Tuesday, November 29, 2005

High Taxes Are Good

Or, at least, that's the message I infer from Sebastian Mallaby. You see, high taxes - preferably focused on the working poor - creat a significant pool of revenue which can be used to subsidize products for all of society, and which can be used to devise programs to help the poor. Sure, it would lower income for the working poor, but between the new social welfare programs and lower prices they may well end up better off. And the rest of us would enjoy lower prices!

Well, perhaps he had something else in mind, but that is more or less his argument as to why WalMart should be deemed a "progressive" company. It's just that instead of having the government tax the wages of WalMart employees, Walmart offers them a lower wage, shares the wealth with the rest of society (like a Robin Hood who rejects "class warfare"), and sponsors its own programs to help the needy. (These new programs could be less targeted at the needy than existing programs - after all, why should only the needy benefit from such programs?)

Mallaby presents a former economic advisor to John Kerry, whose analysis is claimed to show that WalMart saves shoppers (not poor shoppers - all shoppers) $50 billion per year on groceries. (That figure is apparently extrapolated from the savings across all retailers the economist attributes to WalMart's prices and their downward pressure on the competition.) Mallaby then variably speculates that this means that WalMart shoppers save between $200 and $250 billion annually on all of their purchases (despite presenting no evidence that WalMart's effect on prices is the same for non-food items as it is for food). Yet if you recognize WalMart's market share of about 15%, give them a generous bonus of 1/3 to reflect their remaining geographic limitations, their direct share of that speculative savings figure is $40-$50 billion, with the rest coming from lowered prices at other retailers, many of which pay better, offer better benefits, and some of which are even unionized.

Mallaby then speaks of the depression in worker wages caused by WalMart, but unlike his prior, wacky and wild attribution of all retail savings directly to WalMart and fabrication of a multiplier to "represent" all WalMart products, he gets cautious - "Arindrajit Dube of the University of California at Berkeley, a leading Wal-Mart critic, has calculated that the firm has caused a $4.7 billion annual loss of wages for workers in the retail sector. This number is disputed...." Mallaby then contends that other retailers also pay employees poorly. By this point in the column, most readers looking for actual data have probably given up in disgust, saving themselves from this additional disappointment. Mallaby presents no data to back up his notion that WalMart doesn't depress wages, nor does he speak to how WalMart's measured effect of causing its competitors to lower prices might depress wages at other stores. (But then, you didn't really think that Mallaby read, let alone understood, the economic paper he cited earlier, did you?)

And, Mallaby assures us, even if workers are down $5 billion at WalMart, that's "dwarfed" by the $50 billion that everybody saves buying food at all food retailers... well, no, he's still not acknowledging that WalMart doesn't sell all of the nation's food. And despite his excess of caution on wage deflation, Mallaby speculates that even lower wages are still a greater good, because low-wage workers can shop at WalMart and may even be better off due to the low prices which result in part from their low wages. Seriously.
Indeed, Furman points out that the wage suppression is so small that even its "victims" may be better off. Retail workers may take home less pay, but their purchasing power probably still grows thanks to Wal-Mart's low prices.
But let's not think Mallaby is "unfair" - while ignoring the effect WalMart has on its competitors' wages, he is willing to look at the wages offered by suppliers:
To be fair, the $4.7 billion of wage suppression in the retail sector excludes Wal-Mart's efforts to drive down wages at its suppliers. "Wal-Mart: The High Cost of Low Price," the new anti-Wal-Mart movie that's circulating among activist groups, has the requisite passage about Chinese workers getting pennies per day, sweating to keep Wal-Mart's shelves stocked with cheap clothing. But no study has shown whether Wal-Mart's tactics actually do suppress wages in China or elsewhere, and suppression seems unlikely in poor countries. The Chinese garment workers are mainly migrants from farms, where earnings are even worse than at Wal-Mart's subcontractors and where the labor is still more grueling.
Ah yes - the "sweatshops are good, because it is better than starving in the country" argument. Mallaby's next column, I expect, will call for a return to the labor policies of the industrial revolution and praise the positive economic effect of companies like Triangle Shirtwaist. No, wait, it will be about communism as a boon to capitalist markets - how great it is that there are still hundreds of millions of people living in totalitarian communist regimes, where they will continue to provide us with a pool of cheap, invisible sweatshop labor for the indefinite future. And how we can plead innocent to our role in perpetuating that regime by retorting that the Communist Party, not the market, sets the value of labor.

