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Earl_the_Pearl
07-26-2009, 06:47 PM
Then Ford decided instead to concentrate on gas-guzzling trucks and SUV's for bigger short-term profits. That turned out to be a brilliant decision if your goal was to lose billions of dollars. Honda continued to concentrate on small and mid-size fuel efficient vehicles and continued to remain profitable.
"Helped by a lightened debt load, Ford Motor Co. posted a surprise second-quarter profit of $2.8 billion Thursday, following the worst loss in company history a year earlier. Shares gained 60 cents and closed Thursday at $6.98 per share."

threlayer
07-27-2009, 12:44 PM
Ya know, why don't we all just throw in the towel and move to China were at least $2.00/hour jobs are or soon willbe waiting for us, giving us time to learn that lanuage. Let's just sell everything and live on cheap, but unspeakably gross foods while we wait out that job.

I, for one, am just about fed up with hearing in this forum that we and the rest of the world is going to have to live at the Chinese "lowest common denominator standards" merely because they exploit cheap sweatshop labor, that that is inevitable, and that no one can do a damned thing about it but wait for it to happen. Globalized economy, baloney. It will be that way ONLY if we lay back, spread our butts, and let them rape us every which way!! Them, being the exploiters with all that lobbying expendture to make sure they get rich by stealing everything all of use have worked for all our lives. NO ONE can work smart enough or hard enough by him/herself to "earn" multi-millions of dollars/year without exploiting (with, I might add, politicians' help) hundreds and thousands of others ---- US !!

Melonie
07-27-2009, 02:14 PM
I, for one, am just about fed up with hearing in this forum that we and the rest of the world is going to have to live at the Chinese "lowest common denominator standards" merely because they exploit cheap sweatshop labor, that that is inevitable, and that no one can do a damned thing about it but wait for it to happen. Globalized economy, baloney

Well there are two available historical alternatives ... with the first being Smoot Hawley. The USA could simply impose import quotas and tariffs of such magnitude that the recent stream of foreign imports would simply stop. In turn, without lower cost imported products remaining available, the costs of food / gasoline / virtually everything would increase by 30% ... in proportion to the mandated higher labor / energy / regulatory compliance / benefit costs of doing business in the USA. This would also immediately translate into a 30% decline in disposable incomes and thus a 30% reduction in the US standard of living.

At the same time, former exporting countries would probably impose retaliatory tariffs and quotas on US products being imported into their countries. This would make a severe 'dent' in the earnings of every US multinational corporation, from Microsoft to IBM to Caterpillar to Boeing to ADM ... and probably cause the loss of large numbers of high skill level US jobs. However, by the same token, the door would be open for the 'resurrection' of US industries that long ago gave up the ship due to unmatchable foreign competition. This would probably include textiles, TV's, etc. which would create a huge number of new minimum wage jobs. Of course, all of these 'resurrected' products would probably be double the cost of the banned foreign imports in order to cover the minimum wage labor costs !

On the 'bright' side, the imposition of tariffs and quotas would definitely spur a big burst of domestic oil drilling and refining ... because Americans will never go back to the de-facto 'gas rationing' of the 1970's when foreign suppliers stopped shipping imported oil to America ( leaving domestic supplies well below levels of domestic demand).

The second historical alternative is to start World War 3. As a result, China's factories could be destroyed in the same way that European and Asian factories were destroyed during WW2 - leaving the US as the only remaining global source for certain products. This US dominance of workable manufacturing capacity was responsible for 20 years worth of US economic dominance from 1945 to about 1965 ... at which point the first low cost imports (i.e. Volkswagen, Honda, Sony, Panasonic et al) started to erode the pricing power and market share of US competitors.

threlayer
07-27-2009, 08:15 PM
I'm guessing that a little more imagination might produce results that are a little less catastrophic. Maybe something along the lines of trying import quotas to environmental performance, worker benefits, import/export level parity etc. Or something, hopefully, better than that. This is like begging Iran not to use nukes on us because it would not be 'polite' for us to bomb the Hell out of them.

eagle2
07-27-2009, 09:15 PM
Well there are two available historical alternatives ... with the first being Smoot Hawley. The USA could simply impose import quotas and tariffs of such magnitude that the recent stream of foreign imports would simply stop. In turn, without lower cost imported products remaining available, the costs of food / gasoline / virtually everything would increase by 30% ... in proportion to the mandated higher labor / energy / regulatory compliance / benefit costs of doing business in the USA. This would also immediately translate into a 30% decline in disposable incomes and thus a 30% reduction in the US standard of living.

