Those Disappearing Consumers…

A recent article in The Week considered the phenomenon of the retail apocalypse–the sudden loss of thousands of jobs in retailing.

Employment in general merchandise stores has fallen by almost 90,000 jobs since October. Just like manufacturing jobs before them, brick-and-mortar retail jobs are finally falling to the twin forces of technology and globalization — this time in the form of Amazon and e-commerce. Or so goes the narrative.

And what, exactly, is inaccurate about that narrative? According to the article–which goes into considerable detail–it omits a key cause. The story being told “vastly oversimplifies what’s going on with retail.” And it completely misses a significant cause of the collapse: the loss of a once-reliable mass of consumers and the effect of that loss on retail stores.

Things get interesting when we pick apart what we mean by “retail.” Employment in department stores has bled 500,000 jobs since 200118 times the number of jobs the coal industry lost in the same period.

Recognizable brands like Macy’s and Sears are looking shaky: the former plans to close 68 stores and lay off 10,000 workers, while the latter’s business model has been rotting for years and may collapse altogether. Malls across the country — long the home of these department store chains — are dying and emptying out.

As the article points out, department stores and malls depend upon a sufficient number of middle-income consumers. And those consumers need to live pretty much everywhere.

If you’re going to have a mall with department stores in every decent-sized town, you need middle-class consumers in every decent-sized town, too.

That’s precisely the sort of consumer we’ve lost. For the last few decades, middle- and lower-class wages have stagnated, while the portion of Americans high up the income ladder provide more and more of all consumer spending. The national economy has also gone through a remarkable geographic shift, in which pretty much all new job and business creation occurs in major cities.

The article concedes the significant role of the internet in our shifting consumption patterns, but insists that the major culprit is the loss of good-paying jobs–some as a result of trade, but far more as a result of automation and misguided economic policies that have abandoned the mid-century focus on full employment–a focus that drove up wages.

The culprit–the reason those middle-income consumers are vanishing–turns out to be low wages.

In the past few years, we’ve learned that resistance to raising the minimum wage was  based on erroneous assumptions, mostly the argument that a higher wage would lead to fewer jobs. But job creation has actually improved in places that have raised the minimum wage.

What the old argument missed suddenly seems so obvious: When workers have more money to spend, they buy stuff. They consume. When they can barely make ends meet, they don’t go to the mall. They don’t eat out. They don’t browse at the department store.

There’s no doubt that the nature of retailing is changing. The Internet, Amazon’s same or next day delivery, the convenience of online shopping–all present a very real challenge to conventional retail trade. That challenge will require adjustment and innovation.

But first, you need customers with money to spend.

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How Are Hoosiers Really Doing?

Morton Marcus can always be counted on to debunk official happy talk. In a recent column (link not available), he did it again.

Responding to what he characterized as “recent self-congratulatory claims from the State Office for Ooze,” he chose annual data for two decades (from 1994 to 2004 and 2004 to 2014), a time period that allows him to paint a more accurate picture of how Indiana has been doing compared to the nation.

Here are the numbers:

  • At the national level, the number of jobs grew by 17 percent from 1994 to 2004. In the next decade (2004 to 2014), U.S. jobs grew by 10 percent. For those two decades, Indiana’s job growth rate was 9 and 4 percent respectively.
  • Over that 20 year period, jobs in the U.S. grew by 29 percent while Indiana advanced only 13 percent. Indiana ranked 47th among the states.
  • Between 1994 to 2014, Indiana fell from having 2.3 percent to barely 2 percent of all American jobs. (As Morton points out, that may not seem like much, but that “little difference is the equivalent of 950,000 jobs over those 20 years. That failure to just keep pace with the nation, means our addition of 442,000 jobs between ’94 and ’14 was 53 percent short of mediocrity.”)
  • Also during this time frame, Indiana lost 26,000 construction jobs or 12 percent of the jobs in that industry while the national decline was only 7 percent. Indiana also saw greater percentage declines in computer and electronic products employment than did the nation, although the state experienced lesser percentage losses in primary metals and motor vehicle manufacturing.
  • Indiana had job losses in every category of retail shops while some types of retail grew at the national level. “Despite the Great Recession, finance and insurance jobs grew by 22 percent nationally, but only 9 percent in the Hoosier state. Food service and drinking places had job growth of 20 percent across America, but only 10 percent here.”

