The Price of Cheap: The Hidden Cost of E-Commerce

For years “energy independence” has been the catch-all solution promoted by politicians, talk radio hosts, newspaper columnists and others who point out that the U.S. is short on oil refining capacity. Nonetheless, petroleum production facilities are not only in the process of downsizing in response to a weak economy, but permanently so the Los Angeles Times reports in “Oil companies look at permanent refinery cutbacks” [March 11, 2010].

The oil industry, which as recently as 2007 broke so many profit records that allegations of collusion and price-gouging surfaced, is singing a different tune: Limiting supply to increase sagging profit margins is the solution, analysts say, for losses induced by everything from fuel efficient cars to retiring baby boomers who no longer commute to and from work.

And to think: Just a few years ago SUVs, with their paltry ~13 mpg, were the rage from Coast to Coast. Could it be that Cash for Clunkers, unintentionally so, was a little too effective — or are oil industry insiders selling Americans up the river when they can least afford it? Whatever the case may be, nothing says Green like fuel-efficient automobiles and the beginnings of an alternative energy infrastructure. Even so, the picture the LAT paints is far from complete. The Perfect Storm of tightening supply, increasing commodity prices, rising taxes and further job losses looms on the horizon.

Hang on to your hat! The price of life is going up.

Cutbacks and closures of community services nationwide are not cited as a reason for oil refinery cutbacks, but they are egging on these emergent economic norms: Sales tax revenues are down nationwide, and for an increasing number of locals that can only mean an unpalatable combination of higher taxes and limited services. The upshot? Even less incentive for our consumer-driven economy to spread the money around. Local and state governments from California to Michigan are banking on the hope that when the economy rebounds the Red Ink will stop flowing.

Will it?

Even if the demographic shifts associated with baby boomers retiring en masse were not inevitable, a grossly underestimated component to this trend looms larger by the day: e-commerce.

It’s no secret to Internet-savvy folks transversing state lines in search of tax-free online bargains that virtual shopping can be a real moneysaver — and a timesaver to boot. Amazon, for instance, is a leading go-to place for everything from books to home and garden products. Not only are purchases tax-free for many shoppers but free shipping offers often seal the deal.

Never before has the oft-repeated refrain “Shop locally!” encountered so many challengers.

Macintosh computers aren’t cheap now, but they were downright expensive when I purchased my first Apple computer nearly 20 years ago. Back then, it was not unusual to spend $4-10K on hardware alone (CPU, monitor, printer, scanner). The solution? Peruse ads in the back of nationally-distributed computer magazines. There I located a tax-free bargain on the opposite side of the country. Even with the cost of shipping factored in, I saved several hundred dollars foregoing traditional “brick & mortar” retailers. And it wasn’t for lack of local buying options, either: There were plenty of places vying for a slice of the personal computing revolution: Computer City, CompUSA, Circuit City, Fry’s Electronics and Best Buy, just to name a few. Notice what happened, however: All but the latter two succumbed to market forces. Is this because our collective appetite for new and improved technology has diminished? Absolutely not. Americans are more likely to own a personal computer hooked up to a high-speed Internet connection than ever before.

So what changed?

Competition amongst conventional retailers has diminished as more and more players drop out of the market. This makes comparison shopping on the Internet — where a greater number of competitors are in reach — more attractive by the day. Just as Big Box Retailers threatened mom & pop establishments, the Internet is the newest bull in the china shop. To cite just one example, antique stores in downtown areas nationwide have increasingly succumbed to online venues, and bars and restaurants — among the few types of businesses that rely on irreplaceable foot traffic — have sprung up in their wake.

Just how many bars and eateries can a local economy support?

The profound yet oddly imperceptible economic influences wrought by the Digital New Age are numerous: Even as more people embrace Internet shopping, surviving B&M retailers have responded by limiting their in-store selection in favor of just-in-time inventory, of which an increasing percentage is available exclusively online. Shopping at the click of a mouse is both novel and convenient, to be sure, but nonetheless a form of “special ordering” reminiscent of the old-time General Store method of awaiting out-of-town deliveries.