At the same time, former exporting countries would probably impose retaliatory tariffs and quotas on US products being imported into their countries. This would make a severe 'dent' in the earnings of every US multinational corporation, from Microsoft to IBM to Caterpillar to Boeing to ADM ... and probably cause the loss of large numbers of high skill level US jobs. However, by the same token, the door would be open for the 'resurrection' of US industries that long ago gave up the ship due to unmatchable foreign competition. This would probably include textiles, TV's, etc. which would create a huge number of new minimum wage jobs. Of course, all of these 'resurrected' products would probably be double the cost of the banned foreign imports in order to cover the minimum wage labor costs !

On the 'bright' side, the imposition of tariffs and quotas would definitely spur a big burst of domestic oil drilling and refining ... because Americans will never go back to the de-facto 'gas rationing' of the 1970's when foreign suppliers stopped shipping imported oil to America ( leaving domestic supplies well below levels of domestic demand).

The second historical alternative is to start World War 3. As a result, China's factories could be destroyed in the same way that European and Asian factories were destroyed during WW2 - leaving the US as the only remaining global source for certain products. This US dominance of workable manufacturing capacity was responsible for 20 years worth of US economic dominance from 1945 to about 1965 ... at which point the first low cost imports (i.e. Volkswagen, Honda, Sony, Panasonic et al) started to erode the pricing power and market share of US competitors.

Again you're making things up with no basis. There are plenty of industries where the US is a world leader or very competitive. Your own statement contradicts itself when you refer to products being exported by US multinational corporations, "from Microsoft to IBM to Caterpillar to Boeing to ADM".

Your statements are based 100 percent on ideology and zero percent on facts. You seem to think that everything in business revolves around how low wages are and how much industries are allowed to pollute. You completely ignore such factors as the quality of products, the skills and experience required to produce products, the amount of labor vs. capital vs. raw materials needed to produce products, the cost of transporting products, the fact that current wage rates do not last forever. China is not always going to be a low wage country just like Japan and Singapore were not.

While the US will probably never again be as dominant of an industrial power as we were in the 1950's, we will continue to be a major economic power for years to come.

miabella
07-28-2009, 05:43 AM
in the long term, mel is more right than the rest of y'all. when all countries are competing (our current global scenario), first worlders will either end up making 2 bucks an hour with 2nd and 3rd worlders, or 15% of all people everywhere will make high union-worker pay while governments try to persuade them to spend 85% of that high union pay on the remaining 85% jobless, globally.

we can't all actually make 20 bucks an hour. either a few of us do or everyone makes 2-3 bucks an hour eventually. you can't actually persuade consumers that paying extra for literally no reason at all is worth it in the long term.

Deogol
07-28-2009, 06:44 AM
NO ONE can work smart enough or hard enough by him/herself to "earn" multi-millions of dollars/year without exploiting (with, I might add, politicians' help) hundreds and thousands of others ---- US !!

So you believe it is a zero sum situation. For some to succeed, others must fail?

threlayer
07-28-2009, 09:55 AM
So you believe it is a zero sum situation. For some to succeed, others must fail?

Not so. Theoretically it is possible that many will gain unless the game is 'stacked.'

