Tuesday, February 03, 2015

What killed my favorite bookstore? (SEE UPDATE)



My favorite bookstore in the world is Borderlands Books in San Francisco, a sci-fi themed bookstore.

Or rather, it was my favorite bookstore, because it's about to be forced out of business courtesy of San Francisco's new minimum wage hike, and pressure from Amazon.

Two lessons from this:

Lesson 1: The bad effects of minimum wages are real. 

There's just no way around it. Yes, we liberals often like to talk about all those studies that show that the effect of minimum wage hikes isn't that big. But on the margin there is going to be an effect. And when your favorite business is on the margin, that means your favorite business gets the ax.

If you want to accuse Borderlands owner Alan Beatts of being a money-grubbing profiteer, be my guest, but you'll be wrong. The whole reason Borderlands exists in the first place, in the face of pressure from Amazon, is that it is close to being a nonprofit. From Beatts' blog:
[T]he basic facts: 
1)  The bookselling side of Borderlands has never been terribly profitable.
2)  Based on current business, the new minimum wage, once fully in effect ($15 per hour in 2018) would move the bookstore from being modestly profitable (roughly $3000 in 2013 before depreciation) to showing a yearly loss of roughly $25,000.
3)  It is reasonable to expect that the best-case, long term sales trend for a brick-and-mortar bookstore is relatively flat.
4)  Making 50-60 hours of work, per week, with no real holidays on my part an intrinsic part of our business plan is neither viable long-term nor something I am going to do.
5)  Any solution would need to have a very good chance of working.  Closing now is a straightforward process and doesn't require any money and a limited amount of frantic work.  Pouring money and / or time into a solution that might work is not something that I'm willing to do at this point in my life. 
The only solution that I can see would be to reduce expenses by an amount at least equal to our projected yearly loss.  The only expense that is large enough to reduce by that much is our rent.  So, the only viable solution I can see would be to substantially reduce or eliminate the amount we pay to house the store.  The problem is that I can't see any realistic way to achieve that.  If I had the money, I would buy a building, move the store there and stop paying rent.  It would be a terrible investment, since I'd be losing out on the income from that money, but if I were driven by profits or money, I wouldn't be running a bookstore to start with... 
However, I don't have even a fraction of the money that would be required for that.  Based on the current market and the sort of building we would need, the price tag would probably be somewhere between 1.5 and 3 million dollars.  So, what it gets down to is -- if someone (or a group of someones) out there wants to buy us a building, I'll be happy to move the store and stay in business.  But, otherwise, I cannot see any solution that will allow us an even half-way reasonable chance to make the business work at a minimum wage of $15 an hour. 
Do I seriously think that someone will buy us a permanent home for the store?  Not at all.  I would do it for my store, but I don't think I'd do it for anybody else's.  On the other hand, if I had as much cash as Ron Conway, Mark Zuckerberg or Elon Musk, I guess I might do something like that.  But, realistically, it's not going to happen. 
But, if it did, I would keep running Borderlands 'til someone carried me out feet first.  I really don't want to close.  But I can't see any real, sane alternative.
Now you tell me if he sounds like a capitalist pig.

No, a high minimum wage really does kill some good and valuable things.


Lesson 2: Technological progress does have drawbacks.

I LOVE Amazon. I would NEVER go back to the days of brick-and-mortar stores. But that doesn't mean that the advent of this cool new technology is costless. When bookstores disappear, a unique kind of positive experience will no longer be available to humanity. Amazon's bookselling business may give customers more overall pleasure than bookstores, but there is a type of pleasure involved with hanging out in a bookstore that will not be replicated by Amazon ever (or at least until virtual reality technology becomes almost inconceivably more advanced). Just because costs are worth paying doesn't mean there aren't costs.

But in fact, since there is a positive externality to bookstores, created by the presence of other shoppers, it's likely that there are a few individuals out there who will actually be made worse off, in the strictest sense, by the advent of Amazon.

In other words, new technology is an improvement by many yardsticks, but not always by the yardstick of Pareto efficiency. When brick-and-mortar bookstores are gone, you really can't buy your old bundle back (unless you are a very rich person who can afford to buy a bookstore and operate it at a loss).


My new goal is to get really rich so I can buy and operate a Borderlands-type bookstore at a loss.


Update

Borderlands may not be dead yet. Here's how you can help save it. And more plots are being hatched...

