WHAT WAS I WRITING ABOUT READING COMPREHENSION? A diarist at Daily Kos who writes as J. R. Monsterfodder was hunting around for posts on Wal-Mart, found my observations on an exam question involving Wal-Mart, and decided to lodge a gripe.

Many Wal-Mart fights are in suburbs these days, do they count as a metro area or are they their own communities? What if the small business objects to Wal-Mart on political rather than self-interested grounds? Is that even possible under the premise of your question?

Furthermore, the premise of the question is completely wrong. Large cities have been the site of some of the strongest protests against Wal-Mart. One of my favorite anti-Wal-Mart blogs is run out of a very large community called New York City by a group called The Neighborhood Retail Alliance [Hi Matt!]. Small businesses have been part of broader anti-Wal-Mart coalitions in other cities such as Cleveland and Chicago too.

The real person behind J. R. is one Jonathan Rees, a Wisconsin Ph.D. now professing history at Colorado State, Pueblo, who has written on labor relations in the intermountain steel industry. His reaction to the 1920 verdict acquitting U.S. Steel of monopolization might be worth buying a Sprecher to hear. But let's return to the question itself. My gripe was with the common schools failing to equip my charges to parse "are not ... why not?" My sense is that a conditional probability question would be child abuse. And somehow, an alliance of protected-status rent-seekers does not a quorum of the Chamber of Commerce make.

Perhaps we're talking about introductory political economy, or labor institutions. The introductory political economy texts I've seen are not sufficiently daring to raise a question such as "Are small business owners offering goods the chain stores don't offer acting contrary to their class interests by not protesting the entry of chains?" Then there might be a real gem. "A Wal-Mart opens near a major railroad yard. Did the railroaders' union err in not protesting the store?"

But the question addresses a simpler phenomenon, which the local press noticed.

Despite the worst fears of some, Wal-Mart's impact on Belvidere's retail community appears to have been most helpful.

Boone County Administrator Ken Terrinoni looks at his county budget and believes the county is far better off with Wal-Mart and the other new retail establishments that came with it.

Boone and Belvidere sales tax receipts closed the 2005 Illinois fiscal year up 28 percent and 25 percent, respectively. Wal-Mart's August opening ran almost parallel to the state fiscal year that ended June 30.

Post hoc disclaimer applies, but read on:

Tony Dal Pra, a local attorney, businessman and outspoken opponent of Wal-Mart, maintains that with the arrival of Wal-Mart has come a shift in the business environment that he does not believe is all that positive.

However, Dal Pra stopped short of saying Wal-Mart has had a negative impact on Belvidere's business community.

"In our case, we have managed to sustain ourselves and are doing quite well," said Dal Pra, as he talked about Pacemaker grocery in Belvidere, one of his business interests.

"We have a stronger perishable department than Wal-Mart. It has had some modest effect on our business, but our meat and deli sales have actually increased. I believe some of our departments are prospering because of the quality of the products we have."

Downtown Belvidere is another animal. Turnover of small mom-and-pop stores is somewhat common, but thus far it appears that downtown has sustained minimal impact as a result of Wal-Mart.

And I knew of some of this last week, when Professor Rees lodged his protest, but waited for the story to be published.

Stephen Karlson, professor of economics at Northern Illinois University, acknowledges that small businesses where "everybody knows your name" are at a disadvantage when it comes to trying to compete with Wal-Mart. But they often withstand the challenge Wal-Mart presents by creating extremely high standards of customer service and by serving niche markets that Wal-Mart often is not interested in.

One of Monsterfodder's readers gets partial credit. Here's the full story.

"When Wal-Mart comes into bigger cities, it's more likely to have an effect on other national chains and less of an impact on smaller businesses because in large suburbs and cities, smaller businesses already are catering to customers that Wal-Mart is not after," Karlson said. "For example, if you are looking to buy an O-gauge model train, or any model train for that matter, you are probably not going to go to Wal-Mart."

So. Logic. Evidence. Media interest. But why let such mundane things get in the way of a good rant?

And a special note to Professor Stephen Karlson of Northern Illinois University should you ever Google yourself and come upon this: You really should make sure that you have the slightest idea of what your talking about before you find it necessary to insult your students' intelligence. Your arrogance gives all of us in academia a bad name.

I've had my share of scathing referee reports, but at least those showed evidence of making an effort to read and understand my argument.

NOSTALGIC FOR THE OLD INDUSTRIAL STATE? I recently took delivery of and quickly read through Wal-Mart: The Face of Twenty-First-Century Capitalism and hope to put together a coherent Book Review No. 26. I say "hope to" as I am struggling to integrate several recent columns on Wal-Mart, which has become a political football for the Democratic Party, as well as thirty years of studying industrial organization and the political economy and policy implications therein. And thus my first struggle. Wal-Mart is an unrefereed conference volume, in which several social science professors, several dissertators, and some union organizers had their papers edited by Santa Barbara's Nelson Lichtenstein into the book. It would probably not be difficult to obtain sufficient sympathetic faculty members to serve as anonymous referees, but I don't want to go after this book as a symptom of a left monopoly on campus. Rather, I want to consider both the evolution of populist political economy and the possibility that some people would just as soon pen "critiques of capitalist production" for their own sake rather than to argue a consistent theoretical position. But that might just be my training as an economist coming through.

Consider one theme of the book. At one time, conference participants maintain, there was a middle-class-friendly economy in which large manufacturing firms produced goods in unionized factories. Wal-Mart is the leading edge of a proletarianized economy in which large retailers squeeze those manufacturers while doing everything possible to drive down wages. Tapped's Ezra Klein spells out those behaviors in more detail.

Perhaps I'm showing my age, but at one time the populist political economy saw those large manufacturing firms as building blocks of a monopoly capitalism that practiced conscious parallelism, which reduced efficiency by restricting output and raising prices, and the unions as accomplice residual claimants to the monopoly profits thereby obtained. The retailers of the era were complicit in that monopoly capitalism, with a concentrated food packing industry and often vertically integrated supermarkets profiting by the inflated price of bread, although, again, food and commercial workers' unions participated as residual claimants. Because firms could practice conscious parallelism without calendars to keep track of the phases of the moon or meetings in the back room at Dirty Helen's, antitrust action could do nothing about the resulting inefficiencies, although Wal-Mart could.

