Walmart sees 1st profit drop in a decade

Thanks for clearing some stuff up guys, we got alot of smart economists here.
thank you for participating in my thread

Digitalgrl

You gotta spend money to make money. ExxonMobil sure isn't slowing down, neither is ConocoPhillips. In Midland, Texas, the economy is doing very well, as well as Houston.

You gotta spend money to make money. ExxonMobil sure isn't slowing down, neither is ConocoPhillips. In Midland, Texas, the economy is doing very well, as well as Houston.

Originally posted by Number23
A company exists to return maximum profit to share holders, and that it. Anything else they do whether good or bad, they do to serve that primary and singular goal. If they offer better wages or benefits, they do so only to secure more productive employees so as to maximize profit.

So when you wish them ill, you're really wishing ill upon the employees and stockholders.

That doesn't follow, because the interests and well-being of employees are not necessarily the same as those of stockholders. In fact, in many cases, certainly including that of Wal-Mart, they are diametrically opposed.

While it is true that if a company offers better wages or benefits, it does so only to secure more productive employees, in practice companies never do this except when faced with a tight labor market, and what is more companies use their influence on government policy to ensure that they face tight labor markets as seldom as possible. High rates of legal immigration, having the INS turn a blind eye to illegal immigration, and treaties that encourage outsourcing are all historical and/or current examples of this.

Suppose that Wal-Mart went completely out of business. (Not likely, of course, but we're playing hypotheticals here.) Would that hurt Wal-Mart's employees? In the short run, definitely. But Wal-Mart is an extraordinarily callous and labor-unfriendly employer; there really is no other employer in the U.S. that compares to that company for sheer villainy. Wal-Mart's market share would not disappear when Wal-Mart did, the demand would still exist, and other companies -- all of them better towards labor than Wal-Mart because all companies are -- would expand to fill the demand. Working for these companies would be better for Wal-Mart's current employees than working for Wal-Mart, and so in the long run they would all benefit.

I'll have some things to say about the economy's prognosis, too. It's grimmer than the sheer numbers would indicate, due to factors that few economists recognize any more, and others that almost no economists ever have.

Since the 1980s, it has become unfashionable in popular economics (which is driven largely by politics) to recognize the importance of consumer demand on how the economy operates, or the factors that cause consumer demand to fluctuate. But in truth, assuming an ample flow of natural resources (which we can't, but I'll come back to that momentarily), demand is the single most important factor in determining economic performance.

In order for an industrial economy to keep going, products must be sold. In order for products to be sold, there must be people able to buy them. In order for people to be able to buy them, those people must have money. And in order for people to have money, real wages must be kept high.

Yet as Number23 pointed out, a corporation in a capitalist economy exists to maximize profits for its shareholders. Profits equal sales revenue minus cost of business. Wages are a cost of business, and so corporations seek to cut wages as much as possible and still get the labor they need to produce and market their products. This is the fundamental paradox of a capitalist economy: that what benefits the bottom line of any individual coporation hurts the bottom line of all of them. Because when real wages are cut, or even simply fail to keep pace with productivity improvements, when wealth is distributed in a hugely unbalanced fashion, then demand fails to keep up with supply and the economy stalls out.

There is of course a limit to how far a company CAN cut wages, but that limit is not static. It follows the law of supply and demand, and both the supply of and the demand for labor are subject to either technological or political manipulation. Corporations use their political influence to keep the supply of labor high, so that they are able to keep real wages down. This helps the shareholders in the short term, by keeping business costs low. But it hurts the shareholders (along with everyone else) in the long term, because it depresses consumer demand and so hurts sales revenue.

The U.S. economy experienced two sea changes in government policy towards the capital-labor dispute since the Civil War. One of those occurred in the 1930s, and the other in the 1980s. In the 1930s, the Roosevelt administration shifted government policy strongly to labor's side of the struggle. Unions were encouraged rather than discouraged, certain labor rights were guaranteed, and the government created the first of a series of entitlement programs that helped shore up demand even when people were not working for one reason or another (job loss, retirement, disability).

