Re: Wal-Mart and minimum wages

Been away the past few days, so forgive me for I am catching up to this post from Matt inspired by this post from the good sir Thomas Johnson of Inefficient Market. Why does Wal-Mart support the minimum wage? Here's TJ's apt summary of the argument made in the Mises article:

The theory is that Walmart competes on the fact that it has a better supply chain and better negotiating power than smaller competitors. Since wages make up a smaller part of Walmart's costs, higher employee salaries would hurt smaller shops more. So, Walmart lobbies for higher minimum wages in areas where it faces competition from smaller retailers.

Yes, a rise in the minimum wage probably will be less damaging for Wal-Mart than its competitors, so pursuing it as a public policy makes sense IF Wal-Mart cares that much about their relative position to other competitors (which it does to some extent). However, what is more important to Wal-Mart (by extension of their shareholders) is their absolute position. Diminishing their absolute position for a relative gain is a poor business move, and surely Wal-Mart knows it. Yes, Wal-Mart pays above minimum wage already, but a rise in the minimum wage will likely put upward pressure on the wages of their own labor force.

At best the relative gain argument is a tough sell, so lets go with a simpler theory, which I suggest is based on the likelihood that Wal-Mart's position on the minimum wage doesn't influence the outcome of any potential legislation. If what you say doesn't matter, then say whatever you want! In this case, you might as well as get some good PR and take the opportunity to point out to your much higher wages. If CEO H. Lee Scott, Jr.'s opinion was able to swing the outcome, then he'd be much more likely to push the button the other way.

P.S. Wal-Mart deserves a Nobel Prize.

File this under...extent of the market

The division of labor is determined by the extent of the market.

Scary sentence of the day

The consulting firm, Tillingham, a unit of Towers, Perrin, calculates that the cost of excessive litigation in America is about two cents for every dollar of production...

That's from "Rich States, Poor States," a new economic freedom-like ranking by Arthur Laffer (yes, that Laffer) which will be the topic of next week's column. It's not perfect, but neither is the Fraser Index (their new state rankings just came out about a month ago, by the way), and the value comes in an alternative way in looking at a tough problem-- namely, how to quantify the policy environment of a state. There's a lot to like about it.

Rolling in the surplus

Total surplus in every transaction in constant; your value of what you are acquiring is above that of what you are giving up, as in your partner's, and that's why you engage in the transaction. These values don't change with price; the price simply determines how the surplus is divvied up. Nonetheless, you still want a greater share of the surplus for yourself.

Today at Starbucks, I bartered my grande hot chocolate (no whip cream) down from $2.84 to $2.70. I therefore have deemed August 2 "Surplus Day" as I'm rolling in the additional surplus.

Viva!

Wal-Mart and minimum wages

TPS's resident poker theorist, Thomas Johnson, sends along this bit about Wal-Mart and minimum wages from his new blog, Inefficient Market. (I think we should change our motto to "Thoughts directed by Tom...since 2005.")

First off, I strongly believe that Tom so named his blog just so that I'd have to write the phrase "inefficient market" on TPS.

It turns out that Wal-Mart is in favor of raising the minimum wage in certain areas. But...they're evil, and only good people are in favor of raising the minimum wage! What's next, upwards gravity?

Here's what he had to say:

I think this is an example of how even an otherwise well-functioning market can incentivize participants to break it. Can we really expect rational politicians to resist passing a law that both appeases the interest of large corporate donors and makes them look good to populist voters? How do you fix a situation in a capitalist democracy where everyone thinks it's a good idea to break the system, even though the average citizen will be worse off afterward?

1) The incentive for rent-seeking was not created by the marketplace; that is a function of having a government that will intervene in the marketplace. Minor, but crucial, difference.

2) The typical self-interested politician model shows them directing policy to maximize their time in office. Raising the minimum wage is popular with the general public, and if it gets their hands into Wal-Mart's coffers...all the better for them.

3) We get arguments like this a lot concerning West Virginia-- how can capitalism work so well when... (insert statement here, such as "Enron can swindle everyone" or "I'm forced to pay for poor public schools). The rub here is that this isn't capitalism. Using the government to put your competitors out of business is not capitalism. It's about as anti-capitalist as it gets.

