Freeman

IDEAS AND CONSEQUENCES

Good Economists, Bad Economists, and Walmart

JUNE 29, 2010 by LAWRENCE W. REED

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.

ASSOCIATED ISSUE

July/August 2010

ABOUT

LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

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