But when Wal-Mart goes after those inefficiencies, that's bad. Mr Klein summarizes in a few sentences what several chapters of the book spell out in more detail.

In action and effect, Wal-Mart is an active monopsony -- a seller able to dictate the price to its producers. They've forced Coke to change their secret recipe, Kraft to lay off thousands of employees, and Vlasic to declare bankruptcy. And because Wal-Mart so obsessively pursues the lowest possible prices, they're not only depriving their own workers of generous benefits and compensation, they're making it literally impossible for their producers to do so, as Wal-Mart won't abide by the minor cost differences that on-shore production and respectable benefits demand.

(The book concedes that Kraft and Vlasic committed other errors and declines to blame those companies' troubles solely on Wal-Mart.) An article by Barry Lynn, which appears in Harper's, suggests that the presence of Wal-Mart as a major buyer of groceries restores conditions reminiscent of the Great Depression in food distribution.

Kraft has announced plans to shut thirty-nine plants, to let go 13,500 workers, and to eliminate a quarter of its products. Most reports blame soaring prices of energy and raw materials, but in a truly free market Kraft could have pushed at least some of these higher costs on to the consumer. This, however, is no longer possible. Even as costs rise, Wal-Mart and other discounters continue to demand that Kraft lower its prices further. Kraft has found itself with no other choice than to swallow the costs, and hence to tear itself to pieces.

In a "truly free market," a seller can stick to the equilibrium price secure in the knowledge that another buyer who is willing to pay the equilibrium price is out there. A buyer can hold out for the equilibrium price secure in the knowledge that another seller who is willing to ask the equilibrium price is out there. Perhaps Wal-Mart is behaving like a monopsonist, compelling Kraft to lower its prices or sell nothing at all. But for that to work, there has to be another vendor who is able to sell at the price Wal-Mart asks, and under those circumstances, a true monopsonist is able to inefficiently reduce output of cheese and pickles. (But Wal-Mart's sin is in selling larger volumes at lower prices.) If there is no such vendor, the bargaining is repeated bilateral monopoly, a somewhat more complex proposition. (Looking for a dissertation topic?) There appear to be other vendors. Sometimes those vendors have factories in developing countries, which the authors of Wal-Mart view as more evidence of globalization-as-immiserization. Michael Strong's "Forget the World Bank, Try Wal-Mart" on Tech Central Station works as a companion piece, should you be considering Wal-Mart for your course outline. There's also potential for comparing repeated bilateral monopoly with antitrust action as countervailing power at work. Again, Mr Lynn has the short form, there are longer forms of this theme in the book.

The text of the Sherman Act itself is famously vague, but the Supreme Court's decision in the 1911 Standard Oil case was based flatly on the assumption that the need to ensure robust competition sometimes outweighs the benefits of near-term efficiency. Standard's roll-up of the oil industry cut the cost of kerosene by nearly 70 percent, and yet the justices shattered the firm into thirty-four pieces. For many legislators, this was not nearly enough. Three years later, Congress greatly strengthened the rules against inter-firm price discrimination, in the Clayton Antitrust Act. Then in 1936, Congress did so again, even more resoundingly, by passing the Robinson-Patman Act. Wright Patman, the Texas Democrat who was the main force behind the bill, made sure everyone understood Congress's intent. "The expressed purpose of the Act is to protect the independent merchant," he wrote on the first page of a book he published to explain the law, "and the manufacturer from whom he buys."

For discussion: is it a proper function of government to support our right to pay higher prices to buy locally? Wal-Mart repeats the complaint that local merchants tend to spend a larger portion of their receipts locally. But those merchants cannot exist without suppliers elsewhere. Is a larger share of a smaller volume of business necessarily better?

A second theme of the book is the evolution of public attitudes toward chain retailers. Although the Robinson-Patman act targeted A&P, and conference participants are groping toward some analogous taming of Wal-Mart, the first self-service supermarkets were Piggly Wiggly's in Memphis, and Wal-Mart is a scaling up of Butler Bros. Ben Franklin dime stores. Sam Walton ran one, and a craft store still trades in Sycamore, a Wal-Mart supercenter in Schaumburgmore notwithstanding. Local shopkeepers understandably didn't like distant competitors, particularly those offering more stuff at lower prices. (Superior efficiency is never popular?) Advocates of local control didn't either. Neither did nativists. As I noted, populist political economy has a tortured history.

A third theme of the book is possible regional differences in attitudes toward the New Deal consensus. One author noted Wal-Mart and other new business models growing up as it were in the cracks of the New Deal consensus. (Open markets are environments in which powerful evolutionary forces are at work?) Another found a blend of old-style social norms with modern management methods. (Page 80):

The company could win an employee's bedrock loyalty by accommodating her hours to her children's school day -- a perk few parents would take for granted in any field. In the context of small towns, extended families, and long-term marriages, women compared Wal-Mart's stable, sociable hourly jobs to the lonely monotony of ironing or chicken processing, not to the brutal schedules and constant mobility of Wal-Mart's well-compensated male managers. And while it took a federal court battle to force Walton to pay even minimum wage to his stores' staff in the Ben Franklin days, many employees from Wal-Mart's biggest growth years found the pay competitive if not munificent. Moreover, the constant stock splits rewarded the same stability that they valued themselves. Raised on farms that were rapidly losing their viability, many women of Wal-Mart saw the company's terms as a reasonable bargain that allowed them to stay close to home and accorded with their own essential conceptions of their responsibilities.

Those managers? Generally recruited from nearby state universities, most likely not the flagships. No Harvard MBAs or Kellogg quants here.

