Topic: Trade and Immigration

Bashing Wal-Mart (and Millions of Shoppers)

Can Democrats ride what they see as a populist wave of anger against Wal-Mart to success in the 2006 elections and beyond? According to a New York Times story this morning:

Across Iowa this week and across much of the country this month, Democratic leaders have found a new rallying cry that many of them say could prove powerful in the midterm elections and into 2008: denouncing Wal-Mart for what they say are substandard wages and health care benefits …

The focus on Wal-Mart is part of a broader strategy of addressing what Democrats say is general economic anxiety and a growing sense that economic gains of recent years have not benefited the middle class or the working poor.

This new strategy tells us much more about the lingering anti-business, anti-market and, yes, elitist mindset of the Democratic Party’s national leaders than it does about Wal-Mart itself.

Wal-Mart and other price-conscious discount retailers are really a working family’s best friend. They operate in the marketplace as representatives for millions of consumers, ensuring that they get the best and lowest prices possible from wholesalers and producers. Tens of millions of American shoppers vote with their feet every week by visiting their local Wal-Mart.

If Wal-Mart offers wages and benefits that are below the national average, it is not because of company policy but because of the realities of the marketplace. Retail jobs in general offer below-average compensation because the jobs tend to be lower-skilled and less productive than most other jobs. Even so, Wal-Mart’s wages within the retail sector are competitive. A worker at Wal-Mart is more likely to have health insurance and be paid more than a worker with similar skills at a small, “mom and pop” retailer.

The denunciation of Wal-Mart is largely driven by politics. Labor unions, a key Democratic Party constituency, see non-unionized Wal-Mart stores as a threat to their efforts to organize retail workers, especially those in the grocery sector.

Democrats will need to decide who they want to represent: Tens of millions of cost-conscious, lower- and middle-income shoppers, or noisy but far less numerous union members who do not like competition.

Winning with Zero

Though prospects for broad reform of the U.S. antidumping law are tied to the now-moribund Doha Round of trade negotiations, curtailing antidumping abuse is still viable through other channels. Yesterday, the Appellate Body of the World Trade Organization ruled that the U.S. dumping calculation technique known as “zeroing” violates the WTO’s Antidumping Agreement.

In determining margins of dumping (which dictate the prospective antidumping duties applied to affected imports), the Department of Commerce typically compares a foreign exporter’s U.S. and home market prices. There are usually dozens or hundreds (sometimes thousands) of comparisons made, each generating a margin of dumping, which can be positive, negative or zero.

Before averaging the individual dumping margins to produce an overall antidumping duty rate, the DOC perpetrates some sleight of hand by setting all of the negative dumping margins to zero. This, of course, has the effect of seriously inflating the overall rate and dissuading subsequent importation.

Zeroing is probably the most distortive of a multitude of methodological tricks the DOC undertakes in the name of fighting unfair trade. In previous research, Brink Lindsey and I looked at 18 actual dumping cases and found that had the DOC not engaged in zeroing, the antidumping duty rates would have been, on average, 89 percent lower.

If the United States complies with yesterday’s ruling and ceases the practice in all cases prospectively, the antidumping law will remain a nuisance, but its capacity to seriously obstruct trade will be weakened considerably.

Every Day Brings an Emergency

The U.S. Farm Bill is due to be redrafted in the first half of next year and Cato will be part of what is shaping up to be a lively debate. The recent round of WTO negotiations were one hope for reducing the costly distortions that agricultural subsidies impose, but we all know what happened there. (The WTO news release can be found here if you are not up to speed).

The 2007 Farm Bill, then, provides the next best opportunity for much needed reform. But, considering the noises coming from Congressmen, we reformers have our work cut out. Consider this recent pearl, offered by Sen. Chuck Hagel (R-Neb.):”The fact is we know there is emergency assistance required every year, whether it’s for drought, floods or whatever natural cause…” Webster’s Encyclopedic Unabridged Dictionary of the English Language defines an emergency as “a sudden, urgent, usually unforeseen occurrence or occasion requiring immediate action.” I don’t think something (a different ‘something’ all the time, according to the Senator) that happens with certainty every year fits that definition.

Senator Hagel went on to say…”Why don’t we craft a farm bill that is visionary, relevant, real and deals with the challenges we know agriculture producers deal with?” I am sure the Senator meant the question to be rhetorical, but I agree with the Senator – why don’t we craft a Farm Bill that is visionary, relevant and real. A vision of farmers making a living from markets, relevant to the fact of the significant cost of these programs, and real – as in, real different to the last farm bill (a huge step backwards from the relatively tame 1996 farm bill). As for the challenges, surely farmers, like other small (and not so small) businesses should be able to deal with challenges unassisted by government (read: taxpayer and consumer) support?

I’m an Australian so I know something about drought. I’m also an economist, so I know something about comparative advantage. Maybe if every year is a disaster year in some place, then farmers shouldn’t be farming there….

The Welfare Kings of Farming

There is an excellent op-ed in today’s LA Times on the special kind of corporate welfare given to farmers. David Boaz and I have both written blog entries (here and here) and done podcasts on the topic (mine on 05/30/06 and David’s on 07/25/06). As the farm bill comes up for extension/review/obliteration (okay, that last one was a bit optimistic), this topic is one to watch.

