Arnold Kling  

Liberals and Walmart

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Are Neighborhood Effects Reall... As I Was Saying...

I have started a new series of essays about the assumptions made by (modern) liberals. The first one says,


Liberals see the market as an arena in which evil corporations inflict their greed on innocent victims. I wish you would see that motives matter less than consequences. I wish you could see that greed is at work when laws are passed that regulate markets, because regulations always produce winners and losers. I wish you could see that those winners and losers are often not who you think they are. I wish you could see that competitive behavior and free choice are forces that operate in the market as a check against greed. Finally, I wish you could see that greed is most difficult to restrain when it is exercised through the medium of government.


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CATEGORIES: Public Choice Theory



COMMENTS (30 to date)
David Thomson writes:

Today’s liberals are usually poorly educated. Their degrees are as fraudulent as a three dollar bill. This is one of the central reasons why they despise George W. Bush and red state America. These clowns, on a gut level, know that the con job is rapidly coming to end. One will have to do more than merely slut on behalf of the liberal establishment. No longer will intellectual mediocrities such as John Kenneth Galbriath dominate our intellectual landscape.

Let’s stop cutting these nasty humans beings slack. Anyone who fails to comprehend the negative economic consequences of forcing Wal-Mart to pay higher health benefits is a fool. You need not be rude, but it’s time to be blunt. Don’t feel sorry for them. They are often quite wealthy and possess high status jobs. Nobody told them to place their wet finger in the air to see which way the winds blows. Whores don’t deserve respect.

Boonton writes:

Yawn, do conservatives ever have anything new to say or are you going to spend the rest of your lives beating strawmen?

For example, look at last weeks NY Times Magazine. It had a very long article on the living wage movement. (http://www.nytimes.com/2006/01/15/magazine/15wage.html). There you'll see the typical liberal case for the min. wage but you'll also see the research Kruger did on the subject. You'll also see liberals wondering at what point will raising the wage will become counter productive. You'll also see small business owners being interviewed with an honest attempt to fairly provide for their side (such as the dinner owner who feels pride that he provides up to 60 jobs and feels angry at being depicted as greedy and indifferent to his employees).

On this very blog, though, two academic economists with Phd's (I assume) presented a laughably simplistic 'model' of the Wal-Mart law. But don't bother trying to think of anything new, just keep patting yourself on the back thinking you're the smartest thing since sliced bread.

Michael Hartl writes:

I enjoyed your essay, but there were several statements in it that are likely to exacerbate liberal confirmation bias.

First, consider the statement "if Wal-Mart workers want health insurance badly enough, eventually the market will find a way to provide it." Liberals will have a field day with this one: "eventually" doesn't cut it when people need insurance today. And your belief that the market will provide health insurance is just a libertarian article of faith. (Etc., etc.)

Also, I'd hazard to guess that many liberals instinctively reject or don't understand the assertion that "Low-skilled workers cannot receive more in compensation than the value of their labor." Some liberals I know think that "valuing" labor is at least vaguely suspect—after all, plastic surgeons get paid more than teachers, but whose labor is really more valuable? (Etc., etc.)

Some confirmation bias is inevitable, but you can minimize it by reading your own articles with a liberal bias, systematically challenging your own premises. One trick is to exclaim "That's the problem with libertarians!" after each sentence. If the exclamation fits, the sentence might need to be reworked. :-)

N.B. This process would probably strengthen your argument for libertarians as well.

Boonton writes:

Boonton, if there has been serious research about the minimum wage, why is it that every liberal thinker refers back to the Card/Krueger study conducted back in 1992? Surely they have some idea as to what impact the minimum wage would have on the labor market the reinforces their thesis by now.

As for this so-called living wage movement (a nicer way of saying minimum wage), I've always had a question burning at me for quite some time and maybe you can answer it. That question: what exactly is a living wage and what parameters are being used to help determine what the living wage is? I too would like to know at what point the living wage would become counterproductive, but before we look at that I think it is important to define what the living wage is and how we go about defining it.

Terry Richards writes:

I still dont see how this law effects walmart. There is obviously a tremendous surplous of low wage labor in Maryland. Therefore, Walmart should simply lower their wages and comply with the eight percent law. If Walmart has monopsony power as an employer of low wage labor then they should be able to lower wages and maintain their current levels of employment. Therefore nobody loses their job and nobody is better off. It is not the intent of the law that should be debated it is the actual functioning of this law that is comical.

