Home Depot, Amazon, Walmart and UPS or FEMA: Who Is the Real Cavalry?

August 31, 2011

On Tuesday morning, Jim Cantore of the Weather Channel was reporting on the devastation to Vermont from Hurricane Irene. He ended his report by saying the cavalry is finally on its way in the form of thirty large FEMA (Federal Emergency Management Agency) trucks with food, water, and generators.

Indeed, parts of New England have suffered from devastating floods, and some families have lost their homes. But who is the real cavalry? Are Vermonters really dependent on FEMA for food and water? (Notice, that not FEMA but the Vermont National Guard is flying helicopters into towns stranded by washed-out roads.)

Last Wednesday the news reports about Hurricane Irene became very alarming. The potential devastation from the storm over a wide area was terrifying. Living in a sparsely populated rural area as I do, I understood that if our power went out, along with millions of others, we would likely be at the end of the queue for power restoration. My family was simply not prepared for a power outage that had the potential to last for a week or two.

So, on Wednesday, the first thing I did was shop at Amazon. I’m an Amazon Prime customer and anything I ordered would arrive by Friday at no shipping charge. I ordered LED lanterns, a portable battery powered phone charger, cases of canned, natural foods, and five gallon water containers. (We are on well water; if the power goes out we have no water pump.)  This bounty was available at prices equal to or less than the prices in retail stores.

On Thursday, I shopped at Walmart, loading our van with ten cases of water and an ample supply of batteries. No one had to tell the Walmart team that batteries and water were going to be in demand. I could hear the walkie-talkies of Walmart associates crackle as they diligently worked to place supplies strategically all over the store.

On Friday, UPS arrived and unloaded all of my Amazon merchandise. My wife and I then turned our attention to securing our property. Fortunately, we suffered nothing more than a 24-hour power outage, tree damage, and erosion as fast flowing water washed over the road and found its channel in our yard.

It was not just Walmart, Amazon, and UPS that worked heroically to prepare Americans for Irene. Watch this short video about Home Depot’s command center as they stocked their stores in preparation. Indeed, all through New England, Walmart and Home Depot stores were fully stocked and ready sources of needed supplies. Admittedly, this is small comfort to those who suffered the biggest losses; but FEMA has already announced that it has no available funds for rebuilding flooded roads, damaged schools, etc.

To those who believe that government is the entity that will solve their problems, it is counterintuitive that, compared to FEMA,  Walmart, Home Depot, Amazon and UPS do a better job in preparing for a disaster as well as the aftermath of a disaster. Walmart, Home Depot, Amazon, and UPS are driven by profits, while it is said that FEMA employees are motivated by public service. Some might reason that those motivated by public service must be more caring and responsive than those motivated by profits.

Indeed, many FEMA employees may be motivated to serve their fellow Americans; but clearly, others among FEMA’s ranks are not. They are motivated by career advancement, power, and money. The image of the incompetent and shallow Michael Brown, director of FEMA, bumbling during Hurricane Katrina is a lasting one.

But can any director of FEMA be competent? Of course, a person in that position may be competent and caring. But, even then, would he or she be have the motivation, knowledge, or capacity to balance all of the competing human needs that arise in face of a disaster?

During the Nazi siege of Leningrad, the population of the city endured hell on earth. In 1941, as the Nazi’s closed their circle around the city, what did Communist Party chief of the city, Andrei Zhdanov, do? Did he work tirelessly around the clock to bring in needed food supplies before the circle closed? No. He worked tirelessly around the clock to arrest “spys.” A spy was defined as anyone who spoke a foreign language or had a foreign connection. Spies were often harmless senior citizens, but Zhdanov was doing the job that seemed important to him, rather than the job that was needed. And, he was very efficient at performing this terrible deed.

Admittedly, this is an extreme example; but it illustrates a point. What a bureaucracy thinks is needed and what is really needed can be two different things. In contrast, the goal of earning profits in a competitive market is what compels Walmart, Home Depot, Amazon, and UPS to deploy the energy of their employees towards what is really needed. Walmart, Home Depot, Amazon, and UPS earn money only when customers voluntarily purchase goods and services from them. Thus, their employees are benevolent towards people they have never met because it is in the self-interest of their organizations. And, it is also true that self-interest is joined by genuine feelings of goodwill as two parties interact in non-coercive trades.

