Friday, November 30, 2012

Why Can't Wal-Mart be more like Costco?

There's been a lot in the news recently about how well Costco employees are paid, particularly when compared to competitive chains - Wal-Mart in particular.

In this article, Megan McArdle points out that Wal-mart is really in a different industry, and their labor structure shouldn't be compared to Costco.

Some thoughts:

I just posted this because I have also wondered why Wal-Mart couldn't be like Costco. This article at least shows that, as Wal-Mart is currently structured, it is financially impossible. The profits per employee are too small.

The author is a bit snarky, but it's the numbers I'm looking at (pay rates from the paragraph right after the chart in the article):

Wal-Mart: 10/hr * 160 hrs = 1600/mo = 19200/yr
Costco: 19/hr * 160 hrs = 3040/mo = 36480/yr

So, even if Wal-Mart gave all their profits to employees in higher pay (7428/emp.) they can't match Costco wages, let alone benefits.

This doesn't mean they couldn't pay a bit more, but their industry is so labor intensive that their costs won't let them match Costco (operating in a different industry - another point the author makes)

Wal-Mart has many employees who are necessary but who do not generate much revenue. Whether they could restructure and match Costco is another question. It would be interesting to compare Wal-Mart and Target. Or Costco and Sam's club.

I also think that Wal-Mart has optimized about as much as possible. If they could make as much with fewer employees (more profit per employee) they would. If they could increase revenue by raising prices, they would. After all, they are a greedy, soulless corporation out to maximize profits and minimize costs.

I say that half in jest, but I do think they would do either if they could make more money that way.

Friday, August 24, 2012

Saturday, July 14, 2012

Language Abuse and the Federal Budget

Sometimes people use misleading titles to try to make an assertions that is not supported by the facts. Shocking, I know.

This article in Forbes - "Who is the Smallest Government Spender Since Eisenhower? Would You Believe It's Barack Obama?" is a good example.

The phrase "Smallest ... spender" gives the impression that less money is being spent under Obama than under any other president since Eisenhower.


What he's actually talking about is the percentage change. The title is misleading. It should be "Who increased government spending least over his predecessor's last budget."

Percentage change tells us nothing about how much was spent, or how much was added to the deficit. All this is saying is that Pres. Obama thinks that post-stimulus spending level, and trillion dollar deficits every year are almost enough, he only increased spending a little.

Because each of Obama's budgets has been larger than any Bush budget, but only a little larger than the last Bush budget. He also doesn't point out that the 2009 budget, the last under Bush, contained the $787 billion stimulus, and was a bipartisan panic reaction to the financial crisis.

The key in the article is the second paragraph:
"...the first year of the Obama presidency where the federal budget increased a whopping 17.9% —going from $2.98 trillion to $3.52 trillion."
The author assigns that increase to Bush, not Obama. (it was passed under Pres. Bush -- For the record, Bush requested 3.1 trillion, Congress passed 3.52. The blame for all budgets should rest on Congress, not the president).

So the current president hasn't had to increase spending much. It was done for him by Congress in 2008. He just maintained that level, and added a bit here and there. The raw numbers show this:

2006 - Bush - $2.66 T.
2007 - Bush - $2.73 T.
2008 - Bush - $2.9 T.
2009 - Bush - $3.52 T. (stimulus and financial crisis)
2010 - Obama - $3.72 T.
2011 - Obama - $3.63 T. (he asked for 3.8)
2012 - Obama - 3.79 T.

A bipartisan panicked 18% increase in 2009 has been expanded still further. So 2009 is the pivot point where the "new normal" level of spending was established. All the talk of "cuts" in spending are referring to the base level of the previous year (which is at least 600 billion higher than natural growth would have been).

What we really need is cuts back to the levels of spending before 2009, before the various stimuli were passed. Cuts need to be on the order of 1 trillion dollars every year, not the 4 or 5 trillion over 10 years people are touting as "big cuts"

Wednesday, June 27, 2012

Alternative Energy and the Importance of Scale

It's vital to have the right perspective on any problem you face. It's especially important to grasp the scale of the problem. Otherwise you end up either "using a wrecking ball to hammer a nail," or "drinking from a fire hose. A more everyday example would be something like driving 20 miles (using a $3 worth of gas) to save 5 cents on toothpaste.

A person, group or country can make great progress and produce impressive results in pursuit of a goal, and yet not realize that they are losing ground. It's the classic "Can't see the forest for the trees"

This article at National Review provides the "forest-level" perspective that I haven't seen discussed in the context of wind and solar power. For all the progress they've made, and the impressive amounts of energy produced, you never see the scale of the problem. They aren't keeping up with the yearly growth in electricity use:

Between 1985 and 2011, global electricity generation increased by about 450 terawatt-hours per year. That’s the equivalent of adding about one Brazil (which used 485 terawatt-hours of electricity in 2010) to the electricity sector every year. And the International Energy Agency expects global electricity use to continue growing by about one Brazil per year through 2035.
How much solar capacity would be needed to produce 450 terawatt-hours? Well, Germany has more installed solar-energy capacity than any other country, with some 25,000 megawatts of installed photovoltaic panels. In 2011, those panels produced 18 terawatt-hours of electricity. Thus, just to keep pace with the growth in global electricity demand, the world would have to install about 25 times as much photovoltaic capacity as Germany’s total installed base, and it would have to do so again every year.

Another way to look at it:
To keep up with the growth in global electricity demand by using wind energy alone, the global wind industry will need to cover a land area of some 35,000 square miles — about the size of Indiana — with wind turbines. And it will have to do so every year from now through 2035....the wind industry would have to cover 96 square miles every day with wind turbines. That’s an area about the size of four Manhattans.
At that rate, by 2035 additional area in use by wind farms (and, therefore, not used for anything else) is 805,000 square miles. That's the same size as:  California, Oregon, Washington, Nevada, Arizona, Utah, Idaho, and Wyoming COMBINED.
Additional land needed for wind power to cover growth in demand through 2035.
Finding that much land close to where the power demand is (can't put it all in the Sahara) is.... well..... impossible. Some can go offshore, but that's expensive.

In terms of power per acre, nuclear, coal and oil are a much better bet. We should focus on cleaning the supplies that will work rather than subsidizing technology that can't keep up with demand.

Thursday, June 14, 2012

ObamaCare and the Supreme Court

The U.S. Supreme Court is expected to issue a ruling this month on the constitutionality of certain parts of President Obama'a Healthcare reform law, the Patient Protection and Affordable Care Act, (or ObamaCare for short).

This analysis of 4 possible outcomes is very interesting. It's written from the perspective of an opponents of ObamaCare, and includes advice for how opponents of the law should react to each of the scenarios. In brief, the 4 possibilities are:

  1. The Court rules that the individual mandate is constitutional. ObamaCare remains the law.
  2. The Court rules that only the individual mandate is unconstitutional.
  3. The Court rules that the individual mandate is unconstitutional and that certain other provisions depending on that mandate should be struck down.
  4. The Court rules that the individual mandate is unconstitutional and ObamaCare in it's entirety should be struck down.

(There is a fifth option, which is very unlikely given the circuit split. The Court could decline to issue a ruling, and let all lower rulings stand).

It's interesting to note that three of the four likely outcomes are not good for the Obama administration. If I had to bet, I'd bet on option 2 or 3. The Court is likely to make the ruling as narrow as it can to get a majority to agree.

I do think it will be a 5-4 or a 6-3 decision. That's unfortunate, because those decisions usually are narrower, and are interpreted by the press as having less authority than unanimous (or nearly unanimous) decisions.