Andrew Young’s statement that blacks have been “ripped off” by stores run by Jews, Koreans, and Arabs has been rightly criticized, and he has apologized. But these irresponsible r…
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For decades, one of the biggest blind spots of most civil-rights “leaders” and “spokesmen” for the black community has been their utter lack of knowledge of economics.
Prices, in fact, do tend to be higher – and the quality of service and products lower – in stores in low-income neighborhoods. But the knee-jerk assumption that this represents exploitation or racism ignores economics.
Many of the ghetto stores charging high prices are struggling to survive, while supermarkets in other neighborhoods are very profitable charging lower prices. There are many reasons for this.
One reason is that crime, shoplifting, vandalism and riots have raised the costs, both directly and by causing insurance rates and the costs of security to be higher.
The costs of delivering goods to small neighborhood stores are also higher than the costs of delivering goods to huge supermarkets. Delivering 100 cartons of milk to a supermarket is cheaper than delivering 10 cartons of milk to each of 10 local stores scattered around town.
Selling a customer $50 in groceries in a supermarket takes less time than selling 10 customers $5 in groceries in a little neighborhood store. Faster turnover is one of the keys to a supermarket’s lower prices.
A supermarket can prosper with one cent of clear profit on each dollar of sales because that dollar comes back to be re-used again and again in the course of a year.
Few local stores can match that. Not only are the delivery and overhead costs of the local store likely higher, the slowness with which its inventory turns over means that even higher prices may not fully compensate for such differences.
The cumulative effect of such cost differences is that prices are often higher and at the same time profit rates lower in poor neighborhoods.
One of the factors limiting what a ghetto store can charge is that many ghetto residents already shop in other neighborhoods, when the price savings are enough to cover bus fare or taxi fare.
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