Russell Roberts's Blog, page 1439

The Circle Isn't a Square

Opining in today's New York Times, history professor Nelson Lichtenstein asserts that Wal-Mart uses an "authoritarian style, by which executives pressure store-level management to squeeze more and more from millions of clerks, stockers and lower-tier managers."  Then he scolds Wal-Mart for being so bigoted that it erects "obstacles to women's advancement."

This tale is highly improbable.

A company that squeezes maximum possible profits from its workers does not refuse to promote women simply because of their sex.  Such refusals would leave money on the table by keeping many employees in lower-rank positions even though those employees would add more to the company's bottom line by being promoted to higher-rank positions.  Conversely, a company that indulges its taste for bigotry is not a company intent on squeezing as much profit as possible from its employees.

If Ms. Jones can add thousands of dollars to Wal-Mart's annual profits by working as a manager, rather than hundreds of dollars by working as a cashier, squeezing "more and more" from her requires that Wal-Mart promote her to manager.

It's simply unbelievable that a company with Wal-Mart's record of consistently wringing profits from razor-thin retail margins intentionally – or even negligently – wastes the talents of large numbers of its employees by using them in ways that do not add maximum value to Wal-Mart's bottom line.

Productivity and Progress

In today's Wall Street Journal, Russ explains that another name for the phenomenon that some people call "structural issues" is "progress."  Here are key paragraphs:

But should we call this progress? In a sense it sounds like a deal with the devil. Replace workers with machines in the name of lower costs. Profits rise. Repeat. It's a wonder unemployment is only 9.1%. Shouldn't the economy put people ahead of profits?

Well, it does. The savings from higher productivity don't just go to the owners of the textile factory or the mega hen house who now have lower costs of doing business. Lower costs don't always mean higher profits. Or not for long. Those lower costs lead to lower prices as businesses compete with each other to appeal to consumers.

The result is a higher standard of living for consumers. The average worker has to work fewer and fewer hours to earn enough money to buy a dozen eggs or a pair of shoes or a flat-screen TV or a new car that's safer and gets better mileage than the cars of yesteryear. That higher standard of living comes from technology. It isn't just the rich who get cheaper TVs and cars, plus the convenience of using an ATM at midnight.

Somehow, new jobs get created to replace the old ones. Despite losing millions of jobs to technology and to trade, even in a recession we have more total jobs than we did when the steel and auto and telephone and food industries had a lot more workers and a lot fewer machines.

Why do new jobs get created? When it gets cheaper to make food and clothing, there are more resources and people available to create new products that didn't exist before. Fifty years ago, the computer industry was tiny. It was able to expand because we no longer had to have so many workers connecting telephone calls. So many job descriptions exist today that didn't even exist 15 or 20 years ago. That's only possible when technology makes workers more productive.

Muscle Inequality

Here's a letter to Washington, DC, news radio station WTOP:

Programming Director, WTOP Radio

Dear Sir or Madam:

Driving from the gym during today's 1pm hour I caught your report on Sunday's Washington Post article about income inequality.  Your reporter presumes that income differences necessarily reflect something amiss.

That presumption is mistaken.

I spend about six hours weekly (and weakly) lifting weights at the gym.  The modesty of my effort combines with my age (early 50s) to ensure that I'll never be as buff as younger guys who spend more time at the gym than I do.  The result is muscle inequality!  And I'm tempted to feel envious.  I want to be as bulging-biceped, broad-shouldered, and chiseled as are my young gym-rat friends.

Really, though, how seriously do I want this outcome?  I could build more muscle if I spent not six hours weekly at the gym but, rather, six hours daily.  But I choose not to do so.  Spending more time at the gym means spending less time working (that is, earning income), less time with family and friends, and less time doing other things that I judge to be worthwhile.  The fact that I'd be more buff if being more buff were costless is irrelevant.  It's not costless; therefore, the size of my muscles is largely the result of the way I choose to make trade-offs.

So I resist the temptation to envy men with bigger muscles (men whose muscles, do note, were not built with fiber taken from my muscles).  And if muscle redistribution by government were possible, I'd oppose it.  Not only would the result be less muscle bulk to 'redistribute' (Would you pump weights for hours each day knowing that a large chunk of what you build will be stripped away and given to someone else?) but, more importantly, I'm not entitled to the confiscated fruits of other people's efforts.