Except that most of us aren’t living in remote outposts.

The Green side of the coin is that fewer and fewer products for which there is inadequate demand are oversupplied to the market, thereby limiting the so-called carbon footprint associated with building and transporting more widgets than there are consumers willing to purchase them. But the environment is not the sole beneficiary. By limiting supply, prices and profit margins are maintained throughout the supply chains. What this means for the rest of us is that the “red tag sales” retailers offer to move an oversupply of product are likely to become increasingly few and far between. Prices between the remaining chain stores are generally pennies apart, and sales leaflets that would appear to advertise discounted deals are increasingly listing regular prices.

This trend presents both an irony and a threat to bargain hunters: B&M retailers that have grown in popularity as consequence of recession-induced thrift include Ross, TJ Maxx and Marshalls — retailers that specialize in discontinued, overstock and out-of-season merchandise offloaded by department stores and boutiques. As mainstream retailers par down inventory, the number and quality of inventory available to discount retailers and Internet shopping sites alike are likely to diminish for the foreseeable future. Consequently, just as demand for bargain bin deals heats up, supplies may be harder to come by. Similarly, as consumers become conditioned to shop for “everything else” online, the convenience, expediency and tax revenue benefits of shopping locally are lost. Eventually, the advantages of web-based commerce — what with United States Postal Service cutbacks, shipping cost increases and the inevitable legislative move to tax online shopping — suggests that this bargain hunters’ paradise may amount to little more than a tool of necessity in the years to come.

Even the Internet cannot overcome a fundamentally flawed economy.

So how do our novel new shopping habits dovetail with the news that oil refiners may permanently shutter facilities? For one, less incentive to drive to the mall. Or to go antiquing in a nearby community. And if you do? Fewer places to shop, fewer products and brands in stock, and fewer still mom & pop establishments. The list of nationally-recognized retailers to meet their demise in the Globalized Era is staggering: Broadway, Fedco, May Company, Woolworth’s, Best, Service Merchandise and Marshall Fields; Circuit City, Linens ‘N Things, The Sharper Image and The Good Guys — to name but a few.

To be clear, traditional retail in some shape or form will never be eliminated. But the trend of online shopping at the expense of local sustainability seems likely to accelerate as retailers respond by narrowing their shelf offerings to match lessening in-store demands. In the even longer term, conventional shopping may again become a destination — traveling long distances to reach large, diverse retail centers that are fewer and further between. The town-by-town, city-by-city retail landscape of today may become a thing of the past, not unlike the drive-in movie theater whose heyday has come and gone. Movie rental stores seem to be the next in the obsolescence line, edged out by inexpensive DVDs sold in discount stores, video-on-demand services and novel new competitors such as Netflix. How much more “local color” will fade from our towns, cities and communities until there are few signs of life outside the ‘net — but for the cookie-cutter ubiquity of fast food joints, liquor stores and dry cleaners?

Be careful what you wish for.

The shift in the way we shop not only impacts our gasoline consumption but just about everything we take for granted close to home: from schools, parks and public safety to the ability to find a suitable last-minute gift in a mass market environment increasingly lacking in diversity. This trend, in turn, suggests an increasing number of commercial real estate vacancies and even fewer sales tax revenues for local municipalities. As retail and warehouse job opportunities erode in much the same way manufacturing jobs did in the 1980s and 1990s, even low-skill service sector jobs are likely to dwindle — all of which adds up to a torrent of Red Ink.

Is it possible to become too good of a bargain hunter? Victims, if you will, of our own success?

As a “starving student” I never would have given it any thought, yet we do, indeed, have the power to harm our communities simply by making a habit of shopping online. It’s not that making a few online purchases here or there will topple the economy, but it is fundamentally shifting the game just as surely as the trend of paperless electronic bill paying has sent the USPS into a tailspin. More ironic still, online shopping — to the extent that it is powered by coal — isn’t much Greener than the conventional sort. According to a CNN report, the more energy efficient consumers perceive their electronics, products, services and transportation sources to be the more resources we consume.

