TCS Daily


Liberals Should Know Better

By Arnold Kling - January 17, 2006 12:00 AM

This is the first of a series of essays written for liberals by a libertarian/conservative. That is, I would like liberals to read it, knowing that you will be inclined to disagree.

Most of my friends are liberals. This series is the conversation I wish that I could have with them. I wish they would let me finish my train of thought before interrupting. I wish that they would consider my arguments, rather than try to bury them in rhetorical put-downs.

Chances are, you will look for some errors in my reasoning, so that you can dismiss everything that I have to say. All of us tend to read this way. We overlook flaws in the arguments of sympathetic writers, and we go all-out to find the flaws in arguments of others. In psychology, this double standard is known as confirmation bias. What it means is that we tend to seek support for what we already believe, rather than to seek out information that might undermine our beliefs. Confirmation bias helps to account for the persistence of disagreement.

When I say that "liberals should know better," what I mean is that liberals are inclined to over-estimate some things and to under-estimate others. For example, in January of 2006, liberals in the state of Maryland rejoiced over passage of a law requiring Wal-Mart to pay higher health benefits to its workers. I think that they would have less smug satisfaction if they considered how this actually is likely to play out.

Although the motivation of the liberals was to raise the well-being of Wal-Mart workers, it is far from clear that this will be the consequence. Low-skilled workers cannot receive more in compensation than the value of their labor. If Wal-Mart is forced to increase the share of compensation that comes in the form of health benefits, then it will have to decrease take-home pay. If it cannot decrease take-home pay, then it will have to reduce its reliance on low-skilled labor or cut back on operations altogether.

The Wal-Mart law injects politics into the process of setting benefits for Wal-Mart workers. Once the Wal-Mart law takes hold, various suppliers of health care services will have an incentive to apply pressure. Dentists and optometrists will lobby for laws that force Wal-Mart to pay for its workers' dental care and eyeglasses.

The biggest beneficiaries of the Wal-Mart law are likely to be people who are better off than Wal-Mart workers. For example, owners of other businesses will be able to charge higher prices and earn higher profits.

In the liberal morality tale, Wal-Mart is a villain, and its workers are victims. However, Wal-Mart workers themselves feel lucky to be able to work there. What low-skilled workers need are more Wal-Marts. More Wal-Marts would increase employment for low-skilled workers, and ultimately this could drive up wages for such workers.

Maryland liberals believe that there is something wrong with free markets if Wal-Mart workers do not have enough health insurance. However, if Wal-Mart workers want health insurance badly enough, eventually the market will find a way to provide it. Ironically, one of the initiatives to try to reduce health care costs, which is the key to affordable health insurance, comes from Wal-Mart, which is experimenting with in-store clinics. If Wal-Mart is driven out of Maryland, the state will never be able to take advantage of its health care clinics.

In news reports on the Wal-Mart law, legislators were quoted as saying that one of their goals is to prevent Wal-Mart from taking advantage of the availability of Medicaid for its workers. A more straightforward approach would be to tighten the eligibility standards for Medicaid so that those making as much income as Wal-Mart provides its workers would be ineligible. Of course, such eligibility standards would apply to workers at other firms, not just the hated Wal-Mart.

The law requires Wal-Mart to spend 8 percent of its payroll on health care, whether or not this is enough to keep its workers from needing to rely on Medicaid. If Wal-Mart came up with a way to provide outstanding health care to its workers for 6 percent of its payroll, it would be in violation of the law unless it found a way to waste the other 2 percent on unnecessary health care. Conversely, if Wal-Mart offers a really lousy health plan, it would be in compliance with the law as long as it spent 8 percent.

If the Wal-Mart law is for the benefit of Wal-Mart workers, then why is it that they are not the ones rejoicing over its passage? Why does the law specify a spending percentage, which would seem to be of greater interest to Wal-Mart's competitors? Why did the pressure for the law come from people who do not work at Wal-Mart?

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.

Arnold Kling is author of Learning Economics.
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247 Comments

Greed versus covetousness
It is great to have competitive behavior and free choice as a check against innate human greed; but what will save us from the covetousness of the liberal masses? And what will save us from those who covet on behalf of those who are satisfied with the little they have, as you point out is the case in Maryland?

