The Oklahoma City Council is considering a well-disguised sin tax. They call it a Healthy Neighborhood Zoning Overlay, but the effect is the same. It limits new dollar stores in the specified neighborhood. The ostensible goal is to create a welcoming environment for grocery stores selling fresh meat and produce. But it accomplishes this goal by giving existing dollar stores a monopoly, which will raise prices, and punish residents for shopping at the purveyors of (allegedly nothing but) junk food, instead of subsisting on fresh, organic kale smoothies like good little citizens.

Why would the Council intentionally restrict the supply of stores where many of their residents buy basic household goods and food? Several possibilities present themselves, though none are sound.

A fundamental misunderstanding of the laws of supply and demand.
Economists call the current state of the neighborhood a contestable market: dollar stores choose low prices because the mere potential of competition keeps them honest. If they charged monopoly prices, a competitor, enticed by the potential for abnormally high profits, would enter the neighborhood, causing both sides to lower prices again.

The proposed Zoning Overlay, however, would end this deterrent to price-gouging. If new stores are too difficult to open, or prohibited from selecting the best locations, what is to stop the existing stores (all of whom are owned by the same parent company) from raising their prices? In fact, even stores who were vigorously competing would likely raise their prices in unison with each other (effecting monopoly pricing without an illegal conspiracy), once they were protected by this type of Zoning Overlay.

A misunderstanding of basic nutrition.
The dollar stores in question offer at least some frozen or canned vegetables. While many prefer the taste of fresh produce, there is substantial evidence that frozen and canned vegetables are just as healthy as fresh. Is the problem the availability of nutrients? Or is the Council trying to bully residents into eating the “right way?

A desire to elevate a special class of merchants.
This seems like an unintended consequence, not the design of the program. But federal antitrust laws carve out an exception for state and local laws. So if someone wanted to favor a particular kind of store, zoning laws can become a legal way to cheat the system. The state gives new car dealers just this sort of protection, explicitly stating that it does so to protect them from competition, in order to make sure they stay viable. Existing dollar stores may even realize the boon they are about to receive from the city council.

Using public policy to punish, and thereby reduce, specific, undesirable behavior.
This happens all the time. We call it a sin tax – think cigarettes, alcohol or gambling. Are we comfortable labeling junk food a “sin”? A traditional sin tax directs the proceeds to the public coffers, for some worthy project to offset the sin. Here, the proceeds of the “tax” will go to the purveyors of the so-called sin. Is that a desirable policy?

The Council wants to impose its dietary norms on the public. It can’t force people to eat healthy. A direct tax on junk food, much less healthy nonperishables, would be wildly unpopular. So it found a clever workaround to punish residents for patronizing unhealthy dollar stores over virtuous grocers.

The proposed zoning overlay is a relatively small geographic area. Of course, the initial cause for concern was the difficulty residents without cars have getting groceries. These are the people who will still be stuck paying monopoly prices at dollar stores, while residents with cars go outside the overlay to do their shopping. The Overlay is likely to do the most harm to the very people it is supposed to help. But don’t worry, residents of 73111, the Overlay is not permanent. As soon as you clean up your act, the city promises to stop punishing you.

Mike Davis is a Research Fellow at 1889 Institute. He can be reached at mdavis@1889institute.org.