Hillary’s Rural Renaissance

Further to David Boaz’s post below on the Democratic Leadership Council’s recent spending plans, Senator Hillary Clinton has called for a “rural renaissance” to “restore the promise and prosperity to main streets and rural communities.” The full press release can be viewed here, but these are the main points:

  • A “national broadband strategy” to “coordinate and maximize federal resources” which would newly include a National Rural Broadband Innovation Fund and the creation of a single office run by an “administrator” that would provide a “one-stop shopping clearing house for innovators and businesses that want to expand broadband in rural areas.” Strange, but from where I’m standing, the Internet seems to have evolved pretty well without government interference so far.
  • A “Rural Regional Investment Program, which would provide equity investments to fund innovative opportunities and partnerships in rural areas” that would “provide rural communities with flexible resources to develop comprehensive, collaborative, locally-controlled planning and to foster innovative community and economic development strategies.” Senator Clinton’s proposal also includes more “help” in administering small private loans “pooling private capital and administering that capital through trusted intermediaries” (overseen by the Federal government, presumably). As the seemingly inexhaustible stream of money to ethanol production has shown, investment money to rural areas seems to flow quite nicely when investors see promising (if pork-induced) returns.
  • Speaking of ethanol, Senator Clinton would like to see the creation of a $1 billion Strategic Energy Fund to “support [the] rapid development of renewable energy, including biofuels.”
  • Then there are a host of other measures, including so-called “green” payments, a more reliable safety net that would “help manage risk” and include counter-cyclical payments (the most trade distorting and offensive kind to our trade partners), and more spending on health care and rural education.

The US Government has been lavishing subsidies on farmers since the New Deal in the 1930s, and has spent over $55 billion propping up the agricultural sector since the enactment of the 2002 Farm Bill. Far from giving away even more of taxpayers’ money, surely it is time for the government to stop giving agriculture special treatment and to allow farmers to carry the risks and reap the rewards of their investments, just like every other businessperson in America.

Hey, GOP: Combat Anti-worker Image by Being Pro-worker!

Any real concern House Republicans may have for low-wage workers is apparently evaporating in the heat of the midterm elections.

Here’s the GOP political calculus, as reported by the New York Times:

Republican moderates used a closed party meeting on Thursday to make their case for a vote, saying it was crucial for helping to dispel the party’s antiworker image. The moderates ran into opposition from conservatives who said the wage proposal could turn off campaign contributors with the elections looming and drive away the party’s business base. But some lawmakers said opponents also recognized the political necessity of giving moderates some political cover, a prospect more appealing than potentially losing their majority in the House.

Perhaps there was a “compassionate conservative” somewhere in the room who thought to mention that a national minimum wage hike is likely to harm low-wage workers, especially young urban workers trying to gain some experience and start on a path to economic independence. But, as far as I can tell, the conclusion was that it is better to be actually anti-worker than to have a false “antiworker image.”

If House Republicans wish to get out from behind false perception and stand up for the real interests of workers, they should take a look at this good overview of recent empirical work on the minimum wage by James Sherk at Heritage. And here is Cato adjunct scholar and George Mason economics chair Don Boudreaux on why we should expect government-mandated price floors to harm workers. If the vaunted rightwing messaging machine is so amazing, why can’t it do more to explain why reducing opportunities for low-wage workers is not pro-worker?

Chicago City Council to Low-wage Workers and Poor People: Eat Dirt!

The Chicago City Council has proved beyond doubt its aggressive hostility to the welfare of low-wage workers and low-income consumers by its approval of an ordinance that would forbid Chicagoans from legally entering into agreements to work for less than $10 an hour and $3 in benefits—even if they want to—with retailers with $1 billion in annual sales and stores of at least 90,000 square feet.

By prohibiting job-seekers from accepting terms of employment to their and potential employers’ mutual benefit, the City Council has effectively requested that major employers like Wal-Mart and Target open fewer new stores in Chicago, and make available fewer (and possibly no) new jobs. Additionally, the Council has asked Chicago’s low-income consumers, who would benefit most from more discount retail outlets, to forgo significant increases in their quality of life.

As NYU economist Jason Furman wrote in Slate by way of crushing Barbara Ehrenreich in a debate about the effect of Wal-Mart on America’s working class:

A range of studies has found that Wal-Mart’s prices are 8 percent to 39 percent below the prices of its competitors. The single most careful economic study, co-authored by the well-respected MIT economist Jerry Hausman, found that grocery sales by Wal-Mart and other big-box stores made consumers better off to the tune of 25 percent of food consumption. That doesn’t mean much for those of us in the top fifth of the income distribution—we spend only about 3.5 percent of our income on food at home and, at least in my case, most of that shopping is done at high-priced supermarkets like Whole Foods. But that’s a huge savings for households in the bottom quintile, which, on average, spend 26 percent of their income on food. In fact, it is equivalent to a 6.5 percent boost in household income—unless the family lives in New York City or one of the other places that have successfully kept Wal-Mart and its ilk away.

Why does the Chicago City Council insist on harming workers by denying them their moral right to enter into work agreements on terms they find acceptable? Why does the Chicago City Council want to keep things from getting better for its city’s poor?