12.16.2005

the krugman report

Well, I didn't get sick, or not sick enough to need a doctor, so I don't have a report on a walk-in clinic. In fact, I don't have a report on anything today. Cody woke me up late (we've got to re-set that dog's internal clock!), and I must get to the pool before Allan needs the car for work. So I'm taking the lazy way out this morning, letting Paul Krugman do my work for me.

Here are two of his recent columns, now accessible only through the Times's pay service, reprinted here in their entirety. (Freelancers hate the New York Times and their anti-writer policies. Any excuse to subert them.)

Here's Krugman on two of my favorite topics: Wal-Mart, and Iraq New Orleans. Please read and discuss - the columns, or anything else.
The Promiser in Chief
By Paul Krugman
December 9, 2005

Sometimes reconstruction delayed is reconstruction denied.

A few months after the invasion of Iraq, President Bush promised to rebuild Iraq's infrastructure and economy. He -- or, at any rate, his speechwriters -- understood that reconstruction was important not just for its own sake, but as a way to deprive the growing insurgency of support. In October 2003 he declared that "the more electricity is available, the more jobs are available, the more kids that are going to school, the more desperate these killers become."

But for a long time, Iraqi reconstruction was more of a public relations exercise than a real effort. Remember when visiting congressmen were taken on tours of newly painted schools?

Both supporters and opponents of the war now argue that by moving so slowly on reconstruction, the Bush administration missed a crucial window of opportunity. By the time reconstruction spending began in earnest, it was in a losing race with a deteriorating security situation.

As a result, the electricity and jobs that were supposed to make the killers desperate never arrived. Iraq produced less electricity last month than in October 2003. The Iraqi government estimates the unemployment rate at 27 percent, but the real number is probably much higher.

Now we're losing another window of opportunity for reconstruction. But this time it's at home.

Two weeks after Hurricane Katrina, Mr. Bush made an elaborately staged appearance in New Orleans, where he promised big things. "The work that has begun in the Gulf Coast region," he said, "will be one of the largest reconstruction efforts the world has ever seen."

Such an effort would be the right thing to do. We can argue about details -- about which levees should be restored and how strong to make them -- but it's clearly in the nation's interests as well as local residents' to rebuild much of the regional economy.

But Mr. Bush seems to have forgotten about his promise. More than three months after Katrina, a major reconstruction effort isn't even in the planning stage, let alone under way. "To an extent almost inconceivable a few months ago," a Los Angeles Times report about New Orleans says, "the only real actors in the rebuilding drama at the moment are the city's homeowners and business owners."

It's worth noting in passing that Mr. Bush hasn't even appointed a new team to fix the dysfunctional Federal Emergency Management Agency. Most of the agency's key positions, including the director's job -- left vacant by the departure of Michael "heck of a job" Brown -- are filled on an acting basis, by temporary place holders. The chief of staff is still a political loyalist with no prior disaster management experience.

One FEMA program has, however, been revamped. The Recovery Channel is a satellite and Internet network that used to provide practical information to disaster victims. Now it features public relations segments telling viewers what a great job FEMA and the Bush administration are doing.

But back to reconstruction. By letting the gulf region languish, Mr. Bush is allowing a window of opportunity to close, just as he did in Iraq.

To see why, you need to understand a point emphasized by that report in The Los Angeles Times: the private sector can't rebuild the region on its own. The reason goes beyond the need for flood protection and basic infrastructure, which only the government can provide. Rebuilding is also blocked by a vicious circle of uncertainty. Business owners are reluctant to return to the gulf region because they aren't sure whether their customers and workers will return, too. And families are reluctant to return because they aren't sure whether businesses will be there to provide jobs and basic amenities.

A credible reconstruction plan could turn that vicious circle into a virtuous circle, in which everyone expects a regional recovery and, by acting on that expectation, helps that recovery come to pass. But as the months go by with no plan and no money, businesses and families will make permanent decisions to relocate elsewhere, and the loss of faith in a gulf region recovery will become a self-fulfilling prophecy.

Funny, isn't it? Back during the 2000 campaign Mr. Bush promised to avoid "nation building." And so he has. He failed to rebuild Iraq because he waited too long to get started. And now he's doing the same thing here at home.

Big Box Balderdash
By Paul Krugman
December 12, 2005

I think I've just seen the worst economic argument of 2005. Given what the Bush administration tried to put over on us during its unsuccessful sales pitch for Social Security privatization, that's saying a lot.