By the way, the game is always stacked.

threlayer
07-28-2009, 10:06 AM
in the long term, mel is more right than the rest of y'all. when all countries are competing (our current global scenario), first worlders will either end up making 2 bucks an hour with 2nd and 3rd worlders, or 15% of all people everywhere will make high union-worker pay while governments try to persuade them to spend 85% of that high union pay on the remaining 85% jobless, globally.
Smarter congresses / excutives can come up with plans that provide worker incentives and at the same time provide productive jobs. There is much to do. Giving away so much to so many just hurts the rest of us. So give away less and find a smart way for businesses to provide jobs.


we can't all actually make 20 bucks an hour. either a few of us do or everyone makes 2-3 bucks an hour eventually. you can't actually persuade consumers that paying extra for literally no reason at all is worth it in the long term.
Much like we can't all win in the stock market. If everyone took profits at once, from whom would they take them? Still after all the taxes, inflation, welfare, etc. We have a better life than we did before taxes and welfare. Just that ther may not be as many billionaires as before.

miabella
07-29-2009, 01:45 AM
Smarter congresses / excutives can come up with plans that provide worker incentives and at the same time provide productive jobs. There is much to do. Giving away so much to so many just hurts the rest of us. So give away less and find a smart way for businesses to provide jobs.


Much like we can't all win in the stock market. If everyone took profits at once, from whom would they take them? Still after all the taxes, inflation, welfare, etc. We have a better life than we did before taxes and welfare. Just that ther may not be as many billionaires as before.

politicians are power-mad. most of them are of average intelligence. some smart people seek power at any price, but it is not a norm the more intelligent you are. so no, magical technocrats are not the answer.

we cannot all actually live in a fairy paradise where everyone makes 20$/hr, has the living standard of an american in the midwest making 50k per year now, and there is full employment and full health care and retirement at 20$/hr for all. humans don't work that way, otherwise it would already have occurred.

people really do not understand what it means that the entire planet is competing for resources and income access that used to be limited to people in a few countries.

by your logic, stripclub owners should all be gentlemen who pay the dancers 200$/shift, and VIP should be fully clothed, conversation only for 2000/hr and every night there should be 10 customers per dancer to pay it. I mean, since so many women increasingly want to be strippers, why can't club owners and customers just make sure they make piles and piles of money, regardless of what these extra dancers look like or how they hustle or even how darned many there are?

there is no REASON to make this happen when dancers will pay a fee to work in the building. correspondingly, there is no REASON to give the entire world a coke and a hundred dollar bill since some people can and will work for less per hour and save money and acquire wealth anyway.

if humans didn't comply with being exploited because sometimes you can make it really work out for yourself, we'd already be living in a paradise of peace and plenty for all.

Melonie
07-30-2009, 03:43 AM
people really do not understand what it means that the entire planet is competing for resources and income access that used to be limited to people in a few countries.

This is precisely the point at the root of the minimum wage argument specifically, and the profitability of American businesses in general. To really understand this point, you have to look at how 'value' is actually created. You can A. extract 'value' from the ground, via mining or oil drilling or farming. Or you can B. create additional 'value' by combining raw materials into a useful manufactured product / tangible asset. But providing a service does not create additional 'value' unless that service directly contributes to an increase in A. or B. In the absence of A. or B. providing services merely shuffles money from one person / business to another without any additional 'value' being created.

For a variety of reasons, America's economy has gradually divested itself of A. and B. As a result, America's economy is now very heavily dependent on providing services ... and most of those services do not actually create additional 'value'. But this has created a problem in that consumption is always taking place, thus additional 'value' needs to be created somewhere in order to balance out consumption. Because America has divested itself of A. and B., for many years the American economy has been running a 'value' deficit. In simplest terms, America was able to continue running a 'value' deficit by liquidating tangible assets, and by borrowing from others who were actually creating more 'value' than they were consuming i.e. the Chinese, the Japanese etc. Arguably one of the worst 'value' deficit creations occurs in areas such as forcing businesses to pay a minimum wage which is now 3-4 times the global average for unskilled labor. Large 'value' deficit creations also result from most 'service' workers ( whose 'services' are not related to A. or B.), with the most serious of these being gov't employees.

