Quotulatiousness

September 23, 2013

Merkel’s victory

Filed under: Economics, Europe, Germany, Politics — Tags: , — Nicholas @ 11:06

German Chancellor Angela Merkel’s conservatives won re-election yesterday, but their Free Democrat coalition partners did not earn enough votes to retain their seats in the Bundestag, so a new coalition will may have to be formed. The Economist has more:

Angela Merkel, chancellor of Germany for eight years, seems likely to stay in office for a few more. She has won for her party, the Christian Democratic Union (CDU), a sparkling election result, with about 42% of the vote when including its Bavarian sister party, the CSU, according to exit polls and estimates. Depending on how the smaller parties fare, that may even suffice for an absolute majority of seats in parliament, allowing Mrs Merkel to govern without a coalition partner as only Konrad Adenauer, also of the CDU, did in the 1950s.

But as of the evening of this election day, September 22nd, other outcomes were still possible. For one, voters delivered a stinging rebuke to Mrs Merkel’s current coalition partner, the liberal Free Democrats (FDP). Having been thrown out of the Bavarian state parliament a week ago, and the state parliament of Hesse today, the FDP seemed likely to be ejected from the federal parliament as well. Its leadership will have to go, its message will have to be renewed, if it is to have any future in German politics.

The greatest unknown on this Sunday evening is the fate of the newest party in German politics, the euro-sceptic (as in: sceptic about the euro, not necessarily the European Union) Alternative for Germany. At 4.9% in the exit polls, it teeters on the edge of the 5% threshold necessary to get into parliament.

Earlier this year, I linked to a Zero Hedge piece which predicted if not the end of the world, the end of stability in Europe following this particular electoral outcome:

There will be nothing but lying until September 22, 2013 which is the date of the German elections. This is the drop dead date that I have been asked about for so long. Then, as soon as the celebration is over that Ms. Merkel is to remain in power, the world will turn on its axis. The status quo will disappear and there will be a “shock and horror” campaign as the Southern nations of Europe demand more help and Germany squirms and then refuses to provide it because it does not have the assets to do so.

Spain, France, Portugal, Greece, Cyprus, and even Italy are all going to line up at the trough only to discover that the promise of water was just that, a promise, and does not exist. A Biblical drought will be upon the Continent and from the political battles will emerge new alliances and new screams calling the traitors by name. The twin towers upon which the markets rest, money from nothing and fairy tale financials, will decompose in the light of this new sun and our old friend, Fear, will return to haunt us.

Let us cast our eyes toward Berlin and see whether this is prophecy or mere doom-mongering.

The growth of Canadian cities in the postwar era

Filed under: Cancon, Economics, Government — Tags: , , , , , — Nicholas @ 09:23

Caleb McMillan has a brief history of the Canadian city after World War 2:

The end of World War 2 marks a good beginning point for this history. North American society went through some big changes and the cities reflect that. In Canada, The Canadian Mortgage and Housing Corporation was created and with it came the regulatory framework that vastly increased the government’s presence in housing. Government intervention — however — always has its unintended consequences. Post WW2, the Canadian government expanded its highway system, got involved in the mortgage business, and allowed provincial and municipal governments to plan and amalgamate city communities. Through monopoly power, central plans have a tendency to hollow out downtown cores that serve the interests of the market. The “Suburban City” is the result of government control over zoning laws and highway construction. These types of communities are sometimes very different from ones created by market means.

While high urban density can be viewed as good or bad, in terms of city functionality, density is a prerequisite for prosperity. City downtowns are market centres. Resources from the periphery are brought to market centres for trade, and within these centres live the people who deal with this market everyday. It has always been the rural farmers and trappers who were the ones on the edge of poverty — surviving the bare elements of nature to reap the rewards later in the city. The city was the centrepiece in the division of labour; a place to go to make a name of ones self. “Simple country living” that suburbia is supposed to reflect was always a Utopian dream. That somehow one could live out in the boonies yet receive the luxuries of a city.