Market limitations
Kling writes:

"However, if Wal-Mart workers want health insurance badly enough, eventually the market will find a way to provide it."

The market does provide it: they can't afford it. The result in the present situation is that taxpayers wind up paying for catchup emergency room care for Walmart employees, care much more expensive than preventive care would be. Cluck clunking about bad choices made by greedy Walmart employees squandering their miniature wages on food and clothing instead of health insurance doesn't change this situation.

Higher wages
Another point I think worth making is that as Walmart raises its wages for employees, lower skilled workers are gradually priced out. If Walmart started paying, say, $20 an hour, then higher skill workers would be enticed to apply at Walmart rather than another job that pays comparable wages, especially if the Walmart job is seen as entailing less work (less stress, etc.) A high school graduate would find it difficult to compete with the college graduates applying for the same job and would then be forced to take the "next job down". People who did not graduate from high school would be forced into washing your windshield at the traffic light.

No Subject
"The market does provide it: they can't afford it. The result in the present situation is that taxpayers wind up paying for catchup emergency room care for Walmart employees."

Why not change the eligibility rules?
Or why only companies that employ 10000? Surely in aggregate there are over 10,000 employees who have fewer benefits and lower wages than Wal Mart.
The easy solution for Wal Mart is to reduce staffing to under 10,000 by firing people who will then be able to take advantage of the full welfare benefits of MD.
And, Wal Mart can expand its stores just across state lines. MD is a small state.
Fortunately competition exists in this country and customers don't have to shop at Wal Mart, people don't have to work there and Wal Mart can choose to take its business where they are more welcome.
Who will be the winners? Not the people of MD.

$50 minimum wage
The living wage solution is to raise the minimum wage to $50/hr.
Wal Mart workers should be able to live in a nice house and drive a nice care and afford the best medical care, too.

Maryland Medicaid
Maryland seems to be more concerned about the cost of Medicaid benefits for "working poor" American citizens than about the cost of Medicaid benefits for illegal (though frequently "forged-documented") aliens. Perhaps Maryland could divert the funds currently dedicated to building shelters to protect illegal day laborers from the elements while they wait for "illegal" day employment to shore up the state's Medicaid budget.

What is getting lost in all this.
If Walmart is forced to pay a tax to Maryland (the difference between what it pays and the 8% payroll requirement); that money goes to the state to subsidize health care for others. This is just another confiscatory tax. And Walmart employees benefit by knowing that money that might have gone to wages is being redistributed elsewhere in the state system...isn't that special!

Just one personal note. I am a member of AFTRA (AMERICAN FEDERATION OF TELEVISION AND RADIO ARTISTS). I work for a major corporation. Our union forces us to take a substandard health care plan from them. My company offers a superior and cheaper plan to the rest of its employees and it would gladly allow us in but the union says no. This problem was taken to its conclusion at NBC in Los Angeles where employees voted to decertify AFTRA over the freedom to choose healthcare. This is really about who controls choice and unions, socialists, and liberals (am i being redundant?) want it to be their choice...not mine.

Heath insurance is cheap prepaid healthcare in expensive.
Fortunato check the price of a $2500/person/year heath insurance policy with blue shield. I bet you will be surprised. I have noticed that low wage works do not even check the price of heath insurance because so many people like you say that it is unaffordable. This is a great disservice. When I was making only $200.00/week I was able to pay for health insurance for my family.



Higher wages


I think that that would improve the service. I have often thought that Wal-Mart would do better to pay more and get better employees (the service is soooo bad at the Wal-Mart in my city). In my years in the restaurant business I noticed that some employees do more than double the work of other employees and yet management seems reluctant to pay them and instead will move them to higher skilled job. This does not always work out. I always thought for example that some really fast dishwashers should get paid more. Maybe pay them one and half times as much pay and get twice the work out if them.

Who would win the customers and the good worker, who would lose the not so good workers.

