Good Economists, Bad Economists, and Walmart
Good economists are seldom popular with the political class. This is not unique to democratic systems; dictators like good economists even less.
Why?
As a rule, politics doesn’t educate. It obfuscates, pontificates, and prevaricates. It often seeks to advance the interests of the few at the expense of the many. It is a playground for the shortsighted and the demagogic. Economics, on the other hand, tells us a great deal about how material life can be improved through the operation of entrepreneurship and markets. It informs us that there are laws beyond those that legislatures pass, and consequences for ignoring them.
The good economist takes the discussion of economic matters to the lofty level it deserves. While others spout clever sound bites, unsubstantiated charges, and snake-oil remedies, the good economist raises his hand and calmly declares, “Wait a minute! Let’s look at the facts. Let’s separate the wheat (truth, logic, and evidence) from the chaff (nonsense, false assumptions, and panaceas).”
Last summer at the FreedomFest conference in Las Vegas I witnessed a remarkable debate on the question, “Wal-mart: Good or Bad for America?” The debaters were Al Norman, described as the “guru of the anti-Wal-Mart movement,” and Richard Vedder, Ohio University economist and coauthor with Wendell Cox of the 2007 book, The Wal-Mart Revolution: How Big Box Stores Benefit Consumers, Workers, and the Economy. The clash between Norman and Vedder couldn’t have typified better the difference between good and bad economics. Norman is no economist, but he’d be a bad one if he were. His arguments against Walmart were just as specious and superficial as those of New York Times columnist and Nobel laureate Paul Krugman, who does have the audacity to call himself an economist.
Krugman on numerous occasions has poured his vitriol on the retail giant, whom he charges with waging a “war on wages.” His diatribes were often cited a couple of years ago when the anti-Walmart drumbeat reached a fever pitch in Washington and in political campaigns around the country.
Big Box of Polarization
The Norman/Krugman critique of Walmart is little more than an anti-capitalist rant against a company that pays no more than it has to in order to attract the workers it needs and sells its wares at prices others sometimes find it difficult to compete with. Not surprisingly, demagogic politicians have used their arguments in a populist crusade for government to “do something” about Walmart.
Perhaps it was inevitable that the one company virtually all of us have patronized would become a political football. Any firm that makes its way to the top spot on the Fortune 500 list, as Walmart did for the first time in 2002, is bound to attract attention and polarize people, getting praise and admiration from some and envy and hostility from others. More than a few people have come to assume that bigness in business automatically implies a woeful trail of victims; some of those folks then make a nice career out of convincing the victims to accept their help. All too often emotion drives the debate at least as much as information does.
As an occasional patron of big-box retail stores like Walmart, I could never quite relate to many of the routine attacks on them. On each visit I park in an ample parking lot. I’m greeted by employees who smile, say hello, ask to help if I seem to need assistance, and thank me as I walk out the door. If I’m unhappy with price or service (I can’t remember the last time I was), I know I can get a quick refund and shop elsewhere. My search costs as a consumer are usually lowered by buying there, and it seems my wallet benefits as well—no doubt because competition makes big-box retailers pass on their natural economies of scale in the form of lower prices.
The sheer volume of Walmart’s trade alone suggests that far more people vote for Walmart with their dollars than for president or Congress. I could choose to work for Walmart myself but I don’t; if I did accept an offer to work for the company, I could quit at the drop of a hat if I felt exploited.
Even as an economist, I still learned much that I didn’t know from a 2007 book by Michael J. Hicks, The Local Economic Impact of Wal-Mart. I authored the book’s foreword, from which I’ve drawn heavily for this column. Hicks shows that Walmart’s influence on labor markets is surely less than most would expect, in part because it employs less than 1 percent of the U.S. workforce. The company receives comparatively little in the way of subsidies in spite of the misguided generosity of state and local governments that try to pick winners and losers in the marketplace.
