Why Government-Owned Supermarkets and “Freezing the Rent” Won’t Work

New York Assemblyman, Zohran Mamdani, is a socialist from Uganda running for Mayor of New York City. It’s early, but he’s currently in 2^nd place behind Andrew Cuomo. He has suggested some ideas that have been tried in other (failing) countries, but that have never caught on here. He wants to “freeze the rent” and have the government run the supermarkets.

As a conservative, you might think I want him to lose, but to the contrary, if he were elected and implemented those ideas, they would fail so spectacularly in New York that it would take decades for liberals to try it again somewhere. You might think it would prevent them from ever trying it again, but liberals don’t learn from their mistakes long-term, which is why anyone suggesting things like this could be taken seriously in the first place.

In any case, to be fair, I am going to show Mamdani’s description of these ideas from his website:

Freeze the rent.

A majority of New Yorkers are tenants, and more than two million of them live in rent-stabilized apartments. These homes should be the bedrock of economic security for the city’s working class. Instead, Eric Adams has taken every opportunity to squeeze tenants, with his hand-picked appointees to the Rent Guidelines Board jacking up rents on stabilized apartments by 9% (and counting)–the most since a Republican ran City Hall.

As Mayor, Zohran will immediately freeze the rent for all stabilized tenants and use every available resource to build the housing New Yorkers need and bring down the rent. The number one reason working families are leaving our city is the housing crisis. The Mayor has the power to change that.

City-owned grocery stores.

Food prices are out of control. Nearly 9 in 10 New Yorkers say the cost of groceries is rising faster than their income. Only the very wealthiest aren’t feeling squeezed at the register.

As Mayor, Zohran will create a network of city-owned grocery stores focused on keeping prices low, not making a profit. Without having to pay rent or property taxes, they will reduce overhead and pass on savings to shoppers. They will buy and sell at wholesale prices, centralize warehousing and distribution, and partner with local neighborhoods on products and sourcing. With New York City already spending millions of dollars to subsidize private grocery store operators (which are not even required to take SNAP/WIC!), we should redirect public money to a real “public option.”

Before we get into this in more detail, let me give you a very simplistic example that everyone will be able to understand, that will help you get why this is a bad idea.

Let’s say you have a friend who comes to you with a business idea, and he wants you to invest. You ask him what it is, and he says, “A Dollar Store!” This doesn’t sound very exciting to you because there is a big corporation that already fills that niche. However, your friend explains to you that his store will be revolutionary and completely different from the other Dollar Store. When you ask why, he says, “Because they sell cheap junk in there! My dollar store is going to sell the things everyone wants! We’ll have Lamborghinis, Cybertrucks, deeds to mansions, first-class airline tickets, free swimming pool installations, gold bars, 100-pound boxes of filet mignon, brand-new state-of-the-art refrigerators… you name it! Everything that people REALLY WANT, we’ll have for sale in my store for only a dollar! The demand will be insane!”

You note that this concept does indeed sound popular, but you ask how he’s going to get all of these things to sell. He looks confused, scratches his head, and says, “What do you mean? They should only cost a dollar, so I am going to charge a dollar for them.” Yes, you continue, but how are you going to get those products, which cost much more than a dollar to make, for you to sell at a dollar and make a profit on them? His eyes widen and he says, “Didn’t you hear me? They should cost a dollar, so I am going to sell them for a dollar!”

Do you put money into his business? Absolutely not.

What Mamdani is suggesting is just the government version of this.

For example, take freezing the rent. Everywhere you see rent control or rent stabilization, you see high rents. In fact, the two most expensive cities in America to rent in are New York City and San Francisco, both of which have forms of rent control. Why? Because it guarantees that many rental properties will be a bad investment that no one will put money into. Nobody wants to build housing in a heavily over-regulated city where politicians are deciding how much they can charge for their service.

Costs going up over time is pretty much the default and since COVID, the prices of things like roofs, HVACs, and repairs have gone up significantly for most people. How do landlords get paid back for fixing those things? With rent. If the rent can’t go up, the landlord gets put in a position where either they have to refuse to fix things (we call people like this “slumlords”) or lose money. Why do that when you can put your capital into profitable investments? Well, most people won’t, which creates a shortage of housing.

That’s why New York City needs LESS interference with the market, not more of the government meddling and regulations that made it so expensive in the first place. Put another way, what Mamdani is suggesting is a more extreme version of what caused rent to be so expensive in New York to begin with.

The idea of city-owned grocery stores also completely ignores how the market works. Wal-Mart is the biggest grocery seller in America, and do you know what their profit margin is? It’s 2.85%. They’re not an incredibly profitable company because they charge so much, they’re incredibly profitable because they sell mind-blowing amounts of volume. Part of the reason they can do that is because they test everything they do down to the smallest detail. They can even tell where the best shelf placement is for each item to maximize profitability. In other words, they will make more money with one product on the top shelf and another product on the bottom shelf and they know exactly which products those are because they’re relentlessly experimenting in their stores.

Meanwhile, I looked up Zohran Mamdani’s work history and according to Wikipedia, which is a bad source for many things, but good enough for this, “Mamdani worked as a prevention counselor and cricketer, before running for office.[13] He also tried to work as a rapper in the New York subway stations.” Do you think that guy is going to put a government bureaucracy in charge of a union workforce that is going to outperform Wal-Mart? Of course, not.

But, you say, “What about the small local grocery stores? They don’t have the same kind of expertise or supply chain as Wal-Mart.” True, but neither does the government and unlike the government, the small grocery chain owners have the advantage of knowing what they’re doing and not being saddled with government “workers.”

What will happen from the get-go with government-run grocery stores like that is they will be far more expensive to run than their privately-owned counterparts, but they will be promising lower prices. This will create a large deficit the taxpayers will have to make up for, which will be a huge embarrassment to the politicians advocating it.

When this happens in third-world countries that are going bankrupt, and it has many times, the government demands food manufacturers make up the difference by selling them food at a loss. Of course, this doesn’t work very well, and you end up with rotten food, shortages, long lines, and then eventually, empty shelves. This would happen faster than normal in New York City because almost all of the food there comes from outside of the city and there’s a great big country out there full of places that don’t have government price controls.

None of this is a secret. There have been countless examples of it. Here’s a couple of famous ones via ChatGPT:

If New York tried this, it would be a disaster just like it is everywhere else and the only difference is they’d blame their failure not just on those mean, old businesses that don’t give away everything for free, but on Republicans who warned them all along it would be a mess.

The real question at this point isn’t even whether this would work, it’s why liberals seem so incapable of learning from their mistakes.

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