The Hidden Cost of the Discount Culture

PAUL SOLMAN: Yeah, we had a lot of fun at Target. Let's continue to have more fun! So, first question. Bob Friedman from Los Angeles, Calif., writes: "Can you explain how the preference for cheap fits into the runaway obesity found in our culture?" Ellen Shell?

ELLEN RUPPEL SHELL: You know I think a lot of us don't realize that our preference for low cost food, or I should say, how we've been marketed towards low cost food because in fact oftentimes the food that we eat and we buy is not really all that low price to us the consumer, but we don't realize that it can be quite low price for the manufacturer.

So starch and as we all know now, high fructose corn syrup sweetener and many fats are very, very cheap and so portions are blown up with the addition of those three things. So portion size as I think we're all aware of has ballooned in the last 20-30 years. In fact, the size of plates is bigger than it was 30 years ago. So portions have gotten quite big when we eat out at restaurants and the more we eat out in restaurants, fast food or otherwise, the more likely we are to be obese. So in fact there is a connection with a push towards low price and the idea of quantity being value and obesity is absolutely crystal clear.

PAUL SOLMAN: Nice. Mary Ellen Hendrick from Pueblo, Colo., asks and I quote: "It would be much more of a pleasure for me to purchase food in a place like a French food," and I think she means market here, "fresher food, more vendors, less at a time, I guess less food at a time, probably more expensive though. What would happen to workers and the food economy if we shifted to buying this way versus a grocery store," and I guess I would extrapolate here not just a grocery store but a Wal-Mart which sells something like 20 percent of all groceries in the United States I think I read, a superstore much larger than the French food market or fresh food stores, perhaps what this person means?

ELLEN RUPPEL SHELL: Well what Mary Ellen is talking about is of course a very important thing. The French (as do most developed countries) spend a lot, a significantly higher proportion of their budget on food than the American consumers. Part of the reason that they're able to do that of course is because they have a good social system like education, health care and things like that so they're not paying the very high rates for health insurance or to send their children to daycare and university. They get, those things are usually subsidized in places like France.

But to get back to her question, the French also subsidize fruit and vegetable growing and that's something we do much less of in the United States. So even though it is more expensive for people to get hold of food of all kinds it's relatively less expensive for them to buy the foods that are healthier than it is for us. So whereas we subsidize commodities like soya beans, corn and the meat industry, the French, to use an example, subsidizes the fruit and vegetable industry and all farmers get that, but in the fruit and vegetable industry the small farmer in particular.

So relatively speaking the prices for those things in France are actually lower than they are for us. So it is actually within the workers grasp in France to access that healthy diet where with us it is less, it is less easy for the workers especially those who are working for Wal-Mart wages, the stores that so many of us buy our groceries in.

PAUL SOLMAN: So to follow up on Mary Ellen Hendrick's question here. Is France subsidizing vegetables and fruits because they're good for French consumers or because French farmers, which was what I had thought, just have, are a very powerful interest group and they happen to grow a lot of vegetables in particular and also fruit?

ELLEN RUPPEL SHELL: Well, I tell you Paul, there's actually a history of France, since Napoleon, subsidizing a healthy diet.

PAUL SOLMAN: Really?

ELLEN RUPPEL SHELL: Yeah. And I happen to know this since I wrote "The Hungry Gene," which is a book on obesity. And they have a sense, Napoleon was interested the reason being that in Napoleon's time they tried to conscript an army and they found that people were malnourished. So they made it a kind of national goal to produce better nourished citizens so they could be better soldiers and so they have a history of subsidizing nutrition in their country, a long history and at the same time there's certainly like the farmer in France are a powerful lobbying group and anyone who's been to France has been able to reap the benefits of that in the wonderful produce and vegetables that are available there. So it's both of those things.

PAUL SOLMAN: Ha! I certainly didn't know about the former and I think in this country it's always been framed in the economics discussions in this country that the French are being protectionist of an interest group, not that they're being protective of the French consumer from a nutrition point of view.