Well the point has come where the Chinese etc. are becoming increasingly reluctant to loan America any more of their 'value' surplus, where lots of tangible US assets have already been liquidated, and where increasing the 'value' deficit to ever deeper depths can no longer continue. Thus continuing to allow a 'value' deficit to exist in the form of a high minimum wage ( and in all other forms as well) will require that actual 'value' being created by some American businesses and individuals must be 'confiscated' and 'transferred' to other American businesses and individuals, because it can no longer be borrowed from foreign lenders.

This will soon become apparent to middle class Americans as state / local tax increases and price increases required to fund the 'value' deficit situations hit their discretionary budgets hard i.e. a forced reduction in their consumption / standard of living ! When this 'sinks in', it will probably result in a major 'rethinking' of continued 'confiscation' from those who actually create 'value' in excess of their consumption, and the continued 'transfer' to those that do not !

~

threlayer
07-30-2009, 11:17 AM
^^ Two comments. First, where in A or B does healthcare fall? I'm saying that there is another category, C, which is demanded by humans, but that does not contribute to A or B except by the fact that humans exist to do A and B. Humans demand, and work for, more than food, shelter, and implements. Thus C has value also.

Second, though A and B are dwindling, the US still does a significant amount of A and B, moreso than almost all of the other countries of the world. you are being far too pessimistic about the present. The future----you have some good points unless something changes

Further...
The reality worldwide is that those who have the most money are well able to control who else has any money. If poor people didn't further enrich the rich, they would be "regulated" out of existence. "Absolute power corrupts absolutely." "Those who have the gold make the rules."

Melonie
07-30-2009, 12:46 PM
^^^ from the standpoint of cold, hard, global economic analysis, health care does NOT create additional 'value'. Yes in the USA and EU, employees working for companies that actually create 'value' that are receiving good health care are supposedly more productive than those who do not. But from a global standpoint, as long as there are unemployed job applicants, there will always be a healthy worker available to replace a seriously sick worker.

Thus in simplest terms (some portion of) the costs of (mandatory) health care are 'confiscated' from companies and individuals that actually create 'value'. Here I'm thinking mandatory medicare taxes, mandatory workers' comp premiums, union mandated health insurance coverage, some portion of income taxes used to pay for medicaid etc. In turn this money is 'transferred' to health care providers who do not produce one iota of additional 'value' as measured in terms of tangible assets. Thus while health care may be of great personal value, it creates no tangible 'value'.

As to your other claim that significant amounts of A. and B. based 'value' creators are still located in the USA, you certainly haven't seen recent reports. According to the US Dep't of Commerce, the 'service sector's' share of the US economy has now risen to 80 percent, and the 'service sector' now employs 85% of non-farm US workers !!! See . The USA has been running a steadily deepening 'deficit' in the creation of 'value' for many years now as the result of disincentivizing A. and B. and filling the gap with 'service sector' companies / jobs. It just hasn't been adequately acknowledged because, until recently, it was possible ( and arguably very easy ) for the USA to 'borrow' ever larger amounts from foreign lenders in order to continue to bridge the 'value' creation gap.

When those foreign lenders seriously start to balk at making additional 'loans' ( actually US treasury bond purchases / state muni bond purchases ), the resulting necessity of America / US States being forced to balance total created 'value' versus total consumption won't be postponable any longer. As is arguably already the case in California, the 'value' creation gap must then be closed either by increased 'confiscations' or by reduced consumption or both !

~

Deogol
07-30-2009, 01:05 PM
^^^ That's pushing it even by my standards LOL

It has been shown health care increases productivity.

Melonie
07-30-2009, 01:18 PM
^^^ not in China it doesn't, since unskilled Chinese workers basically do not have meaningful health care !

