self-aware enough to realize that you do the same thing. Somehow you ennoble your choices as unquestionable while his are obviously “hating anything he disagrees with”, which is such a stupid statement as to venture into mindless-rhetoric territory.

We have a democracy in which we *all* attempt to impose our three categories on the rest of the populace. The fact that your third category is somewhat smaller doesn’t make you a better person – it makes you a different person. Instead of pretending that you don’t have a social welfare function that you are attempting to impose on the rest of us, do what Frank does and go sell your SWF to the rest of the population!

(I’m hoping that you don’t believe that the merits of your case are so weak that the only way you can prevail is to lie about your opponent’s motives.)

57 NK November 27, 2011 at 11:53 am

No one really cares what your activities are.
But at least you stated clearly the ultimate goal of your type of democracy – to impose your “values” on others. That worked splendidly everywhere where it was tried!

58 Sbard November 27, 2011 at 10:59 pm

Any system of laws is an imposition of values.

59 Tom West November 28, 2011 at 8:22 am

As NK stated, if you believe in a *any* set of laws, then you are imposing your values on others.

However, your post indicates that you believe that *you* are the only one in the world who has the right to impose your values on others (i.e. have laws that fit your values) – nobody else does. Of course, the laws that you would impose would allow for lots of freedom except for banning those things that you really think are destructive – perhaps theft, murder, driving on the wrong side of the road? But it makes you no different from anyone else – you seek to ban those things you think are destructive.

Welcome to the club.

60 Slocum November 27, 2011 at 9:31 am

Holy hell. Of course market competition is an ‘arms race’. Producers and sellers have to keep providing better goods and services to their customers to stay in business, and ‘better services’ very much includes ‘more convenient business hours’. This free market ‘arms race’ is exactly how people in developed societies have become so many times more wealthy than they were 200 years ago.

On the other hand, of course businesses would like to be able to collude and use state power to shield themselves from the rigors of the free market — to their own benefit and at the expense of the customer — both in terms of convenience and cost (one effect of legally limited shopping hours is that customers have less time and opportunity for comparison shopping — the same is true of legal limits on when sales promotions can be offered which I believe is still the case in some European countries).

61 Slocum November 27, 2011 at 10:33 am

What’s more — many retail businesses are also engaged in virtuous arms races with online shops (though generally not wine sellers due to…regulations imposed at the behest of powerful, rent-seeking state liquor distributors). If bricks-and-mortar retailers successfully lobbied for legal restrictions against Sunday hours, for example, that would only accelerate the drive to online purchases, since Amazon.com does not shut down on Sundays (and would not need to even if no humans were in the offices or warehouses) — or would Frank endorse a law that required Amazon and other online retailer web sites to go dark on Sundays in order to protect local retailers? That way lies madness (or, anyway, moving in the direction of medieval guild systems or the ‘license raj’ in India).

62 chuck martel November 27, 2011 at 9:49 am

In addition to his dismissal of personal liberty, Frank advances the well-worn concept of legalizing some forms of currently banned behavior in order that the state might tax them. We hear this argument all the time about marijuana and prostitution, let’s legalize it so we can tax it. Putative morality stands in the shadow of government income. Why should anyone be concerned about the government’s financial health? Can I say to the government, “Sorry, I’m not going to be paying any taxes this year because I MIGHT NEED THE MONEY. My car’s not running so well, my oldest kid is getting ready to go to college and the youngest one looks like she’s going to spend some time at the orthodontist. I need all my money.”?

63 Ryan P November 27, 2011 at 10:28 am

For some reason whenever Frank writes something about why one sales tax or another will fix one of society’s ills, he always concludes by saying something to the effect of “we have to tax something, so it’s better to tax things people buy instead of working”. I really wish he’d stop that. There really isn’t any difference between taxing earnings and taxing the stuff you want to buy with said earnings, and narrowing the tax base isn’t in general a more efficient way to tax (it might be in certain special cases, but it’s not like he’s making the case that we’re in one of those cases). If he thinks there’s a legitimate externality, it’d be much better for him to stick to arguing that case without veering off into “double dividend” territory

64 Douglas Knight November 27, 2011 at 10:30 am

“His overall sales were about the same… The upside was that customers who lacked the foresight to shop in advance for their Sunday wine needs could now be accommodated. ”

These two sentences are not very compatible. If the first sentence is true, the customers of the second sentence are a pretty small minority.