89 comments:

  1. Anonymous3:18 PM

    Does the owner sound like a Mitt Romney style capitalist? No. But he did build a business model that survived only by paying his employees a non-livable wage so on the balance not that great.

    I love real book stores too, but if a business can't survive paying its workers more than the change found under couch cushions maybe our nostalgia is misplaced.

    Think of all the cool stuff we could have if our labor cost was closer to zero…ahh the good old days.

    ReplyDelete
    Replies
    1. But they chose to work there, and take the low wage, because they loved working there. Those clerks are smart, smarter than the average clerk, and I'm sure their incomes will go up as a result of the death of Borderlands. But they chose to work at Borderlands for pocket change, and now that choice will no longer be available to them.

      Delete
    2. Anonymous3:46 PM

      "I love real book stores too, but if a business can't survive paying its workers more than the change found under couch cushions maybe our nostalgia is misplaced."

      Why must everyone conform to your standards? Why can't consenting adults cooperate on mutually agreed upon terms?

      Delete
    3. What trolley comments. I like to see you all work and live on those wages slave rates as Obama essentially said to the Republicans during the SOTU, asking them to raise the minimum wage

      No, you are better then "those" people. Double standards.

      Delete
    4. Noah Smith, you were so close to, yet so far from, builderism.

      While I'm here, not sure if you saw it but I apologized for hitting you over the head with opportunity cost.

      Delete
    5. Noah Smith, I do miss the days of the physical bookstores when you could walk in and read a book any genre that was available. But sadly bookstores have become retail business can't survive paying its workers. Bookstores have seen a demise in the recent years. I love real book stores too.

      Delete
    6. If they liked working there for this wage they could additional income and invest it into the shop. That would cover a big part of the cost gap and the employees wouldn't be worse of.
      Also it is not clear if they liked working there for this particular wage. They may simply have had no better offers, or offers with worse work conditions that outweighed the additional wage.

      Delete
    7. Sorry Noah, walking real close to the line about happy slaves

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    8. Wait a second. As of today, the minimum wage in SF is $11.05 and it goes to $12.25 on May 1 and stays there until July of 2016. Those rates cannot kill the book store. However, if one reads the blog from the bookstore closely, one can see the real economic problem--real estate. My understanding is that the price of SF real estate is escalating wildly. From Beatts' blog comments, it would seem clear that the bookstore cannot operate if it has to pay market rents for the building. Query: Who owns the property and what is its value.

      Delete
    9. Doc at the Radar Station6:21 AM

      +1

      Delete
  2. Anonymous3:19 PM

    You *think* you'd operate a Borderlands-type bookstore at a loss. And you might, for a while. But it somehow always ends up like this: http://www.newyorker.com/news/news-desk/inside-collapse-new-republic

    ReplyDelete
    Replies
    1. "Look at this thing that happened" != "This thing always happens".

      Delete
    2. Anonymous3:27 PM

      This is true! Sometimes it ends up like this: http://jayandsilentbob.com/

      Delete
  3. Anonymous3:20 PM

    Paging @ModeledBehavior!

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  4. With such a small profit, no way to significantly reduce costs, flat or declining revenue, and San Francisco's ever rising rents, why in the world should I believe this bookstore was still going to be open in 2018 anyway?

    I'm not claiming that minimum wage laws don't lead to some closed businesses (probably a small amount, but yes, nonzero), but it seems like this particular business was "on the margin" because it was already in the process of hurdling towards oblivion. If this is the case, the wage increase didn't "give it the ax," it merely sped its journey to the chopping block by a few years, which is a far less dramatic conclusion.

    Of course, I understand that (personal attachments aside) you care more about using this as a teaching tool than about rigorously examining the economics of this specific store. I mean that as fairly as possible, since the whole point of the vast empirical literature on minimum wage effects is that you can't really examine its effects (all else equal) rigorously via single case study (since all else is rarely equal).

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  5. I have to think of Henry Ford's business model. He said that he pays high wages so that his workers can buy the cars they built. As an analogy, it would be beneficial if the clerks at Borderlands, through the minimum wage, would be able to buy the books they sell. But the analogy doesn't quite work, because they can read the books at work, I guess. That's part of the fun of working in a bookstore.
    Also, the guy says his business is basically non-profit. It sounds like a public library, in fact, I believe the internet will mostly wipe out bookstores (not hard to predict), with the exception of small, specialized stores whose only employees are its owners and their family. Public libraries however, might become a replacement for people who still want their reading-in-public/talking-about-books-with-likeminded-people-in-real-life/just browsing-but-not-buying-them. Public libraries could serve as an "intellectual" community center in the future.