More piece work would be good.

saving capitalism
TCS makes the textbook argument for pure capitalism without regulation. Clearly, over regulation can slow economic growth, lowering everyone's boat. I have two counter arguments, one specific and one general.

1. TCS argues that increasing the cost to Walmart of hiring Maryland residents will make them take their jobs elsewhere. That argument is more applicable to manufacturing than to sales jobs.

2. There is a strong argument that unregulated capitalism is unstable and undesirable: it leads in the long run to social stratification that we don't want (hence the desirability of the estate tax), it concentrates economic power in the hands of unelected people. Marx predicted this would lead to revolutions. Roosevelt and European reformers showed that regulated capitalism could work -- minimum wage, safety regulation, unemployment benefits, pro union bias, etc. These, as much as the free market system, have led to America's economic growth.

Is requiring Walmart health benefits going too far? I don't know the numbers, but it should be a question of degree (numbers) rather than principle.

Countering the counters
1. Walmart can take the sales jobs elsewhere by the simple action of not opening as many stores in Maryland. Faced with growth opportunities across the globe, they'll simply choose other places to focus their energies.

Also, expect to see Walmarts springing up in every small city around a very small and narrow state. The good news is that Marylanders can still work in these stores. :)

2. Concentrated economic power is not the problem most people make it out to be. Families rarely have the capacity to maintain the energy that formed the wealth in the first place. Sure the Getty's are a wealthy family, but they don't own everything. I for think it's great the they had an ancestor that did so much for his countrymen that they paid him richly to do it.

The wealth of this nation is a truly beautiful thing.

Well, let's see...
When you ere making $200 a week you were able to affort $2500 x 3 = $7500 year/52 = $144/week health insurance? I salute you, sir!

But I guess that was then & this is now. OI, average wage for a Walmart worker is about $8.50/hr, = 17,000+ per year. They're going to be able to pay $2500 per person a year out of that?? Especially since most don't work full time.

And this is bad why?
1. So Walmart builds stores somewhere else. Why is this bad for Maryland? You have smallter retailers (who pay better wages) providing the goods, and not creating a drain on public services. You still get the sales taxes:

2. If you don't think concentration of wealth is a bad thing, I encourage you to visit a place like Brazil or Guatemala where you can see the effect in action. Do you really want the U.S. to look more like this?

Henry Ford revolutionized the nation when he decided to pay his workers enough to buy his products. You may think that's old fashioned: again, go to Brazil and see the alternative.

Three things:
First, Brazil is growing and where the action is for the next generation. Our short sighted government has done little to increase trade with the second largest economy in this hemisphere.

Second, I find it amusing that the only folks whose opinions are not heard are employees. That is because they vote with their labor. These workers are at Walmart because they choose to be there. When Walmart re-shuffles its pay the only winners will be competitors.

Third, If this was such a good idea then why just Walmart? why not the world? Oh I forgot, it isn't a good idea.

Again
1. Why is this bad for Maryland?
a. Loss of construction jobs
b. Loss of property tax revenue
c. Loss of sales tax (it would go to the state where collected)
d. Loss of convenient low cost retailer
e. If workers live in Maryland, you get all the expense and none of the revenue
f. You get smaller higher cost retailers who do not pay higher wages

2. I would encourage you to visit a place that has the rule of law *and* concetration of wealth. A good example is, just for argument, the U.S. The Walton family is quite wealthy. There are many others the list is long. You could also try Japan, Singapore, Hong Kong, any European country. Just because most of these places have their hand in everyone's pocket does not make this a good thing and it surely doesn't help those at the bottom. Why should I be happy here at the bottom because everyone above me is being pillaged by the government. Sure provides a lot of incentive to climb the ladder.

Reread Ford. He was truly a revolutionary but I don't think his arguments are the ones you want. I'd hold his record up against Walmart any day. He paid his workers more because he needed good workers who'd show up. He ran their lives in ways that are unthinkable today.

Doesn't stand up
Sure, there are positives. But the problem is , the negatives outweigh the positives on balance from the point of view of the community as a whole, as opposed to Walmart. The bottom line is, poorer jobs, higher drain on services and more. Walmart doesn't think so, but non-Walmart analysts do.

