jbpeebles

Economic and political analysis-Window on culture-Media criticism

Tuesday, August 29, 2006

Savaging the Walmart Solution

I've been impressed with the staying power of anti-government rhetoric coming from the Republicans even as they achieve a fait accompli by running government with such utter incompetence. How could the Republicans lead, by using a tool--government--they hold in such scorn?

Now, on to the Libertarians, who's anti-government position the Republicans hijacked, if only in their rhetoric, as Bush-era Conservatives have hardly been conservative with our money. I recently read an article by Llewellun Rockwell on falling wages here in the US. In response to that article, I sent him the following e-mail:

Dear Mr. Rockwell,

I'm impressed with your site and appreciate the libertarian viewpoint. Although I am mostly a traditional liberal, I hold some libertarian positions: among them fiscal conservancy and the idea that business should be free of governmental intereference where possible. I do however approach the onus of government control by recognizing the natural tendency of business to profit at the expense of the environment, as well as for the owners of the means of production to maximize their return by reducing costs of labor, which naturally encourages exploitation. So in this sense I'm for environmental regulation and labor, but not much else.

Now I just read your article, "Why Are You Worse Off." I am impressed with the general thrust of your article, and am especially pleased with your ability to point out certain economic facts which appear beyond the reach of the MSM.

Some conservatives (including as always their far inferior (neo) Conservative replicators) have mentioned the benefit a Walmart brings in lowering prices. You bring up the inflation-reducing benefits of big box retailing and encourage more of the same: "These stores are a major source of American prosperity, and we need ever more of them."

I agree that lower prices brought out through the economies of scale do lower prices and inflation. However, I do not believe the trend towards lower pricing can be continued, so in a sense I see the unsustainability of the import buying spree creating a gaping liability as Americans grow dependent on overseas production for cheaper goods, and thus expose their future standard of living to the vagaries of international labor markets and exchange rates (not to mention a national defense mandate undermined by complete dependency on sourcing goods from potential enemies.)

You claim these stores are a "a major source of American prosperity" but are you aware that the Chinese Government--hardly a champion of libertarian causes--is Walmart's largest shareholder? And since when is the process of importing a satisfactory achievement for the American economy? We are a nation of importers; the sustainability of a 2 and 1/2 billion dollar a day trade deficit hardly bodes well for the value of the dollar. Should the dollar drop, and our dependency on imports becomes a liability; rather than fight off inflation, costlier imports will contribute to inflation in light of our spending addiction. (Or the lower incomes will prevent more and more consumers from enjoying the benefits of products supplied by Walmart.)

Now in the atomized view of economics you and many Libertarians apparently take, long-term and qualitative (of life) issues may be excluded because their conclusions don't jibe with a numbers-only analysis of trade and the costs of things. Also, the quantification-only approach is completely short-term; it fails to address the longer-term impacts on employment, income, and other trends.

Back to Walmart. I know the concept of any kind of zoning may appall those of your ilk, who believe that individuals should be determinants of what is done on their property without interference by governmental bodies. Now while I have no problem with a big box or two, surely anyone could see that endless sprawl is a product of uncontrolled growth.

In the sense that you ignore any negatives associated with their style of competition, you ignore the gross debasement of small town living and its vital, independently owned businesses. Many towns in New England know the consequences of opening their towns to direct competition with unregulated producers hiring at sweat shops rates not across the globe, but down the street. Walmart is thus being stopped there, not by some nefarious government, but by the people themselves, who want to preserve their heritage and not sell out to save a few bucks.

I was shocked to hear the statistics on just how many locally owned stores go out of business after a Walmart comes. Efficiencies being worked out through natural market forces you say? Well, did you know an average job at Walmart creates $4,000 in annual subsidies from government? So if the Walmartization were healthy, why would it require government help?

Why are you so convinced this type of competition is fair, much less healthy? The price-is-everything approach to economics threatens domestic business--when they closed due to competition from polluting, labor exploiting Asians companies, what do you think will happen to the prices of imports? The benefits of lower costs will in fact become huge liabilities as the costs of the goods they import rises. The Chinese are moving towards a currency float which will invariably raise prices.

Have you heard of the tragedy of the commons? An interesting concept which may not have received wide play in the hopelessly short-sighted world of maximum individual rights and limited collective responsibility.

You say that the "division of labor is globalized..." which is true, but the competition it brings may in fact need to be evaluated on 1) its longer-term viability and 2) consequences to manufacturing, employment, and wages here in the US. I agree with your statement that "this has been great for the American consumer" only if I ignore these other standards for evaluating economic improvement.