In contrast, FEMA exists in a coercive relationship with American citizens. They earn their revenue in a political way; and FEMA’s success does not depend on pleasing American citizens. Indeed, like the public school system, the more their efforts fall short or outright fail, the more FEMA can argue it needs more tax revenue.

In short, no matter how efficiently FEMA uses tax money, no matter how caring FEMA employees are as a hand out water off the back of a truck to long lines of people, because FEMA is not subject to the discipline of the market, they will never match the operational efficiency and genuine caring of the employees of Home Depot, Amazon, Walmart and UPS.

To Mr. Cantore, I say, if New Englanders were truly dependent on FEMA, the cavalry would have been too little and too late.


Once Again, Walmart Shows the Way

August 3, 2011

From June to October, the fruits and vegetables my family eats are supplied almost exclusively by a local organic farmer. His bounty is enormous; we enjoy everything from kale to blueberries, all picked the same day.

Given the climatic zone we live in, I’m under no illusions that local farming could sustain us all year round. For much of the year, our choices would be limited to stored cabbage, carrots, onions, turnips potatoes, and apples. If that sounds like the produce choices our ancestors faced a century ago, you’re right. I’m very grateful for our modern agricultural system that supplies reasonably high quality produce all year round.

At the same time, I occasionally worry about disruptions to the food supply chain as it has become far too centralized.  This centralization is due, in large part, to Federal government agricultural and water subsidies.

In recent years, consumers have become interested in locally grown food and most are not fortunate enough to live nearby an organic famer. Walmart is ready to help fill the void.

According to the Wall Street Journal, “the largest grocer in United States [Walmart] encourages its managers to buy produce grown within 450 miles of its distribution centers,” even if the locally grown produce costs more than California produce. True, Walmart is responding to shifting consumer preferences, but also, the big box giant has determined that locally grown produce reduces spoilage and saves on transportation costs.

Notice there was no government commission necessary to encourage Walmart to switch to locally grown produce. Congress is not subsidizing Walmart to switch to a locally grown produce. Walmart, motivated to serve the best interests of its consumers, has begun to switch quietly and efficiently.

Of course, in the eyes of many, Walmart can do nothing right; critics insist that Walmart is simply recognizing a marketing opportunity rather than doing anything different.  If you are a Walmart cynic or a Walmart basher, you might find Corby Kummer’s piece in The Atlantic to be an eye-opener: The Great Grocery Smackdown: Will Walmart, not Whole Foods, Save Small Farms and Make U.S. Healthy? Here is an excerpt:

Buy my food at Walmart? No thanks. Until recently, I had been to exactly one Walmart in my life, at the insistence of a friend I was visiting in Natchez, Mississippi, about 10 years ago. It was one of the sights, she said. Up and down the aisles we went, properly impressed by the endless rows and endless abundance. Not the produce section. I saw rows of prepackaged, plastic-trapped fruits and vegetables. I would never think of shopping there.

Not even if I could get environmentally correct food. Walmart’s move into organics was then getting under way, but it just seemed cynical — a way to grab market share while driving small stores and farmers out of business. Then, last year, the market for organic milk started to go down along with the economy, and dairy farmers in Vermont and other states, who had made big investments in organic certification, began losing contracts and selling their farms. A guaranteed large buyer of organic milk began to look more attractive. And friends started telling me I needed to look seriously at Walmart’s efforts to sell sustainably raised food.

Really? Wasn’t this greenwashing? I called Charles Fishman, the author of The Wal-Mart Effect, which entertainingly documents the market-changing (and company-destroying) effects of Walmart’s decisions. He reiterated that whatever Walmart decides to do has large repercussions — and told me that what it had decided to do since my Natchez foray was to compete with high-end supermarkets. “You won’t recognize the grocery section of a supercenter,” he said. He ordered me to get in my car and find one.

Indeed, if locally grown and organic food is to reach those struggling on a tight budget, it will be Walmart, not Whole Foods, that shows the way.