I am a general manager of a restaurant in Orlando and I have had to deal with increases in the servers minimum wage. Some interest group has really strong pull with the state gov. and has elicited a sixty percent increase in the servers min wage from 2.13 to 3.38 in only eight months time. However, I discovered a loophole in the servers min wage law and it is kosher with the labor board as we just passed our audit with them a few weeks ago. In Florida, servers only have to be compensated the min wage which is 6.15. So therefore every time they hike the servers min wage I raise their tip out in accordance with the min wage hike. So when the servers min wage was 2.13 they only had to tip out five dollars on the weekends and didnt have to tip out at all during the week. Now after the hikes they tip out 8 dollars on weekends and five dollars during the week. The restaurant also used to pay the tax that the credit card company charges them for their charged tips but we have now passed that tax on to them. They used to get a forty percent discount on food; they now have to pay full price. And checks are only cut twice a month instead of every week which was costing the restaurant eight thousand a year. Now you ask me, are the servers better off before or after the min wage hikes?

Boonton writes:
Boonton, if there has been serious research about the minimum wage, why is it that every liberal thinker refers back to the Card/Krueger study conducted back in 1992?

I'm not sure what you're asking here. Are you asking why liberals refer to it? Probably because it is a study that reinforces a favorite policy position. Why would a conservative refer to a study that says oil drilling in Alaska doesn't harm the environment?

Are you asking why haven't more studies and papers appeared since '92 on the topic. I don't doubt for a second that many have appeared but you wouldn't hear about them here where the first instinct is to cut and paste the econ 101 slides from powerpoint and pat yourself on the back for being smarter than those nasty liberals.

As for what constitutes a living wage, that is mostly a subjective question in my book. It's a bit like asking how much police protection is enough or how many humanities classes should a college require. There are objective arguments to be made but I think most agree at the margin there's room for back and forth disagreement.

In general the liberal argument is that someone who works a full time job should simply not be in poverty (or shall we say 150% of the federal poverty line). IMO, the better policy to accomplish this is the earned income tax credit where work is rewarded but employers can set wages low enough to hire economically low-skilled workers.

If you peruse the comments on the two previous Wal-Mart threads you'll find many people asking tough and interesting questions regarding the Wal-Mart policy from the liberal perspective (or at least a perspective that is sympathetic to the law if stopping short of endorsing it). You wouldn't know that from the latest post however. You'd think that the entire discussion was between our wonderfully enlightened blog hosts & a bunch of wild yahoos grunting "give us Wal-Mart's big box o' money!"

daveg writes:

I just wonder why this idea receives so much more coverage than any other tax.

If you spend 5000/employee for 18,000 employees the number comes to 90 million. This is not a huge number in the world of corporate taxes.

Is it that it is only focues on one company or large company?

Is it that it is a special tax focued on one service - medical coverage?

With all the corporate subsidies out there running into the 100's of billions of dollars, I don't see why this issue gets so much attention.

Boonton writes:

Terry,

It sounds like, oddly, the min wage hike motivated you to find assorted savings that really doesn't have anything to do with the min. wage. For example cutting payroll checks twice a month instead of every week could have been done by you whether or not the min wage increase was passed. I'm kind of curious how this saved so much money. Does your payroll company charge by the check run?

Chris Bolts writes:

Michael, you only reinforce Arnold's point. When presented with evidence, liberals do not respond back with evidence, but with rhetorical questions to turn the debate back into a political and ideological one.

Lord writes:

Conservatives see the market as an arena in which evil individuals inflict their greed on innocent businesses. I wish you would see that most government intervention is on the behalf of, and for the benefit of, particular businesses. I wish you could see that politicians use the law to extract funds from some at the expense of the rest.

Jay Parker writes:

Well Walmart employees already have healthcare coverage. Roughly 80% have insurance paid for by Walmart. The average retailer (Sears, Target, etc.) only covers about 60% of their employees. The government will end up dragging Walmart down just like it did to Microsoft. Great article to read go here:
http://www.smartmoney.com/aheadofthecurve/index.cfm?story=20060113

Allen writes:

I like the paragraph. I think it helps to briefly outline what is happening. We as human beings want to so dearly believe that if we just control things, just do XYZ, that we can "right a wrong". But we can't. For every action there is an equal or greater reaction. And modern history has shown us that societies that are the least controlling end up being the best to live in, even for those at the bottom of the pile.

T.R. Elliott writes:

Oh Geez, in order to study this, we have to go over to Glassman's propaganda organ TCS? What's that guy doing these days anyway? Dow 40,000? Dow 100,000? What a laugh.

But to the point. This language of liberals versus conservatives sure gets boring after a while. But when in Rome...

