Friday, April 03, 2015

Paul Krugman Is An Idiot, Chapter 3,645

Paul Krugman uses a comparison today between Walmart, citing its “low wages, low morale, and very high turnover,” and Costco, which he points out “offers higher wages and better benefits,” to claim that employers can raise the pay scale of workers without any actual net cost because Costco “makes up the difference with better productivity and worker loyalty.” This is an example of why economists should never talk about business practices. They have truly idiotic ideas about what a business is and how it works.

Krugman does admit that “the two retailers serve different markets,” and that, “Costco’s merchandise is higher-end and its customers more affluent,” but he goes on to say that his comparison is valid despite that. That’s sort of like admitting that one vehicle is hauling 80,000 pounds of freight and the other merely contains two human passengers, but that my mileage comparison remains legitimate.

And it isn't just a difference in market and affluence of customer base. Costco sells vastly fewer items and markets them in an entirely different manner than Walmart. For the most part they do not even remove items from boxes, but merely cut the box open and stick it on the shelving in the store. That creates a difference in productivity which is not a result of being paid better, it’s a result of a structural difference in the way the stores do business, and it’s only one example out of many.

Not to mention that Costco is selling a significantly different type of item, there being only a nominal crossover in the nature of goods which they sell, and they are selling them in bulk, with a vastly larger unit purchase than Walmart enjoys. Krugman is saying, in effect, that apples and oranges are both fruit and should therefor taste the same. Idiot.

1 comment:

bruce said...

I'm surprised he didn't compare McDonalds to Walmart - unskilled workers pushing commodity products vs faceless corporations or somesuch. It will be interesting to see how the cases against McDonalds re: franchisees aren't really independent turns out. Stay tuned.

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