Our entire landscape, physical and economic, is in the midst of gargantuan change. Whether such change represents the evolution of a new, Green economy remains to be seen. It could just as easily represent another largely unanticipated wrinkle in the lockstep march of globalization: Economic “desertification” wherein those who live adjacent to an oasis of innovative upstarts, manufacturing plants and retailers will thrive, whereas the vast majority of Americans, even those who live in highly populated areas, will find it increasingly necessary to shop online because it is no longer profitable for retailers to maintain local operations and/or no longer feasible — as gasoline supplies contract and crude prices increase — to transport durable goods great distances from port to shelf.

Perhaps we’ll save the planet. But will we save ourselves?

Economic experts would likely argue that this is the free market at its finest — and to point out, rightfully so, that such shakeups have occurred with every major technological advance. But such observations do not get at the crux of the question: Are we entering a time in this Globalized Era at which the rate and scope of change may exceed our ability to fully appreciate the ramifications? Will a collective deer-in-the-headlights reaction render legislatures unable or unwilling to craft economic policy conducive to a successful transition?

Put another way, we can’t predict where we are headed because we have never before been there. Consequently, our best attempts to plan for the future are likely to come up short — and all the more so when motivated by the desire not to shake fragile consumer confidence. Conventional wisdom, after all, views the phenomena known as market concentration — a diminishing number of viable businesses competing for our dollar under increasingly deregulated conditions — as the hallmark of “efficiency“. Prices are lower and demands are met so no harm, no foul the argument goes. But the more apt question, the one too few of us appear to be asking — not unlike the way in which financial firms and economists alike underestimated the phenomena of “irrational exuberance” prior to the Great Recession — is whether we’ll fumble the transition because we have failed to appreciate that it is possible to take a “good idea” too far.

Call it wrong and we not only risk a double-dip recession but a generational lifestyle realignment in which a college education, white picket fence, an automobile in the garage, a chicken in the pot, and 2.5 children in the home move increasingly out of reach.

By some counts, the time to have invested in an alternative economy is some 30+ years overdue. By a more conservative measure, we’re nearly 15 years behind the 8-ball both in terms of minimizing harm to human welfare and the climactic shifts associated with the over-use of fossil-fuels. By other accounts, the solutions proposed thus far are recklessly unworthy of widespread adoption.

And that’s why a benign practice so seemingly unrelated to the permanent loss of petroleum refining capacity — shopping online — may evolve into the straw that breaks the camel’s back. The desertification of our consumer-driven economy in the absence of a fully viable way to fill the economic vacuum may very well be a phenomena we do not come to appreciate until the list of “usual suspects” no longer explains a still-lagging outlook years from now.

Of course, there will be oases in this Brave New economic landscape. But the increasing concentration of those jobs in fewer areas of the country nonetheless portends harm to communities that rely upon traditional manufacturing and retail access. And that’s not the only casualty of our worship of all things economically efficient. The otherwise worthy aim of Greening the planet may lose its luster if it comes to mean the absence of opportunity: Restricted access to goods and services. Restricted markets. Restricted tax revenues. Restricted growth. Quite possibly even the best and most innovative entrepreneurial ventures will be forced to settle for a mediocre definition of success in the event that consumers, lacking in discretionary incomespurn new products and services in reaction to lost or stagnating wages.

Will we realize the “price of cheap” before the solution to state and local tax revenue losses shows up in the form of massive tax hikes? That is the question. None of this, of course, even begins to account for the tax hike incentives that exist as a result of a decade-plus worth of war-driven Federal deficits, TARP bailouts, unsustainable trade deficits, and the empty coffers long-predicted of Social Security, among other entitlements — just as baby boomers begin to draw them down.

Even as the storm clouds gather over a still-ailing economy, a recent TIME magazine article echos a common refrain: American innovation, writes Barbara Kiviat in “The Workforce: Where Will the New Jobs Come From?” [March 19, 2010], will offset job losses in time. Let’s hope the Green 21st Century jobs we’ve been told to bank on aren’t a case of too little, too late.