The very idea of “simple country living” was probably an aristocratic notion that somehow took hold of the middle class imagination, because until the 20th century, only the upper classes could afford the luxury of maintaining a residence well outside the cities, yet still well-supplied with the comforts otherwise only available in the city.

This Utopian dream became a reality with the advent of the car. And with government roads, the possibility of suburbia became technically possible. But just because something is technically possible, doesn’t mean that it should necessarily be done. Market signals are the best means of discovering this information. Individual prices revealed through exchange embody information entrepreneurs use to discover consumer demand and determine scarcity. A major factor in Post WW2 Canada was exempt from this process. Roads, and the whole highway system, were already monopolized by the centralized state. The sudden profitability found in developing rural lands for residential purposes was aided by the non-market actions of building government roads.

Critics of suburban life (usually urban types themselves) are at least somewhat correct in their criticism of the suburbs:

But markets in the Suburban City are, in a way, non-existent. For many, the suburban home is an island of private life surrounded by other private islands. Everyone commutes somewhere. The suburban neighbourhood offers nothing more than residential homes, ensuring that streets remain empty and void of commercial activities. Children may play in the streets, but there is no natural adult supervision. Contrast this to a city neighbourhood, where the streets are the best places for children. With a mixture of commercial activity, residential homes, apartments and other city neighbourhoods immediately adjacent to either side — the presence of people is always guaranteed. There is a natural “eyes on the street,” where people ensure law and order through their everyday actions.

September 22, 2013

“By far the worst thing about it is the title”

Filed under: Books, Business, Economics, Media — Tags: , — Nicholas @ 11:13

In the New Statesman, Felix Salmon reviews the latest book by Tim Harford:

Harford […] has a breezy writing style and an infectious sense of humour — but he doesn’t let himself go further than a sober, conservative economist would be comfortable going. He’s trustworthy in a way that most other commentators on economics aren’t. He is not particularly interested in political arguments or in imposing his views on others — instead, he just wants to explain, as simply and clearly as possible, the way in which the economics profession as a whole usually looks at the workings of the world.

Harford, like Levitt, is a microeconomist by training and by avocation; he is most comfortable when faced with questions such as: “Why does a return train ticket on British rail cost only £1 more than a single?” Hence his Undercover Economist franchise: the conceit is that he’s an economist spying on the world, explaining things — and answering readers’ questions — in a way that only an economist would.

With The Undercover Economist Strikes Back, however, Harford has taken a leap out of his microeconomic comfort zone. By far the worst thing about it is the title. There is none of the Undercover Economist about this book, unless you include the dialogue style of writing that Harford has perfected in his FT column. And he’s not striking back at anything at all: no entity was attacking him in the first place. Even the subtitle (How to Run — or Ruin — an Economy) is problematic. No one is going to come away from reading this book convinced that they know how to run an economy.

Instead, what Harford has achieved with his new book is nothing less than the holy grail of popular economics. While retaining the accessible style of popular microeconomics, he has managed to explain, with clarity and good humour, the knottiest and most important problems facing the world’s biggest economies today.

QotD: The personal alienation of Karl Marx

Filed under: Books, Britain, Economics, Europe, Germany, History, Quotations — Tags: , , — Nicholas @ 00:01

Almost any Jew can be stateless, but Marx was particularly so — born of alien parents in a frontier region between Germany and France, educated in the Rhineland and in Prussia, a student at Berlin but a graduate of Jena, exiled by the age of thirty-two. Nor was this domicile chosen from any love of England or of anything but safety. He knew next to nothing of the English when he died, preferring to live among German exiles, talking German, thinking in German, and for preference writing in German. He knew of the toiling masses only from blue books and parliamentary reports. We hear nothing of his travels among the Lancashire cotton mills and as little of his talks with the London poor. There is no record of his visiting the coal mines, the docks, or even a public house. He was essentially homeless, offering no loyalty and expecting no aid. And with his scorn went hatred. He despised and loathed his rivals, quarreled with this allies and condemned all sympathizers who deviated even by a little from the doctrine he held to be sacred. Karl Marx had no country.