(snip)"the [ Chinese - sic ] government provides the equivalent of $2.50 a year to help cover a basic insurance plan for peasants, who must match this with an annual $1.25 of their own. Because of their modest funding, these plans cover only inpatient care (with a very high deductible) and leave peasants without adequate primary care services and drugs."(snip) from

However I voluntarily included the increased productivity aspect for US and EU workers. So yes if good health care causes these workers to be 20% more productive, but if only 2 out of 10 US workers are still employed in a sector that actually creates added 'value' ( versus being a gov't employee / 'service sector' employee ) then I concede that the health care industry is a 4% 'value' creator !

~

threlayer
07-30-2009, 01:38 PM
I suppose by cold, hard work unit 'economics' that may be true. But if we are merely abstract work units, why do we even value anything. I'm thinking there must be some purpose that this absatract 'value' is used for other than for itself. For example what are these values for?

My point is that humans, living (or dying) in your scenario, existing as work units must have some reason to do so. In effect we start with A and then do B in order to arrive at C, which must be the ultimate situation which evaluates the work value. If there were no C, then there would be no way to evaluate A and B. Not even in George Orwell's vision.

Earl_the_Pearl
07-30-2009, 01:45 PM
union mandated health insurance coverage,
Unions don't mandate anything they negotiate; remember business writes off health coverage as a business expense.

Earl_the_Pearl
07-30-2009, 01:51 PM
^^^ That's pushing it even by my standards LOL

It has been shown health care increases productivity.

Not if people are used as they were in concentration camps where the sick are discarded and replaced by healthy ones.

But from a global standpoint, as long as there are unemployed job applicants, there will always be a healthy worker available to replace a seriously sick worker.

Melonie
07-30-2009, 01:53 PM
^^^ to respond to your first point, A. and B. are free market assigned a global 'value' by the global buyers of the raw materials and manufactured products they produce. It is impossible to charge a localized price for the same raw materials and manufactured products that is higher than the global 'value' without making up the 'value' deficit from one source or another. Paying unskilled US workers a $7.50 per hour minimum wage versus a free market assigned global unskilled worker 'value' of $2 an hour widens the 'value' deficit, and as a result that deficit must be subsidized by one means or another by other workers and businesses that actually create more 'value' than they consume.

To respond to your second point, when C. means death in a country like China, existing as a work unit means the difference between living and dying. However, the USA and EU have removed this sort of 'incentive' via the availability of social welfare benefits. Thus your valuation theory when applied to the US begins by comparing the minimum wage standard of living to the social welfare standard of living. In contrast your valuation theory when applied to China must compare the $2 available wage standard of living to NOT living ! Virtues or evils of generous social welfare benefit availability aside, you're attempting an 'apples and oranges' comparison based on very different localized conditions. But the free market / rest of the world makes no such distinction, comparing products made by $7.50 per hour labor to equivalent products made with $2 an hour labor.

Melonie
07-30-2009, 01:56 PM
Unions don't mandate anything they negotiate;

not in China they don't ! And I highly doubt that any US union would tolerate the outright cancellation of employer provided health care benefits.


remember business writes off health coverage as a business expense

doesn't matter a bit if that business is on the verge of losing money ... since there won't be any income taxes to apply the deduction against. And even if the tax deduction achieves real dollar savings, the net cost of the employer's health insurance coverage of employees is still an out of pocket expenditure which Chinese competitors don't have to bear.

Earl_the_Pearl
07-30-2009, 02:43 PM
not in China they don't ! And I highly doubt that any US union would tolerate the outright cancellation of employer provided health care benefits.
The UAW tolerated just that and most companies are phasing out retiree health care. Health care that was purchased by accepting lower wages for many years.

eagle2
07-31-2009, 09:26 PM
This is precisely the point at the root of the minimum wage argument specifically, and the profitability of American businesses in general. To really understand this point, you have to look at how 'value' is actually created. You can A. extract 'value' from the ground, via mining or oil drilling or farming. Or you can B. create additional 'value' by combining raw materials into a useful manufactured product / tangible asset. But providing a service does not create additional 'value' unless that service directly contributes to an increase in A. or B. In the absence of A. or B. providing services merely shuffles money from one person / business to another without any additional 'value' being created.


