Why the end of Twinkie means our “Mad Max” Future is Beginning

Our Future

It’s sad, but true. The end of Hostess  - and with it, the end of the nearly invulnerable Twinkie – means our Mad Max future is starting much sooner than anyone expected.

We can no longer afford to make a cheap-ass, terrible tasting cake. Something our parents could buy in huge boxes, a treat I could afford on the wages of a paper boy, we can no longer afford to make.

This is the conclusion we take from this.

Here’s Felix Salmon as he shows us how it starts:

“What we have here is a situation where a company offered a wage in the marketplace and couldn’t get any workers to accept it. Consequently, it went out of business. The word “competitive” gets thrown around a lot, often with the murkiest of meanings, but in this case there can be no doubt at all that a company, Hostess, was unable to pay acompetitive wage. Ninety-two percent of its workers voted to walk out on their jobs rather than accept its wage, and they stayed out even after they were told it was the company’s final offer.”

Hostess cannot afford to make the very cheapest, the very worst snack cakes, at a competitive wage. It’s hard to imagine a less expensive baked good product to make. These products are completely standardized, and use processes which have been known for decades and refined over all that time.

Yet the richest country in the history of the world cannot afford to pay people enough to make these products. How is this even possible?

Here’s more from Felix:

“In a piece for Salon, Jake Blumgart quoted a bakery worker who had been at the company for 14 years. “In 2005, before concessions I made $48,000, last year I made $34,000…. I would make $25,000 in five years if I took their offer. It will be hard to replace the job I had, but it will be easy to replace the job they were trying to give me.”

Yes, there are signs the snack cake company was raided by Vulture Capitalists. It had over $1bn in debt, which is completely astronomical for a company with only a few billion in sales and (probably) razor thin profit margins.  It had $450m in debt in 2004, and there isn’t much information on why it was issuing debt in those years anyway.

The point Felix makes is generalizable to other forms of manufacturing, which he does with great clarity:

“All of which means that there are two enormous problems with the story that manufacturing is returning to the US. That might be true, but (a) it’s not creating many jobs, and (b) the jobs it iscreating are not the good jobs which people want to have for many years. Instead, they pay $15ish per hour, which is what teenage babysitters make in New York.”

That’s probably a bit low for a baby-sitter in NYC. I pay $10-12-15 here in Oak Park, Il. There are much better opportunities for the same wages paid in manufacturing.

Many people believe that the first things society will not be able to afford as we descend to our Mad Max ending are the most expensive things. But this is probably not true. There has always been very nice things available to the wealthy, and the quality of many of these goods have not changed much over centuries. Custom made clothing fits very well in 1712 or in 2012, and the grand estates of yesteryear are still beautiful today. It’s more likely the case the cheapest goods will become too expensive for poor people, so we will stop making them.

Things like mass produced sponge cakes with frosting will be a luxury good, too expensive for poor people. A light sponge cake with frosting will once again become something custom made, by hand, in small batches, and far more expensive.

The first things to go will be the cheapest things, like Hostess Twinkies, at least if we continue down our current path.

Here at MR, we think there is another path. Companies hire when they are swamped with demand. Mass Production requires Mass Consumption. We can begin to sort out how to structure this beginning with the Contingent Institutional approach, and by using the fundamental identity. We should probably recognize Godley-Christ before we do anything, and accept we need and want both the private and public sectors to create money.

 

 

Comments
  • beowulf November 30, 2012 at 7:58 am

    “Director George Miller has begun principal photography on the fourth Mad Max film, and here’s the official synopsis to prove it. This plot description apparently comes from the mouth of Miller himself, which explains why it’s awesome in a pleasingly psychotic sort of way:

    ‘Mad Max [Tom Hardy] is caught up with a group of people fleeing across the Wasteland in a War Rig driven by the Imperator Furiosa [Charlize Theron]. This movie is an account of the Road War which follows. It is based on the Word Burgers of the History Men and eyewitness accounts of those who survived.’”
    http://m.io9.com/5935245/mad-max-fury-road-has-an-awesomely-insane-plot-description-and-cast-list

    • Michael Sankowski November 30, 2012 at 5:42 pm

      I hope this movie actually comes out. I also hope the next Riddick movie actually makes it to the screen.

