Bargain buys carry hidden costs

Everyone loves a bargain, no doubt about that. But once you do a little investigating, you’ll realize that cheap ultimately has a high cost.

I read a fascinating book that breaks down the far-reaching results of our fondness for bargains — “Cheap: The High Cost of Discount Culture,” by Ellen Ruppel Shell.

It started with distancing the relationship between seller and buyer. In a traditional marketplace, merchants know their wares and also the needs of the customers. Of course, they want to sell at the highest price, but they also realize that making a palatable offer will result in repeat business.

Clients can have more confidence they are getting what they pay for because in a small community you can’t get away with cheating — at least not for long.

Early discounters like Woolworth changed the paradigm of trained sales staff with full-service stores to the increasingly self-serve model we are familiar with today. Without adequate information about products from knowledgeable clerks, customers are increasingly reliant on price as a signal as to the value of a product.

This leads to what’s called Gresham’s Law, whereby when a superior, more expensive product is indistinguishable to the buyer, the purchaser will choose the one that is less, assuming the higher cost item is overpriced. Quality is then lowered, as the better-made items can’t be sold at a price that is competitive to the cheap stuff.

This creates a domino effect, whereby items must be made inexpensively, which means cheap labor in the manufacturing process and also cheap labor in the stores (fewer clerks who are minimally trained). Then, because wages have decreased, consumers are more dependent on lower prices, which decreases the market for quality goods.

Eventually, factory jobs move overseas, where labor costs are even lower, not to mention the human rights abuses and environmental degradation incurred. These would be reasons enough to eschew cheap products, but it also has led to the squeezing of the American middle class in terms of deflated domestic wages and lack of purchasing power.

Have you wondered why Wal-Mart, the leading discount retailer, lobbies against unions, health care reform and other policies that would benefit both its workers and customers? It is because discounters benefit most when people are poor. When Americans lose disposable income, Wal-Mart revenues increase.

The sad fact is that poor people benefit discount retailers far more than discount retailers benefit the poor. When Wal-Mart CEO Lee Scott retired in 2009, his biweekly take-home paycheck was what his average employee earned in a lifetime. Who is really profiting from our culture of cheap?

A century ago, president William McKinley said that cheap merchandise means cheap men. We are seeing this play out on a global level today, and it is not sustainable. We must combat this movement by demanding quality products that will last. And we must be willing to pay for them, even if it means saving up and buying less.

Stephanie Haines is a writer from Greenfield who now lives in Bloomington. She can be contacted through her website, stephaniehaines.com.