So how do you fix the situation here? Get rid of the minimum wage. How do you fix the overall issue of rent seeking? Get rid of the government in the economy. Both tough mountains to climb.

(The underlying article from the Mises Institute has a few great facts to throw out the next time someone goes anti-Wal-Mart on you. Instead of arguing for net social benefit-- always a tough sell over a minute or so, plus the invariable "I'm losing but big rich people are winning so that's a net social gain" comeback-- I'm going to come back with "Wal-Mart is in favor of raising the minimum wage!" and "Wal-Mart's average salary is at least 50%, and sometimes over 100%, of the federal minimum wage." For better or worse, these are the margins that the Wal-Mart is good/Wal-Mart is bad debates are won.)

Favorite Campaign Slogan

Not really a slogan, but should be:

Jesus on a stick. Gimme a break.

That is Mungowitz. If you are in North Carolina, be sure to vote for his alter ego Mike Munger in November. I would not, however, just out of the fear that it would slow down his production of EconTalk podcasts.

Neuroeconomics

TPS's resident foreign exchange guru, Thomas Johnson, recently wrote to request a post on neuroeconomics, vis-a-vis this recent piece in the Economist. And here at TPS, we aim to please, so here we go. Hopefully a nice discussion will follow.

Neuroeconomics, it could be argued, is the next step in not only the happiness research path, but also the scientification of the discipline. It was the goal of many 1970s macroeconomists to try and calculate the exact specifications of any functioning economy; if you're not growing, we can calculate exactly what you need to do to get you back on the right track. Needless to say, this caused a lot of harm. Trying to make economics more like science is not what economics should be doing; Hayek did a great job of explaining this in his Nobel Prize lecture.

Computation realities aside, there's still an ethereal concept of happiness that can not be measured; measuring dopamine is not measuring happiness. It's measure a physical process in the brain that seems to be related to people claiming to be happy; it is not happiness itself. I wouldn't even say that it's "closer" to measuring happiness than just asking someone how happy they are-- and we have written numerous times about the problems of doing that.

So, I'm not a super-huge fan of neuroeconomics, based not so much in the interesting results that it may yield in the near future, but the danger of using these results as support for policy prescription.

(By the way, the article mentions CalTech's Colin Camerer, author of perhaps my favorite academic paper. Favorite/longshot biases have received a lot of attention in gambling literature, and he wanted to see what happened when you put shocks onto the betting pool right before the betting window closer. Big shocks. Like removing-$100,000-bets-one-minute-before-post-time big. I got such a kick out of that.)

P(Recession) on Intrade

CNN has the story of the latest news release on the slower than expected 1.9% annual growth rate. Intrade (pictured above) responded by increasing the probability of recession by 4.5% (up to 23.5%), however this represents a swing of just 2.5% from the price 48 hours ago. These are thin markets, so the previous drive up may have been some analysts at the BEA ahead of the announcement. That is pure 100% speculation, but I would do it if I was them.

Regardless, 1.9% economic growth is still far from the negative numbers needed to be called a recession by the Intrade definition, so over 20% still seems pretty high from my standpoint. However, I am not yet putting my money where my mouth is and trading (until I start getting some paychecks from the new job). For me, the big concern is the areas of growth and decline:

The increase in real GDP in the second quarter primarily
reflected positive contributions from exports, personal
consumption expenditures (PCE), nonresidential structures,
federal government spending, and state and local government
spending that were partly offset by negative contributions
from private inventory investment, residential fixed
investment, and equipment and software.  Imports,which are
a subtraction in the calculation of GDP, decreased.

Nothing there sounds particularly good, as the main story seems to be investments in future productivity are declining. Keep in mind that the statement "Imports, which are a subtraction in the calculation of GDP" is a definition of an accounting relationship, not a behavioral relationship. It is definitely not the case, regardless of what Lou Dobbs tells you, that imports have made us poorer, because imports allow the other components of GDP to increase.

