RightEconomy

DR. JONES: Two cheers for France

2006-01-23T13:04:00.000-08:00

France holds an annual summit with African nations, and this year they're focusing on how to help Africa's economies grow. More people need to focus on the root causes of and possible solutions for Africa's deep poverty. That's why the French government should be commended for taking Africa seriously.

The Eurasian landmass is getting to be a pretty prosperous place these days, and Eurasia's main offshoots--the U.S., Canada, Australia, Singapore, the Southern Cone of Latin America, and much of SE Asia--also tend to be (relative) success stories. But as the chart shows, sub-Saharan Africa (with the exceptions of Botswana and a few, debatable others) has not shared in the world's massive reduction in poverty.

One area that France has (understandably) focused on: Immigration. Poor Africans know that if they can get to France--or any European country--they can live a much better life. Part of that is because they know that a decent European education is far better than what passes for government-provided-education in many corrupt African countries.

But part of that better life is just a miracle: Just by crossing an invisible political border, an African (or Mexican) can raise her standard of living dramatically, even if she's doing the most menial jobs imaginable.

Why is that? Well, Joel Scheider and I are working on that right now. Using data from Lutz Hendricks's excellent study of the wages of immigrants to the U.S., we've found that workers from countries with lower national average IQ have lower U.S. wages (even after controlling for education). So where you come from matters (on average).

Even more interestingly, we've found that one national-average-IQ-point gets your nation's immigrants a 1% higher U.S. wage on average. And that macro-level relationship is the same 1-for-1 relationship that lots of researchers have found at the micro level both in the U.S. and around the world (surveyed in the "Data and Parameters" part of this paper).

So Lynn and Vanhanen's measures of "national average IQ"--which some people like to beat up on--seem to be measuring something pretty deep if they can predict something as unexpected as the wages of a nation's emigrants.

But while 1 IQ point gets you 1% higher wages for you as in individual, if your country raises its national average IQ by 1 point, that apparently gets your entire country a 7% higher living standard (R-squared about 2/3). So, stick a low-IQ person in a high-IQ country, and sure, he'll get lower wages than the average person there, but it'll be 1-for-1. But create an entire country out of low IQ people, and you've got, well, you've got pretty much any country in Africa.

That's what seems to be driving immigrants from Africa to France: The chance to participate in a high-IQ economy.

Which brings us to what can be done to reduce the IQ differences across countries. Rushton and Jensen seem to think that most of these differences are genetic, but note: Most does not equal all. There's room for improvement among currently-low-IQ groups, as Jensen's work with poor African-Americans has shown. So that's one side of the serious intellectual debate: It's mostly genetic.

The other side says that nutrition, education, and a low-toxin environment may be able to eliminate the vast majority of these differences. Here's hoping that other side is right, for Africa's sake.....

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ORIGINALLY Posted by Garett Jones at 12/04/2005 03:16:00 PM

DR. JONES: Acemoglu and Robinson: Property Rights matter more than Legal Systems

2006-01-23T13:03:00.000-08:00

So, lots of economists want to believe that property rights matter--they give people incentives to plan for the future, to invest, to save. The Friedmanian free-marketers are in this camp.

And lots of economists want to believe that having a British legal system (i.e., case law, judge-driven) is better than having a French legal system (i.e., civil law, legislatively-driven). The Hayekian, spontaneous-order types are in that camp.

This really comes down to an in-house debate within libertarianism--and clearly, there's a lot of overlap between the camps. Lots of market-oriented folks would agree with the cliche that "both are important."

But are they equally important? Or is one of them 10 times or 100 times more important than the other one? Because if you're a government official, or if you're trying to influence government officials, you want to pick the low-hanging fruit first, you want to go for the policy change that gets you the most bang for your buck.

Well, MIT's Acemoglu and Robinson have given a pretty impressive answer to that question in the October '05 Journal of Political Economy. They found that once you controlled for property rights (in their preferred way), the type of legal system didn't matter for long-term economic performance. So British and French systems seem to do about equally well, once you control for property rights.

