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.

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Resources

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 | Stateline.org

Comparing Online to “Brick and Mortar” Shopping | Buzzle.com

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!

Joe the Plumber: The Real Untouchable

Curt Eysink is an unpopular man.

Less than three months after assuming his post as executive director of the Louisiana Workforce Commission, he told a panel charged with overhauling the state’s higher education system: “We’re producing a workforce that we cannot employ in Louisiana.”

The problem? Too many four-year college grads and not enough low-skill and vocational trade workers.

Where is the job growth?

The service industry.

“[O]ccupational forecasts that show the state will produce 10,312 more four-year graduates than there are jobs to fill between 2008 and 2016, while at the same time there are 3,892 more jobs available requiring associates’ or technical degrees than there are people to fill them, ” reports Jan Moller of the Times Picayune.

Fairly or not, such news equates in Americans’ minds with sub par wages. And low-wage prospects make Americans see red.

“If I saw the strongest growth area was ushers, lobby attendants and ticket-takers, I’d leave Louisiana too,” said Belle Wheelan, president of the Southern Association of Colleges and Schools.

Outside of Louisiana this story has not gained much traction. But it is far from a Louisiana fluke.

“According to the Forgotten MiddleSkill Jobs reports by The Workforce Alliance, middle-skill occupations, which require more than a high school education but less than a four-year degree, make up roughly half of all employment in the nation, compared with only 1/3 of high-skill occupations that require at least a four-year education,” writes Ann Pace in “The Forgotten Middle Worker“, published in September.

Louisiana was not among the states studied but it very well could have been: The Workforce Alliance analysis of middle-skill job demands include Washington, Oregon, California, Wisconsin, Illinois, Indiana, Michigan and Rhode Island — all of which have proven consistent with the national outlook, survey reports show.

Welcome to the future, America.

The mainstream media is either entirely oblivious to real job trends, or chooses to keep Americans in the dark because a future filled with ticket-takers, cashiers, healthcare aides, auto mechanics and electricians isn’t the kind of news we want to hear. To the contrary, syndicated New York Times columnist Thomas Friedman, in October, argued that “our schools are failing” to promote American competitiveness, in part, because we allegedly have a shortage of science, engineering, mathematics and other such high-tech grads. The “new untouchables“, by Friedman’s definition, are those who maintain an innovative and stable career in an increasingly cutthroat economy.

Message: Make schools more competitive. This will cure America’s globalized bellyache.

Improving student literacy, of course, is never a waste of time. What Friedman and others fail to take under consideration, however, is that few Americans work in the field they studied in college. That includes so-called STEM grads (science, technology, engineering and math majors).

But wait, it gets better!

Susan Hockfield, MIT’s president, takes the argument to a whole new level of absurdity in an October opinion piece for the Wall Street Journal in which she pleas for immigration reform to allow more foreign-born STEM grads to stay in the U.S. for permanent work as “jobs creators” and “Nobel winners”.

Who hires those foreign grads on H-1B visas? Microsoft, Google and other heavy hitters. This is the last thing most Americans call job creation. Hockfield’s suggestion reeks, instead, of domestic job displacement. Why? Because fewer U.S. citizens are likely to pursue challenging Ph.D.-level curriculum when their post-graduation economic stability is undercut by inexpensive foreign talent (insourcing/outsourcing). American-born students aren’t stupid, they’re pragmatic: What incentive is there to incur massive student loan debts if at best “employment insecurity” is the reward for the effort? And finally, to add insult to injury, independent studies from The Urban Institute, RAND Corp.Duke and Rutgers University, among others, say the so-called demand for high-tech and high-skill foreign workers doesn’t even exist — and that was true before the Great Recession cut loose thousands of qualified workers, dumping them back into the open market:

Is Anybody Safe?

Here’s how Eysink gets it right and the corporate and academic sources often quoted on this subject slant it wrong: Highly skilled foreign students aren’t coming to American universities to pursue jobs as lobby attendants or cashiers on the one hand, or the better paying “skilled trades”, such as auto mechanics, electricians and machinists, on the other. They are pursuing cream-of-the-crop professional skills whereas non-manufacturing jobs that require hands-on skills are relatively unscathed. After all, if your pipes burst you aren’t calling a plumber in China; your hairdresser will not be replaced anytime soon with a computerized robot; and your auto body repairperson is unlikely to be supplanted by a foreign grad student.

Nobody is arguing that these are ideal aspirations for Americans — only that middle-skill jobs are relatively safe from the insource/outsource phenomena. But when lettuce pickers and high-tech whiz kids are both here on work visas — if legally at all — watch out.

That should scare us.

When Eysink says that vocational and low-skill jobs are where much of the growth projections are, he’s only saying what everyone working on behalf of community and state employment agencies already knows.

What is telling is that Eysink’s neck has been slashed for sticking it out too far.

Eysink’s blunt outlook flies in the face of the education-as-a-panacea argument that has been the politically correct solution to all that ails the U.S. economy for at least 30 years now. Might tax incentives drive U.S. corporations to seek greener pastures offshore? Naw. Might looser environmental and human rights standards make foreign labor attractive? Naw. Might this be a predictable outgrowth of border-free trade? Naw. Let’s just dismiss all those larger-than-life realities and jump on the little guy at a state agency for saying what we already knew but are too afraid to admit.

The School of Hard Knocks

Following the conventional go-back-to-school advice, unemployed Americans are enrolling in schools of all stripe. Those educational pursuits often involve taking out student loans. If obtaining anything short of high-demand professional or trade skills isn’t going to cut it in this Brave New Economy — and the national jobless rates hover above 10 percent as many economists project — it suggests that many freshly minted grads and their return-to-school adult counterparts will not secure stable employment by which to repay educational debts.

The next consumer debt “bubble” to burst the American economy before the effects of the Great Recession are entirely behind us may well be a student lending bubble. Louisiana state Governor Bobby Jindal isn’t the only one reading the writing on the wall. Other states are following suit, attempting to prevent a tsunami of student loan defaults at a time when more prospective students are clamoring for a university education and the academic loans to fund them.

What makes misguided career advisement particularly unforgivable, in the end, is that we Americans are only doing what we’ve been told to do by media, educators and the President himself: Earn new or improved academic credentials in hopes of securing a better future even if it means a prohibitive amount of debt.

Higher education is never a waste in the aim of creating an informed, well-rounded citizen. Economic betterment is also a useful reason to invest in education — assuming one’s skills aren’t so easily ravaged by globalization. As for the rest of the American public?

A rude awakening. And another swipe at an already ailing economy to boot.

Ah, but thankfully there is a silver lining: All hope is not lost for children who fail to become the academic superstars this Brave New Economy demands. Friedman and his pontificating friends may not appreciate it now, but America’s new untouchable may be Joe the Plumber.

Judging from the state of America’s aged and crumbling infrastructure, we’re going to need more Joes than we know.

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Resources

State Labor Department Says LA Has Too Many 4-Year College Grads/AP

The Workforce Alliance

Skills2Compete

America’s High-Tech Sweatshops | BusinessWeek

The H-1B Visa Lull Is Only Temporary | BusinessWeek

Is This Why I Went to College? | BusinessWeek

Congress’ H-1B Program Displaces Daughter of Programmers Guild President Out of Job Market

There is No High-Tech Shortage | The Social Contract

The Science Education Myth | BusinessWeek

The Myth of the Math and Science Shortage | Mises Institute

Another Scientist Shortage? | Science Careers

Nine Myths About Public Schools | Gerald Bracey of the Huffington Post

A Look Back: The Near-Myth of Our Failing Schools | The Atlantic