All About: ‘Green’ Shopping | CNN

The Fight Over Who Sets Prices at the Online Mall | StarNewsOnline

The Death of Retail | The Entrepreneur Network

New Tack for Taxing Online Sales | Durango Herald News

Killing America’s Jobs Machine | Roanoke Times

The Recession could Reshape State Governments in Lasting Ways |

Comparing Online to “Brick and Mortar” Shopping |

The Broken Society | New York Times

Customers Want it Cheap, Workers Pay Heavy Price | China Daily

The Price of Cheap Imports: What does America Make besides Policies? | WaterWorld

The Slippery Slope of Price Fixing | E-Commerce News

Sales Tax on the Internet: Who Pays, Who Doesn’t | Yahoo!

Is Ron Paul a Radical?

It has been called the “dirty little secret” that everyone in Washington knows.

“We suffer from a ‘fiscal cancer’. It is growing within us. And if we do not treat it, it can have catastrophic consequences for our country.”

Assume those are the words of Congressman Ron Paul, M.D.?

Think again. Those are the words of David Walker, top accountant in the nation.

The U.S. Comptroller General of the Government Accountability Office hit the streets to warn Americans that the long-anticipated Economic Perfect Storm is not only brewing, it made landfall January 1, 2008. Walker began sounding an alarm last year “like an Old Testament prophet” according to CBS “60 Minutes”.

So is Congressman Paul an isolated alarmist — harping as he does on the precarious state of our “monetary system“? Or a modern-day Paul Revere?

Perhaps the best way to answer that question is to take a long-overdue look at the evidence.

Now the first thing one might be inclined to believe is that this sort of talk amounts to little more than partisan drivel. Or that it is a slam on the war.

It is neither.

Walker’s “Fiscal Wake Up Tour” has rallied economists from the conservative Heritage Foundation, the left-leaning Brookings Institute, the nonpartisan Concord Coalition and the Association for Government Accountants, among others. And without ever mentioning Congressman Paul by name, his message sounds eerily familiar.

Evidence for the Perfect Economic Storm

Here is what Walker had to say:

• Demographics: 78 million baby boomers are set to retire — which makes them pensioners and medical dependents of the US taxpayer beginning January 1, 2008. “When those boomers start retiring en masse, then that will be a tsunami of spending that could sink our ship of state if we don’t get serious.”

• Costly Entitlements: “If nothing changes, the federal government’s not going to be able to do much more than pay interest on the mounting debt and some entitlements. It won’t have the money left for anything else — national defense, homeland security, education — you name it.”

• Healthcare Costs: “Our healthcare problem is much more significant than Social Security. By that I mean, the Medicare problem is five times greater than the Social Security problem. … It’s the number one fiscal challenge for the federal government. It’s the number one fiscal challenge for state governments. And it’s the number one challenge for American business . We’re going to have to dramatically and fundamentally reform our healthcare system, in installments, over the next 20 years. And if we don’t, it could bankrupt America.”

And to Walker’s list of Perfect Economic Storm clouds, one might add:

Campaign Finance Reform: This may be a non-news story this election year, but conflicting loyalties and interests remain as entrenched as ever. Money buys influence in Washington, and influence buys wasteful pork-barrel spending and costly corporate welfare. Just ask disgraced lobbyist Jack Abramoff.

• Dollar Devaluation: “The Federal Reserve cut borrowing costs 1 percentage point to 4.25 percent in 2007, sending the dollar to $1.4967 on November 23, 2007, an all-time low against the euro,” states a January 2008 article describing investors’ attempts to seek “alternative assets” such as gold. But it only gets worse. “An OPEC switch from the dollar to the euro would bring a quick and devastating dollar and Wall Street crash that would make 1929 look like a $50 casino bet,” writes Sonja Ebron, the chief executive of blackEnergy. And, in fact, President Bush’s recent trip to the Mid East reveals that Mid East currencies, among others, are about to be “de-pegged” from the dollar according to a Yale Global report.