Consider, too, Walmart’s low prices on clothing. All over the country this fall, children of families who are financially strapped will go off to school with clean, new, inexpensive clothes purchased from Walmart. And if you think this is trivial, put yourself in the place of parents working hard to feed and clothe their children. The savings Walmart provides over department store clothes is enormous; and for some children, it’s the difference between being adequately clothed and being teased or bullied for being shabbily dressed. It is Walmart, not its critics, who is clothing these children at risk.

Next, consider Walmart’s employment practices. Contrary to popular belief, Walmart raises the wages of low skilled workers. Why?  When Walmart comes to town, it is an instant source of demand for workers who have minimal skills. Far more jobs are created then are lost for these workers; and since Walmart increases demand for these workers, wages go up too. Again, it is Walmart, not its critics, who employs those workers who have few other employment opportunities.

If that was all Walmart did, well, we would have much for which to be grateful. But perhaps the most important thing that Walmart does well is to be one of the biggest instruments of peace in the world. While governments build armaments and start wars, Walmart trades and buys goods from all over the world. In the process of buying goods from all over the world, Walmart creates employment opportunities and helps grow wealth in previously impoverished countries. Nations with fast growing economies have little incentive to wage war, especially with their trading partners.

This blog piece may be ludicrous to many who claim to fight for the social good and whose heroes are in Congress and in academia. To them, Walmart is a terrible scourge. Reality points us in another direction—but the reality of the marketplace means little to those who think our salvation lies in centrally-planned solutions to our very real economic problems.

The False Friends of Walmart Workers

May 12, 2011

No, this news story did not appear in The Onion: In the city of Newport Beach, California, “of the 14 full-time lifeguards, 13 collected more than $120,000 in total compensation; one lifeguard collected $98,160.65. More than half the lifeguards collected more than $150,000 for 2010 with the two highest-paid collecting $211,451 and $203,481 in total compensation respectively.”  The story goes on to report about a recently retired lifeguard who at age 51, receives a government retirement check of over $108,000 per year for the rest of his life. After thirty years of employment, lifeguards are eligible to retire at 90% of their salary as early as the age of 50.

Brent Jacobsen, president of the Lifeguard Management Association, defended the lifeguard pay as “very fair and very reasonable” and “well within the norm of other city employees.”

Those readers who commented at The Orange County Register newspaper were mostly outraged, but there were dissenters. One reader wrote, “I say, well done to any lifeguard who earned that money. I saw one of these lifers and his team rescue three kids off seal rock in Laguna. Amazing. Worth every penny.” And another added, “Personally, I think they should be paid more, and they should be able to charge each idiot they rescue 25% of their future life earnings.”

Worth every penny? Most readers reacted viscerally to the news of the salaries; they understood that the wages of those with enough political connections to receive a plum lifeguard job are determined by political forces while their own wages are determined by market forces. At a fraction of the current pay, the county could attract many well-qualified lifeguards. Orange County’s median household income is $71,735. Politicians and their appointees determine political wages that bear no resemblance to market wages and are subsidized by the taxpayer. Clearly those earning a market wage for their labor are subsidizing those earning a political wage.

Taxpaying Walmart workers in Orange County are among those subsidizing the lifeguards. If you visit the website  of the Labor Center at the University of California, Berkley, you will find plenty of studies in support of unionized workers as well as studies on the wages of Walmart employees.

A recent study at the Center proposes a solution for low paid Walmart workers: a higher hourly minimum wage of $12 mandated for Walmart and other big box retailers. Ariel Schwartz of Fast Company chimed in in support of the idea, explaining that “chronically underpaid people around the country could benefit.”

Ken Jacobs, Dave Graham-Squire, and Stephanie Luce are the co-authors of the Berkley study. They assure us that the higher wages paid by Walmart would have a minimal effect on prices paid by Walmart shoppers. Further, they forecast the higher wages would have a minimal effect on Walmart since their competitors, other big-box retailers, would also be forced to pay the higher minimum age.

Allow me to pose some questions to Jacobs, Graham-Squire, and Luce:

  • Why stop at $12 an hour? That too is a meager wage in today’s world. Why not increase the minimum wage to $20 an hour?
  • As public employees, could you and your colleagues at Berkley afford to make a little less and send the proceeds from your salary reductions to Walmart workers? Since you assure us that shoppers will not notice higher prices at Walmart, perhaps you will not notice your slightly lower salary either?
  • And the most important question I would ask Jacobs, Graham-Squire, and Luce is, How do you justify using the tax system to force Walmart workers to help pay outrageous political wages for lifeguards and other public employees?

