Cheap (24 page)

William Levitt himself offered living proof that expertise was not a prerequisite to success. His father appointed him president of Levitt and Sons at the age of twenty-two. His adolescent brother Alfred was made vice president of design. Both boys were college dropouts and had no knowledge of construction. Alfred’s dad, Abraham, once said of him, “Alfred loved to draw, but he didn’t know what a two-by-four was.”

The Levitts amassed their first fortune building luxury homes for bankers and lawyers. When that business sank in the swamp of war, they nabbed a lucrative government contract to erect 2,350 prefab housing units for defense workers in Norfolk, Virginia. It was through this project that William learned much of what he needed to know about low-cost construction. And the market was ripe. Wartime shortages of everything from wood to cement to nails had crippled the housing industry, leaving veterans stranded and living in attics and basements, doubling and tripling up with family members. Pollster Elmo Roper estimated that 19 percent of Americans were looking for a place to live and that another 13 percent would be if they thought they had any chance of finding one. In a campaign speech, President Harry Truman asked, “How can we expect to sell democracy to Europe until we prove that within the democratic system we can provide decent homes for people?” Truman backed up the rhetoric with the nation’s richest-ever home-financing scheme: tens of billions of dollars in, among other things, Federal Housing Administration-guaranteed bank loans and Veterans Administration- sponsored low-interest mortgages.

Levitt cashed in, setting what was to become a new standard for low-cost single family home construction. He wangled a change in the local building code to permit his workers to pour concrete slabs directly on the ground, thereby eliminating the need for a foundation or a basement. (A sympathetic press helped make this happen by making such niceties seem obsolete.
Newsday
proclaimed in an editorial: “Maybe it was good enough for grandpappy to live in a baroque chateau, propped up over a hole in the ground, but it is not good enough for us.”) Levittown homes sported no porches and no finished second stories. They had linoleum floors, minimal landscaping, and carports instead of garages. Two bedrooms, a bath, a kitchen, and a living room fit cleverly into 750 feet of living space. A washing machine was included, as was a built-in TV. Levitt built similar boxy structures one after another—seventeen thousand side by side on 1,200 acres of potato fields, 25 miles from Manhattan. Then he built two more Levittowns in Pennsylvania and New Jersey. Traditional builders of the time were lucky to finish four to five homes a year. Levitt and Sons pumped out more than thirty in a day. Soon enough, Levittown grew into the largest housing project in American history.

“Levitt was the Henry Ford of builders,” Hull told me. “He broke each job down into pieces so small that it required very little skill.” (One man did nothing but bolt washing machines to the floor.) Over the next twenty to thirty years a whole generation forgot how to build carefully. The balance between craftsmanship, speed, and production costs tipped, and we have not gone back.

Levitt, who once said, “the masses are asses,” aimed for high speed and low price. He created a vertical monopoly. His firm and its subsidiar ies controlled every link in the supply chain, from forests to lumberyards to appliance wholesalers. Dissatisfied with the cost of nails, he built a factory to make his own. By shunning middlemen, he got great deals on appliances. By shunning craft workers, he freed himself from labor pressures. He placated the unions, cutting them out without pissing them off. Some critics complained. Lewis Mumford famously dubbed Levittown an “instant slum,” but most held their collective tongues. Levittown was the future, and in the wake of the deadliest conflict in human history, the future was where people wanted to be. As cultural critic Christopher Lasch wrote in his classic
The Culture of Narcissism,
Americans “trivialized the past by equating it with outmoded styles of consumption, discarded fashions and attitudes.” America was enamored with technology and immersed in the “cult of the new.” Why live in an old-fashioned “used” house when you could move into a spanking new one?

Levittown was a handyman’s special wrought large, a do-it-yourselfer of precut lumber, prefabricated plumbing, and fresh-from-the-factory minimalism. Almost anyone could be a carpenter at Levittown or a plumber, a landscaper, a roofer. There was so little to master; everything was ready to go, all made to fit. Levittown residents were willing to change to fit Levittown. They had no choice in the location, style, or accoutrements of their new homes. That these homes lacked even the rudiments of craftsmanship or history and that they were isolated 25 miles from Manhattan in a remote potato field seemed not to matter when the price was $7,500 with no money down—just $65 a month.