Next year, Indiana will elect a new Governor. Candidates for that position need to tell us how they plan to improve–rather than continue to spin– the state’s dismal economic performance.

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Kansas, Louisiana, Wisconsin–and Minnesota

If I were Dorothy, I wouldn’t take Toto back to Kansas, where Governor Sam Brownback has doggedly (no pun intended!) pursued right-wing economic nostrums with devastating results.

Despite Brownback’s insistence that his massive tax cuts will translate into a booming state economy any day now, budget shortfalls have threatened to force layoffs of prison guards and massive cuts to public schools, health care providers and nursing homes, among others. A report from the federal Bureau of Labor Statistics pointed out that Kansas was one of only five states across the country that actually lost jobs in the last six months. As a result of all this, the Kansas legislature has reluctantly raised taxes (albeit not on those rich “job creators”– mostly just the regressive ones).

Then there’s Bobby Jindal’s Louisiana, where state lawmakers are preparing to dump Louisiana’s 1.6 billion dollar fiscal crisis on the next governor and legislature. Among other disasters, Jindal has presided over the biggest legislative downsizing ever faced by higher education in the U.S.  The president of the Louisiana State University system has announced that Louisiana State (LSU) will consider declaring financial exigency—the equivalent of bankruptcy for academic institutions–and that as many as a dozen campuses throughout Louisiana could ultimately have to do the same.

Moving on to Scott Walker’s Wisconsin, the Wisconsin Budget Project reports that the state’s cuts to education since the start of the recession– the 7th largest in the country–  deepened the recession, slowed the recovery, and are likely to make Wisconsin less prosperous in the future. Walker and legislative Republicans voted to cut 250 million dollars from the University of Wisconsin’s budget (in a gratuitous addition, they also voted to eliminate the state’s tenure laws, virtually guaranteeing an exodus of scholars from what was once one of the most prestigious public universities in the country.) Other shortfalls have halted highway construction and reduced health care access for the needy, and job creation has remained anemic.

Then there’s Minnesota. When Minnesota Governor Mark Dayton took office in 2011, the state had a $6 billion plus deficit and an unemployment rate of 7%. Minnesota’s unemployment rate is now below 4% and the state boasts a budget surplus of over $1.2 billion dollars. On taking office, Dayton raised taxes on the wealthy; more recently, he signed a bill raising the state’s minimum wage–policies that are anathema to the right wingers in Kansas, Louisiana and Wisconsin.

Gov. Dayton stayed true to his campaign promise to ask everyone to in Minnesota to pay their fair share in taxes–including rich corporations and CEOs. It doesn’t appear to have deterred businesses operations there; a recent analysis shows Minnesota is among the top five fastest growing state economies and private-sector job creation exceeds pre-recession levels.

After committing half of the resulting revenue to balancing the budget (as required by the state constitution) Dayton and allies invested nearly three-quarters of the remaining funds in public education, with a focus on all-day kindergarten and expanding access to early childhood education.

Minnesota has also broadened access to health care, expanding Medicaid, and–according to the New York Times– keeping premiums in its insurance exchange among the lowest in the country (and well below premiums in Wisconsin).

The comparisons to Wisconsin are particularly telling because the two states share similar climates, populations with German and Northern European roots, farming communities, and (at least before Walker) populist progressive political cultures.

Policy choices matter.

Trusting in what George H.W. Bush called “voodoo economics” is a lot like trusting your operation to a surgeon whose last hundred patients died during the procedure he’s recommending.

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