Yes it does. Anything you can charge money for has value whether it's a product or service. Where did you get the idea that providing services doesn't create value? According to your logic, Disney World is worthless.



For a variety of reasons, America's economy has gradually divested itself of A. and B. As a result, America's economy is now very heavily dependent on providing services ... and most of those services do not actually create additional 'value'. But this has created a problem in that consumption is always taking place, thus additional 'value' needs to be created somewhere in order to balance out consumption. Because America has divested itself of A. and B., for many years the American economy has been running a 'value' deficit. In simplest terms, America was able to continue running a 'value' deficit by liquidating tangible assets, and by borrowing from others who were actually creating more 'value' than they were consuming i.e. the Chinese, the Japanese etc. Arguably one of the worst 'value' deficit creations occurs in areas such as forcing businesses to pay a minimum wage which is now 3-4 times the global average for unskilled labor. Large 'value' deficit creations also result from most 'service' workers ( whose 'services' are not related to A. or B.), with the most serious of these being gov't employees.

Again you're making things up with no basis. You don't seem to have a basic understanding of the laws of supply and demand. The supply of unskilled labor in China is much, much higher than the supply of unskilled labor in the US, hence the cost of labor is much, much lower lower in China than the US. The US economy is strong enough enough to pay Americans a much higher wage than workers in China.



Well the point has come where the Chinese etc. are becoming increasingly reluctant to loan America any more of their 'value' surplus, where lots of tangible US assets have already been liquidated, and where increasing the 'value' deficit to ever deeper depths can no longer continue. Thus continuing to allow a 'value' deficit to exist in the form of a high minimum wage ( and in all other forms as well) will require that actual 'value' being created by some American businesses and individuals must be 'confiscated' and 'transferred' to other American businesses and individuals, because it can no longer be borrowed from foreign lenders.


The minimum wage has nothing to do with deficits. The deficit comes from the irresponsible fiscal policies of the previous administration.

Gia2608
07-31-2009, 09:30 PM
Don't know if one has any effect on the other but have noticed a few jobs paying an almost decent wage lately (in the $16 range per hour). That's still dick but getting better. Maybe employers realized you get what you pay for!

eagle2
07-31-2009, 09:45 PM
That's true. Costco pays it's employees much higher salaries than Walmart, yet their labor costs are lower. As a result of the higher salaries, workers are more motivated and more productive. They are also less likely to leave, so Costco spends less money training new employees than Walmart.

http://weiwentg.blogspot.com/2007/09/costco-vs-wal-mart.html

Melonie doesn't seem to be able to understand this. She seems to thinks workers are raw materials, like coal or grain and there is no difference between the quality and quantity one worker does vs. another, even another a worker in another country 12,000 miles away.

eagle2
07-31-2009, 09:51 PM
Melonie,

What is your explanation as to how Costco can pay its employees over 60% more than Walmart does, and still remain profitable?

Melonie
08-01-2009, 12:40 AM
^^^ well, since you asked ...


- de-facto monopolies in certain US cities thanks to Democratic zoning keeping out WalMart competition

(snip)""Costco Says Move Your Big Box, Walmart

A Costco envisioned for a 16-acre parcel in the Illinois Medical District faces a complex approval process that likely means any ribbon cutting is at least two years away, representatives from the retailing behemoth said," the Chicago Journal reports.

Costco is often cited by social activists as an example of relatively model corporate citizen.

“The most important thing is that Wal-Mart has to follow the lead of Costco,” Gov. Pat Quinn said this week. “Costco pays a living wage, a decent wage. They pay good benefits to their employees, and that’s what every employer should do.”

"Asked about the argument that a low-paying job is better than no job," the ChicagoTribune reported, "Quinn echoed a common line of attack on Wal-Mart: 'I don’t think it’s good to have a race to the bottom'."(snip) from


- de-facto monopolies in certain foreign markets

(snip)""Costco's had an easy ride because it's found a loophole in the U.K. planning system," said Tony Bowhill, a London-based planning consultant at CGMS Consulting Ltd. "It's amazing it calls itself a wholesaler rather than a retailer, because around 30 percent of its sales come from individual customers rather than businesses."

