Sunday, July 30, 2006

The "Stained Polo" Paradox

In economic thought a paradox is the unintuitive outcome of a theory, which points up an unsupported assumption in its logic. It illuminates a weakness in the theory, a warning that its structure does not reflect reality. The "Stained Polo" Paradox is staring American corporations in the face, and they refuse to see it.

In her book Nickel and Dimed: On (Not) Getting By in America, writer Barbara Ehrenreich describes her undercover stint as a Wal-Mart employee. Because Wal-Mart requires their "associates" to report to work in collared shirts, a co-worker had been keeping tabs on a polo shirt that was due to be marked down. When the price adjustment went into effect, she examined the shirt and discovered a stain. She and Barbara agreed that the stain should result in a further markdown. A manager rejected the deal. Even with the employee discount, the co-worker was unable to afford the marked down, stained polo shirt.

Let that concept sink in for a moment, as it did not sink in for Wal-Mart: their employees cannot afford the goods Wal-Mart sells.

They obviously don't see the paradox. After all, a yacht broker may not be able to afford a yacht themselves. But they should be able to afford a motor boat, a small sailboat, or even a Zodiac dinghy. Yachts are the top of the scale, and it's understandable that a yacht-related employee would move down the scale for their own personal use. And they don't have to own a yacht in order to sell yachts.

It is an entirely different matter for an employee of Wal-Mart to not be able to afford a shirt required by Wal-Mart. Wal-Mart, by its own proclaimed goal, is the bottom of the scale. There is nowhere else for an employee to move down except off the retail map entirely, and "shop" at the local Salvation Army.

It puts a whole new meaning into the term "race to the bottom."

American business is busy slashing wages. They assume a closed system, where their slashing wages exists in a vacuum, separate and unequal to their base's buying power. But that is not the reality. The reality is that with lowered wages, income shrinks inexorably. And sales are inexorably based on income.

The true bottom line here is not the recent quarterly numbers, which show profits going up after the latest round of slashing. The result of their slashing, in the next quarter, is lowered sales. The true bottom line is: Who Can Afford to Buy What They Have to Sell.

They are shrinking that pool of consumers themselves, with all the speed and efficiency of a flu outbreak. It's an infectious disease they are spreading with no thought of how the ripples will roll back. It's not just the people who lose their jobs who can't afford to buy the things they used to make. The people who get those jobs, at the lowered wages, can't afford to buy the things they make.

The very top of American business feel themselves immune. They aren't slashing their own wages. They are murdering their workforce to keep from slashing their profits. But they can't murder the workforce without murdering their own consumer base. Don't they realize the workforce IS their consumer base?

The American economy is built on mass production and mass consumption. Mass, as we know from physics, is energy which can be converted from one form to another, but it cannot be created or destroyed. Mass production has to have its equal and opposite force, mass consumption.

Taking the mass out of consumption will also take the mass out of production. Now economy of scale no longer works to lower prices, and they go up. The mass is less able to afford goods at the higher prices, which drives the prices up more for those still able to buy. Which reduces the pool of those able to buy, pushing production down still more.

It's not even economics at this point. It's physics.

What are the consequences of ignoring The "Stained Polo" Paradox?

Soon the ones at the top are the only ones left, and they grab the money and run, letting the company itself, and the pensions with it, sink beneath the waves. They don't start a new company and make new jobs, either. They will whine about the "unfavorable business climate" they created themselves. They will sit on capital, as they are doing now, and complain about how it is shrinking because the economy is not growing.

They will hide in their gated communities, guarded by security personnel getting the tiny minimum wage so that the uniforms have to be bought by their employers, yet another expense that is devouring their stolen capital. They turn up their stereos, hideously expensive now that there is not enough workforce to support economy of scale. They listen to electronic classical, not for the status or the trends, but because out-of-copyright compositions played by one musician on a computer is all that can be produced within the collapsed music industry. They wake from drugged sleep, from nightmares lit by mobs with torches, to push the volume in their sweatshop speakers ever higher, to drown out that sound, that terrible sound.

That sound of Madame Defarge's knitting needles. Click, click, click.

Will they remember The "Stained Polo" Paradox? That warning that their assumptions are not in line with reality? Perhaps.

That woman pawing through the Salvation Army bin, before the bags get sorted, because she can't even afford the pittance the Salvation Army would charge her for the privilege of buying something on a hanger. That woman who once worked for them, until the company went under, and she couldn't get medical care for the child who died in her arms.

That woman's face, in their nightmares, by torchlight.

Sunday, July 09, 2006

Unskilled, and Unaware

Unskilled and Unaware of It: How Difficulties in Recognizing One's Own Incompetence Lead to Inflated Self-Assessments

This reminds me of the Kurt Vonnegut quote: "The big trouble with dumb bastards is that they are too dumb to believe there is such a thing as being smart."

The study holds out hope. By improving their abilities in humor, logical processing, and grammar, the participants were able to more easily recognize when they were being incompetent. Without this knowledge, improvement is not possible.

It would seem that recognizing when something is not working would be the easiest thing in the world. And it is, if one's reality skills are working properly. Yet the world is full of battered spouses who insist there's nothing wrong with their marriage, disastrous political decisions that the makers insist were right, and Wars on [Insert Favorite Social Problem here].

How can anyone tell? By recognizing that Excuses are Useless, but Reasons are Valuable.

• If it weren't for the killings, Washington would have one of the lowest crime rates in the country.
• Mayor Marion Barry

See the difference? If alien frogs landed in Washington, DC, and started blasting away, the murder rate would go up. There would be a Reason. But what Mayor Barry offered is an Excuse.

And Excuses are bullshit.

If one is late for work because they kept hitting the snooze and sang along with seven songs in the shower and stopped to get a latte even though they were already late, those are Excuses, because one had control over these actions. Being late for work because traffic was clogged from the refugees fleeing the invading frog-aliens, now that's a Reason!

And what we have control over is the key.

We usually have control over our Excuses. That is what makes them so. And we can change them. Even if it would take great effort, we can change them.

Reasons are not so easy. Reasons are supposed to come from reality. While we can't always change Reality, we can try. And sometimes we succeed.

But we always must adapt to reality, and not live in the illusion that it is the other way around.