    ReplyDelete
    Replies
    1. This is a great point. Why doesn't Noah just use the public library?

      Delete
    2. Anonymous5:34 PM

      Why doesn't the public library have a coffee shop and sell books too?

      Delete
    3. This comment has been removed by the author.

      Delete
    4. I have to think of Henry Ford's business model. He said that he pays high wages so that his workers can buy the cars they built.

      This is a myth as noted here, here and here.

      Delete
  6. If they can only afford to pay their employees wage-slave rates, then good riddance.

    And Noah is being a huge troll here. This is why he rubs some people the wrong way.

    As other people write, who are going to buy is books if his employees can't even afford to live.

    Not his problem? Sounds like the typical capitalist pig.

    ReplyDelete
    Replies
    1. Maybe you shouldn't generalize.
      Maybe Noah just rubs you the wrong way.
      He rubs me the right way.

      http://noahsmithfan.blogspot.com/2015/02/noah-as-god-on-earth.html

      Delete
    2. Paul McEnery5:59 PM

      Peter: Wow, that's some aggressively ignorant bullshit you're peddling there. I happen to know the employees, and they're all working there because they love the place. And if you bothered to know something instead of just shooting your mouth off, you'd know that the owner takes just 28K in wages every year. But then knowledge stands in the way of self-righteous prickery, doesn't it.

      Delete
    3. Anonymous1:13 AM

      If they all have no problem with basically volunteer at this book store why dont they just volunteer at the book store? The workers can give back the 'extra' minimum wage to the owner either directly as a subsidy or purchase that many new books and then give them out.
      But no, they 'love working there' just not enough to maintain the status quo that they easily could if they simply engaged in a brief ritual every pay day.

      Delete
    4. Anonymous2:48 AM

      BTW, Henry Ford did not give his workers high wages so they could buy cars; he had to pay higher wages because of the incredible turnover he had due to the horrendous working conditions

      Delete
    5. Anonymous3:01 PM

      I guess the idea is that with Borderlands gone, a better-paying employer will move in to the space. Like maybe a bank branch, or a Starbucks.

      Delete
    6. Whoa, Paul M. Yeah, Peter used unnecessarily harsh language to make the point that wages gotta go up and casualties are non-zero and he doesn't care if a bookstore that people rightfully love has to go by the way of the dodo. Yes, graceless comment, but in his defense, I'm shocked that Noah promulgated such a view. I taught in a Title I school, and I know what poverty is like. I lived in a trailer park near the school, and I know how people on minimum wage live. (I'd use caps here to yell but not nice). I didn't suffer because I got a teacher's salary. But poverty really sucks, so spare me the sentimentality over bookstores. Give the people a living wage, then see if wonderful things like niche bookstores pop up. If they don't, a world without poverty is still better than elites drinking espressos and smelling their precious new paper book. Get a Kindle or a Nook and an espresso machine and hunker down, bubba. Oops, didn't mean to sound snarky, but eliminating poverty trumps maintain playgrounds for the elite, wouldn't you think? Finally, let's not forget that people who love working in their wonderful bookstore even though they're grossly underpaid still gotta eat, still need healthcare. Food stamps and Medical are worthy programs, but are we subsidizing them so that wonderful little bookstores can pay low wages? Conservatives would object. I'm a liberal who thinks that corporations are using tax money to pay exploitative wages. I should be hypocritical and applaud our little local shops in SF, Marin, Berkeley? Sorry, a living wage, everywhere please. I'm headed to the library.

      Delete
    7. Calvin Ross, if you're truly concerned with helping the poor... then please do them a huge favor and tackle your ignorance.

      Delete
    8. Xerographica, and you know the scope of my ignorance from my post? Wow, you're more intrepid than I could have imagined.

      Delete
    9. Calvin Ross, the argument for minimum wage increases is not about first order effects. Otherwise, you would legitimize what should be a silly argument: "Then why don't we just raise the minimum wage to $100?!" It should be silly because proponents are not making even sillier first order effect assumptions.

      But then, why do so many proponents utilize the "living wage" rhetoric? That seems to assume some unconditional ability to improve welfare via mandated wages.

