Since we discussed this a little in class today, here are a couple of pieces on the economic significance of Wal-Mart.

First, from Jason Kuznicki, who quotes a George Will Column:

Wal-Mart, the most prodigious job-creator in the history of the private sector in this galaxy, has almost as many employees (1.3 million) as the U.S. military has uniformed personnel. A McKinsey company study concluded that Wal-Mart accounted for 13 percent of the nation'?s productivity gains in the second half of the 1990s, which probably made Wal-Mart about as important as the Federal Reserve in holding down inflation. By lowering consumer prices, Wal-Mart costs about 50 retail jobs among competitors for every 100 jobs Wal-Mart creates. Wal-Mart and its effects save shoppers more than $200 billion a year, dwarfing such government programs as food stamps ($28.6 billion) and the earned-income tax credit ($34.6 billion).

Michael Strong writes in TechCentral Station,

Between 1990 and 2002 more than 174 million people escaped poverty in China, about 1.2 million per month.[1] With an estimated $23 billion in Chinese exports in 2005 (out of a total of $713 billion in manufacturing exports),[2] Wal-Mart might well be single-handedly responsible for bringing about 38,000 people out of poverty in China each month, about 460,000 per year.

There are estimates that 70 percent of Wal-Mart's products are made in China.[3] One writer vividly suggests that "One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market." [4] Even without considering the $263 billion in consumer savings that Wal-Mart provides for low-income Americans, or the millions lifted out of poverty by Wal-Mart in other developing nations, it is unlikely that there is any single organization on the planet that alleviates poverty so effectively for so many people.[5] Moreover, insofar as China's rapid manufacturing growth has been associated with a decline in its status as a global arms dealer, Wal-Mart has also done more than its share in contributing to global peace.[6]

Finally, here is an excerpt from the press release to the Global Insight study:

Global Insight reviewed a wide range of previous studies that indicate that the efficiencies that Wal-Mart has fostered in the retail sector have led to lower prices for the U.S. consumer. These results were supported by statistical analysis which found that the expansion of Wal-Mart over the 1985 to 2004 period can be associated with a cumulative decline of 9.1% in food-at-home prices, a 4.2% decline in commodities (goods) prices, and a 3.1% decline in overall consumer prices as measured by the Consumer Price Index-All Items, which includes both goods and services. The main driver of this impact was a 0.75% improvement in the overall efficiency of the economy. Increased capital intensity and lower import prices were secondary drivers. The 3.1% decline in the price level was partially offset by a 2.2% decline in nominal wages, so that the net effect was to increase real disposable income by 0.9% by 2004.

The significance for our class is that (i) regulators and incumbent bankers opposed the Wal-Mart bank in Utah out of concern that it would create a more competitive atmosphere in banking, as it has in other industries it has entered, thus creating a situation in which many of the currrent poorly performing banks would be more likely to fail; and (ii) a large firm does not necessarily threaten small competitors and can often cause them to become more efficient, as evidenced by both the current proliferation of small banks in the United States, as well as by the persistence of small (Mom and Pop) stores in markets where Wal-Mart enters.

Define: Return on Assets, Return on Equity, and Net Interest Margin? Look at this data on ROA, ROE, and NIM. Why is the significantly ROE larger?

(Here are some examples. Here is a list of average annual return on assets since 1934. Here is a list of bank failures, by year, from 1934 to 2003.)

Explain: the real bills doctrine, defined shiftability, the anticipated income approach, and the conversion of funds approach. Which is dominant today? What are the shortcomings to the real bills doctrine?

What are the objectives of bank regulation? How are they contradictory?

How many banks fail each year, on average? Why? Should we conclude that the remaining banks run efficiently?

Here is the FDIC's page on Wal-Mart's application to start a bank from earlier this year. It was eventually rejected. Here and here are articles about the effort.

What is the "too big to fail doctrine"? Here and here are article about this doctrine applied to the case of Continental Illinois (as discussed in class and in our text).

Why were banks easy to blame for the Great Depression?

Sam Gregg writes this morning on the moral aspects of inflation and monetary policy.

Why were banks forbidden from paying interest up until 1970? What problems did this cause the banking industry before the 1970s? How did the government try to rectify these problems?

What is a credit crunch? What is disintermediation?

Why did Congress pass DIDMCA in 1980? What did it do?

What is universal banking? What are some advantages and disadvantages to universal banking? Can the banking system in the US today be characterized by universal banking?