And then there's WalMart's high percentage of workers on Medicare. Mallaby presents yet another astounding claim - progressive and capitalist thinkers alike should applaud the fact that its workers are government-subsidized:
Wal-Mart's critics also paint the company as a parasite on taxpayers, because 5 percent of its workers are on Medicaid. Actually that's a typical level for large retail firms, and the national average for all firms is 4 percent. Moreover, it's ironic that Wal-Mart's enemies, who are mainly progressives, should even raise this issue. In the 1990s progressives argued loudly for the reform that allowed poor Americans to keep Medicaid benefits even if they had a job. Now that this policy is helping workers at Wal-Mart, progressives shouldn't blame the company. Besides, many progressives favor a national health system. In other words, they attack Wal-Mart for having 5 percent of its workers receive health care courtesy of taxpayers when the policy that they support would increase that share to 100 percent.
Is Mallaby the world's dumbest man? No, more likely he is regurgitating a set of speaking points he received from WalMart. (One wonders at time if he is paid to produce nonsense like this, or if it is just so easy to regurgitate a memo or press release somebody hands to him that this is typical of his output.)
Companies like Wal-Mart are not run by saints. They can treat workers and competitors roughly. They may be poor stewards of the environment. When they break the law they must be punished.
Let's be blunt. Companies like WalMart do as companies are wont to do. They seek to maximize market share and profits. In the absense of regulation, we see the industrial revolution, we see Union Carbide's plant explosion in Bhopal, we see children and other workers working six or seven long days per week in sweatshops throughout the developing world, we get mercury poisoning in Minamata bay, we see a fifty-mile long benzene slick flowing downstream from a 100 ton benzene spill.... And, as Enron, WorldCom, Tyco, and similar companies have demonstrated, some companies will actively defraud their customers, clients and shareholders, and will permit management to treat the corporations assets as a personal piggy bank to support excess that even the Shah of Iran and Imelda Marcos might have denounced as debauchery. Now I recognize that some people will look at all of that and say "It's still better than having government regulate business," which is a point where we will have to agree to disagree.

All of that said, my objections to Mallaby's idiocy do not mean that I hate WalMart. WalMart wishes to open a store in an armpit of a small town north of Detroit, where despite its wages it will be one of the better paying employers in town, and will provide jobs in an area of high unemployment. If it opens it will cause some local businesses to close, including a small, dismal, run-down K-Mart, the owner of which is putting a lot more energy into fighting WalMart than into measures which might make his business more viable. It will also probably cause the local grocery store to close, but they sold out to a regional chain a number of years ago, and many locals already travel out of town for the better prices and selection available at larger grocery stores in nearby towns. On the whole the net impact on the town and surrounding community will likely be positive.

But that doesn't mean I have to buy into Mallaby's "with friends like these" defense of WalMart.


  1. Apparently John Tierney likes income taxes. Behind the firewall, he writes,

    Some of Wal-Mart's critics prefer to imagine that Wal-Mart wouldn't have to cut wages - that it could get away with raising prices a little to cover the extra health care costs. But that would force Wal-Mart's shoppers to cover costs previously paid by the government out of revenues coming largely from income taxes, which are paid disproportionately by the affluent. Instead, Wal-Mart's low-income shoppers would, in effect, pay a regressive new sales tax.

    That's right, folks - asking a company to cover the full cost of its employees is tantamount to imposing a "regressive new sales tax", and apparently in an ideal world (by TiernyLogic) we would raise income taxes to the point where WalMart's employees would be subsidized to the point where WalMart wouldn't have to pay them at all.

    Hey - if a company wants a fancy new office, why should it pass along that cost to its customers in yet another "regressive new sales tax"? Maybe we should subsidize businesses through income tax to the point where they have no expenses whatsoever, so they can concentrate on making money.

  2. Great Post. These guys have absolutely no intellectual honesty nor rigor. They make no sense. None.