      Delete
  7. How can anyone read this and think Noah opposes the minimum wage? The post doesnt say anything about that at all, it simply points out a real cost of a real policy change. i am a big minimum wage proponent, and agree that minimum wage has real costs; nothing there is a contradiction. Almost any actual policy in the real world will have costs, we just need to find the ones that maximize the gains

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  8. Pity all those skilled 18th century weavers? Pity all those autoworkers? Pity all those union members? Or celebrate that some valuable resources have been freed up for more productive uses and the rise in our standard of living? Businesses fail all the time. It wouldn't be business if they didn't. Time moves on, even when we wished it didn't. That's life.

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    1. Just because I don't oppose the changing factor doesn't mean I can't get wistful about what was lost. There's a bunch of overgrown areas around here that got converted into apartments and development - the area's nice, but I do miss the open nothing.

      Delete
  9. Anonymous5:37 PM

    How about the owner offering partnership to the employees? Would be allowed in that case for the partners to earn less than minimum wage? Of course, they would gain the profits as well, if any. So, a decent minimum wage or mandatory equity seems like a reasonable solution, what do you think?

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    1. This sounds good, what about this?

      Delete
    2. Anonymous3:06 PM

      For the IRS and the Labor Department and the state and city authorities to treat a partnership as real, and not simply a tax and Fair Labor Standards Act/Minimum Wage Law dodge, the new "partners" would have to take on real risk of loss - personal responsibility for rent and all other expenses. Most people earning $11/hr at a casual job won't want that.

      Delete
  10. Anonymous6:10 PM

    The business ran a profit of $3,000 in 2013. Clearly, this isn't good -- and it's not because of the minimum wage increase, which was not in effect then. It's because of Amazon. Whether the minimum wage increased or not, this is a business that was on the brink of going out in any event.

    Perhaps, the bookstore could have remained open for another few years if not for the increased minimum wage. Maybe. But most likely, it was on the way out.

    Amazon was the culprit. The minimum wage increase just pushed them over the edge...

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  11. Well, here in Australia bookstores are closing too, and our minimum wage is much higher than the US one. But Noah does not ask about Amazon's minimum wage (all those pickers in warehouses in low-wage states), tax bill and so on. A good bookstore may not be able to survive a modest wage hike in one environment, but do fine in another. It's not the minimum wage, but the system of which they are part.

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    1. I think you are on a right track. I do not understand how the local laws implemented for workers protection can survive competition in the globalized age? If mega corporation can put most of it workers jobs on locations with very little worker protection, low minimal wage etc. It will put it there. Competition can then be a race to the bottom, a vortex similar to deflation spiral. Free trade without any consensus of partners on the workers protection should inevitably enforce the competition in regulation and wage decrease. Two players will probably find some equilibrium, but a lot of players will compete to abyss., because as one player becomes competitive and workers start to ask for more, the other which is not competitive will reduce wages more. Under which conditions you would expect some equilibrium behavior? Can Noah propose some literature on this topic? I am not an economist so I do not have overview...

      Delete
    2. Anonymous3:09 PM

      Most things that are still sold in downtown shops cannot be sold over the internet. Sandwiches, drinks, coffee. Like bookstores, clothing and shoe stores are mostly gone from downtown shopping districts, except at the very high end - and there's no high end for bookstores.

      Delete
  12. Anonymous7:50 PM

    The LOVE of Amazon has significantly contributed to the loss of Borderlands Books (but small loss apparently, lots less l-o-v-e expressed). LOVE Amazon's pursuit of market share so they can wallop everyone else with scale. LOVE Amazon's sales tax fight with California that resulted in temporary deferment of Cali sales tax collection (yep more scale!). LOVE Amazon's contracted $9.96 per hour pickers who (apparently) have to spend up to 25-minutes after their grueling shifts in non "work integral" theft scanning lines without pay. LOVE Amazon's scale which allows them to avoid high-wage locales. Death to Borderlands! LOVE Amazon.

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  13. If the work that these people was doing held social value you want to subsidize then talk about subsidies, dont pin the blame on minimum wage workers. Because holding the minimum wage down to keep this afloat would be saying you want the poor to subsidize (through a mechanism of unequal bargaining power) this guys hobby and the reading habits of college professors. If the college professors like the atmosphere then let them chip the money together or pay higher prices.