ELLEN RUPPEL SHELL: Well, unfortunately you know when people get into this pro- and anti-trade, you know they become ahistorical and ideological, and it's oftentimes a lot more complicated and it's a lot more interesting than people think.

PAUL SOLMAN: Very interesting. Well, that is interesting. David from Phoenix, Ariz., asks the third question: "Talk about cheap! In the airline business people buy the lowest price ticket online. To compete in that type of market airlines are cutting some questionable corners. Do you think it's time for more regulation of the airline business?" I'm not sure you were thinking that you would be getting into answering questions like this when you wrote this book, but here it is!

ELLEN RUPPEL SHELL: Well you know it's an important question and of course the airlines were deregulated under the Reagan administration.

PAUL SOLMAN: Well no wait, they were first deregulated under the Carter administration in '78.

ELLEN RUPPEL SHELL: True. True. But, but we all remember what happened under Reagan. Really deregulated under Reagan and pardon me, you're the expert on economics, Paul.

PAUL SOLMAN: I just want to keep it on the straight and narrow here Ellen. We can't have an insider forum for economics and pin it all on Reagan!

ELLEN RUPPEL SHELL: No, no, you're right, you're right. It certainly has foreshadowing in the Carter Administration.

PAUL SOLMAN: Well Alfred Kahn became the famous deregulatory czar of the airlines in 1978. We've interviewed him numerous times on the NewsHour you can just Google my name and his and you'll get right to it. But please...

ELLEN RUPPEL SHELL: Absolutely. No, I bow to your greater wisdom on this one and I didn't write about aviation in this book but I can tell you that there is no question that deregulation has led to all sorts of interesting practices some pro I think, and some con. I recently got a call from someone in the airline industry who was very disturbed about deregulation leading to what he called this broken hub system.

PAUL SOLMAN: Yes.

ELLEN RUPPEL SHELL: Which you know sounds really good in a lot of ways - it's more efficient - but as he pointed out to me, it used to be the case that major airlines, major carriers used to have to go to the small places, the out of the way places if they wanted the golden route to say New York City or Los Angeles. They had to pay their dues by flying to the smaller airports. His concern was now those smaller airports are being served by airlines sometimes that pull the short straw and in this hub-and-spoke system where a smaller airline or less experienced pilot might be flying between those smaller venues, and the large airlines are no longer required to fly to these. So he raised some concerns about safety. This was a guy who spent 30 years in the airline industry and had actually read my book "Cheap" and thought that I should have discussed that.

Now I can't verify that but certainly all of us have experienced the consequences of these very, very strong price pressures on the airlines. I was reading recently I think this weekend in the New York Times about people having 12 hours on the tarmac waiting to take off and not being able to take off. The airline claimed it was because the airport didn't want them to unload their passengers, the airport said, "No, this is not true. There was a reason why the airline didn't want to." But there's really in terms of service and in terms of the amenity, in terms of what I think is most important to the business traveler side and safety is the guarantee that you're going to get places or at least (not guarantee because weather we can't control) but some assurance that you're going to get places at a certain time is not necessarily the case in many carriers anymore.

So the kind of thing, the kind of thing that in the past and the airlines might have been penalized for either by having to refund money or provide vouchers for overnight stays, those kinds of disincentives have become much less common and so I think we've all see what's happened in terms of whether it's baggage not going through or flights not getting through on time. The other thing that I think people don't think too much about we think is a very low airline, air point tickets, low-priced flight, is that per passenger mile flying by airplane is the most polluting thing you can do. OK? It's actually worse than driving a car. Being on a train which Paul told me today is probably one of the best things you can do in terms of pollution per mile. So as more and more of us crowd those skies we're not only adding to delays and inconvenience and potentially to safety problems, but we're contributing to the pollution problem as well.

PAUL SOLMAN: But isn't the story with airlines at least to some extent that you get what you pay for? I mean the extent to which it's cheaper as a viewer once pointed out in a letter to us years ago, the extent to which it's cheaper is often the extent to which you're having to do stuff yourself. Or you having to for example book tickets online yourself, that's literally cheaper because they'll charge for a phone reservation now as opposed to being online. But all the waiting time for example when an answering machine comes on, that's your time.