The book is a conference volume out of a humanities symposium. So What Is to be Done? Here, the book falls flat. The concluding chapters are by union organizers. Guess what? The participants appear to have left tendencies. Wal-Mart is a very centralized corporation (cash registers will be turned off if Benton discovers a cashier has not taken a break required by hours of service laws) with a lot of planning and budgeting. Curiously, nobody recognized the potential for applying one of the old syndicalist arguments and simply taking control of the means of distribution (which have sufficient cost controls over the means of production) on behalf of the workers and shoppers. The essays that focus on conditions of work in the States suggest Wal-Mart is instrumental in fostering income polarization, while those that focus on the company's overseas efforts suggest Wal-Mart's focus on the lower-middle-class will not work well in developing countries where there is real polarization. Several essays note the company's high labor turnover rates, but none of them recognize those as symptoms of weakness both in the company's business model and in the conference's prior belief that the company is a monopsonist capable of immiserizing its workers and its suppliers.

EVERYDAY LOW PRICES, SQUEEZED SUPPLIERS, HIGH TURNOVER? Economist's View links, without comment, to a Washington Post story on Wal-Mart, good and bad.

Question 1: What is the opportunity cost of a bottle of barbecue sauce?

Suppose you're the manager of barbecue sauce at Kraft, he began. You go down to Bentonville to show off the new label on your bottles and the summer's jazzy cardboard display, "and all they say is: 'What's your price?' And you say, '99 cents a bottle.' And they say, 'You know, we don't care about the cardboard display, that's cute and everything, but, 79 cents.' "

How do you deal with that? [author Charles] Fishman [writing in the Ida Tarbell tradition?] asked.

"You slap your palm on your forehead and you say: '79 cents a bottle! What a brilliant idea!' "

And if you don't?

"They say, 'Well, we're not going to carry the barbecue sauce.' "

But wait! You represent a major multinational corporation! Why wouldn't you hold the line?

"Well, you just lost 20 percent of your barbecue sauce business for the year. By the time you get back to Chicago from Bentonville, you're fired."

On the other hand, if you took a loss on the sale to Wal-Mart, you're fired. Is Kraft attempting to hold-up Wal-Mart, or the other way 'round?

Question 2: How much waste is inherent in packaging?

Prowling the health and beauty section, he reminds me that some years back, just about all deodorant brands came in paperboard boxes. Then Wal-Mart said: Boxes costs money, they take up space, who needs 'em? Pretty soon, deodorant didn't come in boxes anymore.

No harm done there, unless you were a box manufacturer: Wal-Mart was using its clout to force waste out of the system. What's more, Fishman says, it passed on most of the savings. Its main goal, when forcing suppliers to economize, is to keep prices down, not to increase its extremely low profit margins. Its formula is simple: Low prices equal volume equals growth and thus success.

But what happens when the factor-minimal frontier is achieved?

The company's record on outsourcing is less good.

Last year, [Bangladeshi garment worker Rubina] Akther joined 14 other workers from Bangladesh, China, Swaziland, Indonesia and Nigeria to sue Wal-Mart, arguing that its suppliers' actions are the company's responsibility. Wal-Mart has argued, in response, that it has a code of conduct for its suppliers and a worldwide inspection program to enforce it. Fishman's analysis of this program led him to conclude that Wal-Mart's inspections, however well-meaning, are not tough, frequent or independent enough to prevent abuse.

Some companies are able to resist the hold-ups.

That would be the Snapper mower, a high-end brand whose management decided a few years back that it couldn't afford to continue dealing with Wal-Mart. The reason? Meeting Wal-Mart's incessant demands for lower prices would put the company in what Fishman describes as a "death spiral" of "collapsing profitability, offshore manufacturing and the gradual but irresistible corrosion of the very qualities for which Snapper was known."

Almost no one turns down Wal-Mart. The sales volume it offers is simply too enticing. But "once you get hooked on the volume," as the CEO of Snapper's parent company once explained, "it's like getting hooked on cocaine."

Fast Company has more on Snapper (looks like Brett Favre does endorsements) choosing not to deal with Wal-Mart.

BIG CITIES ARE OBSOLETE.

What is it about self-styled "progressives" that makes so many of them so ... reactionary? Consider The Urban Archipelago, from the Portland Mercury. Main message:

Liberals, progressives, and Democrats do not live in a country that stretches from the Atlantic to the Pacific, from Canada to Mexico. We live on a chain of islands. We are citizens of the Urban Archipelago, the United Cities of America. We live on islands of sanity, liberalism, and compassion--New York City, Chicago, Philadelphia, Seattle, St. Louis, Minneapolis, San Francisco, and on and on. And we live on islands in red states too--a fact obscured by that state-by-state map. Denver and Boulder are our islands in Colorado; Austin is our island in Texas; Las Vegas is our island in Nevada; Miami and Fort Lauderdale are our islands in Florida.

And on these Fantasy Islands, how do people live?

Citizens of the Urban Archipelago reject heartland "values" like xenophobia, sexism, racism, and homophobia, as well as the more intolerant strains of Christianity that have taken root in this country. And we are the real Americans. They--rural, red-state voters, the denizens of the exurbs--are not real Americans. They are rubes, fools, and hate-mongers.

Now that you've had your scream, tell us how you really feel.

CARNIVAL CALL. Carnival of the Capitalists presents an extensive bannerline at Business and Technology Reinvention. If you're following the Wal-Mart wars, this Scatterbox post might be a useful companion to my entry at the Carnival.

The concluding paragraph suggests there might be two systems of belief about the role of business.

But for all the rhetoric bombs and finger-pointing, Wal-Mart still handles some 140 million customers every week representing more than 80 percent of the American population. It’s reasonable to think that many Americans are oblivious to the whole commotion. And it's almost certain that many more are just plain ambivalent about it.

Why? Because in the real workaday world, these millions of people are consumers, not constituents. And consumers go Wal-Mart to get good prices on things they need – not to support a particular political party or public policy agenda.

First belief system: Civilization progresses by expanding the number of tasks people can do without thinking about them. I think that's Mises, feel free to correct me. Under this belief system, Wal-Mart evolved to make a wider variety of cheap stuff available.

Second belief system: The personal is political. Human interaction is inherently a negotiation over the allocation of resources and power. Although Wal-Mart well might have evolved precisely to make a wider variety of cheap stuff available, left unstated are the reasons why "variety" and "cheap" matter, and that's prior to any discussion about how Wal-Mart goes about achieving those things.

Does it follow that people can shop at Wal-Mart without contemplating politics or policy? Yes. Can Wal-Mart exist independent of politics or policy? No.