    ReplyDelete
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    1. Anonymous2:41 AM

      Frame this, send it to Noah for hanging on his office wall. Or just throw it through the window (closed or open ok).

      Delete
    2. Anonymous8:34 AM

      Why? The comment is an uninteresting homily. He left out the interesting bit, which is how he identified a "mechanism of unequal bargaining power".

      Delete
  14. Before making another "capitalist pig not paying his workers a living wage", keep in mind the owner didn't say he opposed the law change - he thought it would be good overall. It just made it impossible for him to keep a shoe-string business open any longer.

    That doesn't mean every business will face that. Borderlands was just in the unlucky position of not being able to respond to a cost hike by either raising sales, reducing labor costs overall, or raising prices. Most other places will not be in such a position, especially food places (such as the cafe the owner mentioned).

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  15. I just noticed the lower bookshelves are tilty. That seems like a convenience for customers and employees alike. Maybe they could patent it! And earn Mad Benjamins! And license it to all the other dying bookstores. Wo0t? Anyway, nice bookshelves. Probably not patentable though.

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  16. Anonymous5:08 AM

    Something tells me that this isn't going to remain a boarded up storefront, but that a more productive firm will take its place. We should cheer this.

    In other news, I had a discussion with a friend of mine -- coffee shop owner -- who is fine with the minimum wage hike because he's clearing 20K in profits a month and can afford it. Also, a lot of his customers are earning the minimum wage, so he thinks that they will spend more and he will make more in profits as a result.

    It doesn't make sense for him to pay more than he needs to because other small business owners may not reciprocate, but he certainly favors a coordinated minimum wage increase.

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    1. "A more productive firm." You mean a Starbucks, I take it.

      Delete
    2. Anonymous3:13 PM

      Ah, yes, you do mean a Starbucks. "Coffee shop owner." Because San Francisco is desperate for a place to get coffee but it's just overloaded with bookstores.
      Sometimes the market does not satisfy all human needs. Think of it as externalities if it makes you happier.

      Delete
    3. Anonymous8:17 AM

      Hey, if you want to subsidize bookstores for upper-middle class guys to feel nostalgic about, we can have a discussion as to whether that is the best use of our resources. But demanding that Noah's nostalgia be paid for by reduced earnings of minimum wage workers is crazy.

      Delete
  17. Lesson 3: I guess Noah thinks anecdotes teach useful and representative lessons, huh.

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  18. Support your local public library and host your book club there. Most libraries have public meeting rooms. What better use than a book club? You could even pay someone to organize it and not go bankrupt doing so. We are too reliant on a private sector to produce public goods. The public needs to take ownership.

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  19. Anonymous8:31 AM

    Capitalism needs inflation and hence also a regular increase in minimum wage, to hold off the collapse.

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    Replies
    1. But they can't hold it off forever. Soon, Comrade, the blood of the true takers will run deep in the streets. That will be a glorious day. Until then, we wait.

      Delete
  20. The owner is not following the rules of business. All costs must be passed to the customer in the form of higher prices. If the store sells 200 books per day or 73000 per year, then he must increase prices $.39 per book to return to the $3000 profit he used to make. Or offer better margin goods, or more services, or ask for donations. All businesses have to constantly evolve their model to stay in business. Look at Apple... they are now primarily a phone company and soon to be a bank.

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    1. Exactly. Not only that, but the owner is forgetting that the increase in the minimum wage would help out his customers. I'd be willing to wager that a huge portion of the customers of a comic book store are younger and low-skilled earning around or less than $15. The other assumption he is forgetting is that 200 books per day could turn into 240 or 280.

      There is a real "cost" to the minimum wage, but it's moreso the recalcitrance of businesses to adapt to a changing business climate and simply shutting down instead of dealing with change.

      So in a sense, the market is SUPPOSED to remove businesses that refuse to change. Whether he refused to change and close up now, or refused to change and died a slow death, the difference is the same.

      The minimum wage is merely a scapegoat.

      Delete
  21. I've probably patronized Borderlands when I lived in SF (was it Bradbury?).

    If rents go up because other businesses can pay more -- and a bookstore gets kicked out -- that's the market. I labor's price goes up because minimum wagers make the case they can no longer work two jobs and never see their kids -- that's the market. A decent (centralized bargaining) labor market setup would have resolved that conflict of interests long ago.

