LAKE WOBEGON ECONOMICS

    Lake Wobegon Days, by Garrison Keillor, raises two interesting economic issues, both in the chapter entitled "Sumus Quod Sumus" ("we are what we are", the town motto).

    The first issue relates to Annual Flag Day and the collective action problem, and has been discussed by Jon Elster in Nuts and Bolts for the Social Sciences.  On Flag Day, Wobegonians wearing colored hats assemble to form an American flag, which is then photographed to appear in the paper.  Participants would rather see the actual flag, however, especially considering that the paper's phote is black-and-white.  Unfortunately, the more people leave the flag to look at the flag, the less impressive it looks.  Once the organizers arranged a huge mirror; but when the particpants tilted their heads to take a look, the flag disappeared!

    This is a collective action problem.  Each participant is better off leaving the flag and taking a look; but if they all leave, there's no flag to look at.

    Now for the second issue.

    Keillor describes how, in a small town, people feel pressue to buy from their neighbors, rather than from better stores in nearby towns.  For example, Lake Wobegon is served by Ralph's Pretty Good Grocery.  In nearby St. Cloud, however, is the Higgledy-Piggledy, "where you find two acres of food" (p. 117).

    "The truth is that Lake Wobegon survives to the extent that it does on a form of voluntary socialism with elements of Deism, fatalism, and nepotism" (117-118).  "If people were to live by comparison shopping the town would go bust.  It cannot compete with other places item by item.  Nothing in town is quite as good as it appears to be somewhere else.  If you live there, you have to take it as a whole.  That's loyalty" (118).

    This passage is suggestive, with a number of possible meanings, but let's consider a simple interpretation.  Keillor seems to say that the town is in this case solving the kind of collective action problem it faces at Flag Day.  Individuals could further their own interests by shopping elsewhere, but if everyone does that, everyone's worse off than if everyone shopped in Lake Wobegon; social pressure keeps people in line, producing an efficient solution and keeping Lake Wobegon "in business."

    But I say that the Wobegonians aren't keeping Lake Wobegon in business, they're just keeping the local merchants in business.  If Wobegonians stop partronizing local merchants, the local merchants go bust, but the rest of the town does just fine--indeed, they're better off, since now they're shopping at the better stores in nearby towns.  The local merchants are parasites, using social pressure to support themselves at the expense of their neighbors.

    "But if everyone goes out of business, there's no town!"

    Not everyone in Lake Wobegon is a merchant, serving other Wobegonians.  I would guess that most Wobegonians are farmers, serving the general agricultural market.  If the merchants go out of business, the farmers will remain; they'll just do their shopping in St. Cloud.  There's some inconvenience in driving to another town, but by Keillor's own assumption the superior price and selection is worth the drive.


    Furthermore, if the town residents want to help the local merchants, there's a better way to do it than by buying their produce.  Why not just give them money?  After all, if you save $10 by shopping at HP, it's not a problem it give $5 to Ralph.  (In the quotation, Keillor describes the HP as having superior selection, but let's suppose the difference is that HP  offers superior prices.  The analysis will be clearer but the results the same.)

    Can you ALWAYS make BOTH  yourself AND Ralph BETTER off by shopping at HP?  Think about it before you continue.
 

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