Walmart workers are no more “chronically underpaid” than are Orange County lifeguard salaries are “very fair.” Walmart workers are often workers with few skills. Walmart and other big box retailers actually increase the demand for unskilled labor. Their competition for unskilled workers helps to increase the salaries for unskilled labor.

Our hearts go out to unskilled workers, and there is no reason to doubt the sincerity of many people who passionately care about those who struggle to get by. Yet, a history lesson is in order. In real terms, the unskilled worker of the 19th century earned a fraction of what an unskilled worker earns today. The truth is that if a century ago employers had been forced to pay above market wages for unskilled labor, workers would have been forced out of jobs and possibly into starvation. A century ago, there was no Berkeley Labor Center, and yet, wages for unskilled laborers have risen dramatically.

The happy day will come when—in a wealthier world—workers with few skills will earn, in real terms, salaries of $20 an hour or more. That wealthier world will be generated by entrepreneurs whose future innovations will increase the productivity of unskilled labor and make the world better for us all. Academics like those at the UC Berkeley Labor Center interfere with that entrepreneurial process. The policies they advocate make the world poorer in many ways, not the least of which is by justifying political wages. The supply of capital that fuels the innovations that raise market wages is diminished by money spent to subsidize political wages. Advocates for political wages are wolves in sheep’s clothing and are no friends of Walmart workers.

Things Are Not So Lovely Here

December 2, 2008

In 1908, when she was a young teenager, Anna Freud and her father Sigmund went for a walk in an upper class neighborhood in Vienna. Sigmund Freud said to his daughter, “You see those lovely houses with their lovely façades. Things are not necessarily so lovely behind the façades. And so it is with human beings too.”

Consider these two events this past week: The trampling of a Wal-Mart employee on Long Island and Robert Rubin’s defense of his record at Citicorp. On the surface, these events would seem to have nothing to do with each other. The shoppers at Wal-Mart were rightfully labeled as “savages” as they viciously trampled a 34 year-old employee while rushing the entrance on the Friday after Thanksgiving. So frenzied were the shoppers that they tore the doors off their hinges as they entered the store at 5 a.m. When I first heard the story, I hoped I was reading something from a satirical website; tragically, this wasn’t the case.

After the tragic death in Wal-Mart, police and Wal-Mart employees tried to clear the store. Shoppers initially refused to leave. As they did leave, they were screaming, “I’ve been on line since yesterday morning.” It is easy enough to be appalled at such behavior, but we should be equally appalled at Robert Rubin’s behavior.

Robert Rubin, who has been called by former President Clinton the “greatest secretary of the Treasury since Alexander Hamilton,” has received bi-partisan acclaim as one of America’s best “public servants.” (If you read Thomas DiLorenzo’s new book Hamilton’s Curse you will see that Clinton’s comment is not exactly high praise.) Currently, Rubin is a director and senior advisor at Citicorp. Rubin probably never shops at Wal-Mart; and no doubt, he would never engage in a shopping stampede. He doesn’t have to. Citicorp has paid him $115 million in pay since 1999 for sitting on the board of Citicorp and being an “advisor.”

Yes, Robert Rubin has a lovelier façade than the Wal-Mart shoppers, but let’s open the door and look in on Rubin’s “house.” The sad truth is that stripped of his lovely façade—his station in life, if you may—Robert Rubin has not behaved differently than the shoppers at Wal-Mart. Both deny responsibility and treat other people as objects that are in the way of getting what they so rightly deserve.

Robert Rubin justified his huge salary by bragging, “I bet there’s not a single year where I couldn’t have gone somewhere else and made more.” Made more for doing what? Rubin was not responsible for operating any of Citicorp’s businesses; “he told colleagues he wanted more time for activities such as fly fishing.”

Then why would Citicorp want to pay him such sums for doing very little? Was he paid because of his expertise or his brilliant forecasting ability? Again no. About the sub-prime mortgage meltdown, Rubin claims, “There was virtually nobody who saw that low-probability event as a possibility.” Rubin is either ignorant or a liar. Many, including myself, forecasted this meltdown which, rather than being unlikely, was almost a certain event.