    The labor market of 1925 had much less to pay than the labor market of 1968 -- which paid a minimum wage almost $11 an hour (up from $8.75 in 1956 -- after productivity gains).

    The minimum wage isn't charity like unemployment -- the minimum wage is an attempt by labor to extract the maximum the consumer will pay -- that's the market. As a worker I'm only interested at what point higher total wages start to drop in response to lower total sales (fewer jobs that pay more work for us) -- just like business; I'm half the business.

    Here is the real hell of the American minimum wage market -- today's (2915's) fed min wage would have to triple to catch up with doubled productivity since 1968 -- meantime 100,000 of I guess 200,000 Chicago, gang age males are in street gangs because they (and most any American born worker) wont work for such a slave wage:

    yr..per capita...real...nominal...dbl-index...%-of

    68...15,473....10.74..(1.60)......10.74......100%
    69-70-71-72-73
    74...18,284.....9.43...(2.00)......12.61
    75...18,313.....9.08...(2.10)......12.61
    76...18,945.....9.40...(2.30)......13.04........72%
    77
    78...20,422.....9.45...(2.65)......14.11
    79...20,696.....9.29...(2.90)......14.32
    80...20,236.....8.75...(3.10)......14.00
    81...20,112.....8.57...(3.35)......13.89........62%
    82-83-84-85-86-87-88-89
    90...24,000.....6.76...(3.80)......16.56
    91...23,540.....7.26...(4.25)......16.24........44%
    92-93-94-95
    96...25,887.....7.04...(4.75)......17.85
    97...26,884.....7.46...(5.15)......19.02........39%
    98-99-00-01-02-03-04-05-06
    07...29,075.....6.56...(5.85)......20.09
    08...28,166.....7.07...(6.55)......19.45
    09...27,819.....7.86...(7.25)......19.42........40%
    10-11-12
    13...29,209.....7.25...(7.25)......20.20?......36%?

    As always, shifting 3.5% of income from the top 55% who take 90% -- to the bottom 45% of workers who now take 10% of overall income isn't going to put the currently bled white 45% out of work.

    http://www.cbsnews.com/news/gang-wars-at-the-root-of-chicagos-high-murder-rate/

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  22. online store was killed the bookstore now

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  23. Oh man, is this the bookstore that had a hairless cat? Very appropriate for a sci-fi bookstore, but slightly unsettling...like petting my grandma.

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  24. The statement from Borderlands sounds a bit disingenuous. They will be closing by March 31, 2015 because they won't be able to afford to pay the minimum wage that takes effect more than 3 years later? It sounds as if the minimum wage hike is just an excuse for a decision Borderlands made for other reasons.

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    1. Agreed. Borderlands appears to be closing because of the owners beliefs about a minimum wage hike not due the effects of a minimum wage hike.

      Delete
  25. Well, City Lights in SF had better not close, and I doubt that will happen as long as Lawrence Ferlinghetti, still its owner, remains alve.

    As it is, I have seen recent media stories about a revival of small indie book stores that pick out nitches. It may be that the large min wage increase in SF is doing in Borderlands. But in some other locations they are figuring out how to use their funky uniquenss in order to survive in the face of the behemoth of Amazon.

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  26. Anonymous2:23 PM

    Noah, you claim that liberals argue "the effect of minimum wage hikes isn't that big". This is misdirection. No one has ever claimed that there is no effect of minimum wage hikes on anything. No one that I've seen has claimed that there is no effect of minimum wage hikes on the composition of businesses. The Krugman post you link to is about the effect of minimum wage hikes on jobs. More specifically, Krugman wrote, "there just isn’t any evidence that raising the minimum wage near current levels would reduce employment". Your anecdote (which I'm obliged to point out, isn't the singular of data) would only possibly be relevant if the employees of Borderlands are unable to get replacement jobs anywhere else at the new rate. You don't even attempt to demonstrate that.

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    1. Exactly the point that I was going to make! Thank you. A business or many businesses closing doesn't mean that total employment is going to go down. Because of the churn of people entering unemployment and leaving it.