In the 1980s, the Reagan administration went a long way -- although not all the way -- toward reversing things back to the way they had been under Calvin Coolidge. But the impact on the economy and on the distribution of wealth was much greater than Reagan's domestic policy changes could cause themselves, because that was when the trend towards "free trade" agreements that encouraged companies to export capital to poor countries with oppressed work forces began. American workers still enjoy many of the protections they gained in the 1930s, and have even added some new ones. But since a large percentage of the nation's manufacturing jobs have now moved to third-world countries, where oppressed workers with no protected rights to speak of work for U.S. corporations under sweatshop conditions, we must now consider those foreign workers as part of the "American work force," just as low-paid immigrants working on the railroads were in the 1890s. And if we factor that in, which we must, then America's work force is not being paid anything like enough to maintain the demand that can absorb the goods being produced and keep the economy running.

No administration subsequent to Reagan has reversed this reversal in policy. It remains the way the government does business.

If we look at U.S. economic performance during the period 1865-1929 and again during the period 1946-1973, the comparison is illuminating. (Note: the years of the Great Depression and World War II, 1930-1945, I set aside as anomalous. Also, the years from 1973 to 1980 I set aside because of resource shortages, which undercut all purely economic calculation. I'll return to that.)

Growth rates in the U.S. economy more than doubled during the period 1946-1973 compared to 1865-1929 on a per capita basis. This despite higher taxes in the latter period and increased government regulation of the economy. To those who understand and acknowledge the effect of demand on the economy, and how demand depends on egalitarian wealth distribution, this is not surprising. To those who believe in "supply side economics" and that pumping up the rich is the best way to boost the economy, however, the facts require explanation.

Since I'm a firm believer in demand-side economics myself, I believe that we are undercutting the foundation of our economy by promoting such a huge disparity of wealth, with so much of what is produced going to the richest 1% of our citizens. As a result, I predict that we are heading for a great and terrible fall, and would be even without resource shortages.

But we will not be without them, and they will make things even worse. Next post.

Resource shortages.

All schools of modern economics, Keynesian, monetarist, supply-side, Marxist, what have you, treat resource sufficiency as if it were guaranteed, as if resources could be ignored as a constant in the equation.

They're all wrong.

Natural resources, or as I like to call it, natural capital, is the great and inescapable limiting factor on the economy. The only reason we've been able to ignore this factor for several centuries is because we had two huge windfalls that created the temporary illusion of inexhaustible natural wealth: America and fossil fuels. America (together with the smallpox virus) provided the industrializing world with a huge, nearly-empty land mass and all its untapped resources -- farmland, timber, minerals, and eventually coal and oil. Fossil fuels provided a cheap, easily-extracted, and easily-used source of rich, abundant energy.

But America is full now, and we approach the end of cheap oil. And we got a foretaste in the 1970s of what that will mean.

In 1970, the U.S. reached its domestic oil-production peak. By 1973, declining American production and increased demand made the U.S. no longer a net oil exporter as we had been before that; we now depended on oil imports. (Of course, that dependency has grown worse with every passing year since then.) A cartel of oil exporters imposed a politically-motivated embargo on the U.S. and sent the economy into a tailspin. The term for this tailspin was "stagflation" -- a stagnant or recessed economy combined with inflation (although in previous recessions, prices had tended to fall, not rise).

The shortages were politically induced, new sources of oil were tapped, efficiency improvements were introduced, and the cartel eventually fell apart. The 1970s oil shortages were not caused by global peak oil, which was still years away. But they were caused, indirectly, by the U.S. local oil peak, which had already occurred. Had it not, it would have been as impossible for oil exporters to impose an embargo on the U.S., as to impose one on Saudi Arabia.

We are in the early stages of a resource-shortage crisis similar in nature to what occurred in the 1970s, but worse in two ways.

First, it cannot be cured in the ways the 1970s crisis was solved. We cannot tap new sources of oil, because there are none that can offset the declines in production worldwide. Nor can we count on a failure of political will, because politics is not what is causing the shortages this time. The only way to resolve the crisis will be to radically improve resource efficiency and so get the same benefit from lower amounts of energy flow.