• Mortgage Crisis: Subprime lending practices have not only burst the real estate bubble but depressed state and local tax revenues — causing Christopher W. Hoene, the director of policy and research for the National League of Cities, to warn The Los Angeles Times: “We’re talking about a pretty tough fiscal environment for the next four or five years. Libraries, parks, after-school programs . . . you’ll see lots of questions raised about cities’ abilities to fund them.”

• Globalization: Former Federal Reserve Chairman Alan Greenspan, in a December 14, 2007 NPR interview, blames “the extraordinary forces of globalization that arose subsequent to the end of the Soviet Union” for placing pressure on central banks. And far from being an America-specific concern, “housing deflation” is impacting economies worldwide “for the same reasons” they have stateside. All of which is to say that the odds of a recession are “clearly rising”, Greenspan says. But unlike earlier recessionary periods there is now at play a relatively modern financial tool that may contribute to the chaotic economic picture. So-called credit default swaps allow bondholders to insure against default. “Those who such sell such protection receive a quarterly premium based on a percentage of the amount insured,” reports the Financial Times of London. “The subprime crisis came fairly close to destabilizing the global financial system. A CDS crisis, under a pessimistic scenario [as outlined by Bill Gross of Pimco, the world’s largest bond fund], could produce a global financial meltdown.”

• Energy Inflation: The Dallas Morning News reports that the Energy Information Administration forecasts a 17.7 percent jump in crude-oil prices in 2008, with a corresponding 10.7 percent boost in the price of a gallon of regular gasoline. “According to the Bureau of Labor and Statistics Consumer Price Index, the national average price for gasoline in May of 2007 was $3.18, a 100 percent increase from May of 2003 when it was $1.59,” reports the Appalachian News Express. “I think the Fed has some worries on inflation,” David Wyss, chief economist at Standard & Poor’s in New York tells CBS News. “We are starting to see some leakage from energy into other areas of the economy.” And while cutting interest rates encourages more borrowing and spending that may allay recessionary fears, only increased interest rates can alleviate inflationary fears by increasing the value of US-dollar investments, MSNBC senior producer John W. Schoen writes. It’s a tough tightrope to walk under any definition, but one factor relatively new to the economic mix is the skyrocketing demand for energy in India and China, among other developing nations. Meanwhile, regions such as Africa and Iran, which might otherwise ramp up production to satisfy increasing demand, are hard pressed to do so due to the presence of war or political unrest, an OPEC fact sheet states. Making matters worse, the German-based Energy Watch Group in October 2007 released a study indicating that world oil production appears to have peaked in 2006, and that by 2030 production will fall by half. “These prices are here to stay,” explains Emil Pena, member of the advisory board at Calgary-based Genoil Inc. and the executive director of the Energy and Environmental Systems Institute at Rice University in Houston, speaking to in a January 2, 2008 interview after crude oil prices hit $100 per barrel.

• Bread & Butter Inflation: Although estimates vary, the picture of rising food prices is uniformly stark. Grocery increases in 2007 ranged from a 28 percent increase for eggs to a four percent hike overall according to USDA economists. Those prices are estimated to increase another three percent in 2008, with the gap between eating out and home cooking expected to narrow, The Dallas Morning News reports. The sharpest grocery increases since 1990 are expected to continue in 2008, with a disproportionate increase — roughly six to seven percent — in soy oil products and wheat items such as cereal, crackers and baked goods. Milk, meanwhile, is expected to exceed $5 per gallon this year. And it isn’t just consumers who are feeling the pain. “Since last year, wholesale food prices have increased 7.2 percent. If the trend continues, it will be the biggest food price increase in the last 27 years,” the National Restaurant Association told the Nashville Business Journal.