      Delete
  27. Or propose minimum wages applied selectively - 16 year olds from upper middle class families don't "need" $15 an hour. The working poor do. How to apply this without distorting hiring practices is well beyond my purview - perhaps as an hourly wage subsidy scaled to annual incomes? Who knows

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  28. Something doesn't add up. The owner says the store makes $3000/yr now but will lose $25000/yr if he pays the new minimum wage, a $28,000 swing. He says one solution, unacceptable to him, would for him to work 50 hours per week. Given those figures something is missing.
    If he's paying three employees $10 an hour for forty hour weeks that's about $1200 (we'll ignore payroll taxes for simplicity). If they get a $5 raise that's an additional $600 per week or about $30,000, close to the swing the owner says will occur and within the range of his being able to replace one of the employees with his own labor and eliminate the extra costs.
    The thing is that most small businesses of that size don't really work unless the owner works which seems not to be the case here.
    Maybe the increase in minimum wage is the difference but without a lot more information it might be just as likely to say that the owner has an axe to grind and is using the minimum wage as an excuse. Without a look at the store's books it's hard to draw any particular conclusion.
    One observation though is that at the scale that fits the owner's numbers it would appear that he isn't running a business but something more akin to a hobby that pays for itself. If that's the case there are probably a whole lot of ways to reorganize the operation, e.g. a cooperative where interested parties donate a few hours a week, something like my local Friends of the Library bookstore.
    This anecdote says very little about the consequences of the minimum wage given that its circumstances seem to be very unique.

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    1. "it would appear that he isn't running a business but something more akin to a hobby "

      Yep. I was reminded of my favorite Tokyo phenomenon. Here in Tokyo, there are zillions of funky little shops. With almost no customers. That never go out of business. Boutiques, tailors, Go board stores. They're basically hobbies being run by the building's owner, or member of the family, for the fun of it. The rent from the office space in the upper floors is adequate for the owner's needs, and the shop is for fun. Often these are shops that were real profitable operations in the early post-war period. My favorite soba restaurant is such a beast: the family owned the (small) property it was on when we first went there 25 years ago. There's now an enormous office complex with a small soba joint on the first floor.

      But as far as this bookstore is concerned, it very much sounds like the rent plus Amazon are making it unprofitable, even if the bloke had a full staff of volunteers. (It also sounds as though he's tired of running a book store and is looking for an excuse to quit.)

      Delete
  29. Krugman called and revoked your liberal card. Sorry, you shall now be known as a tehadist wingut.

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    1. Anonymous2:59 AM

      Or a really sophisticated troll. Noah-as-troll is not my favourite Noah.

      Delete
  30. There was an interesting Oxford style debate about Amazon last night that I heard driving home from a recital: http://www.npr.org/podcasts/510184/intelligence-squared-u-s-debates participants were Franklin Foer, Scott Turrow, Matt Yglesias and someone whose name I've forgotten. It's worth a listen as it covers a number of the points already made. Interesting outcome: before the debate the audience was pro Amazon afterwards opposed to Amazon.

    I think the rent is a huge issue for stores like this one as they need space for all the books. We've seen most independent bookstores in the Washington DC area go under except for Politics and Prose which is still a vibrant place.

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  31. Ok, more seriously, This is also a good example of the fact that we should always be careful (as economists) about interpreting "polls." as in, polls say companies and people favor the minimum wage:

    * Big companies might favor the min wage because it forces smaller firms out of business. Large companies have considerably more leeway to manage costs, schedules, non-wage benefits.
    * Productive higher skilled employees or those with more schedule flexibility might like higher min wage because it disfavors employees with little flexibility. or less skill.

    So, to the extent this disfavors small companies (with relatively higher fixed costs), or relatively higher skill workers over lower ones or the unemployed (~95% of workers make more than min), we really should not take comfort in the fact that higher min wage polls well among people large companies. If you are working, or have a lower or more flexible cost model, it is probably rational to erect barriers to the lower skill competition.

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  32. These days I'm doing my reading online. Face it Noah, you are putting it out of business.

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  33. I have a friend who (as far as I know) created the concept of the "get-poor-quick" scheme. As long as I can remember, on, average, running a bookstore has been a get-poor-quick scheme. (I'm 67.)

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  34. So... is there a reason you blocked me on twitter? I don't recall having (or even trying to have) a discussion with you.

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  35. Noah,

    What a missed opportunity to point out that a higher EITC does not have the downsides of a higher minimum wage. Also, my guess is that San Francisco's aversion to commercial and residential development lies behind Borderland's problem.

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  36. Noah,

    What a missed opportunity to point out that a higher EITC does not have the downsides of a higher minimum wage. Also, my guess is that San Francisco's aversion to commercial and residential development lies behind Borderland's problem.