Even today, Rubin is unrepentant about his role in Citicorp’s decisions to allocate more of its resources to risky assets saying that they could have been successful if they had had “the right people, the right oversight, the right technology.”

This is complete nonsense. Every year, unprepared hikers in the White Mountains of New Hampshire, ill-equipped to hike given the weather conditions, put the lives of rescuers in danger. For such hikers to argue that their hike would have gone alright if it hadn’t snowed is about is disingenuous as Rubin claiming that Citicorp would have been successful, despite their irresponsible decisions, if they had the “right people.” Hiking up Mt. Washington (only Mt. Everest has claimed more lives) in a blizzard and expecting rescuers to come and save you is as irresponsible and cruel as Rubin’s Citicorp investing in toxic junk and then expecting the taxpayer to pick up the tab. Incidentally, while Citicorp gets bailed out by the taxpayer, New Hampshire sends the rescue bills to the irresponsible hikers.

So why did Citicorp pay Rubin $115 billion dollars? In the words of The Wall Street Journal Rubin is an “uberfixer”—a powerful Washington insider. The Journal reminds us that “Rubin tried to use political muscle to prop up Enron, a valued Citi client. Mr. Rubin asked a Treasury official to lean on credit-rating agencies to maintain a more positive rating than Enron deserved.”

In a free-market, there would be no jobs for deal-makers with Washington connections; Washington connections would be worthless. Rubin was overpaid by $115 million dollars; his real value was zero. As for the stampeding shoppers at Wal-Mart, they killed someone trying to score a big screen television at a bargain price. Before our unfolding economic calamity is over, the actions of the Rubins of the world will cost far more lives than the stampede at Wal-Mart. How? A depression means more malnourished children, more crime, and untold human suffering. Because of his “lovely” façade, none of these victims will ever be traced directly to Robert Rubin.

Am I being too harsh on Robert Rubin? Robert Rubin has become very rich profiting off his political connections. His actions are generated from the same egoic mindset that puts a big screen television above a human life. Let’s make no mistake, Robert Rubin should be held in the same contempt as the stampeding shoppers at Wal-Mart.

The False Face of Innocence

July 30, 2008

Before the current economic crisis is over, Ben Bernanke is likely to become one of the most reviled figures in American history. Bernanke’s popularity meltdown is still in the future, and a future administration may well encourage Bernanke to resign before his term expires.

None of this future scorn heaped upon Bernanke will be justified. No, Bernanke is not doing a good job; he should be held accountable for his failures. Yet, if Ben Bernanke was removed from office today, nothing would change. The nature of the problems we face will not change until the systemic conditions that created the problems change. And the systemic conditions that we face are a function of our, not so easily changed, collective beliefs.

A Course in Miracles, a modern statement of the perennial spiritual wisdom, cautions, “Beware of the temptation to perceive yourself unfairly treated.”

The Course goes on to say this about how every ego sees the world:

He is the victim of this “something else,” a thing outside himself, for which he has no reason to be held responsible. He must be innocent because he knows not what he does, but what is done to him. And he cannot escape because its source is seen outside himself.

Now you are being shown you can escape. All that is needed is that you look upon the problem as it is, and not the way you have set it up. How could there be another way to solve a problem that is very simple, but has been obscured by heavy clouds of complication, which were made to keep the problem unresolved?

As a society, we absolutely refuse to “look upon the problem as it is.” The “heavy clouds of complication” are our false beliefs that keep our problems unresolved.

When hurricane Katrina struck, the press and the public were quick to be outraged over Michael Brown’s poor performance as the director of FEMA. To this day, there is little reflection on the basic fact of life that a government bureaucracy is incapable of being a nimble, responsive agency. Those who rise to the top of these agencies rise because of their political connections and not because of their competence. The bureaucracy itself is by nature more interested in serving itself than in serving the public. And so in the case of Katrina, church groups and the Red Cross were far more responsive to the disaster than the government ever was.