C. Northcote Parkinson, “Internal Contradiction”, Left Luggage, 1967.

September 21, 2013

Why wind and solar power can’t meet our needs

Filed under: Economics, Environment, Technology — Tags: , , , — Nicholas @ 10:32

Robert Bryce explains why — no matter how much we might want it to be so — alternate forms of energy like wind and solar power cannot cover our demands:

That 32 percent increase in global carbon dioxide emissions reflects the central tension in any discussion about cutting the use of coal, oil and natural gas: Developing countries — in particular, fast-growing economies such as Vietnam, China and India — simply cannot continue to grow if they limit the use of hydrocarbons. Those countries’ refusal to enact carbon taxes or other restrictions illustrates what Roger Pielke Jr., a professor of environmental studies at the University of Colorado, calls the “iron law of climate policy”: Whenever policies “focused on economic growth confront policies focused on emissions reduction, it is economic growth that will win out every time.”

Over the past 10 years, despite great public concern, carbon dioxide emissions have soared because some 2.6 billion people still live in dire energy poverty. More than 1.3 billion have no access to electricity at all.

Now to the second number: 1. That’s the power density of wind in watts per square meter. Power density is a measure of the energy flow that can be harnessed from a given area, volume or mass. Six different analyses of wind (one of them is my own) have all arrived at that same measurement.

Wind energy’s paltry power density means that enormous tracts of land must be set aside to make it viable. And that has spawned a backlash from rural and suburban landowners who don’t want 500-foot wind turbines near their homes. To cite just one recent example, in late July, some 2,000 protesters marched against the installation of more than 1,000 wind turbines in Ireland’s Midlands Region.

Consider how much land it would take for wind energy to replace the power the U.S. now gets from coal. In 2011, the U.S. had more than 300 billion watts of coal-fired capacity. Replacing that with wind would require placing turbines over about 116,000 square miles, an area about the size of Italy. And because of the noise wind turbines make — a problem that has been experienced from Australia to Ontario — no one could live there.

[…]

In 2012, the contribution from all of those sources amounted to about 4.8 million barrels of oil equivalent per day, or roughly one-half of a Saudi Arabia. Put another way, we get about 50 times as much energy from all other sources — coal, oil, natural gas, nuclear and hydropower — as we do from wind, solar, geothermal and biomass.

September 17, 2013

The flaw in “nudging”

Filed under: Economics, Government, Health, Media — Tags: , , — Nicholas @ 07:18

Coyote Blog looks at the flourishing “nudge” sector of government activity and points out one of the biggest flaws:

The theory behind the idea that government should nudge (or coerce, as the case may be) us into “better” behavior is based on the idea that many people are bad at delay discounting. In other words, we tend to apply huge discount rates to pain in the future, such that we will sometimes make decisions to avoid small costs today even if that causes us to incur huge costs in the future (e.g. we refuse to walk away from the McDonalds french fries today which may cause us to die of obesity later).

There are many problems with this theory, not the least of which is that many decisions that may appear to be based on bad delay discounting are actually based on logical and rational premises that outsiders are unaware of.

But the most obvious problem is that people in government, who will supposedly save us from this poor decision-making, are human beings as well and should therefore have the exact same cognitive weaknesses. No one has ever managed to suggest a plausible theory as to how our methods of choosing politicians or staffing government jobs somehow selects for people who have better decision-making abilities.

A brief history of fifty years of American economic thought

Filed under: Economics, USA — Tags: , , , , , — Nicholas @ 07:07

Tyler Cowen wraps up the rise and fall of “right” and “left” economics in the US since the 1960s:

Throughout the 1970s and most of the 1980s, the so-called “right wing” was right about virtually everything on the economic front. Most of all communism, but also inflation, taxes, (most of) deregulation, labor unions, and much more, noting that a big chunk of the right wing blew it on race and some other social issues. The Friedmanite wing of the right nailed it on floating exchange rates.

