The Economics of America’s Free Refills

World Cup Visitors Fascinated by American Abundance

If you didn’t get to view the multitude of viral videos by World Cup fans visiting America, you missed out. We got an influx of reminders about why America is a great place to live, and all from an outsider’s perspective.  From the genuine hospitality of suburban America, to the rich micro cultures residing in major cities, to endless air conditioning, visitors were wowed by what they encountered.

Since I’m an economist, I can’t help but view the posts about free refills, complimentary chips and salsa, and the variety of products available at locations we would consider corner stores through an analytical lens.  Why are these experiences considered normal here, but not everywhere else?  And do they add up to a living standard that is better than other countries in the EU or Asia or is it just a different economic structure?

Does the U.S. Have an Economic Edge?

The entire globe is a little pressurized at the moment.  Some nations are still working to get supply chains back to peak performance after the pandemic derailed efficiency.  We’ve got multiple geopolitical factors affecting the flow of major commodities. Emerging nations are claiming markets traditionally scooped up by well established countries. And, trade wars have effectively reshaped production and distribution systems. 

Here in the U.S. we feel that pressure in the cost of groceries, gas and the stagnant housing market.  We can assess our own financial health in comparison to our neighbors by determining who has the most expendable cash to take a vacation, but we don’t always compare our collective national situation to another country’s realities. Hosting the World Cup forced us to do that.

The average American watching a social media video posted by someone visiting from Germany marveling at the aisles of options at Walmart probably isn’t stopping to put that into economic statistics. Yet, of the G7 nations, the U.S. has consistently outpaced in economic growth over that last decade; more than double that of the United Kingdom who is ranked second based on per worker economic growth and 0.7% more than Canada, ranked second based on total GDP.  The numbers don’t mean we’ve found the perfect economic model, but they do suggest that our model works to foster economic development.

Competitive Markets Versus Regulated Industry

World Cup visitors admired the abundance they found in the U.S. but comment sections hinted they were doing more than admiring, they were considering why and how?  Why are there multiple stores offering the same items in the same location?  How can there be so many brand options for peanut butter, or their new favorite condiment, ranch dressing?  Those viral videos are real time commentary to a long standing discussion on the pros and cons of regulated industries and competitive markets.

Why does everything appear bigger in the U.S.?  Because we’ve prioritized competition for a very long time.  There is plenty of room for innovative ideas when everyone is working to win the customer. The more options a consumer has, the more valuable a product has to be to secure a market, either in affordability or in the benefit it offers the buyer.  The result is that prices will naturally lower or multiple businesses succeed because each consumer gets to choose based on what they value most.  You get to buy your peanut butter because it is cheap, organic, already mixed with grape jelly or lower in sodium. We like our PB&J even if most Europeans will never understand the appeal.

Sure, we’ve suffered some problematic consolidation and not all those brands on the shelf are really different companies. Competition will always mean there is potential for some people to win big while others lose.  If a product captures the largest percentage of a market it can quickly push out the competition, essentially monopolizing an industry. When that happens we lose the very component that led to lower prices and variety.  

Many countries favor regulated industry models for exactly this reason.  Regulation can protect consumers from price fixing or price volatility.  The cost of goods remains relatively stable, even if they are higher than global averages.  The model is great for essentials like water, electricity, and even pharmaceuticals, but less ideal if we go back to our peanut butter selection, clothing or technology. 

Americans shop for an affordable health insurance option because our model allows for companies to compete for consumers while Europeans pay a predetermined income tax percentage that contributes to universally affordable health care. We pay a lot more for health insurance in the U.S. than Europeans do.  But, our groceries, clothing, vehicles and electronics all cost much less than they do in the EU.  

These trade-offs make it difficult to say one living standard is altogether better than another.  The viral reactions from visitors served as an unexpected reminder that what Americans often take for granted is, in many parts of the world, far from ordinary. Every economy involves trade-offs and hosting the World Cup was a unique opportunity for Americans and our guests to gain a better understanding of these trade-offs.