A&R want to interpret their result this way: If you're a private party and you've got a dispute with another private party over who owns what, then even if you have a bad legal system, you can probably find a halfway decent (private) work-around.

But if instead you're a private party and you've got a dispute with your government, well, the government's always going to win. That's cataclysmically bad for long-term incentives.

The short version: An entrepreneur can work around a bad legal (or financial) system, but she can't work around a predatory government. So fighting for policies that will protect private property rights from government abuse seems to be the best use of our scarce (political reform) resources.

Nice story--I like it. Here's hoping it gets more attention.

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ORIGINALLY Posted by Garett Jones at 12/05/2005 12:15:00 AM

Dr. Jones: The infantilization of obesity

2006-01-23T13:01:00.005-08:00

Unsurprisingly, a professor of media studies blames advertising and greedy companies for the new wave of fatness in a new Slate article....

But are people victims or choosers? Economists tend to focus on the latter possibility: People face choices, and then go with their best option.

So, if people have put on more weight in recent decades (and they have), how did their list of choices change? Well, we got richer: A lot richer. And part of what we've done with the wealth is buy more food (which helped us put on weight) and more health care (which helped us to mitigate the side-effects of that extra weight). And who, may I ask, are you to criticize Americans for making that choice?

Yes, yes, yes, I know the comebacks: Health care is partially government-funded, so there are free-rider problems, and we know that people have big problems with self-control. But even if those problems didn't exist, don't you think that most human beings--real people, your friends and neighbors--would use this immense wealth to just kick back, live it up, and put on some pounds?

I mean, let's be real: After your looks start failing in your 20's or 30's, what's the real benefit to looking good? Thin and old is, for most folks, just as ugly as fat and old, so you're not going to get that much attention from potential intimiate partners anyway. And what's the benefit to most Americans of living a few extra years? As Denis Leary used to say about smoking:

[People say,] "Well you know. Smoking takes ten years off your life." Well it's the ten worst years, isn't it folks? It's the ones at the end! It's the wheelchair kidney dialysis f**king years. You can have those years!

He makes a valid point. There are a select few who actually get something done in their old age, something that they find enjoyable and worthwhile, but God, a nice cheeseburger just sounds so much better than another week listening to Aunt Mabel tell me that same d**n story about the time at the State Fair when she won second prize for the best calf in Mendicino County. Dear God, please let me off the bus!

P.S. If you want some science on this instead of a rant, there are a couple of nice treatments here and here on the burgeoning field of the economics of obesity. I especially recommend the latter link, which links to a Glaeser et al. piece, "Why have Americans become more obese?" Apparently, it's due to snacking, not bigger meals.

P.P.S. Kipnis's book, Against Love: A Polemic, actually seems quite interesting. A reminder that just because you're good in one field, that doesn't mean you're good in another....

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ORIGINALLY Posted by Garett Jones at 10/31/2005 05:22:00 PM

Dr. Jones: Taking Africa Seriously

2006-01-23T13:01:00.004-08:00

It's good to see the folks at the left-wing Nation doing just that:

Everyone agrees that Africans are desperately poor and typically endure governments that are, to varying degrees, corrupt and capricious. The dispute is about causes and consequences. One group--call it the poverty-first camp--believes African governments are so lousy precisely because their countries are so poor. The other group--the governance-first camp--holds that Africans are impoverished because their rulers keep them that way.

He also takes Jeff Sachs--a member of the first camp-- downa notch or two when Sachs claims that complaining about political corruption in Africa has a whiff of the R-word.....

Invoking the R-word [racism] in this context seems overheated, especially since those who complain loudest about corruption in Africa tend to be Africans themselves.....

And the article starts with the most beautiful sentence I've read in recent memory:

A slogan painted on trucks and taxicabs all over Africa.....reads: NO CONDITION IS PERMANENT.

Read the whole thing.

And if you want to learn more about the greatest economic success story in sub-Saharan Africa, take a look at this very readable piece on Botswana--It certainly falls into the governance-first camp.

