Monday, February 07, 2005

Retail and Zero Sum Games

The Pittsburgh Business Times floats a story on potential retail development coming to Lawrenceville. Great Economic Development news for the neighborhood; bad news for the Region. Here's why:

Regional buying capacity is defined as the sum of all individual buying capacity. This is all is related to (1) the population of the region and (2) the wages paid in the region:

(1) Lots of mediocre wage jobs, but hordes of people: OK.
(2) Lots of good wage jobs, not a lot of people (i.e., relatively few people being paid, very, very well): Still OK.
(3) Not a lot of good wage jobs, not a lot of people: Bad.

[Pittsburgh seems to fit into category #3.]

Ergo, if you increase the wages of the people living in the Region, but keep the number of people constant, you could expect an increase in the aggregate buying capacity. If you increase the number of people living in the Region, but keep the wages constant, you could see an increase in the aggregate buying capacity. If wages and population are stagnant or declining, buying capacity is stagnant or declines.

So if your buying capacity is not increasing... why build more retail? You don't have any extra money to spend on the new retail. Wouldn't that just detract from the existing retail? Isn't this just a zero-sum game, where ultimately the economic gains are offset by economic losses? Would you be silly enough to put public money into such an unsustainable scheme? Shouldn't you be working to increase real wages or population instead? Should I stop with the rhetorical questions?

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3 comments:

Furrow said...

Why do you hate consumer freedom?

Jonathan Potts said...

I guess my question, and if this was answered in the Business Times article, then I missed it, is are public subsidies being used to lure developers to Lawrenceville.?If they are, that's bad; otherwise, there's nothing wrong with someone opening a business on their own initiative, regardless of what it might do to other businesses. It's called the free market. The downside here is that it could threaten the return of public investments in retail that should not have been made in the first place.

O said...

That question wasn't answered, probably because the developers are just floating ideas at this point. Chances are that they will be looking for some sort of subsidy eventually.