Regarding your second point: I have nothing against people making themselves rich. The problems for society come when you have huge disparities of wealth, with a few rich people, not many in the middle class, and a giant mass of poor people. And I'm surprise to have you point out "any European counrry," given that most of them have much more extensive social welfare programs than we do.

Regarding Ford, and this " He ran their lives in ways that are unthinkable today." Walmart workers are, for example, locked in at night for cleaning. They have their lives run too. They just aren't as well paid for it.

What is getting lost in all this. is the facts
>>that money goes to the state to subsidize health care for others

Actually the money goes to the state to subsidize the health care of the Wal-Mart employees that are currently being subsidized by other employers through medicaid. So no, this is not a confiscatory tax, it is correcting a confiscatory situation paid by other taxpayers.

Why shop there?
"(the service is soooo bad at the Wal-Mart in my city)"

Why do you shop there?

How do they know?
How does MD know how many Wal Mart workers are using state funded medical services?

How do they know?
MD asked them.

Puritan Capitalism
The Puritans demonstrated that capitalism is the best economic system to improve the lives of all.
Their regulation was based upon the Golden Rule.
Modern regulation is based upon whoever has the Gold, the state, rules.
The only obligation of the state in economic matters is to enforce the rules, not redistribute income.
If someone is willing to work at $1.00/hr, why not let them? People are encouraged to volunteer (work for free). Why not let those who wish work for what ever they will accept?
What I have observed is the government resticst competition at the request of a campaign donor. The government plays both sides of the fence.

Libertarians should know better
The only way you can make libertarian arguments hold water is by basing them on false assumptions:

>>Low-skilled workers cannot receive more in compensation >>than the value of their labor. If Wal-Mart is forced to >>increase the share of compensation that comes in the >>form of health benefits, then it will have to decrease >>take-home pay. If it cannot decrease take-home pay, then >>it will have to reduce its reliance on low-skilled labor >>or cut back on operations altogether.

Notice anything missing? The fact that Wal-Mart makes a profit indicates that their is excess value once the workers are paid - in other words Wal-mart pays less than the value of the labor - the normal situation that we call "profit". The third way that Wal-mart could increase compensation is by reducing the profit it makes on this labor. Given that Wal-mart is one of the profitable companies in the US, and that both the labor and retail markets are generally efficient (wal-mart can't raise prices or lower wages without losing market or workers) then this reduction in profits is the MOST LIKELY way that Wal-Mart meet the health care requirements.

And given that the health care of Wal-mart employees is currently subsidized by taxpayers to Wal-marts benefit, then this is the most appropriate result.

My crurrent policy
'When you were making $200 a week you were able to afford $2500 x 3 = $7500 year/52 = $144/week health insurance? I salute you, sir!'

You did not check with insurance providers did you? I currently pay about $200/month for my health insurance policy. I make a lot of money but I only spend about $20k/year. (I like to live simply and I would like to be able to retire from my current job soon. Also I like to live on $20k/year because if I loose my job I might not be able to find a job that pays so well.) BTW that 20k is for my family of 4. I could easily live on $15,000/year. Also I expect people to work more than 40 hours a week. 2 jobs maybe. (Look up the book ‘your money or your life’. )

Get some quotes on high deductible health insurance before you continue to lead people astray. I happen to think that people making 17,000/year should get health insurance and if you make them think that they cannot afford it they will not even get a quote and could be in trouble should their health decline.


Liberal double talk
1. On the one hand we hear liberals say poor people can't afford $100 a month in health insurance. Then they turn right around and fight WalMart where those very same people probably save $100 a month in shopping at WalMart. I make a very comfortable comfortbale six figure income and I shop at WalMart on a weekly basis. It is incredible the difference in prices for gorcery items. I have never done an actual analysis but just ball-parking it, I'd say I save 35% at WM vs. the supermarket in my neighborhood. Why would liberals want to take that away from the very people they claim to want to help?