ELLEN RUPPEL SHELL: Absolutely and certainly we know in researching this book the one thing that we discount tremendously is our time. We've become you know sort of an unpaid workhorse.

PAUL SOLMAN: Right.

ELLEN RUPPEL SHELL: Absolutely. So whether you're booking your own flight and trying to get the best deal or trying to shave off a few dollars here or there and trying to beat that, you know the system online, or whether you're waiting longer for your flight or having a flight that took longer than it should. That's certainly a big part of it, but there is another thing layered on that you know maybe we're willing to pay for our sodas or dinners in the airplane, and we're willing to do without a pillow or a blanket, but there are some other things that I think a lot of don't think about that we're losing in this rush towards cheaper and cheaper airline tickets.

PAUL SOLMAN: Right. And I remember always thinking about the safety record of a new airline. In fact wasn't it... It's what's now AirTran which name now escapes me as to what it was called before, some bargain name for an airline and it had this terrible accident which was associated with its... how cheaply it handled the cargo that it was stowing. I can't remember whether it was oxygen tanks I think that blew up...

ELLEN RUPPEL SHELL: It was an oxygen tank in the back of...

PAUL SOLMAN: Right. And afterwards the investigation suggested it was precisely because of the cheap way in which they did this that they left themselves vulnerable to you know, to a terrible accident which actually killed people.

ELLEN RUPPEL SHELL: Right. We've known for a very long time that you know the skills and experience... Every time a skilled pair of hands touches something it increases the cost. So the higher skilled the worker the more experienced worker, it least theoretically the more, the higher the wage this person can demand and once we start cleaning those folks out we are taking risks.

PAUL SOLMAN: Right. Okay, let's go to question four. There are only six of them altogether here. So. Maybe seven, I'm sorry. Linda Tompkins [from] Saratoga, Calif., asks: Having grown up in the '50s and '60s when consumption was more modest, Linda writes I'm overwhelmed by the amount of goods in stores today. I often wonder where all this merchandise goes. Surely it isn't all sold? Where does the out of date, out of fashion, out of season, un-purchased merchandise ultimately go? I'm thinking about the movie "The Lady and the Tramp" and how they eat the leftovers from the Italian restaurant but it can't all go to a couple of dogs in a cartoon movie, right?

ELLEN RUPPEL SHELL: I love that image. Remember the spaghetti?

PAUL SOLMAN: Oh yeah, sure! The guy is whipping up this huge bowl of spaghetti for the two of them!

ELLEN RUPPEL SHELL: Right. And them both sucking on the same strand of spaghetti.

PAUL SOLMAN: Yes. Yes. Yes. They kiss for the first time I think!

ELLEN RUPPEL SHELL: Exactly right and they sort of nudge the meatballs at each other back and forth with their noses. Great movie! I love that movie. Um. Well, yeah, you know that's a very, very good question. We certainly have more, there's more selection than there ever has been before. There's something like 10,000 new products made every year. I don't know if I've got that exactly right but there a huge number of new products are out every year. Sometimes with just slightly different features, sometimes features that don't really matter, to get us to buy new things. I mean if we own... Anybody who has a teenager knows a year old cell phone is like an antique. You know we... to the kids right? We are always looking for new things and that's certainly part of the cheap story - the idea that you can buy things constantly for less and less money, new things, shiny new baubles is part of the story. But she's asking where does this stuff go?

Well anybody who's been to Africa, and I've been there and you probably have Paul, you see for example where old electronics, unsold electronics and certainly unsold clothing goes. It gets wrapped, it gets sent down the chain so of course... Let's first take the example of clothing which is something I do know a little bit about. It'll get sent to typically to a full price store, it'll get discounted, then it will go to a basement store, then perhaps after a certain amount of discounting it won't sell. Eventually it'll get sent to the charity, you know, and at that point they are put in great big bales and sent oftentimes either sold in the charity stores or then put in giant bales and sent to Africa in the form of aid or some nominal amount of money. So ultimately at least in the clothing supply chain it's not burned or put in landfill, if the viewer is concerned about that.