NACHALSTVO. Senator John "Two Nations" America might publicly condemn Wal-Mart, but he knows where to go for bargains. Or, more precisely, where to send the hired help for bargains.

Edwards explains that an overzealous campaign staffer – is there ever any other kind? – took his family's longings for a Playstation 3 a little too seriously. A call was placed to Wal-Mart to see if the Edwards clan could somehow jump to the front of the line for season's hottest gotta' have gift. Aside from the staffer's positively insane decision to reach out to a Raleigh Wal-Mart given all of Edwards' repeated slams of the company, nothing too surprising here. Just garden variety American ruling class behavior.

To their credit, Wal-Mart management is capable of mau-mauing those who would mau-mau them.

That the Edwards request actually made its way to Bentonville, where a decision was made to respond, and to respond forcefully again sets Wal-Mart apart from most of corporate America. Try to imagine that happening with a Big 2.5 automaker, for example. News of the request would take a week to get past an iron guard of executive VPs. Wal-Mart acted in hours.

The real lesson, columnist Jeff Taylor suggests, is that the political class ought to stop campaigning out of Charles Dickens's playbook.

The alternative to a Democratic presidential campaign marked by a downward spiral of Pythonseque depravation one-upsmanship might actually address issues like the federal entitlement explosion or comprehensive income tax reform, two areas where Republicans have failed miserably to advance any coherent solution. Should Edwards or Hillary Clinton or someone find a way to talk about these things without class-warfare cant, they'll have a head start on the general election.

In any event, maybe the best thing for Wal-Mart to do is stop chortling and go ahead and give John Edwards a PS3 and a couple games. Throw in a flat-panel too. Maybe that way he'll reacquaint himself with American prosperity and abundance and be a better candidate for the experience.

And we'll all be better persons for it.

THE ONLY THING WORSE THAN WAL-MART DRIVING OUT SMALL BUSINESSES IS WAL-MART DRIVEN OUT OF BUSINESS.

At the end of last year, we noted that the absence of bourgeois norms finally came for Wal-Mart.  That, despite Wal-Mart being the kind of place where the absence of bourgeois norms was the norm (prior to that notorious text about Wal-Marts smelling of Trump voters, and without any reference to the nasty People of Wal-Mart web site).  I'm as guilty as anyone of being snarky:  "We'll get a better class of Walmarts when we get a better class of shoppers there."  And yes, we've noted, not always approvingly, the criticism of Wal-Mart for destroying small businesses in traditional business districts.

Then, the class of shoppers becomes the class of shoplifters, and even one of the world's most successful retailer has enough. "Walmart to close remaining Portland stores as crime-ridden city battles shoplifting wave."  Yes, that's a New York Post article, complete with editorial content in the headline. A few lines into the article comes the disclaimer.  "The company did not say whether retail theft was a factor in shuttering the Walmart locations in the North and Southeastern sections of the Rose City."

The Gray News reporting notes that it is not the carriage trade going to be affected by the closures.

People who live near the stores that are closing say the closure is going to have a big impact on low-income shoppers.

“Safeway is the go-to-store if I have to, but that’s three times the price I would spend here,” Walmart shopper Amanda Pahl said. “What are we going to do? You’ve got to go further then you have to spend gas money. Might as well pay for it at Safeway at this point.”

According to a Walmart spokesperson, pharmacy staff will work with customers to transfer their prescriptions to other locations before the store closing date.

All employees at the two locations will have the option to transfer to other, nearby locations.

There will still be more than a dozen Walmart stores in the Portland metro area, outside of Portland’s city limits.

When all of Portland becomes a food desert, what are the odds of Portland's political class blaming "capitalism?"

PROFITING BY THE IGNORANCE OF OTHERS? Eras of "energy crisis" provide all manner of Teachable Moments for industrial economists. (I find myself assuring students, or is it reminding myself, that although we could devote the entire semester to energy prices, we won't.) Take a couple of news items. One shows the Principle of Complements at work.

"I think everybody's very cautious about buying a larger SUV right now. They're great vehicles, but they do use more gas, and I think that's where people are concerned," said Dennis Worthy, general manager of the auto auction near Caledonia.

Worthy said prices for bigger used SUVs have fallen as demand has waned, but prices for smaller, fuel-efficient used cars have increased.

The lack of interest in gas-gulping used SUVs is just one sign that rising gasoline prices - which might climb further because of the BP pipeline problem in Alaska - are changing the market for cars.

The article also illustrates why economists keep on invoking ceteris paribus.

The run-up in gas prices clearly has cut the demand for vehicles that use a lot of fuel, but U.S. automakers haven't been nimble enough to adapt quickly, some experts said.

"They were making money hand over fist for a lot of years, so that makes it hard to change," said Jay Baron, president and chief executive of the Center for Automotive Research in Ann Arbor, Mich. "It's difficult to come up with new kinds of vehicles. . . when sales are going well."

Even though sales of big SUVs are dropping, it's way too early to start writing an obituary for SUVs, others contended. Not everybody wants a smaller vehicle, and many still consider the convenience and their personal needs - such as roominess - worth the cost of the gas it takes to keep an SUV or a bigger vehicle running.

We still have some work to do distinguishing long-run from short-run adjustments, as well as making sense out of optimal inertia. Established firms frequently get clobbered by surprises. But somebody had to come up with the idea of the SUV. It did not spring in full obnoxiousness off of Henry Ford's drafting table. Economists also like to think in elasticities. Here's why.

[Paul] Taylor [of the National Automobile Dealers Association] noted that every dollar increase in a gallon of gasoline from now on will be smaller as a percentage than the boost to $2 from $1 and to $3 from $2.

The average price of a gallon of unleaded gas in metro Milwaukee on Monday was about $3.23 a gallon, according to Milwaukeegasprices.com

"People make adjustments about the prices of gasoline in the context of all the expenses associated with buying and operating a new car," Taylor said.

In the two years after a 1997 increase in the price of a gallon of gas, from about $1.25 to $1.30 to $1.60 to $1.70, he noted, the purchase of four-cylinder autos went up about 5% in models in which less-efficient six-cylinder engines also were an option.