Second, as usual liberals have no clue when it comes to economics. They argue that WM employees cost taxpayers money by the fact they use public health services. OK fine. Who do you think will pay when WM has to raise prices to cover the cost of insurance? The very same taxpayers, only they'll add two 3rd parties to the equation: WM and an insurance company. Nobody gives you something for nothing.

Because it is cheap. eom

the market will find a way to provide it ???
I'm not a typical liberal in that I share the author's libertarian bent. I agree with a lot of what the author says here, but I don't understand the logic behind this particular assertion:

"However, if Wal-Mart workers want health insurance badly enough, eventually the market will find a way to provide it."

How does that work exactly? If I want a Lamborghini badly enough will the market eventually find a way to provide that? I suppose the catch is the word "eventually". Some of them might be dead before they get it.

Also, I think one thing that often gets overlooked by conservatives is that the field of medicine doesn't respond very well to free market ideas. For example, if I suffer from AIDS and need a special drug to stay alive but that special drug costs $25,000 a year and my salary is, say, $30,000, the only way I can get the drug and, therefore, stay alive is if the government or some other entity steps in and pays for the drug. I can't pay $30,000 to a pharmacy, satisfy my tax obligations, and still have enough money to cover to meet my most basic needs.

What I mean is that it's not a matter of what I'm willing to pay. The notion of supply and demand is, therefore, meaningless here. Well, not entirely, because there obviously is probably only a certain amount of the drug to go around and someone will probably have to go without. But, in a sense, it's meaningless because the concept of supply and demand is about what the consumer is willing to pay, and the fact is, individual consumers can't pay for their catastrophic health-care needs. I would guess that less than 10% of Americans are able to do this out of their own pocket. And even they don't have to because they have insurance. But, as all of us know, many of us can't afford insurance.

I'm not an economist, so I don't claim to know the answers to the questions I raise. But my sense is that the author isn't an economist, either, and is merely spouting simplistic principles he has heard "Grudge" Limbaugh or "Gee, Gordon's Giddy!" rant about on their shows. Solving such serious problems requires more creative thinking than that, I believe.

Why shop there?
Because in many places Wal-mart has run the competition out of business. Where they have used efficiency to make this happen this is a good thing, to the extent they have used predatory pricing practices, illegal activities (undocumented aliens), unfair subsidies from state and local governments(medicare, taxpayer subsidy of infrastructure, etc) this is a bad thing.

There are >2000 communities where wal-mart is the only pharmacy - particularily troubling in that Wal-mart allows it employees to refuse to dispence medications they object to.

No Subject
Finally failureman gets to the crux of the issue for liberals. Their issue is not with the plight of WM employees, but with the fact WM dares make a profit. Those *******s!!!

Maybe I should use this line of reasoning with my employer. After all my employer make a profit. Why don't they pay me the profit they make, after all I deserve it don't I?

Liberal double talk
Since the taxpayers are already subsidizing WM's employees through public health services, don't you think it would be better if they subsidized them through prices in the store? This way at least the consumers will have a choice: you only pay for those services if you shop at wal-mart - currently the taxpayer has to pay for those services even if they don't shop at wal-mart. Isn't this better?


Why the name calling?
I have yet to encounter a political discussion board where at least one liberal says something siparaging about Rush Limbaugh using a silly 3rd grade variation of his name. What is it about him that rubs you guys so badly? If you disagree with him say so. Use facts and logic to argue your positionbut please leave the childish names out of it.

Hypocrite!

re: Liberal double talk
/I'd say I save 35% at WM vs. the supermarket in
/my neighborhood. Why would liberals want to take
/that away from the very people they claim to
/want to help?

It's more complicated than that. Walmart squeezes suppliers which, in turn, bleeds the people who work hard to make the goods you and I buy. That saves some of us money in the short run but, of course, eventually, the lower salaries will catch up with all of us. But since they mostly target suppliers outside the US, this isn't in danger of happening soon. For now, you can thank some Chinese man who feeds his family off $5 a day or less for the magnificent savings you are taking advantage of at WM.

WM's policies lower our quality of life in this country, as well, in that our beautiful cities and small towns rot with neglect because Walmart can undercut costs by operating out of the cheapest, most shoddily built tin-roofed buildings out along the interstate outside town. That is a social cost that might be difficult to assign to each consumer but which definitely amounts to a very high monetary cost.