The anti-Walmart campaigns of today are eerily reminiscent of the Luddite crusades against chain stores seven decades ago—proof of the old adage that the more things change, the more they remain the same. The 1975 law against resale-price-maintenance agreements probably gave a huge, unintended boost to big-box retailers at the same time it hurt smaller, more traditional stores. And it’s quite likely that other big-box retailers have more to fear from an efficient, aggressively competitive Walmart than do locally owned mom-and-pop shops.
But as Hicks himself explains, economics is less about a particular firm than it is about the markets in which it operates and the market forces that both propel and discipline the behavior of all firms.
Good economists know all this. Bad ones advise politicians to save us from a company millions of Americans endorse every day with their hard-earned dollars.
Corporations: Dropping Like Flies
Corporate mortality in free (or relatively free) markets is markedly high. The average person lives longer than most companies do. Competition, after all, is a dynamic, ongoing, leapfrog process whereby today’s leader can become tomorrow’s follower, or even disappear altogether. Size is hardly a guarantee of permanence. Indeed, the vast majority of the firms on the Fortune 500 list 40 years ago are no longer with us. It should be sobering to even Walmart’s most severe critics that not even their behemoth nemesis can safely behave as though markets don’t matter.
So while the Normans and the Krugmans and their political friends deliver their jeremiads, the rest of us happily choose to buy—or choose not to buy—from the object of their wrath. If justice prevails, Walmart’s fate will hinge on keeping its workers and customers happy, not its critics.
Nothing clarifies and informs quite like facts—backed up with solid evidence, emotion-free analysis, and sound, logical reasoning. That’s why bad economists are generally more popular in government than good ones.
Comment by s on 2 August 2010:
*Sigh*… This is why I could never be a Republican. ( No offense to Republicans, I could NEVER be a democrat) While I agree with them on doing away with the multitude of over regulations that are currently stifling various industries, I do believe that many can be a bit misguided or lacking understanding in regards to the issues facing the poor. While I personally believe that doing away with the various industry stifling ‘rents’, as some call them, would liberate many of the under employed and unemployed and aid in ceasing the tax drain on the middle and lower ‘classes’, I believe that many are for the time being, damn near trapped. Without a degree do you honestly expect these Walmart employees to find a fair paying wage? I’ve personally seen the economic ‘genocide’ Walmarts wreak. Where I live there are at least 5 now vacant stores that were done in after Walmart arrived in the same shopping center, the adjacent shopping center has about 2 survivors. Accompanying this was a multitude of housing developments. So economist, when competition for labor becomes fiercer, and the amount of places to work diminishes, and the average wage of males and females is allegedly (I say this, because I know of areas with many under the table, and under paid workers- who still make more due to sans tax than a Walmart employee does) 30,342 pre-taxes, which by rent and food calculations is not enough for them to live alone(this also isn’t keeping in mind high unemployment rates), what happens? When they are knocked up and can’t afford to take days off work for school or they couldn’t support themselves, living paycheck to paycheck, knowing fully well that if they walked out that they would have a bad reference in a very competitive environment (seriously, you want to be a ‘manager’ at Sonic and make 22,000 a year, pre-taxes?!?!?!? That was one of the better paying jobs you can get in this suburban area without a license- definitely not a living wage!!!). Now with such low wages they can not afford to buy any where else but WALMART. They can not quit, or they’d be out on the streets because they do not make enough to save, they are using Walmart and the like to bring a Communist style *Cough National Socialist* *Cough NAZI, that’s why they have so many anti-Immigration fire crackers being thrown to the people* wage slavery here. The government uses SSI and Welfare to foot the living costs of these people, taken from the higher and lower middle classes taxes(to drain away any surplus money from potential competition, but justify it in the name of the many that rely on it being so visible- they can not start their own jobs if they wanted too!!!), all to ensure a subservient attitude to the Government for giving them just enough to get by and be controlled by their corporate sponsors. They count on people thanking the government and not the workers for these ‘hand outs’, which in time will equal war, if I’m not mistaken (In unsustainable systems, they use war to amp up