You know other things could get sent to at some point I've met for example people in what we called the junk business or the garbage business or could even be called recycling. They focus and will buy these things at a very low price and sell them either independently or through eBay which is another source of unsold; you know maybe unwanted or returned goods. If you buy a big-screen TV and return it to the store, the box has been opened or maybe a little bit dented; this could be the outcome for that. So I think you mentioned food earlier Paul. I actually don't know what happens to food when it's past it's sell by date.

PAUL SOLMAN: A lot of it goes to charity. I mean I know, I know a variety of restaurants and bakeries that I've run into over the years, one I was actually going to do driving for to deliver to places that needed it when the bread had passed, you know, its sell-by date and of course often discounted bread also. You know day-old bagels for example in a bag; you know that kind of thing at half price.

ELLEN RUPPEL SHELL: Absolutely. So I think depending on the commodity we're talking about it probably has a different lineage. You know it ends up in a different place.

PAUL SOLMAN: OK. Let's go to question five: Wes is the name here, no last name and no address: "Because our incomes are declining, how can we not buy from Wal-Mart or stores like it to keep up?" Even if it's less well made, or not as tasty, or a mangrove disappears... This is... You were talking on NewsHour Monday night about how shrimp farms in Thailand cause mangrove groves to disappear and therefore cause all kinds of environment devastation there. And Wes concludes: "What other responsible choice do we tried people have to stretch our money?"

ELLEN RUPPEL SHELL: Well of course if we're going to be idealistic, maybe even talking about it we can all do what Michelle Obama did and plant our own garden, and that's a little less utopian than you think because the seed business as I'm sure you know Paul is one of the businesses that has really benefited by the recession. That people are actually starting to grow their own food to some degree. It's becoming much more popular and in fact some people are even going into urban areas, urban gardening, even urban chicken farming is...

PAUL SOLMAN: That's been taking off, yes.

ELLEN RUPPEL SHELL: Absolutely. So it's interesting. So there's certainly an interest in this. But of course Wes is also saying that he's tired and maybe overworked and is in no position to grow a garden or raise chickens or anything else. Maybe he's working 10 hours a day as it is.

PAUL SOLMAN: Hey it's not easy to raise chickens. You have to... You know they're pests to people around them, that was the recent article I think that you might have been referring to, was one talking about the problems of urban chicken farming from the point of view of the neighbors It's not easy to do and you have to have some place to do it. I mean you know if you have an apartment for example. Maybe Wes lives in a small apartment and doesn't have land of his own, then forget chickens or rutabagas or anything else.

ELLEN RUPPEL SHELL: Absolutely and I kind of raised that a little tongue-in-cheek. I don't expect most Americans to start raising chickens. A small garden even on your terrace or even on a windowsill for herbs and things like that can be helpful. I mean I'm a cook so I grow my own herbs in part because they're so damned expensive to buy in the stores and it's just easier for me to grow them and it's not a lot of work.

So there are things like that that we can do to stretch our money as he put it and they're kind of the tried and true kinds of things. First of all I'm not saying that people cannot go to Sanford which is the Wal-Mart supermarket chain to buy some of their goods but what I'm saying is that Wal-Mart is not always a low-price purveyor and that Wal-Mart, the low prices at Wal-Mart are there in part because of the squeezing down of the supply chain and the low wages they pay their workers. So it does have consequences not just for that store but for the entire community.