Moving on, your words indicate that you prefer that WM employees use public health services rather than get WM and an insurance company (private entities) involved:

/Who do you think will pay when WM has to raise
/prices to cover the cost of insurance? The very
/same taxpayers, only they'll add two 3rd parties
/to the equation: WM and an insurance company.
/Nobody gives you something for nothing.

May I assume this means you support that dreaded "socialized medicine" that all conservatives rail against? Shame on you!

Finally, I get so tired of all this stupid nonsense about "liberals" who "have no clue". Who is is that thinks you can start wars in two foreign countries, threaten at least two others at the same time, and still lower taxes? How can you supposed "conservatives" be so blind to the fact that federal deficits, which soared under Ronnie Rayguns in the 80s, are once again doing so under the midget-brained clown (Shrub) who is currently pretending to run the country? Have you forgotten that we had a SURPLUS UNDER CLINTON and GORE??? So just WHO IS IT that HAS NO CLUE????

Free Market Medicine
".. the field of medicine doesn't respond very well to free market ideas..."

Ever hear of Viagra? What is the cost of a CAT scan these days. You can get one at a mobile van in a shopping mall.
How about laser eye surgery? It was never covered by health plans yet its cost has dropped every year.
The AIDS situation is a perfect example of the need for REAL insurance. Catastophic policies, not the system we have today where any visit is subsidized.
Also, AIDS may be a bad choice because there is a certain aspect of prevention involved. If you don't have it now, you can minimize your risk dramatically by not engaging in certain behaviours.

Supplier Squeeze
"Walmart squeezes suppliers..."

It's a good thing, too.

Prior to Wal Mart, suppliers could set prices and the retailers took it and passed them on to us.
Now, if a supplier want to sell to Wal Mart, they have to meet Wal Mart demands for price and quality.
Remember those little Japanese cars that forced Detroit to make a better product? Wal Mart is doing the same for consumer products.
If soo many people hated Wal Mart soo much, if they all stopped shopping there, they should go out of business, right?

No proof
Liberals have not been able to prove that socilism is a viable economic policy.

"lead people astray?"
I'm sorry, maybe I'm not following. You held up a $2500 per person per year health insurance program as widely affordable. For someone making $10,000 or 15,000 a year, paying $5000 or $7500 a year may be affordable in a universe where they don't have to buy clothes or food, but not here.

I'm glad the economics work for you, but you're obviously a special case. Regarding high deductible insurance, you're talking about a system that encourages people to neglect regular preventive care (because it's under the deductible) leading a very bad public health results. This is not me misleading people; it's simle truth

bulletin
"liberal" does not mean "socialist."

Rush does set a high standard of logic and facts, doesn't he?
I mean, Rush Limbaugh would never say anything disparaging about people he disagrees with, would he? Rush _never_ engages in namecalling, we all know that! And if Rush disagrees with (say) feminists, calling them "femi*****" is just using facts and logic, isn't it?

Re: No Proof
Here in the US we have a mixed economy: more than 40% of the economy is socialized: Medicare/medicaid, SS/SSDI, VA, Education, Farm Subsidies, etc. The US has a viable economy, indicating that at least partial socialism is viable.

"Could work" doesn't mean working most efficiently
"Roosevelt and European reformers showed that regulated capitalism could work -- minimum wage, safety regulation, unemployment benefits, pro union bias, etc. These, as much as the free market system, have led to America's economic growth."
Pure nonsense. Just because capitalists have found ways to survice and prosper DESPITE fa_cist laws and regulations does not make the case that it is these very regulations themselves that have enabled or contributed to this success.

"...these as much as the free market system..." is an irrational and illogical claim. "These", meaning regulations, laws etc, are the reason that there is, in America and Europe, no truly free market---all are regulated and interfered with to such an extent that free just doesn't fit the definition of what currently passes as the American economy.