job markets for the costs of production to give people factory jobs, as well as cut down on the population that comes back home- freeing up more resources in the name of unnecessary and unjustified wars. Let’s also not forget insider incentives in the form of ‘top secret’ and black budget spending- perfect funneling operations). I would like to have a fair paying job, but I’d have to compete with communist imports you declare as sound economics? What about the cause and effect system over generations? If many manufacturing and other jobs are being outsourced to ‘communist’ nations, and we are not enabling our own to compete, but over regulating them into subservience, in order to maintain our population what are the viable options on the horizon? Do you honestly mean to tell me that supporting slave labor (have you looked into their treatment, I’ve interviewed people that went over there, it’s disgusting!) is sound economic policy? Friday’s and other ‘chain’ (they call em’ chains for a reason) restaurants have shown the signs through their employees this is what is coming to America- I’ve seen 5 grown men to a three bedroom apartment, because it was the only way the could afford to live there! If you’d like to make a wager, I’d say forget about any college degree, put all but 1000 dollars out of your hands, and try to live off of what you make working there, than in about 2 months, try walking out if you feel exploited, and see if you can get a better job (remember no touching any money to start with over 1000 dollars, and no mentioning a college degree- we have many pedestrians in their 30s that walk to work in MC Dick’s uniforms, and no colleges in walking distance so if you want to be real- do that) Economists and Politicians alike are often blind to the issues of the poor because many have never been there, and while I believe the ‘handout system’ is based in psychological control mechanisms to hide a sinister liberty destroying agenda by asinine people who wish quite literally to be gods on Earth (controlling everything to alleviate their insecurities- by preventing people from starting their own jobs and being able to compete in a truly free market, while at the same time keeping them alive to breed brainwashed soldiers and servile workers barely sustained by the ‘Government’ hand outs, that are in actuality coming from a drain the government makes on anyone who could possibly be competition in the future while they aren’t expecting it. The poor thus secured to the state by the loyalties of survival- they can’t afford to dissent, and if sufficiently oblivious to what is going on (which is likely because of the financial stress, low self esteem, and escapist mentality that kind of system breeds), will not hesitate to make the polls look like they support the socialist regime over a free market one- and outnumber the proponents of the free market paradigm exponentially as the years go by, due to human adaptability! We are a resilient species, we tend to adapt, and our children are like the children of birds- imprints weigh heavily on their adult values and behaviors, which according to Charlotte Isybert (Ex-department of education head who blew the whistle on the socialist servant agenda the government is intentionally trying for) in the Deliberate Dumbing Down of America, and reiterated by Cathy Duffy in Government Nannies, is something our government has been intentionally exploiting towards the aforewarned agendas.) As for credentials, keep in mind who foots much of the bill and accredits the schools (even those of higher learning) only if the lesson plans comply to their agendas. Sorry if I seem a bit bellicose about this. Different people see different things through different lenses. I’ve seen a woman cry working at Mc Donalds, an older Woman with diabetes, she was not allowed to leave work to pick up her injured daughter at daycare, and she was a single mom. She wound up just working and crying, UNABLE to quit, because she needed the money to support herself, pay for daycare, and her medication, contingent on her keeping a job if I’m not mistaken, and our managers didn’t seem the type to leave a good reference for anyone really…
Comment by JayAaroBe on 11 August 2010:
Great article! Well put. But it boils my blood to know how right you are!
Comment by Talbotalban on 12 August 2010:
It seems you have sold short the arguments of Al Norman. He does not simply argue against WalMart, but uses that Corporation as an example and symptom of economic/social problems in the U.S. With all due respect, your column is devoid of content. Can you actually speak intelligently to Mr. Norman’s arguments against urban sprawl instead of dismissing them as “specious and superficial”?
Comment by James Madison Fan on 12 August 2010:
I agree with Hicks but I don’t think Mr. Reed is seeing the whole picture. Let’s examine what sort of market Wal-Mart is in and see if we can get some insight.
There are at least two major problems with the Wal-Mart business model.