Arguably the “rightness of the right” peaks around 1989, with the collapse of communism. After that, the right wing starts to lose its way.

Up through that time, market-oriented economists have more interesting research, more innovative journals, and much else to their credit, culminating in the persona and career of Milton Friedman.

I’ve never heard tales of Paul Samuelson’s MIT colleagues mocking him for his pronouncements on Soviet economic growth. I suspect they didn’t.

Starting in the early 1990s, the left wing is better equipped, more scholarly, and also more fun to read. (What exactly turned them around?) In the 1990s, the Quarterly Journal of Economics is suddenly more interesting and ultimately more influential than the Journal of Political Economy, even though the latter retained a higher academic ranking. The right loses track of what its issues ought to be. There is no real heir to the legacy of Milton Friedman.

September 11, 2013

What do libraries have to do with rent seeking?

Filed under: Books, Bureaucracy, Economics, Education — Tags: — Nicholas @ 07:46

As Logan Albright explains, quite a lot:

Libraries are wonderful places. There is nothing like a vast repository of knowledge, filled with undiscovered treasures for anyone who cares to look. They provide free access to information, both in book form and over the internet, to people would otherwise not be able to afford it. All in all, it’s a lovely service. But as much as I enjoy them, libraries also provide a useful example of the inefficiencies of the public sector and the numerous problems with government funded programs.

You may not realize it, but most librarian jobs these days require a specialized education – a master’s degree in the field of Library Science. The curriculum of such a degree varies from school to school, but the main focus is on using a variety of complex databases, as well as interacting with the public. Why is such a specialized form of education required to work in a library? It’s not like a degree in aeronautics or medicine where actual lives could depend on your competence. A quick search for the job duties of a reference librarian turns up the following: “A reference librarian provides assistance to users of a library who need help locating resources and information.” The average salary for a reference librarian? $39,659 – $55,008. Other library science related jobs can make as much as $100,000 a year.

Of course, it’s not as simple as all that. Locating information in a library database is not like searching Google. It requires specialized skills. You can’t simply type in what you want and expect to get it. The obvious question here is: why not?

The simple answer is that the public funding structure of libraries provides no incentive to improve things. In fact, it encourages just the opposite. Since the library’s budget does not depend on how many customers it pleases, there is no compelling reason to make things easier. Since a library’s revenues come from the public coffers and not from the pockets of voluntary patrons, there is no competitive pressure to keep costs low.

September 7, 2013

TPP negotiators actively concealing their tracks

Filed under: Economics, Government, USA — Tags: , , , — Nicholas @ 09:34

The EFF on the now even-more-secret negotiations for the Trans-Pacific Partnership treaty:

This week, trade delegates met in San Francisco to discuss the Trans-Pacific Partnership (TPP) agreement’s e-commerce chapter. It’s likely that this secret chapter carries provisions that whittle away at user data protections. But we weren’t able to say so at this meeting. Not only have they neglected to notify digital rights groups — including EFF, which is based in San Francisco — about the meeting, we could not even discover where it was taking place.

Delegates from TPP countries are right now holding these secretive “inter-sessional” meetings here and in other undisclosed cities around the world. Trade reps for specific issue areas are hammering out “unresolved” issues that are holding up the conclusion of the agreement, and doing so by becoming even more secretive and evasive than ever.

We only heard about a TPP meeting on intellectual property in Mexico City in September through the diplomatic rumor-mill, since the US Trade Rep is no longer bothering to announce the dates or locations of these closed-door side meetings. During this round in Mexico, countries that have been resistant to U.S. demands to sign onto highly restrictive copyright enforcement standards may ultimately be strong-armed into doing so.

It’s probably safe to assume that the reason they’ve become so secretive is that they don’t want any of us to know what they’re doing until it’s a fait accompli and we can’t do anything about it. That’s how much they trust us.