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Posted by Garett Jones at 10/18/2005 02:10:00 PM

Dr. Jones: Slate's Metcalf redux

2006-01-23T13:01:00.003-08:00

Again, Stephen Metcalf distorts the views of his opponents--but now with extra added vitriol! He's on an anti-Charles Murray rant this time. He's attacking Murray's new article at Commentary. Here's the line from Metcalf I want to take issue with:

[Murray] quickly proceeds to his famous argument that group differences in IQ between whites and blacks are primarily genetic.... (emphasis added, unless stated otherwise)

Actually, I can't find anywhere in the article where Murray says anything like that...

I can find this in his Commentary piece:

[T]he most interesting recent studies of environmental causes [of the Black-White IQ gap, by Berkeley anthropologist John Ogbu] have worked with cultural explanations instead of socioeconomic status...

From a theoretical standpoint, the cultural explanations offer fresh ways of looking at the black-white difference at a time when the standard socioeconomic explanations have reached a dead end. From a practical standpoint, however, the cultural explanations point to a cause of the black-white difference that is as impervious to manipulation by social policy as causes rooted in biology.

This brings us to the state of knowledge about genetic explanations [for the B-W IQ gap].....Actually, there is no direct evidence at all, just a wide variety of indirect evidence, almost all of which the task force chose to ignore....

All sounds kinda tentative to me.....Murray's recurring point is that whether it's primarily genetic or primarily cultural, it's still something you're unlikely to change within a couple of generations. Maybe you can find a "primarily genetic" smoking gun in there, but I can't....

And in Murray's ten-year old book, The Bell Curve, he and Herrnstein said this about the B-W IQ gap (or should I be PC and say "test score gap?":

If the reader is now convinced that either the genetic or environmental explanations have won out to the exclusion of the other, we have not done a sufficiently good job of presenting one side or the other. It seems highly likely to us that both genes and environment have something to do with racial differences. What might the mix be? We are resolutely agnostic on that issue; as far as we can determine, the evidence does not yet justify an estimate.

(BTW, that quote comes from a very good Boston Review piece on The Bell Curve by philosopher/psychologist Ned Block.)

So, I'm not in the mood to dismantle Metcalf line by line (the tenure clock is ticking, after all), but I recommend reading it if only to smell the fear that seems endemic among the IQ-environmentalists these days. Here's hoping their fear is unjustified....

Now that Ogbu's gone--too, too young--the IQ-enviro camp needs to find another great mind to continue his valuable line of work. I wish them the very best of luck, and I hope they stay as far away as possible from "friends" like Metcalf.

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Posted by Garett Jones at 10/20/2005 04:19:00 PM

Dr. Jones: Schelling and Connery

2006-01-23T13:01:00.002-08:00

Very glad to see that Schelling and Aumann won the Nobel today. The Nobel site's "Advanced Information" sheet mentions that one of Schelling's key insights--that you can sometimes do better by doing worse--was used by Cortez when he conquered Mexico. The Nobel folks did a good job making the point, but Sean Connery put it best when playing the role of the possibly-deranged submarine captain in the classic film The Hunt for Red October-----

When he reached the New World, Cortez burned his ships.
As a result his men were well motivated.

Great movie.

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Posted by Garett Jones at 10/10/2005 12:03:00 PM

Dr. Jones: Hamlet, Crown Prince of Denmark, on the Miers appointment

2006-01-23T13:01:00.001-08:00

With apologies to Shakespeare:

O, that this too too solid flesh would melt,
Thaw, and resolve itself into a dew!...O God! God!
How weary, stale, flat and unprofitable,
Seem to me all the uses of this world!
Fie on't! ah fie! 'tis an unweeded garden,
That grows to seed; things rank and gross in nature
Possess it merely. That it should come to this!



But two months [confirmed]: nay, not so much, not two!
So excellent a [justice]; that was, to [Miers],
Hyperion to a satyr …Heaven and earth!
Must I remember?...and yet, within a month--
Let me not think on't--Frailty, thy name is [Bush]!--
A little month …why [he], even [he]--
O, God! a beast that wants discourse of reason
Would have [deliberated] longer—[appointed Harriet Miers],
My [president’s personal attorney], but no more like [John Roberts]
Than I to Hercules: within a month:
[He appointed Miers], O, most wicked speed, to post
With such dexterity to incestuous [relationships between the judicial and executive branches]!