IKEA sprung fully born from this tradition: predictable uniformity in the guise of novelty; design without craftsmanship; the customer bending to accommodate the commodity. We need not save for months or even weeks to buy a Bankas coffee table for $89.99. And when its “clear-lacquered ash veneer” muddies with coffee spills, we don’t despair that we cannot sand it smooth again. A coffee table, like a lamp, has no feelings and demands no feelings from us. It is simply time to buy a new one.

Whether craftsmanship even matters in our postindustrial world depends on who you ask. The knowledge economy demands smarts, drive, ambition, and speed. Craftsmanship demands skill, training, exactitude, and patience. That these two sets of qualities are not entirely compatible might imply that we should abandon one for the other—or it could mean that we need both. Many of us pride ourselves in being connoisseurs of something, be it beer or golf clubs or coffee. There are haut cheese makers and dress designers and furniture and chocolate and watch makers, but these are high-end craftspeople serving a mostly high-end clientele. As shoes and electronics and furniture become disposable, there is no need for craftsmen to craft or repair them. And as craftsmen become increasingly scarce, true craftsmanship becomes more expensive and rarefied, something for the wealthy but not for the rest of us. The combination of quality and value, once available to the many, is now affordable only to the few. For the rest of us, there is “design.”

Design may be clever, amusing, and eye-catching, but if executed without craftsmanship, it does not sustain us. Like a zirconium engagement ring, poorly executed design deceives: It has glitter but no gold. How many times, caught in the rain, have we bought a fine-looking $5 umbrella from a street vendor, knowing full well that it will invert and become useless in the first serious gust? We end up holding the umbrella by its points, stretching it over our heads like an oversized handkerchief. Our relationship with this umbrella is like a one-night stand: reliably dysfunctional. We’ll buy another $5 umbrella in the next unexpected downpour. Expecting little, getting little, we’re making do—but barely. Without craftsmanship and the expectation of craftsmanship, our relationship to the material world breaks down into fits and starts of stopgap measures that are neither satisfying nor sustainable.

Recently, a friend mentionioned that when she moved from Washington, D.C., to New York City ten years ago, her movers refused to pack up the IKEA Billy bookcases unless she disassembled and boxed them herself. They warned her to inspect the case for cracks and to collect all the hardware; they also said that no matter how careful she was, they would not guarantee its safe arrival. Rather than go to all that trouble, my friend decided to put the Billy cases out on the front curb (like that lonely lamp) and buy new ones when she got to Manhattan. Once there, while poking around a flea market on the Upper West Side, she found a bookcase of solid oak. It was not new, but it was sturdy and distinctive, and it cost only a few dollars more than the Billy. She bought it, tied it to the roof of a friend’s car, and drove it home. Ten years later it is still there, marked with age and packed to groaning with big, heavy books and memories. My friend has lots more money now and could afford a brand-new bookcase, so I asked her if she plans to put this one on the curb. She looked stricken. “Why,” she asked, “would I do that?”

I’m not convinced you’re going to have the same immediate desire to go back to consumption and debt. A lot of young people have learned what it’s like when you’re living on the edge and the bad times come. Their appetite is now towards more about living things differently.

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H. LEE SCOTT, RESPONDING TO QUESTIONS AT THE ANNUAL MEETING OF
THE NATIONAL RETAIL FEDERATION, JANUARY 12, 2009,
HAVING ANNOUNCED HIS RETIREMENT AS CEO OF WAL-MART.

 

 

 

 

 

 

Price is a number, but properly decoded, it is no abstraction. Price tells us volumes about marketing strategies, government policies, and even variations in the growing season. Economic realities, such as the efficiency of workers and factories are all reflected in price. Social and political realities—such as environmental degradation and human rights violations, are reflected as well. Discounting means that a particular good or a service is not desired at full price—or at least not designed enough to sell. The price of discounted goods is what economists call “elastic.” Price elasticity is a measure of how much the demand of a good or service varies with price. A product or service is very elastic if a slight change in price leads to a sharp rise or fall in demand.