• Unchecked Borrowing: Walker maintains that we are essentially running up a credit card debt “against our grandchildren”. The outstanding public debt as of January 12, 2008 is a mind-boggling: $9,201,303,778,567.90 according to the U.S. National Debt Clock. The estimated population of the United States is 304,063,331 so each citizen’s share of this debt is $30,261.14 — or an average of $1.48 billion per day since September 29, 2006. According to a March 2006 MSNBC article, the war costs alone amount to $200 million per day — and this before factoring in the cost of potentially widening the Mid East war effort to include Iran or Pakistan.

The Bottom Line: “It’s the economy, stupid!

Concern for the economy, for currency devaluation, for overextending our obligations — these are not conservative or liberal issues but are, in fact, central to the health of the entire nation.

Economists and grandparents alike have been talking for what may seem like forever about the day when Social Security, among other entitlements, would become insolvent. According to our nation’s top accountant, that day has come — and will continue to bear down on our economy over the next 20 years.

“I would argue that the most serious threat to the United States is not someone hiding in a cave in Afghanistan or Pakistan,” Walker said, “but our own fiscal irresponsibility.”

From all available evidence, somebody is going to have the unsavory task of putting our fractured economy back together again. Ready or not, that burden will come to rest upon our next president. But how will we fare if we elect someone who does not even have the wherewithal to prioritize these vital economic issues on the campaign trail — let alone offer a concrete plan to fix them?

One reason we do not hear more on this subject is that it is just plain scary. By the very nature of the problem, paying the piper will entail spending cuts to programs that may not necessarily deserve to be cut. The alternative is increased taxation. Either way, we are entering a period of sacrifice. Consequently, it is not the president or his or her party in the coming years that will provoke seemingly radical solutions. Rather, the economic times in which we live promise to demand out-of-the-box thinking in order to stave off federal bankruptcy. But try getting any sense of that reality from the campaign trail. The word is out among campaign strategists: Voters want a feel-good candidate.

What we need is an experienced and principled leader — a president who is unafraid to make the tough decisions that tough times call for. The problem? A number of presidential candidates, for all their enthusiasm and potential, are untested at the federal level. Not so, Congressman Paul. With three 10-year terms of Washington experience under his belt, bona fide wartime experience and may years serving on banking, finance and gold committees in Washington, Congressman Paul brings to the table qualities and qualifications that few 2008 presidential candidates can match. And unlike so many politicians who are desensitized to Washington largess, Congressman Paul’s voting record proves something even more telling: A man good for his word.

In the words of former Treasury Secretary William Simon, Congressman Paul is the “one exception to the Gang of 535” on Capitol Hill. And in testament to his uncommonly strong backbone, Congressman Paul has received awards and honors from organizations such as the National Taxpayers Union, Citizens Against Government Waste, the Council for a Competitive Economy and Young Americans for Freedom, among others, his profile reveals.

If Congressman Paul seems radical, it is likely a reaction to the sharp contrast between his traditional limited government priorities and modern-day Republicans and Democrats who are not as different as they once were — particularly when it comes to big government and big spending. So if the mere act of calling upon the government to return to its Founding principles is radical, it is less a reflection upon Congressman Paul and more a reflection upon us. Not surprisingly, Congressman Paul’s admonishment to reduce or retire some of the agencies added to the federal government during the Progressive Era may seem counterintuitive in today’s context of presumptive necessity. However, as many of his academic endorsers from the History News Network appreciate, the historic record indicates that many of those agencies have been controversial since their inception — and have remained controversial as they mature into bloated bureaucracies that burden taxpayers, are ineffective at delivering on their promises, contribute to the federal deficit, or encroach upon states’ rights and constitutionally-protected individual liberties. So rather than broad-brush an endangered specimen of traditional statesmanship against the backdrop of prevailing lassitude, perhaps it is time we let Dr. Paul out of the archivists’ box, dust him off, and put his restorative skills to work.

The doctor may prescribe a hard pill to swallow — but it just might cure what ails us.

Now all that remains to be seen is this: Do we elect the candidate who tells us what we want to hear? Or what we need to hear?

Or as the Comptroller General might put it: Do we want the cancer or the cure?