September 2, 2013

Macroeconomics and math

Filed under: Economics — Tags: , , , — Nicholas @ 09:06

Noah Smith on the uneasy foundations of modern macroeconomics:

In macro, most of the equations that went into the model seemed to just be assumed. In physics, each equation could be — and presumably had been — tested and verified as holding more-or-less true in the real world. In macro, no one knew if real-world budget constraints really were the things we wrote down. Or the production function. No one knew if this “utility” we assumed people maximized corresponded to what people really maximize in real life. We just assumed a bunch of equations and wrote them down. Then we threw them all together, got some kind of answer or result, and compared the result to some subset of real-world stuff that we had decided we were going to “explain”. Often, that comparison was desultory or token, as in the case of “moment matching”.

In other words, the math was no longer real. It was all made up. You could no longer trust the textbook. When the textbook told you that “Households maximize the expected value of their discounted lifetime utility of consumption”, that was not a Newton’s Law that had been proven approximately true with centuries of physics experiments. It was not even a game theory solution concept that had been proven approximately sometimes true with decades of economics experiments. Instead, it was just some random thing that someone made up and wrote down because A) it was tractable to work with, and B) it sounded plausible enough so that most other economists who looked at it tended not to make too much of a fuss.

We were told not to worry about this. We were told that although macro needed microfoundations — absolutely required them — it was not necessary for the reality of any of these microfoundations to be independently confirmed by evidence. All that was necessary is that the model “worked” after all the microfoundations were thrown together. We were told this not because of any individual failing on the part of any of our teachers, but because this belief is part of the dominant scientific culture of the macro field. It’s the paradigm.

Slate on the gender wage gap

Filed under: Business, Economics — Tags: , , , — Nicholas @ 08:56

Hanna Rosin debunks the meme that “women only get paid 77 cents for every dollar earned by men doing the same job”:

The official Bureau of Labor Department statistics show that the median earnings of full-time female workers is 77 percent of the median earnings of full-time male workers. But that is very different than “77 cents on the dollar for doing the same work as men.” The latter gives the impression that a man and a woman standing next to each other doing the same job for the same number of hours get paid different salaries. That’s not at all the case. “Full time” officially means 35 hours, but men work more hours than women. That’s the first problem: We could be comparing men working 40 hours to women working 35.

How to get a more accurate measure? First, instead of comparing annual wages, start by comparing average weekly wages. This is considered a slightly more accurate measure because it eliminates variables like time off during the year or annual bonuses (and yes, men get higher bonuses, but let’s shelve that for a moment in our quest for a pure wage gap number). By this measure, women earn 81 percent of what men earn, although it varies widely by race. African-American women, for example, earn 94 percent of what African-American men earn in a typical week. Then, when you restrict the comparison to men and women working 40 hours a week, the gap narrows to 87 percent.

[…]

Goldin and Lawrence Katz have done about as close to an apples-to-apples comparison of men’s and women’s wages as exists. (They talk about it here in a Freakonomics discussion.) They tracked male and female MBAs graduating from the University of Chicago from 1990 to 2006. First they controlled for previous job experience, GPA, chosen profession, business-school course and job title. Right out of school, they found only a tiny differential in salary between men and women, which might be because of a little bit of lingering discrimination or because women are worse at negotiating starting salaries. But 10 to 15 years later, the gap widens to 40 percent, almost all of which is due to career interruptions and fewer hours. The gap is even wider for women business school graduates who marry very high earners. (Note: Never marry a rich man).

I’ve posted similar articles on this topic before: August, 2012, June 2012, and July 2010.

August 30, 2013

Economic Darwinism – you’re soaking in it

Filed under: Economics, Government — Tags: , , , — Nicholas @ 09:19

Charles Hugh Smith on the next big financial crisis and the way we’ve carefully put the worst people in place to cope with it:

Brenton Smith (no relation) recently identified a key driver of the next financial crisis: Economic Darwinism. Just as natural selection selects for traits that improve the odds of success/survival in the natural world, Economic Darwinism advances people and policies that boost profits and power within the dominant environment.