It is not nor it cannot come to good ….

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Posted by Garett Jones at 10/08/2005 12:29:00 PM

Dr. Jones: Outsourcing creates domestic jobs (but you knew that, right?)

2006-01-23T13:01:00.000-08:00

A nice-looking paper by Hines, Foley, and Desai shows that firms that pay more wages overseas usually pay more wages here, too. If you grow over there, you're probably growing over here, too.

How do I explain this? My preferred off-the-cuff explanation is that some firms just have better ideas than other firms. If your firm has a good idea, you can move that good idea around within the company--even across national borders--to create value. And most of the time, to create that value you need good people, who cost money. So rare, firm-specific good ideas can explain what's showing up in the data.

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Posted by Garett Jones at 11/12/2005 04:57:00 PM

Dr. Jones: A good man loses a battle.

2006-01-23T13:00:00.001-08:00

Bruce Bartlett, an economic policy adviser to Reagan and a critic of Bush 43's runaway spending, got canned by his "conservative" think tank.

Here's hoping he wins the war.

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Posted by Garett Jones to Right Economy at 10/20/2005 04:01:00 PM

Dr. Jones: Poverty programs don't impact poverty (apparently)

2006-01-23T13:00:00.000-08:00

I'm in an NBER abstract mood today: Hoynes, Page and Stevens find that when the labor market is good, poverty falls (natch), but when welfare programs gets stingier, poverty doesn't rise (or fall, apparently).

On the first link (jobs and poverty), it's hard to separate cause and effect, so I'll leave that for another day--but I'll just note in passing that it implies that if markets are allowed to work better, that may help reduce the poverty and hopelessness that we've seen in the Paris banlieus (Note to France: a $10 an hour minimum wage is a great way to make sure that millions of young people are out of the workforce, with lots of free time on their hands!).

On the second link--I just never get tired of noticing the dog that did not bark: The riots that didn't happen after Clinton ended welfare as we know it--the crime that didn't spike up when the welfare checks ran out, the babies that didn't starve to death when mommy had to go to work and couldn't get decent day care. I learned a lot about the mislaid pessimism of cultural conservatives (who really thought that you "can't change the culture of poverty") and the mislaid fear of the left (who thought the poor really would rio--er, rise up against their oppressors).

Turns out, if you cut the checks off, most folks get a job, and most of the rest nag their family for a little more cash. Markets--together with civil society--found a way out of the end of welfare.

Here endeth the lesson.

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Posted by Garett Jones to Right Economy at 11/12/2005 05:24:00 PM

Dr. Jones: Size matters for IQ

2006-01-23T12:56:00.004-08:00

From Slate's Will Saletan:

Twins had IQ's nearly 7 points lower than their nontwin siblings, on average, in an old sample of 10,000 Scottish kids. Family size, mother's age, and father's social class didn't correlate with IQ differences, but gestational age and birth weight did.

The study concludes it's "very likely that there will still be differences in cognition between twins and singletons because of the shorter gestations and impaired fetal growth that affect some twins."

I know that deep down, you really really want to believe that the reason for the lower IQ's among twins is because their parents aren't paying as much attention, since there are two kids rather than one. I understand the feeling---when it comes to IQ, we all become amateur anthropologists, seeking feverishly for any cultural explanation for the large IQ differences that exist between many human groups. But it ain't there, at least not this time 'round.

The link to Slate is here.

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Orig. Posted by Garett Jones at 11/29/2005 09:19:00 PM

DrJones: Good advice from Steven Pinker ...

2006-01-23T12:56:00.003-08:00

On how to reform general education.

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Orig. Posted by Garett Jones at 11/18/2005 05:33:00 PM

Dr. Jones: Sarkozy: More popular when he's tough on crime...

