By Claudia Williamson Kramer, Ph.D.
My husband has a Diet Coke problem. Not a medical one; an economic one. Since COVID, soda prices have climbed enough that it’s actually worth his time to drive around Chattanooga hunting for the best deal. Last week, he found 12-packs at one store for $6.99 and another charging $8.49 for the exact same product. Armed with this information, he now plots his grocery runs like a military operation.
I tell you this not to brag on his thriftiness, but because it illustrates a basic economic principle: when prices rise, people respond. They compare, they substitute, they adjust. These individual decisions, multiplied across millions of consumers, generate the price signals that tell producers what to make, retailers what to stock, and everyone where resources are most valued.
Politicians in New York and Seattle apparently missed that lesson.
New York City’s newly elected Mayor Zohran Mamdani campaigned on a promise to establish city-run grocery stores, claiming they would address food affordability and give consumers “a public option for produce.” Seattle’s Mayor Katie Wilson has voiced similar support. Their pitch sounds appealing: if groceries are too expensive, let the city sell them cheaper. Problem solved, right?
Not quite. Let me walk you through why this is terrible policy disguised as compassion.
The Real Story Behind Rising Food Costs
First, let’s acknowledge that rising food costs are real and painful. From March 2020 to December 2025, prices for food at home rose 29.4 percent. Some categories hit families particularly hard: beef roasts are up 73.8 percent, beef steaks climbed 57 percent, and eggs and coffee each increased more than 47 percent since the pandemic began.
So what’s driving these increases? It’s not corporate greed, despite what you might hear from politicians eager to blame someone other than their own policies.
Walmart, the nation’s largest grocer, operates on a net profit margin of just 2.85 percent. That means for every dollar you spend, they keep less than three cents after covering all costs. They make their money through volume—turning over massive quantities of goods at razor-thin margins—not by gouging customers. This is typical for grocery retailers, who compete ferociously on price precisely because their profit margins are so slim.
The primary culprit is inflation. Overall consumer prices rose approximately 25 percent from 2020 to 2025 because of expansionary monetary policy by the Federal Reserve. When the Fed dramatically increased the money supply, prices rose across the board for everything from housing to clothing to transportation.
But notice that food prices climbed 29.4 percent, which is faster than the overall inflation rate. What explains this additional 4+ percentage point increase? Supply chain disruptions from COVID shutdowns played a role initially, as did Russia’s invasion of Ukraine, which disrupted global wheat and vegetable oil supplies. Tariffs on imported agricultural products and processed foods continue to add costs that flow through to consumers. Increased regulatory burdens on food production, processing, and distribution compound these pressures.
In short, rising costs are policy-driven problems, not evidence of corporate price gouging.
The Hidden Costs Politicians Won’t Mention
Now, here’s the fundamental problem with city-run grocery stores: they can only “compete” with private stores by artificially lowering prices below market levels. The costs to produce, transport, and stock groceries don’t magically disappear because a city owns the store. Someone still has to pay for all of that.
That someone is you, the taxpayer.
Mamdani’s $60 million proposal redirects existing subsidies to city-controlled stores and proposes higher corporate taxes and a new millionaire tax. In other words, the “cheaper” groceries come with a hidden price tag that every taxpayer pays whether they shop there or not. You’ll pay less at the register and more on your tax bill. Is that really savings, or just creative accounting?
The Allocation Problem No One Wants to Discuss
Here’s where it gets even messier. If the city successfully undercuts private grocers on Diet Coke, who gets to buy it?
I would. My husband would drive across town for it. But we’re not exactly the struggling families these programs claim to help. SNAP and other federal and state programs already exist to assist low-income families with food purchases. So is this city store for people who don’t qualify for SNAP? If so, expect middle-class and wealthy residents lining up for the subsidized products too.