As Brenton explains in his essay The One Phrase That Explains the Great Recession, “The Federal Reserve’s 20-year policy of easy money created an environment virtually assured to select bankers, bureaucrats, educators, and elected officials who least understood the consequences of a credit crisis.”

In other words, a hyper-financialized environment of near-zero interest and abundant credit rewarded those people and policies that succeed in that environment. Once the environment changes from “risk-on” to “risk-off,” the people and policies in charge are the worst possible choices for leadership, as the traits that enable successful management of credit crises have been selected out of the leadership pool.

This has political as well as financial consequences. As Brenton noted in an email exchange, Economic Darwinism creates an “incestuous relationship between Wall Street and Washington D.C., where success on Wall Street leads to a career in D.C.” This is a self-reinforcing process, as all those who are unwilling to keep dancing during the risk-on speculative orgy are weeded out of both the financial and political sectors, while those who dance the hardest gain political power, which they use to keep the music playing regardless of the increasing risks or consequences to the nation.

Trade negotiations are so secret that MPs are denied access to the information

Filed under: Cancon, Economics, USA — Tags: , , , , , — Nicholas @ 08:55

Techdirt‘s Mike Masnick says that even congressmen have (limited) access to ongoing Trans-Pacific Partnership negotiation documents, but that even the NDP’s trade critic can’t get that level of information here:

Don Davies is a Canadian Member of Parliament who notes that he’s been denied access to information about the ongoing TPP negotiations, of which Canada is supposedly a member:

    “The TPP is a sweeping agreement covering issues that affect many areas of Canada’s economy and society — including several areas of policy that have never been subject to trade agreements before,” said Davies. “By keeping Parliament completely in the dark on negotiations the Conservatives also leave Canadians in the dark and, for an agreement of this magnitude that is abnormal and unacceptable.

    “If the US can allow its legislators to see the TPP text, there is no reason that Canada can’t,” Davies said.

In this case, it’s doubly ridiculous. Davies is a member of the NDP party, which is not in power, but his role is as the Official Opposition Critic for International Trade. In other words, he’s basically the trade policy expert for the NDP, and as such, you’d think he should at the very least be included in the details of ongoing negotiations. Yet again, though, it seems that the main negotiating parties involved in the TPP have realized that the best way to get across an agreement they like is to keep it as secretive and non-transparent as possible, especially from critics. This is the exact opposite of how democratic governments are supposed to work.

Of course, the addition of Canada to the TPP has always been done in a way to keep our neighbor up north as a silent partner to the US’s position. You may recall that the US didn’t let Canada join until well into the negotiating process, and as part of the invite, Canada was told that it had to accept all negotiated text without question, even though it wasn’t allowed to see it yet. And, related to that, they had to agree to future texts during some meetings where they weren’t allowed to attend.

August 29, 2013

Meet the Undercover Economist, Tim Harford

Filed under: Books, Economics, Media — Tags: , — Nicholas @ 08:36

A profile of economist and popular author Tim Harford in The Independent:

Tim Harford can’t help himself. We are navigating our way to lunch in an unfamiliar city and I am momentarily disorientated by the mass of visual paraphernalia at a busy crossing. My hesitation is his cue for a story about the Dutch traffic engineer who found that getting rid of excess street furniture forced car drivers to take more responsibility, dramatically slashing the number of accidents.

Welcome to the world as seen by Harford, a man who made his name explaining the economic rationale behind everything that we do. His tale about the late Hans Monderman is illustrative. Later, over a tableful of dim sum, he adds: “The world is a constant source of ideas for someone who thinks like an economist.”

His bestselling “Undercover Economist” books have made him a founding member of the new tribe popularising the dismal science; not before time given the circumstances, you might add. His latest volume, The Undercover Economist Strikes Back, subtitled How to Run — or Ruin — an Economy, is out this week. It tackles the recent “titanic” mess and is his first foray into macroeconomics, also known as the “bigger picture”.

