Thursday, January 2, 2014

Is Red Lobster an economic bellwether?

As you may recall, I'm a fan of Dead Lobster, (no snickering!), even though I've criticized Darden Restaurants (Red Lobster's owner) for trying in 2012 to cut back on employee hours to avoid giving them health insurance. Facing a 37 percent drop in revenue, Darden was apparently trying to scapegoat Obamacare for its restaurants' poor performance.

LZ Granderson sees ominous portents in Darden's plan announced late 2013 to spin off its 700 Red Lobster restaurants because they are losing money. He says this reflects poor and middle class families' shrinking wages and buying power. Especially black and Latino families.

My latest visit to Red Lobster was a bust: it was so busy that the wait time was one hour and 40 minutes. So my local Lobster seems to be doing OK.

At any rate, Granderson rightly laments the U.S. working class's 30-year fall from prosperity:

From November 2012 to November 2013, weekly earnings rose 1.1% while the consumer price index increased 1.2%, according to the Bureau of Labor Statistics. That small uptick may not seem like much until you factor in three years ago, wages increased 1.8%, and the CPI was up 3.5%. And that may not seem like much until you realize that almost every year since 1983, a series of small ticks like those two examples has been widening the gap between between what we earn and what we can buy.

Consider the poverty threshold.

For a family of four in 1983 it was $10,178. Adjusted for inflation, that should be $23,817.03 today. However, the actual 2013 poverty threshold is $23,492, a difference of $325.03.

When you're living check to check, that's a lot of money.

Indeed, a family of four can have a very nice meal at the Lobster for about 70-80 bucks. So $325 is about four trips to Red Lobster a year, now out of the picture. Or maybe it's money spent on something else, it doesn't really matter in macroeconomic terms. Multiply that $325 times 9.5 million poor households, and we're talking $3 billion in consumer demand sucked out of the U.S. economy. 

This is where the minimum wage, SNAP and unemployment benefits matter, because we have an economy built to serve the working poor and disappearing middle class, and if those people don't have income then businesses that cater to them will die, taking more jobs and income with them, in a vicious cycle. 

It's much easier to destroy than to create; and what's destroyed doesn't come back.

UPDATE (04.01.2014): Furthermore, Harvard economist Lawrence Katz recently estimated that the U.S. economy is losing $400 million to $1 billion every week  thanks to Republicans' decision to end long-term unemployment benefits for about 1.3 million Americans.

By LZ Granderson
January 1, 2014 | CNN

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