65 G November 27, 2011 at 10:31 am

I’m sorry, but this whole thing is stupid. I don’t normally dismiss arguments out of hand so flippantly, but unless I am missing something, there have been many retail type businesses that open on major holidays for years now. Certain restaurants, Blockbuster, movie theaters, etc., all come to mind and I am sure there are more. Why has no one cared about the movie ticket taker who has to work on Christmas day in lieu of time w/ his family until now?

We are quite literally talking about using the powers of the state to keep folks from buying goods on some holidays, and it is silly.

It seems to me that we should be doing anything we can to encourage continued and increased employment. People need jobs, even lower paying and temporary ones. Let them work.

66 Ed November 27, 2011 at 10:53 am

I agree with the anti-Frank position, though the commentator pointing out that restricted hours laws encourage a higher mix of small businesses vs. large chains makes a good point.

I wonder, though, why restrictions on retail hours have to specify when the shops are to be open and closed. Why not just say “your shop is licensed to stay open 120 hours (or whatever the amount is) per week. What hours you want to stay open is up to you.” The limitation on hours for proprietors is consistent with limitations on working hours for wage employees, which may limit the hours worked per week or the hours worked consecutively but rarely specify exactly when the wage slave will have time off.

I imagine if these was done, the herd mentality is strong enough that it would result in all the stores closed on Sunday anyway, even though it would be perfectly legal to be open then and to close some other day of the week. But if people are rational enough for a government to try this scheme, maybe they would be rational enough for some shopkeeper, maybe a Muslim or Jewish one, to make a sort of speciality of catering to the Sunday trade.

67 John Hall November 27, 2011 at 10:57 am

Why stop at Sundays for wine stores? Why not close stores every day but Wednesday so that shopowners can spend more time with their children? People who forget to do their shopping are SOL.

68 Tom West November 27, 2011 at 11:16 am

Because in a rational society, we weigh the benefits and the costs. Frank obviously weighs the benefit of a single common day off higher than the convenience of shoppers who would prefer to shop on Sunday. He doesn’t weight the benefit of six days off a week higher than the inconvenience of only shopping on Wednesday.

What’s so hard to understand?

I’m hoping you comment is cheap rhetoric vs. an inability to understand social welfare functions.

Anyway, his SWF differs from yours – big deal. Let the best one win at the ballot box. My guess is that it will be yours

(In a workers vs. consumers battle, do the workers *ever* win in the USA? As far as I can tell, only if one can persuade people that it’s a consumer protection issue (which is the most common route)).

69 Ryan P November 27, 2011 at 11:26 am

Frank is arguing that an externality exists. If he’s correct, you shouldn’t need to appeal to claims that he has a different social welfare function — the externality should be an issue for any Pareto SWF no matter how you weight anyone. If on the other hand you think there isn’t really a win-win here and the argument for doing something depends entirely on weighting Frank’s goals over others, then you’re actually arguing that Frank is mistaken and there is no significant externality.

70 Tom West November 28, 2011 at 8:39 am

I have to say I’m not an economist, so I’m a honestly confused here.

In a traditional externality example like a polluting activity, stopping the activity is not a win-win, because the polluter is losing the benefit of the activity. If your SWF has the activity being of greater benefit than the pollution it caused, then you’d want to allow it, if not, then you want to ban it. How could it not matter how you weigh your SWF?

71 Tom November 28, 2011 at 9:53 am

Tom, basically you have a problem minding your own business. If the store owner wants to be open he has a right to be, if not, he does not have to be.

Nobody is infringing on your rights, or the rights of Frank – you have no say in this matter.

72 Tom West November 28, 2011 at 10:43 am

Thanks, Tom for the clarification.

Since we humans are social animals, “having a problem minding our own business” is pretty much one tenet of what it means to be human. It’s pretty much a given that everybody’s decisions have an effect, if a subtle one, on every other person’s lives, which is why, as humans, we tend to have some interest in how others conduct their lives.