      BTW, the reason I had to post this photo again was because it has in its center a nearly naked dude in leather shorts, with a mask on, shooting at a gyrocopter, with a handgun.

      As long as Imperator Furiosa [Charlize Theron] is wearing some leather – and you know she will be – the movie will be worth it.

  • Joyce November 30, 2012 at 10:09 am

    One would need to know how much their debt service was to make sense of this. Even the most profitable company with huge margins (pre-debt service) can go bankrupt if you pile on enough debt.

  • beowulf November 30, 2012 at 11:24 am

    “It had over $1bn in debt, which is completely astronomical for a company with only a few billion in sales and (probably) razor thin profit margins. It had $450m in debt in 2004″

    Why do I doubt the the additional $550 million borrowed wasn’t invested in physical capital? I think the real problem here is the enormous moral hazard the bankruptcy code creates by allowing corporate management to voluntarily file bankruptcy (stiffing workers and creditors along the way) but still get to continue running the company.

    When Jesse Jones ran the Reconstruction Finance Corporation during the Depression, he had one simple condition for any corporate or bank bailout– the 3 highest paid executives must hand him their resignations . If the bankruptcy code required the same, you’d see a lot fewer (as in none) strategic filings.
    http://en.wikipedia.org/wiki/Reconstruction_Finance_Corporation

  • jt26 November 30, 2012 at 8:40 pm

    I laughed so hard reading this post that I started to cry. Then when I realized the implications I really did start to cry. At first I though, ahh, Hostess is going the way of the buggy whip, but nope, can’t be true after I saw my neighbor’s waistlines. Then I thought, this was just another sad end to a bitter economic divorce, two parties with nothing to lose go nuke-alear, but nope, either party could just walk away at any time, and I doubt either party loved the company like their beloved horse Betsy. Then I thought about Mike’s comments on the disappearance of cheap goods, and then the depressing thought came that maybe we actually were reversing the Industrial Revolution. I guess I’ll just have to cheer myself up with some comfort food …

  • jt26 December 1, 2012 at 1:29 pm

    10+ years ago there was an Economist(?) article about cross-country&time comparison of income distributions and growth rates; flatter was better for growth. That basically ended and reversed in the 80s (for the US), but the middle class felt better via debt expansion. Now the depressing state is we have debt-serfdom, and I think we might start to see significant decrease in quality at the lower end on many goods, even if they don’t disappear (like Twinkies). In some sense that has been seen in many inner cities where basic services like large grocery chain stores and banks have long disappeared. Now off to find my mac & cheese …

  • Brian Ripley December 1, 2012 at 6:59 pm

    Could it be that Twinkies and Wonderbread are crap products just like cheap imported toys made with toxic materials. Twinkies and Wonderbread have gone down the same path as the fundamentalist social so called conservatives with their idiotic ideas about rape victims…. a path towards extinction. (Science proceeds one funeral at a time “Max Planck)

    I have never bought Wonderbread or a Twinkie and I doubt if any of my three 30 something kids have either… we actually know how to make a healthy loaf of bread if necessary. So perhaps apart from the Gordon Gekko – Mitt Romney business model of turning equity into debt, maybe the real reason is that demand for a crap product finally dropped below the “it’s not worth the trouble” line.

    • Michael Sankowski December 2, 2012 at 2:54 pm

      They are terrible products – that’s the point. They are terrible and we still can’t afford to make them and pay people well.

      In theory, we should be able to make this products very inexpensively. We’ve been making them for decades, and we’re far, far richer than we were decades ago. These products should be easy to afford for nearly everyone and anyone, and the company should be able to pay prevailing wages.

      But this isn’t what’s happening at all.

      Yes, tastes are changing, but they still have billions in sales every year.