Second, the 1973 oil embargo came on the heels of the postwar boom. The economy was enjoying the fruits of the Roosevelt revolution: high wages driving high demand driving high investment driving high profits, which together with government policy served to further raise wages and so on, in a process that was called the "virtuous spiral." All these factors served to cushion the blow somewhat when the embargo fell.

But the resource crisis we are entering now comes on an economy suffering from crucial instability driven by rising inequality and slack consumer demand made up for by mounting consumer debt. We are in far worse shape in terms of pure economics than we were in 1973, and so the resource shortages are going to hit us harder than they did then.

We are, in short, in for some very tough times.

This is great news for Democrats!

Forget about Iraq, North Korea, and Iran.

Democrats have a war on Wal-Mart!

The thing I don't understand is why the Democratic Party would hate a company that helps out their voting base so much?

Oh, wait I know, Wal-Mart is not unionized, and Democrats can't stand it!

Originally posted by Two Steps Forward
That doesn't follow, because the interests and well-being of employees are not necessarily the same as those of stockholders. In fact, in many cases, certainly including that of Wal-Mart, they are diametrically opposed.

*sigh*
It's a yes and no type thing.
Most companies, to combat this opposition, offer in-house bought stock (company mached, reduced prices, etc.) to counter-balance. It depends on the rate you buy stock at, as to how much on eor the other affects you. It also creates more loyalty to the company.

Local:
Anyway, down here, when WalMart (supercenter) first showed up, yes, there was a drop in how many businesses there were.
Two grocery store chains are pretty much out of business (Delchamps (gone) and WinDixie (extremely reduced stores, mostly their fault). Another is stable (Canatas), and yet another did nothing for about 2 years, then started expanding like crazy (Rouses: can go to about 6-8 of them in my general area).
When WalMart made it, other big chains came into the area: Target, Academy, a whole slew of restuaunts (Olive Garden, Outback, Chilis (2), Gound Patti (new store in sister town instead of just the old resturaunt), Peppers (expanded), Books-A-Million, some 15-30 new privately owned resturaunts, too many fast food places to count), I can't count how many more privately owned businesses have popped up in the past 10 years, and a friggne strip-mall about 3-4 blocks long at this point has sprung up around the main Wal-Mart in town. Much of this was pre-Katrina. Some of this growth is directly due to Katrina and Rita narrowly missing us either way.

The local government does a lot to oppose new business, so the boom is not because of them.

For us, Wal-Mart brought more business into this area, as a focal point for outside shopping, though we are still very much an oil-based industry, and will collapse only when prices go down.

Originally posted by RRconservativeThe thing I don't understand is why the Democratic Party would hate a company that helps out their voting base so much?

This is interesting. Whom do you see as the Democrats' voting base? And how does Wal-Mart help them?

Originally posted by jlc163
Anyway, down here, when WalMart (supercenter) first showed up, yes, there was a drop in how many businesses there were. . . . When WalMart made it, other big chains came into the area

Are you suggesting that the other chains came in because of Wal-Mart? Isn't this post hoc, ergo propter hoc reasoning? Can you show that similar results followed from Wal-Mart's domination of other areas?

The local government does a lot to oppose new business, so the boom is not because of them.

And isn't this the sole alternative fallacy? The boom need not be because of Wal-Mart OR because of local government. It could be due to something else altogether.

though we are still very much an oil-based industry, and will collapse only when prices go down.

Well, that seems like a plausible reason for the boom right there: a rise in oil prices. That always helps oil-exporting regions, and always attracts other business investment, too.

Originally posted by Two Steps Forward

Originally posted by RRconservativeThe thing I don't understand is why the Democratic Party would hate a company that helps out their voting base so much?

This is interesting. Whom do you see as the Democrats' voting base? And how does Wal-Mart help them?

I view poor, uneducated people as one of the largest voter base for the Democrats.

Wal-Mart helps them by keeping prices low, and gives them more bang for their buck! Wal-Mart is also a huge employer, giving those people jobs.

The "War on Wal-Mart" is only driven by the fact that Wal-Mart does not allow Unions, which is also a voting block for the Dems.

So when it comes to helping poor people or backing the Unions, the choice is obvious for the Democrats. They will back the unions every time.