Relative prices, relative prices. Another article shows that the confusion over what constitutes competition never goes away. There's this "minimum mark-up" law in Wisconsin that applies, or does not apply, to motor fuels.

The 1930s-era minimum mark-up law requires wholesalers to charge gas stations at least 3 percent more than they paid. Gas stations in turn must tack on at least 6 percent more at the pumps. The law's supporters say it prevents large retailers from underselling smaller gas stations and driving them out of business.

There's a cause to nail your colors to the mast for! Support your right to pay higher prices to buy at independent gas stations!

The Wisconsin Petroleum Marketers and Convenience Store Association issued a statement Tuesday saying the state's minimum mark-up protects small businesses from competitors who could undersell them.

If the underselling is by businesses using some improvement that's practicable on a small scale, such that a multiplicity of firms continue to serve the market, that's the textbook model of atomistic competition. But what happens if the improvement is one that's only practicable on a large scale? (At this stage, there are no large-scale improvements in ethanol blending comparable with the Standard Oil Trust's improvements in kerosene distribution in the late 1800s.) And if the improvement is being tested by a dominant firm? Then things get more interesting.

Banking representatives have been beating down the doors in Congress to get it to block Wal-Mart's bid to open a bank. The giant corporation has asked the Federal Deposit Insurance Corp. to give it a charter for a bank in Utah, a move that the bankers see as just the first. Wal-Mart insists that the bank will be used only to process debit and credit card transactions at its stores.

But bankers, particularly smaller community banks, are worried sick that Wal-Mart will start with the limited-service banks and eventually turn them into full-service financial institutions. Suddenly, the same folks who have fought any governmental "interference" with Wal-Mart's employment practices want the government to help them control what they now agree is a beast.

Wal-Mart could do to those community banks what it did to the locally owned hardware store.

(As if banks aren't entering into partnerships with retailers. There are TCF branches in Jewel-Osco -- isn't the integration of a grocer and a druggist anticompetitive?) But there is a connection. A Jewel-Osco or a Wal-Mart or a Meijer provides under one roof the services that used to be offered behind multiple sole-proprietor storefronts. As of this evening, Wisconsin's governor has directed that the minimum markup law does not apply to ethanol blends in gasoline. Hence another policy lesson: efficiency isn't the only goal.

[Governor] Doyle told state Department of Agriculture, Trade and Consumer Protection regulators not to enforce the 1930s-era law that requires that gas prices go up by 9.18% between wholesalers and retailers. The Legislature this year debated but failed to pass a measure that would have repealed the minimum markup law for all fuels.

"More and more drivers are turning to ethanol-based fuels because they are cheaper, and that is a trend we want to continue," Doyle said.

But the governor's order was an election-year gift to ethanol producers, said Erin Roth, executive director of the American Petroleum Institute that represents major oil companies. The move could hurt those convenience stores and other retailers who don't sell ethanol-blended fuel as price-weary consumers shop for the lowest prices, Roth said.

"It's an incentive for people to buy ethanol-blended gasoline," Roth said. "He ought to do it on all fuels."

Sure, but there are a lot more cornfields in Wisconsin than there are crude oil wells. Now if one could extract the methane from the cow-flops ...

LET'S GO, BRANDON.

The title of a recent Wall Street Journal editorial, "Chicago Gets What It Voted For," has the potential has Friday short take potential, but for the extended observation in the body.

Two days after narrowly winning the election, [Brandon] Johnson thought it a good moment to blame the city's crime wave on business. "Seventy percent of large corporations in the state of Illinois did not pay a corporate tax," Mr. Johnson told CBS. "And it's that kind of restraint on our budget that has caused the type of disinvestment that has led to poverty of course that has led to violence."

In pool, they call that a triple-carom shot, and in logic a non-sequitur: From tax payments to budget restraint to poverty to shooting someone in the street. We're sure that's what the average Chicago gunman is thinking when he shoots someone: Companies don't pay enough taxes.

You'd think a new mayor who ran as a leftist would try to reassure employers that he'll not be as crazy as he sometimes sounded during the campaign. But now that he's won, he apparently feels liberated to sound crazier.

The editorial concludes, "He might want to look out-of-state, where more companies will be moving as they contemplate operating in a city run by a man who blames crime on employers and not on criminals."

PROSPERITY HAS A BAD AURA. What is worse, living in poverty in the Third World near the ruins of some long-lost civilization, or having a Wal-Mart built near the ruins? Yup.

From the top of the Pyramid of the Sun in the ancient ruined city of Teotihuacan, Emma Ortega blows a haunting ode on her conch shell and points out a half-built Wal-Mart supermarket in the valley below.

Her blood boils at the sight. "It is an attack on our heritage," fumes Ms Ortega, a colorful figure in a small but vocal protest movement against the construction of a Bodega Aurrera superstore, a Wal-Mart Mexico subsidiary, half a mile from the monuments. "It is an attack on our cosmic equilibrium."

A pyramid at Teotihuacanis shown in this Sept. 18, 2003, photo at the archeological site 18 miles from Mexico City. A Wal-Mart store is being built a half-mile from the ancient ruins of Teotihuacan and a small, embattled group opposed to seeing the store from atop the pyramids is fighting a lonely battle for what it calls Mexico's landscape and culture. The movement gives full rein to spiritualists, such as Ms Ortega, who believe Teotihuacan's pyramids and temples possess a special energy that Wal-Mart's presence threatens to throw off balance.

You can't make up stuff like this.

WAL-MART IS TO VLASIC, REDUX.

It's unusual for a Common Dreams essay to say something nice about Wal-Mart. Leslie Savan manages.

Maybe the real turning point came when [Representative Anthony] Weiner [of New York] asked, "How does Wal-mart offer $4 prescriptions?" Joe [Scarborough] and co-host Mika Brzezinski looked as if they'd been thwacked by a hardback copy of Atlas Shrugged, and sat back to let the congressman explain it all to them:

They go to the pharmaceutical companies and say, "Listen, we have a giant buying pool here. You're going to give us a great deal."

Who's bigger than Wal-Mart? We are, the taxpayers. Do we do that? No. Because we have outsourced this to insurance companies who don't have necessarily as much incentive to keep those costs down because, frankly, they are getting a piece of the action.