Costco generated $2.6 billion in sales outside the United States and Canada last year -- and says 80 percent of it came from its 15 U.K. outlets. "(snip) from


- expanding to service 'government funded' customers

(snip)"According to Costco, they selected the two New York City locations because of a high percentage of food stamp recipients in the area. Depending on this test program, Costco may opt to eventually make food stamp payment available at more of its locations.

Not surprisingly, the global economic downturn also played a role in this move by Costco."(snip) from


- management willingness to sacrifice profit margin

(snip)"Costco Wholesale Corp.’s fiscal third-quarter profit fell 29 percent because of softer sales and a litigation charge for the warehouse club operator.

Costco’s management said falling prices on its goods and the lackluster consumer appetite shaped the quarter – with soft sales of items like jewelry but strong sales of fresh fruit and other consumables.

The Issaquah, Wash.-based warehouse club operator earned $209.6 million, or 48 cents per share, for its fiscal third quarter. That’s down from $295.1 million, or 67 cents per share, a year earlier."(snip) from

I will concede that Costco's CEO Sinecal shares a lot of attributes with Relayer's furniture company owner in terms of choosing to sacrifice profit potential and 'giving' those profits to his workers. However, unlike the furniture company, Costco has investment banks and stockholders to answer to. This is a shoe waiting to drop.

On the flip side, Costco has contributed heavily to Democrats, and (for the moment at least) seems to be enjoying some quid-pro-quo 'protection' from WalMart competition in many large Democratic cities. Additionally, those same Democrats are providing a steady stream of new Costco customers in the form of food stamp recipients. Combining political 'protection from competition' as well as a 'captive' base of new tax money funded food stamp customers more or less places Costco in the same 'partnership' position as GM and Chrysler !

~

eagle2
08-01-2009, 01:14 AM
I will concede that Costco's CEO Sinecal shares a lot of attributes with Relayer's furniture company owner in terms of choosing to sacrifice profit potential and 'giving' those profits to his workers. However, unlike the furniture company, Costco has investment banks and stockholders to answer to. This is a shoe waiting to drop.
~

Costco's stock has outperformed Walmart's over the past 10 years.

http://finance.yahoo.com/echarts?s=COST#chart3:symbol=cost;range=1d;compare =wmt;indicator=volume;charttype=line;crosshair=on; ohlcvalues=0;logscale=off;source=undefined

eagle2
08-01-2009, 03:23 AM
On the flip side, Costco has contributed heavily to Democrats, and (for the moment at least) seems to be enjoying some quid-pro-quo 'protection' from WalMart competition in many large Democratic cities. Additionally, those same Democrats are providing a steady stream of new Costco customers in the form of food stamp recipients. Combining political 'protection from competition' as well as a 'captive' base of new tax money funded food stamp customers more or less places Costco in the same 'partnership' position as GM and Chrysler !

~

Food stamps don't have anything to do with Costco's profitability over the past few years. Costco didn't accept food stamps until a few months ago, and only in New York City.

http://cityroom.blogs.nytimes.com/2009/05/27/costco-will-accept-food-stamps-at-2-stores/

Walmart has been accepting food stamps much longer so they're the ones getting a 'captive' base of new tax money funded food stamp customers.

Melonie
08-01-2009, 08:32 AM
^^^ food stamp customers are Costco's 'growth' market ! And there are far more food stamp customers available in the urban areas where Costco stores enjoy Democratic zoning monopoly protection from Walmart than there are food stamp customers available in suburban areas which have allowed WalMarts to be built.

