While growinng Wal-Mart into the world’s foremost retailer, Sam Walton was big on dropping into stores. He wanted his “associates” to see him, he wanted to learn from them too, plus he wanted to rally them.
The "problem" was that Wal-Mart stores eventually numbered in the thousands. How to drop in in the way he always had? Technology proved helpful. As Walton biographer Vance Trimble explained it, the solution in 1985 was a $16 million purchase of a “Ku-band ‘hub station’ at headquarters consisting of a 9-meter antenna dish and ‘personal earth stations’ (PES) with smaller 1.8-meter dishes at the stores and warehouses.” The $16 million spent on the “hub station” ($50,000/month extra for satellite time) proved a money saver in that Walton could now speak to his hundreds of thousands of associates at the same time, and he could do all of this from Bentonville, AR.
Wal-Mart’s solution to an expanding corporate footprint came to mind while reading a recent column by Wall Street Journal economics reporter Greg Ip. Ip reports that the attention of the American people is straying from what he deems “inflation,” and he worries this could be bad news. Ip’s reasoning is that if more and more Americans have come to accept inflation as “here to stay, the likelier it is to stay.” From this, Ip concludes that the acceptance of inflation “would force the Federal Reserve to choose between inducing a potentially deep recession to force inflation lower or giving up on its 2% inflation target.” He didn’t write that, did he?
To begin, it cannot be stressed enough that the belief about higher prices causing inflation is about as credible as the view that an upset stomach causes consumption of ice cream. Causation is plainly reversed. Higher prices are at best an effect of the currency devaluation that is inflation. As for higher prices themselves, on their own they’re logically not an instigator of higher prices when it’s remembered that if the cost of a Ben & Jerry’s pint doubles, shoppers have fewer dollars for other grocery items. It’s a reminder that what Ip deems “inflation” realistically isn’t.
Which requires a tack to his more offending, and logic-vandalizing assertion that the answer to higher prices is a “deep recession to force inflation lower.” Here the unfortunate fact that Ip mistakes rising prices for “inflation” is useful. And the 1985 Sam Walton instructs.
Back then company-wide communication was once again enabled by a $16 million “Ku-band ‘hub station’” in concert with $50,000/month in satellite charges. If Ip is to be believed, the latter could have been fixed if the Fed had just centrally planned a recession. Slow the economy to bring down prices…
More realistically, communication is exponentially cheaper today thanks to economic growth. Due to relentless investment in the internet, along with ever faster internet speeds, what cost Wal-Mart enormous sums nearly forty years ago would be near costless now.
Of course, the above truth rejects in total Ip’s solution, Rather than call for the Fed to do what it can’t do as is (suffocate credit), the only real world answer to high or rising prices is powerful economic growth that creates resources that will be accessed by the productive on the way to the mass production of formerly costly goods and services. It’s that basic.
Not only is “recession” not the answer to higher prices, Ip misses that in the real, routinely growing U.S. economy, producers will ensure that Americans never come to accept what he mis-defines as “inflation.” The economic growth that Ip deems the problem ensures just that.