To Thomson's comment: It barely merits a response. I suppose I take a liberal stance in a lot of issues. Libertarian on others. I'm educated as a physicist and mathematician, worked for high tech companies, now retured at 45, father was a machinist, lower-middle class origins, grandfathers both dirt poor miners. We pulled ourselves up from our boostraps. But I think when I approach issues. You are not. You statement is full of useless stereotypes. Living wages, or minimum wages, are important issues.

To Kling: Liberals do not think corporations are evil. Liberals do think that there can and often is a race to the bottom. Liberals understand that someone wins and someone loses with regulations. Duh. Win-win is great, but winner take all is also often an outcome of unergulated markets. So regulation is performed. Also, please modify your comments to say that "competitive behavior and free choice are forces that OFTEN operate in the market as a check against greed." Then your statement would be more accurate.

Butter writes:

I hate the use of the word "liberal" in its American/statist context. It used to be a perfectly good word and I want to reclaim it. Can't we agree to use left-right instead?

Randy writes:

I really don't see a problem with a living wage law. The only people who can possibly be hurt by it are the very people who think they want it. So let them have it.

Democracy is the theory that the common people know what they want and deserve to get it good and hard. H.L. Mencken (1880-1956)

meep writes:

Not all the people out there working at (current) minimum wage want increases, or mandatory health care coverage. Let's consider two groups of people who work at Walmart, or I should say would like to work at Walmart: teenagers and retired seniors. Neither needs Walmart's health coverage (usually) -- the seniors are covered by Medicare and the teens are covered by their parents. All that "living wage" laws do is price these people out of making supplementary income.

Again, the particular Maryland "Walmart law" is stupid on many counts, but one should be evident upon listening to the supposed rationale (and Kling makes this point): they want to make sure Walmart workers aren't on Medicaid. Um, then shouldn't the Medicaid regs be changed? This is changing the subject in a major way. I think they don't want to do that because it will catch up a bunch of people working for, say, the Maryland state government, who are also on Medicaid.

daveg writes:

"Liberals" are the strawman of econ types.

The real argument is between partial free traders and complete free traders.

Econ types will look at some isolated law that appears on is face to increase/decrease economic freedom and argue the heck out of it.

What they often fail to do is fail to acknowledge that the "law" in question is but one small law in a vast web of regulation, and then to discuss the likely result of that new law within the context of the entire regulatory system.

Just some examples:

a) savings and loan crisis of Reagan. Deregulation of the S&L without removal of the government insurance - incomplete deregulation resulted in very poor outcome and therefore was a misguided attempt at "free market" reform.

b) California Power deregulation. Anyone care to argue this was useful deregulation?

c) Cable Television regulation. These virtual monopolies have no legit basis to complain about regulation of their practices, prices, etc. None.

Lesser cases include companies that negotiate special tax deals with local governments, seek to influence government policy through lobbying, etc.

You have to look at these laws within the greater context under which they are proposed.

John Pertz writes:

Boonton,

I think what Terry is saying is that legislators can regulate businesses as much as they would like. In fact they can attatch whatever pretty little phrase they would like to a bill however, it doesnt mean it is going to be succesful in achieving its desired intent. The argument that Terry is making is that businesses are self interested profit maximizing ventures. Therefore if regulation hurts their ability to work towards their self interest then they will devise ways to work around the regulation. The message that many of us classical liberals are trying to convey is that when businesses adjust to new regulations, the workers are often the ones who are forced to suffer from the unitended consequences of regulation.

This is why laissez faire is superior to social democracy. I am not saying that laissez faire is perfect but from a utilitarian stand point it is superior.

Boonton writes:
Not all the people out there working at (current) minimum wage want increases, or mandatory health care coverage. Let's consider two groups of people who work at Walmart, or I should say would like to work at Walmart: teenagers and retired seniors. Neither needs Walmart's health coverage (usually) -- the seniors are covered by Medicare and the teens are covered by their parents. All that "living wage" laws do is price these people out of making supplementary income.

As I pointed out previously the law does not require 8% of each person's payroll but 8% of its entire payroll. If Wal-Mart had 5,000 middle aged employees and 5,000 senior/teen employees it could have a plan where 16% of pay would go for health benefits for 5,000 middle aged employees and 0% for the rest.

Another curious fact is that Wal-Mart probably wants to spend a $1 on health benefits rather than $1 on wages. Why? The health benefits get favorable tax treatment for both the employer and employee. If Wal-Mart found a way to increase participation in the plans they offer (say by offering even cheaper bare bones plans & offering better plans for those employees who want it) they might even discover the tax savings equals the tax or exceeds it.