“It’s my job to figure out an interesting way to talk about these things, and a different angle that’s fun and memorable and tells people something about how the economy works…. I’ve always been much more of a micro guy — individual behaviour and the psychological elements of game theory were always my thing, so when I started, it felt like a sense of duty. But halfway through, the subject had won me over.”

[…]

As it happens, Harford, who turns 40 next month, didn’t intentionally study economics. His undergraduate PPE degree (philosophy, politics and economics) was the “classic Oxford degree for people who don’t know what to do”, and he spent his first year intending to drop economics at the end of it. Pressed by his tutor, after doing “really well”, he changed his mind and thus his life, not least because he met his wife while working at Shell, in the scenario planning team for a certain Vince Cable.

Despite starting out in a job that required forecasting, Harford is defensive of his profession, which is much maligned for not predicting the global crash. “Economists have allowed themselves to walk into a trap where we say we can forecast, but no serious economist thinks we can,” he says, pointing again to a Keynes quote, this time aligning economists and dentists. “You don’t expect dentists to be able to forecast how many teeth you’ll have when you’re 80. You expect them to give good advice and fix problems. We’ve allowed ourselves to become really bad weather forecasters, which is a shame.”

August 28, 2013

Megan McArdle on why Wal-Mart can’t pay like Costco

Filed under: Business, Economics, USA — Tags: , , , — Nicholas @ 08:14

TL;DR – it’s not because they’re Dickensian monsters.

I wrote about this last spring in regard to Wal-Mart and Costco. Upper-middle-class people who live in urban areas — which is to say, the sort of people who tend to write about the wage differential between the two stores — tend to think of them as close substitutes, because they’re both giant stores where you occasionally go to buy something more cheaply than you can in a neighborhood grocery or hardware store. However, for most of Wal-Mart’s customer base, that’s where the resemblance ends. Costco really is a store where affluent, high-socioeconomic status households occasionally buy huge quantities of goods on the cheap: That’s Costco’s business strategy (which is why its stores are pretty much found in affluent near-in suburbs). Wal-Mart, however, is mostly a store where low-income people do their everyday shopping.

[…]

In other words, Trader Joe’s and Costco are the specialty grocer and warehouse club for an affluent, educated college demographic. They woo this crowd with a stripped-down array of high quality stock-keeping units, and high-quality customer service. The high wages produce the high levels of customer service, and the small number of products are what allow them to pay the high wages. Fewer products to handle (and restock) lowers the labor intensity of your operation. In the case of Trader Joe’s, it also dramatically decreases the amount of space you need for your supermarket … which in turn is why their revenue per square foot is so high. (Costco solves this problem by leaving the stuff on pallets, so that you can be your own stockboy).

Both these strategies work in part because very few people expect to do all their shopping at Trader Joe’s, and no one expects to do all their shopping at Costco. They don’t need to be comprehensive. Supermarkets, and Wal-Mart, have to devote a lot of shelf space, and labor, to products that don’t turn over that often.

[…]

That’s not the only reason that the Trader Joe’s/Costco model wouldn’t work for Wal-Mart. For one thing, it’s no accident that the high-wage favorites cited by activists tend to serve the affluent; lower income households can’t afford to pay extra for top-notch service. If it really matters to you whether you pay 50 cents a loaf less for generic bread, you’re not going to go to the specialty store where the organic produce is super-cheap and the clerk gave a cookie to your kid. Every time I write about Wal-Mart (or McDonald’s, or [insert store here]), several people will e-mail, or tweet, or come into the comments to say they’d be happy to pay 25 percent more for their Big Mac or their Wal-Mart goods if it means that the workers are well paid. I have taken to asking them how often they go to Wal-Mart or McDonald’s. So far, no one has reported going as often as once a week; the modal answer is a sudden disappearance from the conversation. If I had to guess, I’d estimate that most of the people making such statements go to Wal-Mart or McDonald’s only on road trips.

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