Wal-Mart intentionally supplements their wages and health care costs by handing out paperwork and encouraging their employees to use these systems. You might be saving 10 cents on a tube of tooth paste when you look at your receipt but what it doesn’t show is how much money you’re paying the employees that stocked the shelf and scanned your items in welfare, food stamps, HUD, and other social programs. Instead of paying more on your receipt you pay more on your tax bill. This is nothing but corporate welfare where they pass on 50% of their payroll to the taxpayer regardless of if I shop there or not. If Wal-Mart wants to offer savings that’s fine with me but don’t dig into my pocket and steal dollars in an effort to save me dimes and pretend you’re doing me a favor.
Of course the secondary effect is that Target, Ralph’s, Kroger, etc. can’t compete because they don’t hide their payroll in our taxes so they go out of business. That means the employees that used to work at these places end up at the new Wal-Mart making half of what they used to and sucking money out of my wallet or on entitlement programs entirely sucking even more money out of my wallet. No thanks Wally. If you want to run a business then pay your own bills.
As a Libertarian Mr. Reed would likely offer that these programs shouldn’t exist in the first place and he’s probably right but that doesn’t change the fact they do and will for the foreseeable future and I don’t see any way to deal with this kind of behavior except legislating against it.
In addition to this Wal-Mart is notoriously anti-union, even to the point of having a strike force of public relations and lawyers that fly out when there is a rumor a store might attempt to unionize as well as closing a store in Canada that did so successfully.. It seems odd to me that free market champions seem to think that Capitalism only applies to business owners but not to workers. Businesses set their prices based on what their competitors are doing and unions allow workers to do the same thing rather than constantly undercutting each other. Workers have a commodity to sell, the same as any business, and they should be allowed to price it appropriately. If you’re going to embrace the free marke then embrace all of it, not just the parts that make rich people richer.
Comment by Brian on 24 August 2010:
A James Madison fan? I missed it. Your and Talbotalban’s comments are breathtaking – urban sprawl? Walmart is responsible for that? The owner of private property shouldn’t be allowed to sell it to Walmart?
Is Walmart responsible for the foolish welfare system? Would the taxpayer be better of if Walmart’s employee’s had no jobs at all? Walmart hasn’t put its hands into your wallet at all unless you shop at Walmart. Only the US and state governments, who have the power to tax you whether you like it or not, have the power to reach into your wallet.
It seems odd to me that anyone still supports the idea of unions – the exorbitant costs of labor drove much industry abroad and contributed greatly to the bankruptcies of LTV, US Steel, Bethlehem, Chrysler and GM. And Unions most certainly do not allow any individual laborer to set their prices. The “union” idea presumes that workers are like interchangeable parts, or at least to a great degree. Anyone who has ever actually employed someone knows that a huge difference there often is between employees. Yet, a terrifically productive union employee typically has no reward system to honor his/her productivity and is encouraged, by the very nature of the union wage scale, to not be overly productive. I remember being labeled as a “crew carrier” during a couple of summers when I had a union job. I’d love to see some real data to support your assertions about workers “undercutting” each other.
Comment by James Madison Fan on 24 August 2010:
Brian,
Wal-Mart isn’t responsible for the system but they are responsible for their abuse of it.
I acknowledge your point about it not being Wal-Mart’s hand in my wallet and will revise my statement to indicate “Wal-Mart has their hand in my wallet by proxy.” I’d rather pay for my toothpaste at checkout than on my tax bill if for no other reason than the first mode is voluntary and the second isn’t.
Don’t start on the “we should get rid of the entitlements” because you’re preaching to the choir. Yes we should and no we won’t because we live in a Democratic-Republic. When you or I become King we can change it, until then we’re stuck with it.
The taxpayer would be better off if the Wal-Mart employees were working somewhere other than Wal-Mart even if a percentage remained unemployed.
As it stands various stores sit on the corner of each block ranging from Vons to Albertsons to Food4Less, etc. This means more people employed and better competition resulting in lower prices (real prices rather than prices supplemented by the taxpayers) and more choices for the consumer.
Each of these pays a wage of approximately $18.00 an hour plus benefits for checkers. Wal-Mart pays around $10.00 with limited or no benefits for this same position. When one of these stores is forced out of the market X% of checkers end up at Wal-Mart where they make half their previous wage and supplement this via taxes and 100%-X% (Y%) end up collecting nothing but tax dollars until they find another job.