Another curious fact is that there are two labor supply curves out there. One that supplies labor in return for health benefits and another that supplies it in return for wages. Why? Because people know their employer can typically get more buying them a dollars worth of health insurance than they can on their own.

Finally another missed observation is the fact that Wal-Mart very often wins special treatment from local and even state gov'ts. They typically go into a community telling them that they will bring hundreds of jobs.

While its true a store will employ anywhere from 250-350 people the fact is after all the dust settles a Wal-Mart opening typically increases employment by maybe 10 or 20 jobs. There's nothing wrong with that but that certainly doesn't justify special tax treatment or other breaks. In essence Wal-Mart benefits at the taxpayers expense from poor economics education by our politicians and voters. A wiser economic policy would be to grant no special favors and let business develop freely...either as one big Wal-Mart or multiple small stores or both. So in some ways this law probably is serving to knock the playing field a bit closer to where it should be.

Boonton writes:

John

I think what Terry is saying is that legislators can regulate businesses as much as they would like. In fact they can attatch whatever pretty little phrase they would like to a bill however, it doesnt mean it is going to be succesful in achieving its desired intent.

Indeed. For example, by granting Wal-Mart subsidies and tax breaks legislators may discover that they have subsidized the entry of a competitor that drives smaller businesses out leaving behind workers who now have no health coverage. On top of that Wal-Mart advertises its committment to its workers by encouraging them to sign up for state welfare programs to supplement their wages thereby swelling the size of the state's bill for Medicaid and other programs.

I agree you have made a good case for laissez faire but is that the policy choice before us? For example, has anyone proposed a Constitutional amendment prohibiting any special treatment for a business unless it is offered equally to all businesses?

daveg writes:

I agree you have made a good case for laissez faire but is that the policy choice before us? For example, has anyone proposed a Constitutional amendment prohibiting any special treatment for a business unless it is offered equally to all businesses?

Exactly!

And what is interesting is that you hear nary a peep from the econ types when a company seeks and aquires a special benefit. It only seems that complaints arise when the "workers" do so.

Mcwop writes:

Neumark and Wascher (who used the same data) contradict Card and Krueger.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=225892

Brad Hutchings writes:

Boonton,

When you're working as a waiter, having a weekly paycheck is a very valuable benefit compared to bi-weekly. Imagine for a moment that your limosine needs gas every 5 days, and you're making just enough to keep it filled with gas, pay the rent, wash your clothes, and eat a top brand of lamb and rice dog kibbles. It's easier to pace your expenses when you are paid weekly rather than bi-weekly. Also, you're never more than a week from getting paid.

And yes, running payroll actually costs money. Most businesses outsource payroll because it's cheaper to have the bank do it, file the reports, send checks to state and federal tax authorities, etc. than it is to have someone on staff who keep up with all the new rules legislators dream up every year.

I know it is difficult for proponents of economic micromanagement to appreciate what entrepreneurs and business managers have to do make things work some times. We probably make it look too easy in trying to appear competent.

Boonton writes:

Brad,

I asked you a simple question about whether your payroll company charges per run or as a portion of payroll. No need to get snippy and self-righteous about that.

If having a weekly check is a bonus to the worker but a cost to you then you basically have another form of compensation. If abolishing the weekly run means you have to pay more for waiters then that cost has to be compared against the benefit of cutting back the run. Some businesses even pay by the day in cash since they tap a labor supply of marginal and unreliable workers.

The point, though, is that if it is sensible for you to have taken that cost cutting move then it would be sensible no matter whether or not the min. wage was raised. In other words it's not really an economic result of the wage increase even though the wage increased inspired you to look for places to make up for it.

James writes:

"And what is interesting is that you hear nary a peep from the econ types when a company seeks and aquires a special benefit. It only seems that complaints arise when the "workers" do so."

The regulatory measures favored by workers are often means-ends incompatible, so economists have room for criticism. The regulatory measures favored by businesses, while morally deplorable, tend to be more means-ends compatible so economists have less to criticize, at least as economists.

I observe a lot of (somewhat justified) criticism of Kling for picking on the worst case forms of liberal thinking. I also see a lot of the liberals here criticizing the weakest points of Arnold's essay and ignoring the strongest. Go figure.

daveg writes:

James, your reply is very interesting is reasonably plausible.

I understand the means-ends incompatibility of some labor laws.

Can you provide a means-ends compatible pro-business regulatory measure? I am a little less clear on this.