In this case, the not-so-subtle effect is that most parents with a teenager who would like some job experience are going to have to resign themselves to not seeing their child substantively (as in common days off) until such time as they graduate to a full-time job. In other words, the Sunday shopping culture may have a profound impact on my relationship with my children.

I certainly acknowledge that the effect may not (and usually does not) warrant any intervention on the part of the government, but ignoring the fact that there *is* such an effect seems profoundly irrational for a philosophy theoretically based in rationality.

73 Ryan P November 28, 2011 at 4:58 pm

Tom West, I think you’re misunderstanding the standard externality story. In a traditional externality example like polluting, polluting somewhat less will cost me something but (this is what makes it an externality) it will cost me less than how much you’d be willing to pay for me to pollute that much less. That’s what makes it a market failure — there’s an absence of a market allowing you to pay me to pollute less, so we aren’t taking advantage of a possible win-win. If the story were simply that the SWF values your preferences more than mine, it wouldn’t say that I should pollute less: it would just say that I should give you money.

So what Frank is trying to say here is, either everyone would be better off if we instituted the “Black Friday is Bad” sales tax, or that the people who are better off are so much better off that they could compensate those who lost so that everyone was better off on net. That’s a very strong claim, and it’s not one that he can get to by putting your thumb on the scale of some people’s preferences

74 Tom West November 28, 2011 at 9:45 pm

Thank you for the explanation. I had misunderstood externality to mean simply the by-products of a transaction upon others not directly involved, and to be honest, that seems to be how it is often used (for example, I hear the term positive externality).

However, the definition you provided certainly makes a number of statements in this thread make much more sense to me.

Thanks again.

75 Ryan P November 29, 2011 at 2:46 pm

Right, everything I said is just for negative externality — positive is just when you flip all the signs (so I’d be willing to do something if you paid me $X and you’d be willing to pay $Y>X to get me to do it, but there’s no market & we don’t trade)

76 Duracomm November 27, 2011 at 11:01 am

Bob Frank said,

I defend the claim that taxes on activities that cause undue harm to others could generate more than enough revenue to balance the federal budget and restore our crumbling infrastructure.

“Undue harm to others” is such a greasy, sleazy, nebulous concept that you could drive a super tankers worth of regulation through it.

In practice “cause undue harm to others” will equal “things Bob Frank does not like”.

Black Friday is a once a year event interesting that it generates so much angst in the commentariat.

I see it as something power shoppers find entertaining. No different then people waiting in line to buy concert tickets, or a new apple product release, or a new game release. Not that big of a deal really.

It is corporate policy for this company to close there stores on Sunday and they seem to be doing OK.

chick-fil-a

77 Sean Mulholland November 27, 2011 at 1:43 pm

Beat me to it. Moreover, many Chick-Fil-A locations were operating in states and localities before they eliminated blue laws. Thus, unlike the wine store owners, they failed to be moved by the change in regulations of stores around them.

78 Frank November 27, 2011 at 11:04 am

Taking all this one step further, let’s force restaurants to close at lunchtime and dinnertime so that the employees thereof can eat their meals in peace.

79 NK November 27, 2011 at 11:42 am

The idea is utterly ridiculous.
In a free market the both sides will participate as long as they find utility.
I would recommend do-gooders to mind their own business. Or indeed start one that will be closed on said day/time.

80 JasonL November 27, 2011 at 11:46 am

Im not opposed in theory to Frank’s notion of replacing taxes on saving or productivity or investment with taxes on things with large negative externalities, but the particular example under discussion seems so frivolous as to make most libertarian types throw up in their mouths a bit. What is the decision criteria that says the interests of consumers who want availability on Sundays should be subordinated to the interests of employees who may mor may not want to work? How do we know the rate of sales at that one wine shop is generalizable?

While I agree that reflexive arguments against “new taxes” are often unthoughtful, making your case on a scenario that is not obviously generating any negative externalities doesn’t help your cause – it makes you look like the poster child of state nanny ism.

81 wd40 November 27, 2011 at 11:55 am

Competition, by its very nature, is almost always a negative-sum game or close to it for the sellers as a whole. It is the buyers who gain the benefits, even if the benefit per buyer is small, the gain in total may be very large.