BTW: Roosevelt was an open admirer of Italian Fa_cist Mussolini and thought that fa_cist economic policy was just great. Economic fa_cism is defined by nominally private ownership of the means of production--land, labor & capital--but is a system wherin the use and disposition of the means are strictly controlled by the state. That is, state regulation is the essence.

Relative marginal elasticity of supply and demand
Boy, what a moniker -- "failureman"?! You've just GOT to be a liberal with that moniker! Dude, it pains me to be unkind to you by calling you "failureman", even if you are a political opponent. I'll call you f-man instead.

But seriously, what would be the likely result? F-man misses the complete picture. There are three likely things that would occur -- the monetary portion of wages will go down, prices will rise, and profits will fall. There is a fourth inescapable consequence -- productivity WILL fall -- that is sales and operations WILL be cut back. How much each of the three and how much the fourth will be determined by the relative4 marginal elasticities of supply and demand for goods and labor.

The more in demand something is, the more costs for that thing will be passsed along. For example, if the demand for Wal-Mart products is high, the cost will be passed along in the form of higher prices; the public will pay those higher prices; sales decrease little, profits will decrease little if at all.

The more supply there is, costs will not be passed along because the consumer can buy elswhere or is relatively satiated; Walmart will have to eat the costs themselves if they want to sell the products. So supply will decrease a little; profits will decrease; and again, sales will decrease, with lowered supply.

The same marginal elasticity of supply demand applies to labor as well.

So if the there is more marginal elasticity of demand for labor, than marginal elasticity of supply (that is if labor is more in demand), then the costs will be more absorbed by the employer, than taken out of wages.

Conversely, if there is more supply of labor than demand, the costs will be reflected in lower monetary portion of wages.

So what is the relative elasticity of supply and demand for all of these factors? Though NO ONE can be absolutely sure, one can make an educated guess.

The relative distribution of wages, prices and profits has already been determined in the present market conditions. Most likely the health benefits would be considered by the workers as part of their compensation and they would be the ones most willing to absorb costs. The employers will derive little benefit from the having to give health benfits, so they will be less likely to absorb costs. There is a glut of unskilled labor on the market as has been the case for years. Witness the erosion of real wages for unskilled workers over the years.

So the most likely result would be that the workers will absorb most of the costs of the mandate, some of the costs will be passed along to consumers, and employment, sales and profits will decrease slightly from what they would normally be.

To expect the major portion of the costs to be absorbed by the corporations in reduced profits is economically unrealistic. It just won't happen.

Eye surgery
I find it ironic that the libertarians continually bring up surgical eye correction as an example of the free market. Surgical eye correction was invented and developed in the soviet union under state direction because developing and providing the technique was cheaper than providing the population with glasses. This was driven by the economics of socialized health care that could make cost desicions based on the total cost impact. This process was not developed in the US or any other free economy.

Puritan capitalism
There are many countries with economies similar to what you describe - collectively we call them the "3rd world". People work for what they can get and the government has little or no regulation of the workplace. The result is poverty and dragging down of the entire economy. Effective redistribution of wealth ala Henry Ford or Social Security or collective bargaining to raise wages consistently results in economic expansion and benefits to all.

No Subject
I don't question WM's right to make a profit - I just question their right to rely on taxpayer subsidies to make such a large profit. Surely you don't think that is OK?

Simple Economic Principles
eddie06 wrote:
> The third way that Wal-mart could increase compensation is by reducing the profit it makes on this labor. Given that Wal-mart is one of the profitable companies in the US, ... this reduction in profits is the MOST LIKELY way that Wal-Mart meet the health care requirements.

This reasoning ignores the market in business investments. Entrepreneurs search for businesses by balancing the perceived risk of failure against the projected profits. When you reduce the profits you reduce the incentive for investment in that business. Conversly, when profits are higher than those warrented by the risk of failure (in the absence of governmental regulations), it is only a matter of time before more entrepreneurs open new Wall-Marts. So reducing profits is the same as effectively reducing the number of Wall-Marts.


silentq wrote:

>>"However, if Wal-Mart workers want health insurance badly enough, eventually the market will find a way to provide it."

>How does that work exactly? If I want a Lamborghini badly enough will the market eventually find a way to provide that?