So when Wes complains about his income declining you know there's data to show that when Wal-Mart entered the community income across that community tends to go down. So there are consequences of this. Some communities for example Damariscotta in Maine, that's a region that actually lobbied to keep Wal-Mart out. It's a... not a low income region but definitely a moderate income region in Maine that decided they couldn't afford to have a Wal-Mart in their community. So there are communities who say: Look we don't want this because even though we might pay a little bit less for some of our goods we can't really afford to have our incomes go down anymore. Because that's the big picture. The small picture that Wes is talking about, you know there are all sorts of things that we can do to cut our costs within a family. You know every time we enter a store we're likely to buy more than we went into buy, OK? So if you can, possibly plan ahead and made lists and buy in bulk. For example you know what a coop or a buy-low cost goods when you know the merchant who owns the store and you know that he's giving you good value and you make those kinds of decisions.

Planning ahead you can actually get away with spending no more, sometimes less money than what it would have cost by all the signage in a discount store when you walk in maybe to buy a can of beans and you come out with your shopping cart filled with all sorts of things you never expected you would buy because of all the signs screaming "Discount, Buy Now, Last Minute, Offers Just This Week." Many of us, we go into discount stores and spend a lot more than we intended to when we went in. That's much less likely to happen if you go to for example a fruit co-op if there's one in the community, or if you live in the mid-west or the west, I think they call it by other names.

But there are things you can do to reduce your food costs fairly effectively. Another thing of course is to take a look at what you're eating and modify what you're eating to some degree, just in a gentle way to cut out the kinds of things that are probably not providing you with not much nutrition and possibly not much enjoyment and are surprisingly expensive.

PAUL SOLMAN: You know one of the things that I felt was most interesting when we went around the Target together a couple of weeks ago, was your suggestion - it seemed so obvious once you said it that had not really occurred to me ever before - which is when you go into a place that has lots of goods, as one of the questions was referring to earlier, being overwhelmed by the amount of stuff that's there, not to mention the signage that tells you that it's the cheapest thing ever and you've got to get it now and all the rest, that you take a time-out, as we say for little kids.

We all know that this is the first thing you're taught to do when you for example lose your temper, right? Count to 10! We even know how high we're supposed to count, right? It doesn't take very long for the primitive animal brain... We'll get to our last question in a moment, or next to last question in a moment and then to the final question which deals with this animal brain issue.

But we know that if we take a deep breath - that's the other cliche, right, we give ourselves a chance to calm down and think about what we're doing and that's what you were suggesting one does in Target. I think it was in a moment that we were looking at a $24.99, $24.99 candle in a glass. Remember that?

ELLEN RUPPEL SHELL: Right, I can't forget that.

PAUL SOLMAN: Yeah. It was unbelievable. You looked at it and you thought, well maybe this is probably 50 cents worth of stuff and you would never in a billion years think to buy it except that here's this display of candles, they smell nice, it was on sale, I think there was one on sale for like $13.99 - made it look like a tremendous bargain, you know,. And if you walked away from that aisle for 10, a count of 10, you'd never go back!

ELLEN RUPPEL SHELL: That's absolutely true, Paul, and one of the things you just mentioned is packaging and I don't talk about that in the book "Cheap," but I have written on packaging before. It's a fascinating area, it really is. If you took a cake mix out of the box and put it on the shelf in the bag that it comes in the likelihood of people buying that would go way way down. We're attracted by bright and shiny things just like kids as you said before and lots of times what we're getting especially in the food sector is really not value for money.

The more we buy, the less adulterated thing are, the less likely we are to be fooled into overpaying for them. When we go to Wal-Mart and we go to these stores that have huge amounts of processed food we think we're saving money because of the, it's the kind of mental shortcut that we make: We're in Wal-Mart, everything's cheap. Lots of times we're not.

So just as you said Paul, if you take that minute to look at that frozen food item or that box of treats, actually look at the label and see what's in it, many, many times you're going to find that there's not much beneath that label. You know that it's sugar and water, that it's as I said before - starch, fat, salt and other cheap materials sort of thrown together and actually offered to you at a kind of premium price. A little knowledge goes a long way. It's just wonderful that "Julie and Julia" is coming out. Whether or not you like you know the film it does give you an idea that you can be self-taught at least to some degree to understand what it is that you put in your mouth and its value.