82 Chris Auld November 27, 2011 at 12:00 pm

“If we’re willing to discount the cost of an inconvenience suffered by those who could easily have avoided it, the costs in this case seem clearly to outweigh the benefits.”

`If we’re willing to arbitrarily ignore the costs of a policy, then the benefits exceed the costs!’

I agree with Frank that “we should tax congestion, noise, and pollution,” and so on. The variable tax on retailers’ opening hours, though, is very questionable policy.

This isn’t a Prisoner’s Dilemma—the outcome when Sunday sales are banned is not Pareto preferred to the uncooperative outcome.

Nor is it obvious that workers and their families benefit when Sunday sales are banned. In the long run, wouldn’t we expect firms to staff Sundays and sales in such a manner as to maximize workers’ surplus? For example, firms may find it profitable to staff events like Black Friday by offering extra wages to workers who volunteer.

The costs of implementing Franks’ legislation should also be considered. A variable tax on when retailers are open for business would impose non-trivial accounting and enforcement costs on both firms and regulators.

The policy question demands a decent model backed with decent evidence, not half-baked arguments backed with an anecdote about a friend’s wine store.

83 David S. November 27, 2011 at 12:01 pm

This is an embarrassingly incomplete analysis by Frank. There is of course no reason to expect competition, on prices or on hours or on any other form of customer service, to be beneficial to the sellers in a market. From the seller’s point of view, the optimal condition is almost certainly a tight cartel with strict limits not only on hours but on prices and quality as well, enforced by the power of the law. The wineseller’s optimal outcome would look something like a law that says that no one can sell wine except for a window on Tuesday and Thursday from 7:00 PM to 9:00, and that all winesellers must buy from the one approved wholesaler and must put at least a 100% markup on wholesale pricing. (Even better would be a law that allowed only one wineseller, so the wineseller wouldn’t even have to compete in politeness to his customers).

Of course, the party who benefits from the lack of a cartel is the wine consumer, who is now able to buy wine on Sunday (and since the store is non-empty on Sunday, at least some consumers find this a benefit). The consumer also benefits from the wineseller’s need to compete with other merchants on price and quality and customer service, none of which are to the wineseller’s benefit.

I say this is embarrassing because it isn’t even a good example of Frank’s thesis. He is trying to point out examples of true market failures where the competition benefits no one at all, like the tail on a peacock. His wineseller, however, is a classic example of the opposite case, where competition among sellers benefits buyers at the expense of the sellers. Far from being an example of Darwinian Economics, it’s Adam Smith 101. It would have been far more interesting to discuss a good example of Frank’s thesis.

84 Rahul November 27, 2011 at 12:22 pm

What’s the libertarian position on cartels? What if all the local wine-sellers had a meeting and decided to mutually, voluntarily remain closed on Sundays? Also, what’s the American legal position on this: illegal? Or not?

85 David S. November 27, 2011 at 1:05 pm

Cartels are illegal under US antitrust law.

86 Thomas November 27, 2011 at 12:33 pm

We get from the plausibility of a wasteful arms race to harm how exactly?

Before we adopt special rules for Thanksgiving/Black Friday, maybe we should do something about the pharmacy competition. When I was a kid, we had a neighborhood drug store, with one druggist, and he went home at 6 and didn’t work on Sundays. Now the pharmacy around the corner is a big chain and has pharmacists available 12 hours a day, every day. If I want a pharmacist when they don’t have one, I can go to the pharmacy 4 miles away, which has a 24 hour pharmacy. Wasteful competition, surely. The aggregate number of prescriptions filled is likely the same. We should have a heavy tax on parents who think junior needs a prescription at night, or on those foolish enough to visit the hospital outside of regular hours and anxious to being taking their prescribed medications as soon as possible.

Of course, there’s also the status competition among universities, trying to be the best. The total number of above average programs in economics stays the same, but students pay more and more in tuition because the universities compete for the best professors. Other examples are surely out there.

87 Tom VanAntwerp November 27, 2011 at 12:40 pm

I had the “pleasure” to live in Denmark once. Most things closed on Sunday, by law. While forgetting to buy my wine on Saturday might have inconvenienced me on Sunday, failing to buy food on Saturday left me hungry on Sunday. I don’t think the chance for some grocers to spend extra time with loved ones outweighs my need to eat. As a consumer, Sundays were the most painful (not to mention boring) days of the week.