Progressives tend to understand this stuff, but many conservatives won't trust such logic, especially in the abstract, which is how most Dems have been communicating. But Weiner, aware that if you can't visualize something it ain't going to stick, argued with a specific, familiar visual--that of a successful, supercapitalist, and, as Mika might say, "real American" company.

Is the missing incentive capitalist greed? If so, is it a consequence of employer-based health insurance provided by existing duopolies, or a consequence of insufficient competition for the risk managers who convert premiums into railroad equipment trust certificates, or do they convert lease payments into reimbursements?


What happens if Wal-Mart manages to drive down the wholesale price of pills by squeezing its vendors, as its critics suggest is business as usual in Bentonville? Those practices induced several Congresses to pass, and several presidents to sign into law, assorted price-discrimination and small-retailer protection statutes. Presumably the laws would not apply to ConCare.

An anaesthesiologist suggests ConCare's monopsonistic practices would put some vendors out of business.

The progressives' third mistake is to skimp on anesthesiology. In no medical specialty is the spread between the Medicare rates and private insurance rates greater. Progressives expect to pay anesthesiologists Medicare rates, which are 65% less than private insurance rates, without any change in the system. But there will be changes.

Some anesthesiologists will leave the field. They are already faced with lawsuits at every turn. Something else has happened in America that threatens to tip the balance for anesthesiologists. Americans have grown very fat. This complicates anesthesia tremendously. Putting in IVs, spinals and epidurals is harder. Inserting breathing tubes is much more dangerous.

Quality of care will inevitably decline. That decline will come first in obstetrics. At the hospital where I work, two anesthesiologists work in obstetrics almost around the clock, so that a woman in labor need not wait more than five minutes for her epidural. Other hospitals are less fortunate, and have on staff at most one anesthesiologist in obstetrics. The economic crunch will eventually force these hospitals to cover obstetrics "when anesthesiology is available," meaning in between regular operating room cases.

During an obstetrical emergency, these short-staffed anesthesia departments will scramble to send someone to perform the C-section. Don't forget, a baby has only nine minutes of oxygen when the umbilical cord prolapses, so time is of the essence.

The doctor's column envisions some private insurers coexisting with ConCare. Another Wall Street Journal essay (via Betsy's Page) intended as a criticism of ConCare is really about the logic behind treating ConCare as a legal monopoly.

Among the biggest reasons is a severe adverse selection problem: The sickest, most expensive patients crowded into [Maine's] DirigoChoice, unbalancing its insurance pool and raising costs. That made it unattractive for healthier and lower-risk enrollees. And as a result, few low-income Mainers have been able to afford the premiums, even at subsidized rates.

This problem was exacerbated because since the early 1990s Maine has required insurers to adhere to community rating and guaranteed issue, which requires that insurers cover anyone who applies, regardless of their health condition and at a uniform premium. These rules—which are in the Obama plan—have relentlessly driven up insurance costs in Maine, especially for healthy people.

Maybe the healthy people move to New Hampshire.

The Maine Heritage Policy Center, which has tracked the plan closely, points out that largely because of these insurance rules, a healthy male in Maine who is 30 and single pays a monthly premium of $762 in the individual market; next door in New Hampshire he pays $222 a month. The Granite State doesn't have community rating and guaranteed issue.

In order to gain the benefits of the largest possible risk pool, ConCare legislation might have to require universal participation. In doing so, however, the agency would lose the benefits of independent competitive discovery of the underlying risks. Perhaps the economics of national publicly-provided insurance come down to trading off the benefits of risk pooling against the benefits of competitive discovery, however much of that goes on in a duopoly or triopoly.

PROTECTING COMPETITORS DOES NOT PROTECT COMPETITION.

The Federal Trade Commission, in all its majesty, seems bent on resurrecting the structure-conduct-performance paradigm only with new actors.  Not too long ago, the Jarrett regency's appointees blocked a merger of Albertsons with Kroger, to the predictable hallelujahs from Common Dreams types.

Antitrust advocates on Tuesday welcomed a pair of court rulings against the proposed merger of grocery giants Kroger and Albertsons, which was challenged by Federal Trade Commission Chair Lina Khan and multiple state attorneys general.

"The FTC, along with our state partners, scored a major victory for the American people, successfully blocking Kroger's acquisition of Albertsons, "said Henry Liu, director of the commission's Bureau of Competition, in a statement. "This historic win protects millions of Americans across the country from higher prices for essential groceries—from milk, to bread, to eggs—ultimately allowing consumers to keep more money in their pockets."

"This victory has a direct, tangible impact on the lives of millions of Americans who shop at Kroger or Albertsons-owned grocery stores for their everyday needs, whether that's a Fry's in Arizona, a Vons in Southern California, or a Jewel-Osco in Illinois," he added. "This is also a victory for thousands of hardworking union employees, protecting their hard-earned paychecks by ensuring Kroger and Albertsons continue to compete for workers through higher wages, better benefits, and improved working conditions."

I'm not sure which price scissors are at work in order that Kroger and Albertsons simultaneously compete wages up and grocery prices down.  The genealogy of Albertsons suggests things might not be that easy.  Direct your attention, dear reader, to that "Vons in Southern California."  Years ago, Vons attempted a merger with another Southern California grocer called Shopping Bag.

In the 1950s, competition in the Los Angeles grocery market intensified. Small grocers were acquired by large companies, and large companies greatly increased their numbers of stores in the city. From 1948 to 1958, for example, the number of stores owned by Von’s Grocery Co. (Von’s) (defendant) increased from 14 to 27. Shopping Bag Food Stores (Shopping Bag), which competed with Von’s, increased its number of stores from 15 to 34. Together, Von’s and Shopping Bag controlled 7.5 percent of the grocery market. In 1960 Von’s acquired Shopping Bag by purchasing all its stock and assets. The United States government (plaintiff) sued Von’s, alleging that its acquisition of Shopping Bag violated § 7 of the Clayton Act. The government argued that the acquisition was likely to worsen the trend of large grocers obtaining greater market share to the detriment of small grocers. The government sought a temporary restraining order, which the district court denied. Eventually, the district court held that the acquisition did not violate § 7 because there was not a reasonable probability that it would create a monopoly or substantially lessen competition. The United States Supreme Court granted certiorari.