I did have some issue with your statement "...those who want to draw attention to the decline in real wages are apt to blame trade for part of the problem, rather than giving credit where it is due." Yes trade benefits Americans by providing lower prices. But an economy is more than the sum of its parts. The lower prices offered by Big Box retailers create a dependency on cheaper goods made outside our borders whose prices will rise. They drain jobs from within our border and weaken locally owned business, who contribute to their communities far more than do out-of-state companies. And their cheapness has created a drug-like spending addiction that requires financing by foreign governments, making the future stability of our economy dependent on the willingness of others to lend to us. What kind of economic growth is that?

Lastly, you talk about how the Electrical market is "heavily controlled by government...directly administered by public agencies." I guess you don't know that PUHCA (Public Utilities Holding Company Act) was gutted as a direct consequence of lobbying by Enron (which contributed over $2 million to Bush's Presidential campaigns). Well, I'm sure you know the impact of that move away from regulation: higher prices and the largest business failure on record.

I'm sorry that the Libertarian perspective can only imagine a fantasy world where businesses have total free reign and prosperity and economic improvement are the only consequences. To form a more balanced worldview, please open your eyes up to the long-term consequences (sprawl, debt, lower income) and immediate realities caused by unbridled, uncontrolled greed.

You claim "the answer to our standard-of-living woes is a radical restructuring that would make education, health care, and energy look and behave much more like retail discount stores and apparel." That would appear to me to be more of what America is looking more and more like every day. This flawed vision to turn all aspects of government services into some for-profit, serve-the-customer type approach is routinely trumped out as God's way of exposing just how kooky Libertarians are. There is no profitability in some things, and no company would ever provide those services. Look at our 35th-in-the-world healthcare for an idea of how privatization is not working. Get real and maybe we can accomplish achievable goals for the far more important vision of less and more responsible government spending.

The collapse of wages and its corollary--high quality jobs--don't bring good things only bad, yet you would wish more of this upon is, undoubtedly resulting in lower wages and more Walmart, subisdy-dependent (read tax-supported) jobs: "...what the American worker needs is more of what Wal-Mart offers and less of what the government offers." Well, Mr. Rockwell, apparently the government is offering to Wal-mart employees government money, and subsidizing the vaunted object of your affection!
End of Letter

Future Trends
We can't spend our way to economic prosperity in the long-term simply by borrowing as we are now. At a certain point we need to make and sell goods and exports. Weaker growth will lead to a weakening of our currency and higher borrowing costs, making growth harder not easier. The lower the income levels, the higher the tax rates to maintain current government spending (like Rockwell, and unlike the rhetoric of many liberals and actions of (neo-)Conservatives, I do see this as the issue.)

While lower wages might relieve inflationary pressure, the less domestic, high-quality, good-paying industries we have, the greater the threat of inflation when the imports get more expensive in dollar terms. Eventually, lower incomes may reduce demand (assuming people can't just borrow to make up any shortfalls), so in one sense less economic prosperity can help, but only in the sense things must get worse to get better. But with our unknown money supply, who knows just how much cash could come rushing in? You can't help but wonder when the liquidity bubble will burst (probably when foregin creditors--the source of the $2 1/2 billion a day--begin demanding more interest.)

1 Comments:

  • At 1:56 AM, Blogger johnbpeebles said…

    China is now the number one exporter in the world, surpassing the US! Manufacturing is a growth industry there.

    "If Chinese exports continue growing at their current pace, then Chinese manufactured exports will be more than double those of the United States in five years, {MAPI's senior fellow} Preeg points out. 'This dramatic reversal defines the bottom line challenge to U.S. export competitiveness.'"

    The Chinese are outproducing us. Foreign dependency drastically limits our ability to sustain ourselves in a time of war. We will lose whatever non-nuclear deterrence we have with our military, at least with governments who supply us--and not the puny ones, either.

    Also, the Chinese are rapidly moving into high-tech manufacturing, where rapidly cycled R&D and additional high-tech investment reap the largest return on capital.

    The Chinese know exactly what they are doing. Our leadership is ignorant or incapable of acting to save our manufacturing base. I think we need look no farther than our own factories to see the destructive impact of free trade.

    China has a $290 billion current account surplus with us. The US' trade deficit is more than $800 billion and growing, 7% of GDP.

    See the Richard McCormack article here.

    I guess the main consequences of runaway borrowing--higher interest rates and likely inflation--will be felt by all Americans, even the beloved corporations of the Right, who may have to bear higher taxes and interest rates along with the other victims of Walmartization.

    How much longer can our leaders ignore the erosion of our global competitiveness? It's simply not enough to follow the neo-conservative and libertarian position that lower costs will create some kind of utopia.

    Free markets have never achieved this level of exchange. Unfortunately for us, the dynamic has shifted into Asia's favor. We will become poorer, pay more taxes, and cope with greater unemployment as a result.

     

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