2006-01-23T12:56:00.002-08:00

The MSM were proclaiming Nicholas Sarkozy's political career dead and buried in the wake of the Paris riots. He's the French Interior Minister who called the rioters "scum" and "said he would use a power hose to 'clean up' the suburbs" (From The Economist--no link).

But The Economist notes that a recent French poll puts Sarkozy--a fairly pro-competition, pro-creative-destruction politician--at a 63% approval rating. That's up 11% from last month. So, since the riots, since he took a "tough on crime" approach, since he was declared out of touch with modern sensibilities by the MSM, he's up by 11.

Sounds like being out of touch may be a path to victory--as long as it's the MSM you're out of touch with....

Another interesting point--As I predicted at the beginning of the riots, the riots themselves seem to be pushing France to see the benefits of affirmative action (as the Times of London link indicates). Getting a lot of immigrants employed quickly is probably a good way to tamp down some of France's simmering rage. Nothing like a 9 to 5 desk job to sap the will to revolt......

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Orig. Posted by Garett Jones at 12/01/2005 01:51:00 AM

Dr. Jones: Robert Conquest nails it...

2006-01-23T12:56:00.001-08:00

Again.

Conquest is the historian of Soviet Communism whose books The Great Terror and Harvest of Sorrow made it impossible for honest scholars to believe that Stalin was just slaughtering a "few bad apples" in his purges. Conquest's careful documentation of the millions of Soviets murdered by the Soviet Union made that impossible to believe. It was a vast democide.

In Harvest, Conquest stated:

We may perhaps put this in perspective in the present case by saying that in the actions here recorded about twenty human lives were lost for, not every word, but every letter, in this book.

As this blogger noted: "That sentence represents 3,040 lives. The book is 411 pages long."

Conquest, a leading historian of Communism, has now entered the fray over universalism versus multiculturalism in the 21st century...and he comes down decisively in favor of universalism: Liberty for all, or at least tyranny for none, is what he wants as the driving force behind 21st century international relations. This kind of moral universalism is suspect within academia (and some wings of both political parties) today, but it is simply the new century's invocation of this man's words:

Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty.

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Orig Posted by Garett Jones to Right Economy at 12/01/2005 01:32:00 AM

Dr. Jones: Post-Katrina Job Gains and 'Creative Destruction'

2006-01-23T12:56:00.000-08:00

As I told my students in the days after Katrina--actually, even back at the beginning of this semester--the U.S. economy has much better 'shock absorbers' than it used to. As Greenspan likes to say, our economy is very "flexible" compared to our own past, and compared to other rich countries in the world.

There are a lot of high-tech reasons why: Computer programs that can tell Fed-Ex and UPS how to reroute packages when a hurricane knocks out an airport come to mind. But our flexible labor market, where it's fairly easy (and legal) to hire and fire, seems to make a huge difference.

So, when the hurricane shocks hit this year, many prophesied gloom and doom for the American economy--they seemed like the kind of shocks that, to a reasonble person, would hurt the "aggregate demand" for goods and services (except for construction goods and services), and might set of a self-fulfilling prophecy of fear leading to unemployment leading to more fear leading to more unemployment until the butterfly in the Amazon destroyed the entire earth.

But what really happened? As this CNN article shows, the shock absorbers kicked in, we had a couple of months of weak job creation, and now we're back to normal (actually, above normal) job gains.

The doom-and-gloomers got it wrong--the vulgar Keynesian story was (again) way off the mark, and the Greenspan view--that we are flexible enough to handle amazingly large shocks with few side effects--got another piece of evidence in its favor. The labor market absorbed Katrina's bad news and got right back to creating a couple of hundred thousand new jobs a month--while barely batting an eyelash.....

As an old WSJ op-ed said, 'Welcome to the neoclassical economy.' There's room here for a modest (New) Keynesian piece to the puzzle, but the bulk of the story seems to be Schumpeter's creative destruction plus Solow's steady accumulation of capital, labor, and technology. But there's no room at the inn for those who think the U.S. economy is just a house of cards....