The argument came in the course of the latest exchange between Wal-Mart and its critics. A union-supported group, Wake Up Wal-Mart, has released a TV ad accusing Wal-Mart of violating religious values, backed by a letter from religious leaders attacking the retail giant for paying low wages and offering poor benefits. The letter declares that "Jesus would not embrace Wal-Mart's values of greed and profits at any cost."

You may think that this particular campaign - which has, inevitably, been dubbed "Where would Jesus shop?" - is a bit over the top. But it's clear why those concerned about the state of American workers focus their criticism on Wal-Mart. The company isn't just America's largest private employer. It's also a symbol of the state of our economy, which delivers rising G.D.P. but stagnant or falling living standards for working Americans. For Wal-Mart is a huge and hugely profitable company that pays badly and offers minimal benefits.

Attacks on Wal-Mart have hurt its image, and perhaps even its business. The company has set up a campaign-style war room to devise responses. So how did Wal-Mart respond to this latest critique?

Wal-Mart can claim, with considerable justice, that its business practices make America as a whole richer. The fact is that Wal-Mart sells many products more cheaply than traditional stores, and that its low prices aren't solely or even mainly the result of the low wages it pays. Wal-Mart has been able to reduce prices largely because it has brought genuine technological and organizational innovation to the retail business.

It's harder for Wal-Mart to defend its pay and benefits policies. Still, the company could try to argue that despite its awesome size and market dominance it cannot defy the iron laws of supply and demand, which force it to pay low wages. (I disagree, but that's a subject for another column.)

But instead of resting its case on these honest or at least defensible answers to criticism, Wal-Mart has decided to insult our intelligence by claiming to be, of all things, an engine of job creation. Judging from its press release in response to the religious values campaign, the assertion that Wal-Mart "creates 100,000 jobs a year" is now the core of the company's public relations strategy.

It's true, of course, that the company is getting bigger every year. But adding 100,000 people to Wal-Mart's work force doesn't mean adding 100,000 jobs to the economy. On the contrary, there's every reason to believe that as Wal-Mart expands, it destroys at least as many jobs as it creates, and drives down workers' wages in the process.

Think about what happens when Wal-Mart opens a store in a previously untouched city or county. The new store takes sales away from stores that are already in the area; these stores lay off workers or even go out of business. Because Wal-Mart's big-box stores employ fewer workers per dollar of sales than the smaller stores they replace, overall retail employment surely goes down, not up, when Wal-Mart comes to town. And if the jobs lost come from employers who pay more generously than Wal-Mart does, overall wages will fall when Wal-Mart moves in.

This isn't just speculation on my part. A recent study by David Neumark of the University of California at Irvine and two associates at the Public Policy Institute of California, "The Effects of Wal-Mart on Local Labor Markets," uses sophisticated statistical analysis to estimate the effects on jobs and wages as Wal-Mart spread out from its original center in Arkansas.

The authors find that retail employment did, indeed, fall when Wal-Mart arrived in a new county. It's not clear in their data whether overall employment in a county rose or fell when a Wal-Mart store opened. But it's clear that average wages fell: "residents of local labor markets," the study reports, "earn less following the opening of Wal-Mart stores."

So Wal-Mart has chosen to defend itself with a really poor argument. If that's the best the company can come up with, it's going to keep losing the public relations war with its critics. Maybe it should consider an alternative strategy, such as paying higher wages.
Thanks, Mr Krugman! Now I'm off to swim.

3 comments:

Lone Primate said...

I spoke to someone today who was telling me about job turnover and what it costs a company in terms of training and lower customer satisfaction. He told me that Wal-mart pays workers in Canada $6/h. God only knows what the Walton family pulls down. But this man also told me that the fellow who runs Costco (whose name escapes me... help, anyone?) only makes around $300,000 a year... basically, only about 8-10 times what a Costco floorwalker, who is paid $17/h, is paid... an executive salary much more in keeping with European and Japanese models than North American ones. The turnover rate at Costco is, accordingly, reputed to be virtually subterranean; typically, the people who serve you there have often been there from the time that particular outlet opened. One more reason to patronize Costco and shun Wal-mart! This is a model we all should encourage.

L-girl said...

Girlcott!!

the fellow who runs Costco (whose name escapes me... help, anyone?) only makes around $300,000 a year...

That's Jim Sinegal. One of the good guys. Read more about his philosophy in the link above.

Ferdzy said...

I don't know about Wal-mart, having only been in it once or twice, but we shop regularly at the local Costco, and it's true about the turnover: we recognize almost all of the staff we see as having been there since the beginning.

As for Walmart, we're scrupulous about not going because of their lousy politics, but even if they were okay we wouldn't like the place or be there at all often. It struck us as crowded and badly laid out, with noticeably less attractive merchandise than, say, Zellers.