No. The market will not provide *you* with a Lamborghini; but if enough people are willing to work, to earn and save money; and then are willing to spend that money on Lamborghinis instead of, say, first rate health insurance, or expensive vacations, then people will invest in producing Lamborghinis. Note that the market *did* find a way to provide Lamborghinis - socialism never would.

>I think one thing that often gets overlooked by conservatives is that the field of medicine doesn't respond very well to free market ideas.

This is simply not true. Drug manufacturers want to make profits. They risk years of research in order to discover drugs that can save lives precisly because they know that they can charge $30,000 for them. If not for the prospct of this profit the drugs would not exist. Conversly, if the profit is great compared to the risk of failure, more capital is invested in drug companies, ultimately bringing the proces down through competition.

Market rules apply to the flip side (individual) also. It is true that an individual faced with the immediate choice of life or death will be compelled to pay whatever they have. But individuals, by planing ahead and *deciding* how much they want to spend on health insurance they can control how much they will have at their disposal in times of emergency.

These are simple principles of economics and common sense. They apply as well to businesses as to individuals, and to luxuries as well as to what you might consider necessities (cars, health insurance, schools, telephone service, etc.)

dbenrosen

Good try
Good try but perhaps you need to consult your micortheory books again.
The concept of elasticity (of supply or demand) simply refers to the "steepness" or "flatness" of the particular curves under consideration. The upshot of that is the steeper the demand curve, for instance, the less responsive quantity demanded is to shifts of the supply curve--upwards or downwards--or, more generally, changes in price.
"The elasticity of demand is the ratio of (percent change in quantity)/(percent change in price). Remember that based on the law of demand, quantity demanded is inversely related to price. Thus, elasticity is never positive, because when price goes up, quantity must go down, and when quantity goes up, price must come down.
Elasticity is a way of determining changes in revenue. Revenue made from selling goods or services is calculated by multiplying the quantity of that good or service sold to the average price of each one sold. Elasticity tells us whether revenue will go up, go down, or remain constant when we change prices. To find how revenue will change, we first plot a demand curve, plotting our current location on the demand curve. Then we will plot our target point, the point where we want to move the price to. Then, we will know the percentage change of each and thus we will know elasticity. When elasticity is 1, there is no change in revenue. When elasticity is greater than 1, there is a decrease in revenue. When elasticity is less than 1, there is an increase in revenue. The most important determinant of the elasticity of demand at any point is the availability of substitutes. When people have more choices, they are less likely to pay a high price when they can just go buy something else that would serve the same purpose and provide the same satisfaction."

I may have misread what you wrote...but it just seemed a bit mixed up, I wasn't sure just what you were trying to convey. Moreover there is no such thing as "marginal" elasticity. The concept of marginal utility, however is relevant to the elasticity of demand.

Relative marginal elasticity of supply and demand
Actually "failureman" is an allusion to my title in my first management position at a large f500 company where I am quite succesful thank you.

Thanks for your lecture on the obvious facts of elasticty - but all the logic in the world can't overcome the false assumptions on which it is based. You admit it yourself: "one can make an educated guess". You may be right that this will not come out of profits, (but your guess is most likely wrong) but to not even acknowledge THE POSSIBILITY as was done in the original article is either an indication of ignorance or a definite attempt to mislead.
WM is already paying as little into the labor market as they can get away with, that is why I don't think this will be absorbed by the workers. There are 3 ways costs can be absorbed: passed to consumers, passed to suppliers (including labor) or reduction in profits. Since prices and supply are generally set by the market, these are almost always less elastic than profits. It just will happen.

Liberals Should Know Better
Excellent piece. Please, please ,please send it directly to Lou Dobbs at CNN!!

Lamborghinis
Actually in socialism Lamborghinis are provided, but to a different set of people. BTW Lamborghini's are a product of one of the world's most heavily socialized economies.

Gov't theft
Most third world countries model themselves after Al Capone.
When the rule of law, low taxes and labor were combined in third world Hong Kong, they jumped a couple of worlds, up.
"Effective redistribution of wealth" or THEFT.

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