This creates the allocation problem that politicians never want to address. Without prices to ration scarce goods (and all goods are relatively scarce), you need another mechanism. Will higher-income people be forbidden? Will there be ID checks and income verification at checkout? Or, will it be first come, first serve? What happens when the artificially cheap Diet Coke runs out?
Shortages. Empty shelves. That’s what happens.
The Lessons History Already Taught Us
We don’t need to speculate about how city-run grocery stores perform. History ran this experiment for us, and the results were disastrous.
Venezuela’s government grocery stores, known as PDVAL, were established to sell subsidized food. The shelves emptied almost immediately. Citizens spent hours in line, often leaving with nothing. The stores became hotbeds of corruption, with politically connected individuals receiving preferential access.
Soviet grocery stores offer an even longer track record of failure. Empty shelves, perpetual shortages, and grim product selection defined the experience. Even basics like bread and milk required queuing for hours. There was no variety because central planners couldn’t possibly know what millions of individual consumers wanted at any given moment.
Small American cities have tried this too. Baldwin, Florida opened a city-run grocery store in 2019 after its private grocer closed. It shut down in March 2024. Kansas City’s government-owned Sun Fresh closed in 2025 despite $18 million in city investments.
Why Private Markets Work
Compare that to your experience shopping in Chattanooga. Our grocery stores stock thousands of products adjusted constantly based on what sells. Nobody planned this. No committee decided that stores should carry regular Diet Coke, Diet Coke with Splenda, caffeine-free Diet Coke, Diet Coke with lime, and cherry Diet Coke. The market figured it out through millions of transactions revealing consumer preferences.
Prices do more than ration goods—they communicate information. When Diet Coke gets expensive, it tells my husband to consider alternatives or shop around. It tells retailers there’s profit in competing on price. It tells distributors to ensure adequate supply. This system coordinates the efforts of countless people without any central direction.
When coffee prices jumped 18.8 percent in the past year due to weather and reduced exports, markets adjusted: consumers switched to tea or store brands, cafes raised prices to reflect scarcity, and producers ramped up planting for next season. No bureaucrat needed to orchestrate any of this.
City-run stores replace this sophisticated coordination mechanism with bureaucratic guessing and political favoritism.
What This Means for Chattanooga
Our city thrives because businesses are free to respond to market signals. When new restaurants open, they’re betting they can serve customers better than existing options. When they fail, capital moves elsewhere. This creative destruction, while sometimes harsh, ensures resources flow to their most valued uses.
Government-run businesses face no such discipline. They don’t close when they fail; they just demand more taxpayer money. They don’t innovate in response to competition because they have none. And critically, they siphon resources from businesses that would have used them more productively.
For Chattanooga’s business community, this matters. Cities that maintain competitive markets attract investment and talent. Those that don’t lose both. When government competes directly with private enterpriseusing taxpayer subsidies, it distorts markets and discourages entrepreneurship.
Why take the risk of opening a grocery store when City Hall can undercut you using money extracted from your own pocket?
The Real Solution
If politicians genuinely want to address food costs, they should start by fixing the policies that drove them up in the first place. Reduce inflationary policies. Reconsider tariffs that increase costs. Remove regulatory barriers that prevent new grocers from opening and bottleneck supply chains.
But that requires admitting government policy caused the problem. It’s much easier politically to blame greedy corporations and promise government-run alternatives.
My husband will keep hunting for cheap Diet Coke, responding to price signals the way millions of consumers do every day. That decentralized decision-making, multiplied across the economy, generates prosperity far beyond what any central planner could dream up.
The Soviet Union learned this the hard way. Venezuela is learning it now. New York and Seattle shouldn’t have to learn it again. And neither should Chattanooga.
Claudia Williamson Kramer is the Scott L. Probasco, Jr., Distinguished Chair of Free Enterprise, Professor of Economics, and Executive Director of the Center for Economic Education at UTC.
To hear more from Dr. Kramer, listen to her latest conversation on WUTC here: https://shorturl.at/CyWM0