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    1. FWIW, E.I.T.C. nationally goes at $55 billion -- or 1/3 of 1% of GDP -- too small to measure the effect on poverty above the noise. Makes sense given that $15 is the 45 percentile wage -- that $26,000 is the median individual income (must have lost some hours in there somewhere) -- and that $50,000 is the realistic minimum needs for a family of three who have to pay for their own health insurance according to chart 3-2 on p. 44 of the Ms Foundation book Raise the Floor. (The official fed line of $20,000 is based on three X the price of an emergency diet only -- dried beans only please, no expensive canned -- and nothing else; a quack stat if ever there were one.)

      A $15 min wage nationally would transfer 3.5% of GDP from the 55% of our workforce who not take 90% of income to the 45% who get 10% -- wont throw the 45% out of work. :-)

      Delete
  37. Noah's post is attacking a strawperson.

    Anyways, economists proved, about half a century ago, that wages and employment cannot generally be explained by the interaction of well-behaved supply and demand curves for labor, given perfect competition, no minimum wages, no information asymmetries, etc.

    My contribution, in my 2005 Manchester School article, was to introduce (another) simple two-dimensional illustration.

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  38. Anonymous5:48 PM

    If you read Beatts's reasoning for shutting down, it wasn't simply a higher minimum wage. It was a higher minimum wage combined with the fact that he is unable to change his output prices. He literally claims that his cafe will have no problem absorbing the minimum wage hike since he can change his output prices. However, since he has no control over his output prices for his bookstore, he will have to close the doors.

    The minimum wage is simply not the only culprit here, but it certainly seems to be a factor.

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  39. Anonymous7:28 PM

    You've been making posts outside your ideology, I like it. Your regulars might not be so happy but I'm enjoying it. I guess the effect of technological change does matter, again that's not something that's quantitatively obvious. You definitely can't quantify the experience of being in a bookstore, but I do see many local bookstores as it is. For those who value the experience enough, it's there. Record stores, although they've taken a hit, did come back pretty strong. Obviously it's not my place to say the change is "good" or "bad", but I always have a right to complain online.

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  40. Anonymous10:17 PM

    Owner might consider moving to a low rent city LAS VEGAS perhaps.

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  41. Actually Books Helps Us, Don't forgot them. See More

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  42. When I began reading this post, I thought I was going to get a well-grounded, critical discussion of the minimum wage question, a little like the post on middle class incomes a while back. Since I basically support minimum wages, I was sorely looking forward to having my beliefs tested and critiqued. Instead I got lame rumination based on a very questionable anecdote (effects of tech/market change/monopoly [amazon], real estate, business at very margin anyway [efficient use of social resources?!], etc.), but with a flashy, faux-left contrarian introduction. Try that at Bloomberg, but I don't think that's what people read this blog for. Or will that soon be read?

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  43. Anonymous11:04 AM

    I want an article on Varufakis Noah.

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  44. Anonymous6:35 PM

    "I LOVE Amazon. I would NEVER go back to the days of brick-and-mortar stores." Well, no worries about that, huh? Buy at Home Depot and the local hardware store closes. Buy groceries at Walmart and the local grocery store closes. Buy online and the local downtown turns into a wasteland. It's the world you created for 10-20% savings and convenience, so enjoy it.

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    1. Anonymous9:20 PM

      Noah: Do you pay use tax on your Amazon purchases?

      Delete
  45. Regarding the minimum wage, you've completely missed the important point.

    "The bad effects of minimum wages are real"

    You speak of effects at the margin. Of course there are effects at the margin, there always will be. If we lowered the minimum wage, I'm sure some new business models would pop up that many would deem valuable. Heck, if we lowered it to $1/hour I can think of a whole lot of nice things that would may life just a little cushier.

    The minimum wage issue is not a marginal issue. So while the book store owner apparently feels he's doing a good deed for society because Noah likes his store, he's not doing a good deed for all of the families living in poverty because we want businesses on the margin to continue.

    The argument is whether in the long run the effects are negative or positive. There's only one right answer to this. I'm certain of it. I could explain it in any number of logical arguments, but all of them lead back to the same place -- in the long run, higher minimum wages lead to higher growth.

    I could put together a comprehensive study on this, but i just don't have time. If anyone really disagrees, they haven't thought it through very well.

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