Boonton writes:
The regulatory measures favored by workers are often means-ends incompatible, so economists have room for criticism. The regulatory measures favored by businesses, while morally deplorable, tend to be more means-ends compatible so economists have less to criticize, at least as economists.

I have no idea what this means. Economists have found plenty to criticize in business lobbying for special favors going all the way back to Adam Smith.

I observe a lot of (somewhat justified) criticism of Kling for picking on the worst case forms of liberal thinking. I also see a lot of the liberals here criticizing the weakest points of Arnold's essay and ignoring the strongest. Go figure.

Kling's 'strongest points' seem to be that that the stupidest liberal arguments he can imagine are stupid. That's nice but why should we pay attention to it? Shooting fish in a barrel isn't a sport last time I checked. When liberals criticize the KKK do conservatives leap to pat them on the back for making 'strong arguments'?

John Pertz writes:

This debate is very tiresome. I am arguing for laissez faire because it is our only protection as human beings. Nobody will argue with the fact that we are both workers and consumers, correct? Therefore if governments decide to regulate then who creates the regulation? Governments are staffed with human beings as are businesses. Then why should we assume that human beings are angels as bureacrats and venemous robber barins when they are capitalists? The answer to this question is that the ehtics of their actions are governed by the contexts through which they operate. The question now is what is the greater check and balance, voting with dollars or paper ballots? Seeing as the mortality rate for business ventures is dramaticaly higher than the mortality rate of government laws I would argue that voting with dollars is a much greater protection against malfeasance.

The next question we need to ask is are we better protected by businesses through government regulation or by the free market. The answer to this question is rather simple. If we agree that regulation is obviously open to capture, a simple parusal of the left wing thenation.com can show how curropt politicans are little more than shills to private interests, then a simple utilitarian argument can be made that laissez faire is prefereable to regulation. In fact government regulation is more or less a tool for rent seeking bureaucrats. If we hold that human beings are self interested then what incentive do bureacrats have to create positive legislation that has positive welfare benifits for the rest of society? In fact pursuing the "public interest" should be of little interest to any elected official because what is good for the whole of society is often not correlated to what action is neccesary for reelection. Unfortunately, creating laws for powerful private interests is often correlated very highly to actions which are neccesary for reelection. So before any of the socialists on this website go bantering about the positive welfare effects that this legislation will have for workers please consider that Walmart has very powerful competitors whose only remaining competitive strategy is to fight for legislation that will ultimately be of net benifit to themselves and the bureacrats who are being bribed into creating the legislation.

Boonton writes:

John,

Then why should we assume that human beings are angels as bureacrats and venemous robber barins when they are capitalists?

This is an assumption that no one has made. A better question is does taking yet another stab at a straw man serve to reinforce your point or just blind you to the real arguments being conducted around you?

Yes concerns about capture are serious but so are concerns about the ability to mount a pure laissez faire system. As has been pointed out before a pure laissez faire would not grant special breaks to a big employer like Wal-Mart locating in a community. However it is quite easy for Wal-Mart to win breaks because few people are able to follow local politics and most of the money goes into 'selling' a bogus economic theory. On the national scale some bogus economic theories, like protectionism, are often slowed down or stopped in their tracks because they step on the interests of other types of powerful businesses (such as importers).

Those who are looking at this law have not acted like foolish yahoos grunting about 'evil corporations'. It would be nice if you could return the favor.

James writes:

Daveg writes, "Can you provide a means-ends compatible pro-business regulatory measure? I am a little less clear on this."

Nearly indefinite extensions of copyright, the CAB, professional licensing requirements (If the reader is in a licensed field, I mean all licensed fields beside your own.), the minimum wage, voluntary export restrictions, tariffs, infant industry subsidies, nationalized health care, Social Security, barriers to entry to protect natural monopolies, mandatory purchase of automotive insurance, mandatory installation of catalytic converters, antitrust suits motivated by unhappy competitors, ect.

All of these can be criticized by economists (and others) for moral or philosophical reasons, or because they do not produce the results that some of us may want, but for the most part they really do benefit the businesses that clamor for them. That is, there aren't many reasons in economic theory to say "That policy won't even have the results you want!"

Boonton,

I thought Kling's strongest point was the one he sort of beats around, that liberals often refer to need and greed in their arguments while failing to clarify what the difference is and what difference it makes whether one is needy or greedy. You may not make arguments that refer to need and greed, but many liberals do. Since Kling says this will be a series, here's an idea: Tell him what you think are the very best liberal arguments and see if he addresses those.

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