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ORIG. Posted by Garett Jones at 12/02/2005 12:26:00 PM

Dr. Jones: Both fall into the ditch

2006-01-23T12:55:00.000-08:00

Ouch.

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Orig. Posted by Garett Jones at 12/03/2005 04:13:00 PM

Why you can ignore National Review's economics coverage, part 59037534985723493.

2006-01-23T12:54:00.000-08:00

Today's numbskull: Thomas Nugent, an investment advisor who says that (surprise!) investment advisors can do better than random at picking stocks.

He's arguing against what economists call the "random walk" hypothesis, the idea that nobody can make money by predicting stock prices. About 95% of the evidence supports the random-walkers, and Yale's Burton Malkiel sums up the idea in plain English here.

The "random walk" hypothesis has another name--the "efficient market" hypothesis. A good wiki summary is here. Again, about 95% of the evidence supports the "efficient market" hypothesis.

It's really not even worth it to argue against this guy Nugent. It's like arguing with the crazy preacher on your college campus or the homeless guy at the bus terminal--words don't mean anything to those people.

Over the long haul, the pros apparently can't do better than random at picking stocks. There are good theoretical reasons for why that's true--and I love talking about those reasons--but for the time being, it's enough to note that Nugent's numbers are rigged like the sails of the U.S.S. Constitution.

*sigh* If their economics is this bad, I wonder if their political coverage is any better....

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Orig. Posted by Garett Jones at 11/12/2005 10:30:00 PM

NRO's Tamny reveals his ig'nurnce again...

2006-01-23T12:53:00.000-08:00

Here.

Tamny apparently thinks there's some kind of profound contradiction between the idea that inflation is caused by money growth and the idea that increases in inflation are caused by economic growth.

If he studied, say, Hall and Papell's undergraduate textbook, Macroeconomics, he'd realize there's no contradiction. I'm giving my students a test on Monday over the very material that Tamny so thoroughly misunderstands.

It's chapters 7 through 9, to be exact.

The big story: If money grows as fast as the real economy's potential, you've got no inflation. If money grows faster than that, you get faster economic growth in the short run, but inflation in the long run.

So you can look at inflation two ways, which are equally valid: Inflation is caused by money growth OR --wait for it, wait for it-- a rise in inflation is caused by having an economy that grows faster than its real potential. The root-causers can go with the first explanation, the proximate-causers with the second. Both are true, according to mainstream New Keynesian models.

That's it! And that's probably what Bernanke roughly believes, since the Hall/Papell model is quite similar to the macro model that Bernanke uses in his freshman econ text.....

I could waste your time on the details--details that I love, and details that my students will be tested on Monday--but that's all I've got time for now....

Tamny: Dumb yesterday, dumb today.

P.S. Careful readers will notice the important role of "real economic potential" in the Fed's decisionmaking--the Fed needs to make sure that money grows only as fast as that potential grows. That's what keeps a Fed chairman up at night--his uncertainty over how to measure that potential. It's a tough job, and one that is literally impossible to do exactly right.

All the more reason for us to wish Ben Bernanke the very best as he undertakes this awesome task.

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Posted by Garett Jones at 11/12/2005 10:53:00 PM

The Big Three blame their troubles on the Yen.

2006-01-23T12:51:00.000-08:00

I'm a big fan of the first amendment, but I wouldn't mind changing it to forbid all political finger-pointing that involves exchange rates.

You see, exchange rates are a topic in economics that is just confusing enough that it always sounds vaguely menacing--so when someone says something like

the Japanese government unfairly intervenes in currency markets to artificially depress the yen,

then a chill of fear runs up the spines of even smart people who otherwise wouldn't fall for economic snake oil. It just sounds kinda ominous, don't it?

So, in this week's installment of exchange-rate-manipulation-as-all-powerful-ring-of-Sauron, we have the Big Three automakers, blaming their problems not on their own adequate-but-overpriced cars (hat tip: Kausfiles, who blames union work rules), but on Japanese exchange rates! That quote above--that's the Big Three's plotline for why they're in the dumps and need a government bailout. Here's what Ford honcho Bill Ford has to say:

We can compete with Toyota, but we can't compete with Japan....

