Chicago's new mayor, Brandon Johnson, is experimenting with a surprising new city policy— government-run grocery stores.

The policy idea was announced by Johnson earlier this week. "I am proud to work alongside partners to take this step in envisioning what a municipally owned grocery store in Chicago could look like," he said.

The proposal comes in response to an apparent lack of access to grocery stores after giants Walmart and Whole Foods closed down their stores in large areas of the city.

The companies each claim the closures were due to the stores being unprofitable. The lack of nearby grocery stores has caused significant speculation on how these locations could possibly be unprofitable.

Many speculate the issues stem from rising thefts in Chicago. DailyMail reports, "to date in 2023 over 2022, thefts are up 25 percent according to the Chicago Police Department while robberies are up 11%."

In any case, municipal authorities in Chicago have decided these closures are severe enough issues to warrant the development of centrally planned grocery stores. How would these stores do? Economic analysis can help us understand what central planning of groceries would look like.

Centrally Ignored Costs

How would a city-run grocery store compare to the private alternative? The main difference between private and government-run services comes down to one word—profit.

Privately run grocery stores have an incentive to make the most profit possible. Profit is simply the difference between the total number of dollars a store receives and the total amount of dollars the store spends (implicitly and explicitly) on inputs such as inventory and labor.

Maximizing profit means trying to maximize the difference between revenue and expenses. For any given amount of sales, stores want the lowest cost possible. Private business wants to buy the minimal amount of labor, inventory, and capital (e.g. shopping carts, shelves, and cash registers) possible while still maintaining high revenues.

This drive to minimize costs is a good thing for society. Every worker and machine used in a grocery store is a worker and machine that cannot be used anywhere else in the economy. Inputs in the production process are scarce, so the less inputs the stores use, the better.

Imagine a grocery store started hiring heart surgeons to work at cash registers. Doctors are smart enough that they'd certainly be good at the job, but this would be incredibly wasteful for society!

Luckily, it would never happen because in order to hire a heart surgeon the store would have to offer higher salaries than hospitals. A grocery store that did this would make a massive loss. This illustrates an important point. The costs a for-profit business faces reflect the cost of that business using society's scarce resources.