I take issue with that "competition intensified" passage.  It changed in form, with sole proprietorship grocers served by Commission Row distributors or jobbers being replaced by vertically integrated grocery chains that organized their own logistics.  To the Supreme Court of the era, the disappearance of the sole proprietors and the combinations into chains were the substantial lessening of competition the authors of the Clayton Antitrust Act had in mind.

Held. The merger of two of the largest and most successful retail grocery companies in a market area characterized by a steady decline, before and after the merger, in the number of small grocery companies, combined with significant absorption of small firms by larger ones, is a violation of § 7 of the Clayton Act. Pp. 384 U. S. 274-279.

(a) By the enactment of the Celler-Kefauver amendment to § 7 in 1950, Congress sought to preserve competition among small businesses by halting a trend toward concentration in its incipiency, and, thus, the courts must be alert to protect competition against increasing concentration through mergers especially where concentration is gaining momentum in the market. Pp. 384 U. S. 276-277.

(b) This case presents the precise situation which Congress intended to proscribe, where two powerful companies merge to become more powerful in a market exhibiting a marked trend toward concentration. Pp. 384 U. S. 277-278.

(c) Section 7 requires not only an appraisal of the immediate impact of the merger on competition, but a prediction of the merger's effect on competitive conditions in the future, to prevent the destruction of competition. United States v. Philadelphia Nat. Bank, 374 U. S. 321, 374 U. S. 362. P. 384 U. S. 278

(d) Since the appellees were on notice of the antitrust charge, the judgment is reversed, and the District Court is directed to order divestiture without delay. P. 384 U. S. 279.

233 F. Supp. 976, reversed.

Page 384 U. S. 271

Forty or so years ago, economists, particularly those of the creative-destruction-competition-is-discovery school scorned the Court's analysis as missing, completely, the irrelevance of those sole proprietor groceries to the real action, which was the emerging supermarket chains.  Where Vons and Shopping Bag were relatively minor players compared with Safeway.  And yes, a previous generation of structure-conduct-performance economists raised precisely the same objections to Safeway that they raise today about Wal-Mart.

[Once upon a time] there was a middle-class-friendly economy in which large manufacturing firms produced goods in unionized factories. Wal-Mart is the leading edge of a proletarianized economy in which large retailers squeeze those manufacturers while doing everything possible to drive down wages. Tapped's Ezra Klein spells out those behaviors in more detail.

Perhaps I'm showing my age, but at one time the populist political economy saw those large manufacturing firms as building blocks of a monopoly capitalism that practiced conscious parallelism, which reduced efficiency by restricting output and raising prices, and the unions as accomplice residual claimants to the monopoly profits thereby obtained. The retailers of the era were complicit in that monopoly capitalism, with a concentrated food packing industry and often vertically integrated supermarkets profiting by the inflated price of bread, although, again, food and commercial workers' unions participated as residual claimants. Because firms could practice conscious parallelism without calendars to keep track of the phases of the moon or meetings in the back room at Dirty Helen's, antitrust action could do nothing about the resulting inefficiencies, although Wal-Mart could.

But when Wal-Mart goes after those inefficiencies, that's bad. Mr Klein summarizes in a few sentences what several chapters of the book spell out in more detail.

What's funny about the case at hand today is what happened to yesteryear's Wal-Mart.  Safeway are (checks notes) an Albertson affiliate, part of one of those vertically integrated grocery chains I alluded to at the start of this post.  "We support our stores with 22 distribution centers and 19 manufacturing plants."

WHAT HAPPENED TO TEACHING READING COMPREHENSION? I asked this question on a principles of microeconomics examination Wednesday.

Business owners in smaller communities often object to the construction of new Wal-Marts, claiming that the competition hurts their businesses. Wal-Mart has more recently opened stores in larger communities. There are relatively few protests from small business owners in the larger communities. Explain why not.

A number of students asked me to clarify the question. The phrasing strikes me as straightforward enough. Small business owners in larger communities don't object to Wal-Mart. Why not? I'm pleased that students exercised their right to have the point of a question clarified, and at the same time startled that not objecting -- why not? is too daunting.

A successful answer will demonstrate understanding of Adam Smith's observation, The Division of Labour is Limited by the Extent of the Market. Don at Cafe Hayek has one piece of the puzzle. The missing piece is what higher-valued tasks that labor is freed up to do. In bigger cities, it might be freed up to sell O Scale trains that Wal-Mart has never bothered to stock. In larger cities, there are sufficient trading partners (we'll later think of them as customers) to make operating a store to sell such things profitable. The small business owners in smaller towns are looking for trading partners interested in more mundane goods, and Wal-Mart has figured out how to move a wider variety of mundane goods more cheaply.

BABY HUEY GROWS UP.

I just can't get away from decline and fall and prole drift and the appeal of Wal-Mart.  It's successful, its political economy might be that of a monopsony, it's the Redneck Universalnya Magazin (or perhaps someplace you don't go to the day welfare checks come out), it's Railroad Salvage on a large scale.  For Book Review N^o. 3, Charles Fishman's The Wal-Mart Effect: How the World's Most Powerful Company Really Works -- and How It's Transforming the American Economy revisits familiar ground.  Mr Fishman's research includes interviews of workers, suppliers, potential suppliers who said no to the monopsony's terms, and members of senior management in Bentonville.  Two conclusions merit mention.  First, Mr Fishman suggests that the company's profitability is the consequence of a lot of small gains on very thin margins, albeit on great volume.  Thus, he concludes, the company has little opportunity to pay higher wages, or to be less vigorous about squeezing "continuous improvement" (read: outsource production to third world sweatshops) without becoming another unprofitable discounter.  That might not sit well with some of the company's critics. "Economists note that if Walmart paid its employees at least $25,000 a year, a million and a half workers would be lifted out of poverty. That would mean more money staying in communities to support local businesses, helping to create at least 100,000 new jobs." Doubtful.