You are correct that Costco accepting food stamps is a relatively new development. However, given that Costco's historical profits from sales of 'big ticket', 'discretionary' items such as jewelry, designer goods, and gourmet food are now falling precipitously, profitability has also fallen. Costco has attempted to offset lower sales / profits in the 'big ticket' item sector by increasing sales in the basic groceries sector - unfortunately a sector which offers lower margins and is much more sensitive to Costco's higher labor / benefit costs. The new Costco business plan appears to be to sell a higher volume of basic grocery items to big city customers ( many of them paying with food stamps) where it is possible for Costco to charge higher prices for those basic grocery items due to lack of lower priced WalMart competition in immediate proximity.



(snip)"May 28 (Bloomberg) -- Costco Wholesale Corp., the largest U.S. warehouse-club chain, said third-quarter profit fell 29 percent after consumers cut spending, the company incurred a charge for litigation and a higher dollar hurt overseas sales.

Net income dropped to $209.6 million, or 48 cents a share, from $295.1 million, or 67 cents, a year earlier, the Issaquah, Washington-based company said today in a statement. (snip)

(snip)"Sales of goods besides food have waned as Costco shoppers cut back to cope with the recession. Chief Financial Officer Richard Galanti also said more staff use of the company health plan hurt earnings, as did the higher dollar, which reduced the value of profits made in Canada, the U.K., Korea and Mexico.

The retailer suffered from “ongoing weakness in sales, particularly sales of higher-ticket, discretionary items,” Galanti said."(snip)

(snip)"Sales at Costco stores open at least a year fell 7 percent in the quarter, with a 5 percent drop on that basis for U.S. sales "(snip)

(snip)"Shoppers visit Costco’s 555 warehouse clubs for discounts on jewelry, designer goods and gourmet food along with basic groceries.

Excluding fuel, comparable-store sales at Wal-Mart Stores Inc.’s Sam’s Club, the second-biggest U.S. warehouse chain, rose 4.2 percent in the quarter ended April 30. Customers spent more on meat, produce and baked goods and less on big-ticket items such as furniture and jewelry, Sam’s Chief Executive Officer Brian Cornell said on a recorded conference call May 14.

BJ’s Wholesale Club Inc., the third-largest U.S. warehouse retailer, said May 20 that quarterly net income rose 42 percent from a year earlier and boosted its annual profit forecast. "(snip)



Food stamps don't have anything to do with Costco's profitability over the past few years

This is true, but also irrelevant. Historically, Costco earned most of their profits by selling 'big ticket', 'discretionary' items to urban middle class customers. However, this customer base is now dealing with increased state & local taxes, unemployment, late fees and penalty interest rates on their credit cards etc. - and is in turn looking to 'save every penny' they can - meaning that a good number of urban middle class customers are now shopping at WalMart and BJ's instead of Costco (as illustrated in the Bloomberg story above).

With Costco facing higher labor costs and higher employee benefit costs, they cannot compete head to head with WalMart or BJ's in low margin product segments, and recent financials clearly show it - thus the Costco CFO's specific reference to increased employee health benefit costs being a significant reason for Costco's recent profits 'miss'. So Costco is (smartly) exploiting their politically based zoning protection from competition in Democratically controlled urban areas to 'exploit' their ability to charge higher prices for basic groceries to the urban 'poor' (who generally don't have cheap transportation available to shop at a suburban WalMart or BJ's) in order to support their higher labor / benefit cost structure . The ultimate losers in this 'shift' is likely to be urban supermarket chains like Krogers ( whose union labor / benefit costs are even higher than Costco's), and the urban 'poor' who are charged higher prices for food than they otherwise might have been had Democratic big city zoning boards allowed the construction of a WalMart or BJ's within walking / mass transit distance.

Circling back on topic, increasing the minimum wage does, in theory, offer a benefit to Costco and Krogers at the expense of WalMart and BJs. The reason in theory is that Costco and Krogers can leave their (higher) hourly pay rates unchanged, while Walmart and BJ's will be forced to increase their ( near minimum wage) hourly pay rates, and in so doing decrease the cost advantage of WalMart and BJ's over Costco and Krogers.

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