If you ever played a sport on a team that lacked mature coaching and whose players were immature, the experience was painful. That team would look for scapegoats and would heap scorn on the player who had a poor performance in a clutch situation. Collectively, we are like drunken sports fans who seek to find one scapegoat rather than reflect on the deeper causes behind poor performances.

Similarly, day after day, pundits tell us that our problems can be solved by somehow stabilizing housing prices or forcing them up again. We are told that those who bought houses that they could not afford are victims. We are told that those who spent their home equity on new SUVs and vacations deserve bailouts. We are told that Wall Street and banks should be insulated from losses. We are told that we should elect a candidate who is illiterate about economics and has no record of accomplishing anything, because he acts presidential and promises hope. We are told that the same government that gave us the disaster of ethanol, can better figure out what will replace fossil fuels than can entrepreneurs. We are told by politicians who place their children in private schools that school choice is a bad thing. We are told that corporations like Wal-Mart, which make the lives of hundreds of millions better off, are evil; and that politicians who create problems and enrich themselves in the process are dedicated public servants.

And because much of the public believes some or all of the above, there is no way out of our current economic crisis. To be precise, there are ways out—just none that the public will consider. The public clearly would like to go on believing, until it no longer can, that it is the innocent victim of a bad economy of which it has no part in creating. And the other belief that goes with claiming innocence, is the belief that politicians who promise more of the same will provide a miracle solution that involves something other than our collective change of heart.

In their insightful and illuminating book Mobs, Messiahs and Markets William Bonner and Lila Rajiva observe:

If there is one thing we know about the sentiment of crowds, it is that they change. Today it is greed. Tomorrow it is fear. But rarely is it doubt. So when mass sentiment goes negative, it goes completely negative. People stop worrying about the return on their money and begin to be concerned about the return of their money.

It has been a long time since that sort of fiery comet has come around and people have forgotten the sense of awe and dread it inspires, as it announced the end of the world. They can’t quite imagine what that may be like. They will have to see it again for themselves. It is only a matter of time.

Even a cursory study of history reveals that most people who have ever walked this earth have experienced that “fiery comet.” Like Americans today most falsely proclaimed themselves as innocent. And like everyone who proclaims themselves as innocent we will seek for those to blame—foreign and domestic enemies that help bury our collective refusal to examine our false beliefs.

New York City Shuts the Door on Wal-Mart

March 28, 2007

I grew up in New York City in a family of very modest means. When I left NYC to go to graduate school in 1971, one thing was immediately apparent – if you were of modest means NYC was a much better place to visit then it was to live in. My standard of living rose dramatically as soon as I left NYC.

There are many reasons for this, but one that should not be overlooked is that the cost of doing business is so high in NYC that shopping opportunities commonly available in other places are not available in NYC. One such shopping opportunity is Wal-Mart.

Now if you are hedge fund manger making a seven figure salary, Wal-Mart may not seem like much of a shopping opportunity; but if you are family of four struggling to get buy on a household income of $40,000 annually, the low prices at Wal-Mart are a necessity to a decent quality of life.

It is thus with sadness for these struggling families that I read this Reuters’ dispatch today: ” Frustrated by a bruising, and so far unsuccessful battle to open its first discount store in New York City, Wal-Mart Stores Inc.’s chief executive said, ‘I don’t care if we are ever here.’ H. Lee Scott Jr., the chief executive of the nation’s largest retailer, said at a meeting with editors and reporters of The New York Times that trying to conduct business in the U.S.’s largest city was so expensive — and exasperating — that ‘I don’t think it’s worth the effort.'”

It is fashionable to bash Wal-Mart, but before we do let us consider the impact of doing so on the less fortunate segments of society. Sam Walton the founder of Wal-Mart was a frugal man who saw a larger purpose for his business. Wal-Mart buyers are notorious for driving a hard bargain with suppliers but they are simply carrying out Walton’s mandate to serve the consumer: “You’re not negotiating for Wal-Mart, you are negotiating for the customer. And your customer deserves the best price you can get.”

Competition fueled by entrepreneurial activity has been a tool of growth and prosperity in the United States for centuries. The attack on Wal-Mart in recent years is a symbol of the lack of understanding of this source of prosperity. All of us, even those who don’t shop at Wal-Mart, will bear the future consequences of this lack of understanding.


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