100% of these employees go from having positions that allow them to pay taxes, helping you and I support the ever increasing onus, to being tax collectors adding further to the burden you and I are forced to carry.
So Wal-Mart means fewer jobs, a smaller tax base, increased use of entitlements, increased use of ER’s, Medical, and Medicaid, higher taxes, less competition, and fewer choices for the consumer. On the other hand you save 15 cents on toothpaste – yippee.
Undercutting of wages is part of economics. As scarcity of labor drops so do wages. Unions can mitigate this but only to a certain degree. If they don’t have a firm grasp of their limitations you end up with companies going bankrupt (auto industry). My guess is no one on the UAW would recognize an economic curve if it had attacked him with a hammer.
You mention multiple examples of this in your own post when you discuss various businesses leaving the US. Why are they leaving? Cheaper labor and raw materials. Ever since GAT and NAFTA it is less expensive to make something in these undeveloped nations and export it to the US than it is to build it here. The “progressive economic theory” (read global socialism) attached to this is we should help these nations to help themselves by “making our markets more available to them.” Essentially it was foreign aid in disguise as free trade. What it actually did was entice US companies to move and off shore.
Washington thinks the answer to this problem is spending more money, raising taxes, and bumping the minimum wage. All this does is make things worse by driving up inflation and devaluing the dollar. Until DC figures out that 1 billion people can’t carry around 5 billion and growing things are going to continue to get worse as the standard of living in the Third World continues to equalize with ours.
Comment by James Madison Fan on 25 August 2010:
I posted a reply yesterday to this and it is being held up apparently because i used the word “at@tack”
I used to think Libertarian Censor was an oxym0r0n (spelled with 0′s least the filter think I’m calling someone slow of mind).
Comment by DanPerr on 1 September 2010:
“Wal-Mart intentionally supplements their wages and health care costs by handing out paperwork and encouraging their employees to use these systems.”
What kind of paperwork and what systems?
Pingback by The State’s Role in Global Disorder, and More » ReasonAndJest.com on 6 September 2010:
[...] Lawrence Reed: Good Economists, Bad Economists, and Walmart [...]
Comment by Cole on 25 September 2010:
I believe this statement sums up the point of the difference between ‘good’ economists and ‘bad’ economists:
“Businesses set their prices based on what their competitors are doing and unions allow workers to do the same thing rather than constantly undercutting each other. Workers have a commodity to sell, the same as any business, and they should be allowed to price it appropriately.”
First thing you should do is drop your pre-conditioned political inclinations from the argument and then examine your analysis. If you found out that Walmart, Target, and Kroegers, were going to decide to charge the exact same prices, you would be outraged. It would be considered collusion. A cartel of big-box retailers. You would possibly boycott all three, and in doing so, find out that you can get the same goods for lower prices from other sellers who aren’t part of the ‘big-box cartel’. As these other sellers benefited from the artificially high prices of the ‘big-box cartel’, almost with certainty, either Walmart, Target, or Kroegers would start to under-cut the other two in order to win back their costumers.
So, now let’s relate this to the case of the workers: Just as each store is its own entity, each individual is his/her own entity. A group of workers deciding to set the price of their labor (their wages) would be the equivalent of the group of stores deciding to get together to set the price of their goods. The only thing different, really, is the terminology. When the workers get together, we call it ‘organizing’. When the businesses get together, we call it ‘collusion’. When workers decide to set the price of their wages, and not to undercut each other, we call it a ‘union’. When the businesses decide to set their prices the same, and agree not to undercut each other, we call it a ‘cartel’.
So, go back to my first paragraph, switch out ‘Walmart, Target, and Kroegers’ for ‘worker #1, worker #2, and worker #3′ and you should have a better, a-political grasp of how the economic fundamentals actually play out in these scenarios.
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Comment by Iluminada Langager on 6 February 2012:
Awesome writing style!
Comment by Arnold Tompkins on 7 February 2012:
Awesome writing style!