Originally posted by RRconservative
I view poor, uneducated people as one of the largest voter base for the Democrats.

I think you might need to reconsider that. The poorest, least educated people tend to be evangelical Christians, and as a demographic block they vote Republican more often than Democratic. Except for poor black people, that is.

The best-educated people, those with advanced degrees, also tend to vote Democratic.

Wal-Mart helps them by keeping prices low, and gives them more bang for their buck! Wal-Mart is also a huge employer, giving those people jobs.

No employer "gives" anyone jobs. Wal-Mart doesn't create its market share but seizes it, and if Wal-Mart did not exist, the jobs would still need to be done, and someone else would hire people to do them.

As for keeping prices low, I recommend checking out this link, which, while humorous, does make a good point regarding that process.

Big Box Mart

As the song says in its final words, "Your everyday low prices have a price, they aren't free."

Right you are, Two Steps. That certainly sums it up where I live.

Also, here, buying at a WalMart is considered success for the working poor. Many of those living in poverty here buy at swap meets and thrift stores.

Originally posted by Two Steps Forward

Originally posted by jlc163
Anyway, down here, when WalMart (supercenter) first showed up, yes, there was a drop in how many businesses there were. . . . When WalMart made it, other big chains came into the area

Are you suggesting that the other chains came in because of Wal-Mart? Isn't this post hoc, ergo propter hoc reasoning? Can you show that similar results followed from Wal-Mart's domination of other areas?

No, the Supercenter Wal-Mart was a big reason people in other rural areas that don't want to go to Lafayette, New Orelans, or to Baton Rouge...to go shopping in Houma. The oil business booming was the reason for an increase in the level of spendable money in individual households, not where they shopped.

The local government does a lot to oppose new business, so the boom is not because of them.

And isn't this the sole alternative fallacy? The boom need not be because of Wal-Mart OR because of local government. It could be due to something else altogether.

I was just pointing out that there is no real help from Terrebonne Parish Consolidated Government....in fact, they have some of the highest required payments to start a business in this area. It's extremly hard on private businesses.

though we are still very much an oil-based industry, and will collapse only when prices go down.

Well, that seems like a plausible reason for the boom right there: a rise in oil prices. That always helps oil-exporting regions, and always attracts other business investment, too.

Again, it is the reason for the money in the pocket, not where it was spent. Before the bust of the 80's, the majority of the people down here did their "big spending" in New Orleans still. Today, some things you still have to go to New Orleans to get, but it's enormously less since Wal-Mart showed up.

My whole point wasn't that Wal-Mart caused this, though it showed up and marked a turning point in Houma economics, but more that the supercenter was at the center of the turning point, and hasn't had the long-term negative effect it's reportably has had elsewhere.

I have nothing for or against them. But they are a huge part of why I go to Rouses to buy a lot of groceries.

Originally posted by jlc163No, the Supercenter Wal-Mart was a big reason people in other rural areas that don't want to go to Lafayette, New Orelans, or to Baton Rouge...to go shopping in Houma.

Ah, I see. So what happened isn't really a growth of the economy, merely a change in where the money was spent.

I can see how that could happen, but it doesn't really touch on the issues Wal-Mart creates, since the net effect is still a lowering of prosperity. Your small town's boom is surpassed by the lost income in Lafayette, New Orleans, and Baton Rouge.

God help us if we're using WalMart as a sign of a prosperous economy. Makes about as much sense as saying yacht building will stimulate the economy.

Critics believe that Wal-Mart should play the role General Motors played after World War II… [and] establish the post-world-war middle class that the country is so proud of. The facts are that retailing doesn’t perform that role in the economy. Retailing doesn’t perform that role in any country.
—Wal-Mart CEO Lee Scott, April 2005

www.laborresearch.org...

Straight from the horse's mouth. WalMart is not a panacea.

Wouldn't worry about the 1stQ report with sales of German stores. Report says WalMart still making money.

Originally posted by Number23
First a company doesn't “feel” anything. A company consists of employees, management and stockholders.

So when you wish them ill, you're really wishing ill upon the employees and stockholders.

Excellent, I am so glad someone said this. Most of walmart's employees are people trying to make a living day to day.