Sincerely,

Donald J. Boudreaux

Quotation of the Day…

… is from page 27 of Thomas Sowell's Basic Economics, 3rd ed. (2007):

Knowledge is one of the scarcest of all resources and a pricing system economizes on its use by forcing those with the most knowledge of their own particular situation to make bids for goods and resources based on that knowledge, rather than on their ability to influence other people in planning commissions, legislatures, or royal palaces.

Note on the Fly

Even though there is absolutely no reason to give special treatment to people who lose their jobs to imports as opposed to people who lose their jobs to other sources of demand shifts that are unrelated to trade across international borders, Trade Adjustment Assistance (TAA) for workers who lose their jobs to imports is typically justified as a low-cost means of smoothing the road to freer trade.

But today TAA is a boulder blocking the road to freer trade.

Some Links

Glenn Reynolds reviews my GMU (Law) colleague David Bernstein's important new book, Rehabilitating Lochner.

David Price reviews Deirdre McCloskey's Bourgeois Dignity.…  as does Steve Horwitz and Andy Morriss.

Here's Pacific Legal Foundation scholar Timothy Sandefur on Wal-Mart's recent victory in the U.S. Supreme Court.

Bryan Caplan on Paul Krugman on non-"liberals."

Shikha Dalmia writes reasonably about today's U.S. military involvement in Libya.

I'm eager to read Donald Luskin's (and Andrew Greta's) I Am John Galt.

Resources are Scarce II

Here's another letter to the Los Angeles Times:

Jonah Goldberg says that the U.S. should continue its unwise military intervention in Libya because "if you invest America's and NATO's prestige in an obstreperous North African backwater, you'd better recoup a worthwhile return on that investment" ("Libya and America's commitment problem," June 21).

Mr. Goldberg mistakenly assumes that ousting Col. Qaddafi is necessarily "a worthwhile return."  But would Qaddafi's ouster be worthwhile if it consumes a full year's worth of U.S. GDP?  Surely not.  How about a half-year's worth?  No.  So if the value of ousting that madman is not unlimited, Mr. Goldberg cannot possibly know that continued expenditures on this front will eventually yield "a worthwhile return."

No private firm continues pouring resources into efforts, say, to develop a new product once that firm realizes that the value of the new product – even if it's eventually produced – will be lower than the value of the additional resources required to bring it to market.

Instead, when a private firm discovers that its efforts to develop a new product are failing, it shifts resources from the failing venture to more promising ventures.  Rivals of that firm don't conclude that it is therefore a weakling ripe for otherwise daunting competitive challenges.  And investors don't conclude that that firm is so lacking in determination that further investments in it are unwise.  Quite the opposite.  Firms that persist in losing efforts perish.  Successful firms, in contrast, are less interested in proving their mulishness than in marshaling their scarce resources wisely.

Sincerely,

Donald J. Boudreaux

Resources are Scarce

Here's a letter to the Los Angeles Times:

Jonah Goldberg says that, although American military intervention in Libya is unwise, an end now to this intervention would send a signal to tyrants everywhere that "the West's bark is worse than its bite" ("Libya and America's commitment problem," June 21).

Perhaps.  But it's more likely that the signal that withdrawal now from Libya would send is that, because Uncle Sam doesn't persist in wasting resources on unimportant fronts, the U.S. military will have more resources to deploy and concentrate on fronts judged to be more pressing.

If you were contemplating an armed attack on America, would the fact that American resources are currently mired in campaigns of dubious importance, indeterminate length, and unpredictable outcome really make you less likely to launch your attack?

Sincerely,

Donald J. Boudreaux

The Phillips' Jumble

Does this plot of data from 1948 through 2010 suggest that mild doses of inflation promote job creation? (From Renee Courtois Haltom, "What Drives Changes in Economic Thought?" Region Focus, First Quarter 2011 [Federal Reserve Bank of Richmond]; this graph is on page 14.)

A good week for thinking about Adam Smith

Here is my colleague Dan Klein talking about Smith. And next Monday's EconTalk is Jim Otteson talking about Smith. I've learned a lot from all three of them.

Adam Smith: An Overview of His Ethical Vision from Daniel B. Klein on Vimeo.