Usually, highly elastic goods and services are readily available, interchangeable with other goods and services, and not critical for daily life. If a brand of ice cream gets too pricy, we can switch brands, eat cake, or skip sweets altogether. The same can be said for many other commodities. The price of meat, for example, is fairly elastic—raise or lower the price, and consumers respond. When the price of chicken goes up, consumers can and do switch to beef or pork. An inelastic good or service, by contrast, is one in which changes in price result in no or relatively modest changes in demand. Think gasoline, cigarettes, a unique life-saving drug. Since consumers don’t have a real alternative, demand for these goods is far less sensitive to changes in price; the drug, for instance, is essentially inelastic.

Successful merchants know how far to push price, and price elasticity is one factor in determining how to make the requisite trade-offs. As a rule there is less need to discount goods and services with low-price elasticity. This brings into sharp relief one of the perils of cheap: The more essential the good or service, and the more unique, the less elastic the price and the less likely it is to be marked down. Absolute essentials for which there are no substitutes and for which we cannot wait are almost never discounted. Transportation, health care, private education, and housing may go down in price, but unless subsidized by governments or other institutions, they are almost never cheap.

When the price of essentials goes up, the poor have no choice but to sacrifice to acquire them. In June 2008 the price of gasoline topped $4 a gallon, and average citizens of thirteen counties in Mississippi, Alabama, Kentucky, and West Virginia forked over more than 13 percent of their take-home pay for fuel. Some traded off food, health care, and housing to pay for their daily commutes, while others, no longer able to afford car payments and gas money, were forced to quit their jobs. But rising gas prices had little or no impact on the wealthy. Indeed, the wealthy feel little pain from the increased cost of essentials, for which there are few or no substitutes, while enjoying every opportunity to benefit from the low price of inessentials.

Some economists have blurred this critical distinction, even implying that the poor benefit disproportionately from discounts. Here Wal-Mart, the world’s largest discount retailer, serves as a proxy for the discount category as a whole. Jason Furman, economic advisor to President Barack Obama, once famously argued that “there is little dispute that Wal-Mart’s price reductions have benefited the 120 million American workers employed outside of the retail sector. Plausible estimates of the magnitude of the benefit are enormous—a total of $263 billion in 2004, or $2,329 per household.”

That is quite a bonus. Among the experts Furman cites as having done the basic work leading to this assessment is Massachusetts Institute of Technology economist Jerry Hausman, coauthor of a highly regarded study of the impact of Wal-Mart on food prices. Hausman concluded that Big Box stores made consumers “better off by the equivalent of 25 percent of food spending.” For the poorest 20 percent of the population, this was estimated to be equivalent to an increase in income of 6.5 percent, a significant sum. I called Hausman to discuss this figure with him. He told me that Furman actually underestimated the Wal-Mart premium: The discounter not only offers low food prices to its own customers but forces other local supermarkets to drop their prices as well. “Even if you never shop at Wal-Mart, you are still better off with Wal-Mart nearby,” he said. I asked Hausman where he buys his groceries. A city dweller, he said he lives many miles from the nearest Wal-Mart or other discount grocery and therefore shops at Whole Foods. Whole Foods is a high-priced, limited-selection supermarket, with a reputation for good service, quality, and variety, factors for which Furman said he did not control in his study. This is surprising, for without controlling for quality, how is it possible to make a meaningful comparison? How are consumers to know whether the lower price of chicken breasts at Wal-Mart signify a good deal on a superior product, or a bad deal on an inferior product? Most of the goods on Hausman’s hypothetical shopping list were generic items that vary widely in variety and quality from store to store.

Discounters sell mostly what they can buy cheaply and in great bulk, so it is no wonder that the goods in Hausman’s theoretical market basket—chicken breasts, ground meat, apple juice, and the like—were cheaper at Wal-Mart, which, thanks to its size, and power, can purchase these things at deep discount, and, thanks to its business model and employment policies, can sell them more cheaply than most other outlets. Generic goods like these are highly price-elastic. When the price goes up, the demand tends to go down. Discount stores keep prices on inelastic goods low, since customers quite literally can take them or leave them. If apple juice is too expensive this week, they’ll switch to grape. Unique goods or goods for which there are no substitutes—such as specific brands of cereal or soft drinks—though they may be reduced in price, are far less likely to be deeply discounted unless they are “on sale,” which they are equally likely to be at a traditional supermarket.