Second, he suggests that the company's business model, which might have been helpful for a Railroad Salvage sort of dealer in remaindered goods, becomes destructive when it's being used to dictate terms to the likes of Procter and Gamble.  His metaphor: the adolescent still engaging in the behavior of a toddler.  Intriguing, and quite possibly true.  But to conclude by suggesting that senior management look outward, falls flat.  For all of Wal-Mart's success, it is possible for consumers to get on, year after year, without setting foot in one.  Perhaps not enough to get the company to change its behavior, not yet.  But lamenting Wal-Mart's symbiosis with the welfare state (selling cheap crap to welfare recipients while fobbing part of the payroll off on the social service agencies) or condemning the corporate culture riles people up to no effect.  Market tests have steeper grading curves.

(Cross-posted to 50 Book Challenge.)

TURNING THAT CRANK.

Book Review No. 41 is Laura Penny's Your Call is Important to Us, which I obtained by drawing down my Book of the Month Club credits. The price was right. The author correctly summed up her purposes. "I am not a problem solver. I am a crank." That might be about right. On the other hand, the author was not sure whether she wanted to be P. J. O'Rourke or David Hapgood.

CHARLES MELLEN ENVY? Vertical integration has its advantages, but Wal-Mart (a company that leases space to pop bottlers) buying a shipping line? That might not earn the brilliancy prize The Politics of CP envisions.

If Wal-Mart does follow through on this shipping deal, the world will be watching. Wall Street's jaws will drop, their competitors will wince, and no one will be able to touch them.

On the other hand, American President totes containers bound for Wal-Mart's competitors. Won't any advantages that accrue to Wal-Mart also benefit American President's other customers? (Yes, there are some advantages to running trucks part-empty. Are the economics of container ships comparable?) Not only that, aren't we seeing the same cult of the conglomerate that flowered in the late 1960s?

YOUR RIGHT TO EXERCISE CHOICE. Protecting competitors is not the same as protecting competition. In Wisconsin, your right to have independent grocers to buy Thanksgiving fixings from is not free.

Wal-Mart has full-page ads in metro daily newspapers today promoting its prices for Thanksgiving dinner. It's a striking demonstration of the cost to consumers of the state's Unfair Sales Act, also known informally as Wisconsin's minimum markup law.

The ad in our paper offers frozen whole turkeys for 86 cents a pound. The same ad in the Chicago Tribune has turkeys for 40 cents a pound.

Ocean Spray cranberry sauce and Heinz turkey gravy are priced the same in Illinois and Wisconsin. But Green Giant canned vegetables cost six cents more here (56 cents) and Stove Top stuffing is $1.15 a box at Wisconsin Wal-Marts, compared with 78 cents in Illinois.

Wal-Mart's spokeswoman for the region has said the company will honor the law and will not offer its below-cost loss leader deals in Wisconsin. Wal-Mart prints different ad fliers during the holiday season, with higher prices, for stores in Wisconsin and three other states that ban selling below cost.

Proponents of Wisconsin's Unfair Sales Act say it protects small retailers who can't afford to sell things below cost.

The Wisconsin law does allow retailers to sell below cost to match competitors' prices, and I've never seen the state go after anyone for selling cheap Thanksgiving turkeys. I expect the prevailing supermarket price for frozen turkeys will go below 50 cents a pound this year, as it usually does.

The columnist is too young. Yes, the prevailing supermarket price for frozen turkeys will fall, but it's still covered by minimum markup. The state did investigate below-cost sales of December turkeys in 1973, and Morgan Reynolds, who was teaching intermediate price theory at Wisconsin at the time, had some fun with that news item.

REMAINDERED GOODS ON A LARGE SCALE. Book Review N^o. 45 features Sam Walton: Made in America. In previous years, I've offered reviews of How Wal-Mart is Destroying America and Wal-Mart: The Face of Twenty-First-Century Capitalism, works that recite grievances about the corporation. Mr Walton, not surprisingly, offers a different perspective, offering inter alia the advice that a business that fails to treat its employees and customers well is unlikely to be a success story. In passing, he offers the real story of the famous greeter at the store door. There's a lot of standard success-in-retail stuff for the aspiring entrepreneur, and people whose comparative advantages lie in presenting goods in an inviting way can learn a lot to bring up at the Saturday morning meeting. What struck me, though, about the early days of the company, was that the business model was Railroad Salvage with better presentation of the merchandise and hence less of the reek of poverty in the store. Perhaps there's still some of that thinking at work. It's often wise for a Wal-Mart shopper to pick up that bargain item now, as it might not be available again.

(Cross-posted to 50 Book Challenge.)

TO MEET THE COMPETITION, DON'T PLAY ITS GAME. Bill Quinn does not like Wal-Mart, and he wrote How Wal Mart is Destroying America (and the World) And What You Can Do About It. We've been here before, and I hesitate to do much by way of Book Review N^o. 20. The opening of the book is the usual recitation of small businesses and small towns emptied by the big box, often at a distance (that consumers might be willing to trade transportation costs for a wider variety of cheaper stuff doesn't come up) and the tales of monopsonistic exploitation of suppliers (who might have problems of their own, and suppliers can tell big buyers no, as long as we're not talking about the government using its monopsonistic power to buy drugs or surgeons.) So far, so standard. Mr Quinn finishes with some advice to small business owners such as offering products not sold by Wal Mart, or twitting the Redneck Universalnya Magazin by offering to service the products they sell, or by offering delivery, or by setting up a coffee bar, at least for the regulars. We've been here before as well.

(Cross-posted to 50 Book Challenge).

WAL-MART IS TO VLASIC AS CONCARE IS TO? Robert Reich:

Being the one public plan, it will have large economies of scale that will enable it to negotiate more favorable terms with pharmaceutical companies and other providers. ... But this won't lead to a government takeover of health care. The whole point of cost containment is to provide the public with health care on more favorable terms. If the public plan negotiates better terms—thereby demonstrating that drug companies and other providers can meet them—private plans can seek similar deals.

Where shall we begin? If Wal-Mart negotiates better terms, Dayton-Hudson can seek similar deals. Or has Wal-Mart solicited a discriminatory price cut that leads to a substantial lessening of competition or a tendency to create monopoly? Does the argument generalize? Or, will cost containment mean lower prices for current pharmaceuticals at the expense of future development?