Even in a digital age, brick and mortar retailers have distinct advantages over e-commerce. But the other day, I watched as two stores totally blew those advantages. In a bookstore, the customer waiting in line before me asked for a particular book, only to be told it was out of stock. “We can order it for you,” the customer was told. But she shook her head. “I have books on order. I wanted something to read now.” The second came as I returned an item to a large department store chain, a routine matter — or so I thought. Thirty frustrating minutes later, after being shuttled between employees like a ping-pong ball, I left, wondering why something so simple had taken so long.
Both these incidents demonstrate how the woes facing brick and mortar retailers go far beyond price competition from online shopping. The bookstore I visited had missed its advantage of instant gratification. The department store lost its advantage of convenience and the human touch. An impersonal trip to the post office to mail a return was better by comparison.
My shopping experience underscores three primary factors that underlie the plight of current brick and mortar retailers: retreat from core competence, failure to view online counterparts through a complementary lens, and loss of focus on customer experience. Unfortunately, the results of these missteps are apparent.
Distressed retailers are closing stores at a record pace. According to the Wall Street Journal, more than 2,800 retail locations have closed just this year, including hundreds of locations being shut down by national chains such as Payless ShoeSource and RadioShack. The outlook for major department stores is grim. Macy’s said it will close 68 of its 870 stores nationwide, affecting 10,000 employees, citing changing consumer behavior. Sears Holding Corp. will close 108 Kmarts.
Ever since I was a graduate student in economics, I’ve been struggling with the uncomfortable observation that economic theories often don’t seem to work in practice. That goes for that most influential economic theory, the Efficient Markets Hypothesis, which holds that investors are rational decision makers and market prices fully reflect all available information, that is, the “wisdom of crowds.”
Certainly, the principles of Efficient Markets are an excellent approximation to reality during normal business environments. It is one of the most useful, powerful, and beautiful pieces of economic reasoning that economists have ever proposed. It has saved generations of portfolio managers from bad investment decisions, democratizing finance along the way through passive investment vehicles like index funds.
Then came the Financial Crisis of 2008; the “wisdom of crowds” was replaced by the “madness of mobs.” Investors reacted emotionally and instinctively in response to extreme business environments — good or bad — leading either to irrational exuberance or panic selling.
Pennsylvania, like many other states, is facing a huge unfunded pension deficit in its defined benefit plans: a $70 billion shortfall in two large plans for teachers and other state employees. Unlike most states, Pennsylvania in early June passed — with widespread bipartisan support — major legislation “to get real meaningful pension reform,” as Gov. Tom Wolf was quoted saying.
Indeed, the recent Pennsylvania law is a significant step in the right direction. However, the financial projections for the legislation show how long it takes, given the legal and political constraints, for this approach to pension reform to meaningfully reduce the burden on state budgets.
Here is the background. In 2001, Pennsylvania reported a $20 billion surplus in its two big defined benefit plans – the Public School Employees’ Retirement System and the State Employees’ Retirement System. But then state legislators boosted benefits for current state workers without increasing contributions to these plans, and even extended this giveaway to already retired public employees. In 2003, legislators compounded the state’s funding challenge by taking a “pension holiday” — decreasing pension contributions to allocate revenue to other state priorities.
These actions contributed to a giant shortfall during the global financial crisis, when the value of the state’s pension portfolios plummeted. In response, state legislators in 2010 reduced pension benefits — only for newly hired state workers — to pre-2001 levels. Nevertheless, because of growing obligations to current and retired workers, the state’s contributions to its pension plans ballooned to $6 billion in the 2018 fiscal year from $1 billion in the 2011 fiscal year.
What is gold? Is it the essential bedrock of fiscal prudence? Is it a political football, with fortunes and importance determined by far greater forces? Or is it a mere distraction at the margins of the global financial system — attracting a disproportionate number of scams and oddball political characters?
Gold in the American economic system has been all of these and in that order. James Ledbetter weaves a highly readable tale, literally from the origins of the republic to the dubious sponsors of Glenn Beck on Fox News (a brilliant concluding chapter). Too often, this kind of economic history becomes dry and even soporific. But Ledbetter — the editor of Inc. magazine — has a fine eye for personality and ideas; each of the 12 chapters puts you on the spot at a critical moment on the American journey with gold, with anecdotes nicely blended to create the broader historical context.
You can read it in chronological order or you can dip a toe in at any point, almost the ideal summer reading. Or — my favorite for this kind of tale — watch the story unfold backwards; start with the modern and familiar, and see how far you need to go back in time before it feels like you are watching something straight out of Marvel Comics, with big characters and motivations that now seem strange. The most compelling material explains how President Franklin D. Roosevelt reluctantly yet effectively — and with very good reason — ended the way gold had operated over the previous half century. But Operation Goldfinger is also highly entertaining — a 1960s public policy escapade, inspired by the James Bond movie.
The broader plot line is this. The American republic was initially bankrupt, a point that the hit musical Hamilton made more effectively than any middle school history lesson. A monetary system subsequently modeled on that of Britain included gold as an anchor of value for paper money and bank deposits. This system provided sufficient stability in good times — along with plenty of opportunity for financial speculation and shenanigans — and could also be suspended when circumstances dictated, most notably during the Civil War.
As philanthropy becomes a common source of finance for poverty-fighting programmes, it is natural for donors to want data about their impact on the people they want to help.
Yet measuring the benefits of philanthropy is surprisingly hard. How can we define and measure “income” in a village of subsistence farmers? Can we ask a street kid enrolled in a violence-prevention programme about his illegal activities? How do we know if a change in nutritional outcomes was the result of a social programme and not some other variable, like a change in food prices? How can we measure non-quantitative or non-monetary outcomes, like women’s empowerment or entrepreneurial motivation?
For many years, aid impact studies were based on anecdotal evidence or fragments of data. Over the past decade, searching for a more rigorous approach, development researchers have applied the “gold standard” of medical research: randomised controlled trials. In an RCT, researchers allocate an intervention, such as a microfinance loan, to a randomly selected test group of people and compare their outcomes with a control group. Read More »