Forgive me if I don’t weep for those poor, unfortunate souls who feel compelled by the market to work on Sundays.

88 Highgamma November 27, 2011 at 12:48 pm

Where’s Bastiat when you need him?

89 Baschya November 27, 2011 at 3:25 pm

In France, there are many times when stores are required to close. Many Chinese shop owners don’t like to take vacations and will hang around doing nothing. But if you’re Chinese and knock on the closed door, they’ll open and sell you something. We saw this once while having dinner in my flat. My french guests — who I guess share Bob Frank’s views — were upset and the wife said she would report that store to the authorities.

90 Rahul November 27, 2011 at 4:30 pm

Given that she was a Frenchwoman, I wonder if she was more upset that the shop was open or that the owners were Chinese?

91 Topper Harley November 28, 2011 at 6:16 pm

Well, the local name for such a shop is “chinois” — I have yet to determine if there’s a particular negative connotation to it. Imagine the egg on my face if I find out the
that I’ve been calling the local shop on the corner the English equivalent of “chink shop”.

92 Yergit Abrav November 27, 2011 at 6:34 pm

Depressing and scary. This site is starting to read like a convention of central planners.

93 Jim November 27, 2011 at 8:42 pm

“Every dollar we can raise by taxing activities that cause harm to others is a dollar less we must raise by taxing beneficial activities.”

What we have here, dear friends, is a Category Five Moron.

Let’s see if we can fix this sentence for him:

“Every dollar we can raise by taxing activities that cause harm to others is extra money that the Government can spend immediately!”

94 Borealis November 27, 2011 at 9:38 pm

So the mercantile class wants a law that would allow them to be a consumer on Sundays without any competition and without paying a premium to hire willing employees. I can see why that may not be an Econ 101 question, but why isn’t it in Econ 102?

There are lots of people who would be happy to work on Sunday for a premium, perhaps because they are single, not Christian, not doing anything else, or just want to make more earnings. Why should what they want be illegal?

There are lots of people who want to buy things on Sunday. Why should what they want be illegal?

95 Tom West November 28, 2011 at 10:54 am

Um, at least around here working Sundays gives you no premium and is pretty much a requirement if you’re a teenager. Thus I think “happy to work on Sunday” is not quite correct – perhaps “would like to have some work experience at all” is better… (For the record, I support Sunday shopping, but I do think there are reasonable arguments against it.)

96 NL_ November 28, 2011 at 12:18 am

1. Taxes on productive activities have a natural brake; the government knows it cannot put a high tax on hiring workers the way it puts multiple high taxes on cigarettes.

2. Taxes on socially ‘harmful’ activities are subject to bias and encourage politicians to pick on unpopular groups and behaviors, since elected politicians and not enlightened philosopher kings will decide whom to tax.

3. Taxes on sinful behaviors give the government far less incentive to actually eliminate the supposedly unwanted behavior. A toll to drive on a road encourages the road owner to build capacity and improve quality; a tax on congestion discourages driving but it also penalizes the road owner for making road improvements.

97 Jonathan Thomas November 28, 2011 at 5:41 am

The issue was nicely dealt with in De Meza, David (1984). “The Fourth Commandment: Is it Pareto Efficient.” The Economic
Journal 94:379-83. Under perfect competition there is no problem, but a Sunday trading ban, for example, might be desirable under imperfect competition.

98 NAME REDACTED November 28, 2011 at 9:03 am

Sigh: Another world for “arms race” is competition.

99 NAME REDACTED November 28, 2011 at 9:04 am

This seems to me just another attempt at justification of the absurd idea of “destructive competition” that socialists bandied about inthe first half of the 20th century.

100 lemmy caution November 28, 2011 at 1:50 pm

Competition is generally good because it leads to increased productivity. Products get cheaper and better. Frank tells a story about how, in this case, competition decreases productivity. Maybe he is wrong in this case, but it is worthwhile having a phrase, “arms race”, to describe competition that makes people worse off.

101 Rahul November 28, 2011 at 4:21 pm

The trick lies in making sure your definition of “people” is expansive enough. Frank forgets consumers are people too.

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