Great sound bite! But bad economics....

As I mentioned a couple of months back, exchange rates don't matter much in the long-run. If Japan "artificially" makes its currency cheaper, then self-interested Japanese businesses will choose to raise the price of their cars, won't they? So after (at most) a year or two, Japanese car companies will eventually figure out that their cars are super-cheap to Americans, and then they'll raise their car prices, undoing the oh-so-ominous "price manipulation" all by themselves...

But let's suppose the Japanese car companies don't raise their car prices. Let's suppose instead that Japan decides to become an auto-making charity, making cars for free, and shipping them to America as a way of saying 'thanks' for sending the blessings of militarily-imposed-freedom-and-democracy their way.

British PM Margaret Thatcher eloquently answered this question years ago, but Google isn't helping me today to find her quote. She pointed out the obvious: Of course we'd take the free cars. Free cars are good. People in the U.S. who used to make cars would find something else to do, since we wouldn't need cars made anymore.

And the average American would be richer as a result: After all, we'd have all the cars that used to be made by U.S. autoworkers, plus whatever the former-autoworkers made in their new jobs: Old + New > Old. That sounds like more to me......

So don't buy the exchange-rate-manipulation snake oil. Cheap cars: good, not bad. More free stuff: Good, not bad.

Here endeth the lesson.

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Posted by Garett Jones to Right Economy at 12/04/2005 02:16:00 PM

Pajiba on Wal-Mart--so close, and yet so far.

2006-01-23T12:50:00.000-08:00

A review of the new anti-Wal-Mart flick is over at this (generally quite good) film-review blog. The author gets a lot right about Wal-Mart, and dismisses a lot of the ridiculous anti-WM agitprop, but then falls victim to this:

Unfortunately, Greenwald fails to elucidate the circular damage that low-income shoppers bring upon themselves by taking advantage of those low prices, in the form of higher taxes (for every Wal-Mart store, taxpayers pay an addition $400,000 to cover emergency health care, rent assistance, and educational services the government must pick up to supplement the average full-time Wal-Mart employee’s salary), suppressed wages, and fewer options once the alternatives are run out of town.

What’s also not mentioned is the way a Wal-Mart store has of stripping a community of its identity: In exchange for one-stop shopping and lower prices, a town loses the unique [read: "quaint"] qualities that come in the form of local shops and personal, first-name service (an artifact of previous generations in most communities, by this point).

As I tell my students: "Quaint" is the new word for "poor." So when people say, "Wal-Mart destroyed the quaintness of small town America," now you know what they're really saying.

AND ANOTHER THING! The 1 WM=$400K in government spending line. What can that possibly mean?

Were workers generally earning higher wages in their old jobs, and then did those same people get wage cuts once the Wal-Mart came to town? I don't think so.

No, what's really going on is that WM is hiring the less-skilled. That's why they can pay the low wages. Remember: A business can't just "decide" to cut everyone's pay in half, and just pocket the savings. If a business cuts its wages, that business is going to start fishing in a pond of lower-skilled job applicants.

Why? Because people aren't (usually) the suckers that sociologists make them out to be: If you're a high-skilled worker and you get laid off, you might spend a couple of months wringing your hands and wondering if you can find a good job in your same town, but after a while, you'll pick up and move the family to a place with more opportunity. For the average American, "I'm stuck takin' a job at Wal-Mart" is not the modal response to getting laid off.

One of the amazing things (to me) about WM is how they have found a way to make less-skilled workers pretty darn productive. They use a mixture of optimism, threats, cajoling, and good cheer to turn employees that other companies would take a pass on into some of the most productive retail workers in the country.

How they do that is probably one-part economics to two-parts psychology, and if you could bottle that and sell it, you'd have a great career as a consultant.

[Ed.: So, bottom line on the 1WM=$400K formula? I'm not interested in digging up the number's real source. My best guess: It's made up--in other words, a product of wishful thinking and an afternoon of bad sociology research. ]

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Posted by Garett Jones to Right Economy at 12/02/2005 03:21:00 PM