Is Hostess Just Atlas Shrugging?

Hostess announced it was going out of business. They were unable to reach and agreement with their union workers.  They employed 18,500 workers.  Only 3500 were unionized.  19% of the workforce.  It’s too bad.

The Twinkie is getting all the attention, but they made Wonder Bread and Nature’s Pride snacks too.  Wonder used to build strong bodies twelve ways, but it couldn’t carry a company.

Some reactions are kind of predictable.  Many say, “Big whip.  Hostess was in the business of making junk food anyway and America is so obese it doesn’t need junk food.”  Or, they might say, “Hostess was using really bad marketing to target their market and were outflanked by local foodies going to local cake stores.”

Both might be correct.  But, the vice grip that Hostess was in never gave them a chance to try and reposition, or reformulate the brand.  Without concessions by 19% of it’s workforce, the math overwhelmed them.  The opportunity cost of running the firm was higher than shutting down and selling off the assets to pay creditors.

When a business can’t cover its variable costs of production, it can run for awhile.  When it can’t cover its fixed costs, they have to go bankrupt.  In the very long run, all costs are fixed….

Government advocates smile because more people are going to go on the government dole.  The electoral math works for people like that.

If this were simply Hostess going under, you might chalk it up to bad business.  Atlas didn’t shrug.  If we take individual companies and dissect them point by point, we can always find mistakes that were made to cause the company to go under.  Hostess bankruptcy comes on the heels of a spate of companies in many industries that are laying off employees or cutting hours due to Obamacare, higher expected taxes, and higher regulation. Hostess was responding to a union, that had the tacit backing of the White House.  The cumulative effect is in fact Atlas Shrugging.

Ayn Rand made the point that the creators ought to get the benefits for creating, not the moochers and looters of government or crony capitalism.  In her book, big industry tumbled because the government got involved.  We aren’t seeing the exact same thing, but we are seeing similar events in industry today.  Papa John’s didn’t cut hours or lay off employees because their sales were down.  They did it in response to government regulation.

In France, Atlas will shrug too.  High tax rates are driving capital out of the country.  Now, they are “reforming” their banks by ending speculation in commodities, and stopping high frequency trading.  Neither are the cause of the economic problems in France, or Europe.  The problems all stem from the government.

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