Free Market vs. Sporn

One of the best social benefits created by the internet is the demonstration it gives to the general public the self-regulation created in free markets. Consider the new EA games product Spore, which apparently is like Second Life but with ever evolving creatures instead of people. Sure enough along follows the creation of Sporn, which is pornographic characters in the game, has outraged many. Just watch the free market go:

When EA got word of the "Sporn" creations, it began working with YouTube to pull them down. Players who repeatedly upload "offensive content" are warned, suspended and eventually banned, Bradshaw said.
...
But the policing isn't restricted to EA and YouTube. Users also are able to flag and report content that they find offensive.
...
EA plans to make sure nobody sees the content if they don't want to, Bradshaw told CNN. When playing "Spore," users will be given three choices regarding people's creations: to receive no outside content, to receive content from buddies only, or receive all external content.
...
Miles Moffit, a gamer attending the University of Georgia who has created tons of "clean" characters on his own, is glad to know EA will be regulating what makes it into the game.
...
"My initial reaction to discovering it in my final game would be to ban it so it wouldn't show up again and then blow it to pieces for the sheer satisfaction of it," Moffit said. "Go ahead, create a walking phallus. See how long it lasts in the databases and galaxies of Spore."

Beautiful.

Bad Money

While eating my last meal in Rome, I paid with cash and received, in turn, a 20 Euro bill in change. The following morning, after buying a train ticket to the airport with said 20 Euro bill, I was flagged down by the man from whom I bought the ticket-- on the train no less-- and despite the language difference, I could tell he was none too pleased.

The problem? My 20 Euro bill was a fake.

Fortunately, I was able to scrap together legal money to get myself to the airport. I was intrigued, though-- if this was in fact fake, I wanted to make sure. So I tried to use it at the airport to buy some food and, again, it was refused. I feel pretty certain I've got a counterfeit 20 Euro bill in my possession.

One other possibility-- the reason for refusal, given both times, was that it was missing the wide vertical holographic strip down the right side. A photo of the bill is here. As the bill was printed in 2002, the first year of Euro currency (some could have been printed in 2001 in anticipation of release, I do not know, but the currency came into circulation in 2002), the bill's design could well have been changed from 2002 until now. As such, there may have been a period of acceptance for both bills-- strip and strip-free-- followed by the banning of the old bill.

A colleague of mine notes, though, that the best time to counterfeit is probably right near the release of a new bill, since bill-takers would probably be less familiar with the intricacies of the new paper currency. In response to this fact, however, perhaps they'd have heightened awareness to a higher probability of a fake?

Morally, how do I feel in my transactions I described? I don't feel bad at all about the first; I thought it was real. I had suspected by the second that it might be fake and wanted to test its legitimacy; unfortunately, paying at a food bar is not a certain test of the validity of the money. In my mind, had it been rejected (as it was), then I feel I've got a pretty good case for possessing a fake bill. If it's taken, however, that would seem like proof to me that it wasn't fake, but it could be that it was counterfeit yet accepted anyway. So I can't observe for myself the truth of the bill, and as such, can't tell if I've ex post taken advantage of the merchant with which I was trying to deal.

Dana-- correct me if I'm wrong, but you have to surrender or will have confiscated any counterfeit cash you possess at any time, right? For example, if you try to pay (knowingly or unknowingly) with a fake $20 at McDonalds and they deem it counterfeit, don't they confiscate it and call the cops and you do not get your $20 replaced?

Don't Get Too Excited

CNN has the story on the legalization of Marijuana possession, but as you would expect the actual bill falls far short of having any teeth:

If HR 5843 were passed by the House, marijuana smokers could possess up to 100 grams -- about 3½ ounces -- of cannabis without being arrested. It would also permit the "nonprofit transfer" of up to an ounce of marijuana.

The resolution would not affect laws forbidding growing, importing or exporting marijuana, or selling it for profit. The resolution also would not affect any state laws regarding marijuana use.

As a non-toker, I have no idea how much 3.5 ounces of MJ is, but if you cannot grow it, import it, or buy it for a price above cost....where will it come from? Who is legally responsibe if the price is above cost? The buyer? The seller? Do time and alternative opportunities count as costs?

My best hope is that stores will be able to engage in product tying, in which they can sell a high profit margin product that comes with "free" marijuana. Hopefully that would satisfy the laws on non-profit transfer, but I have no idea where the supply will come from if it cannot be grown or imported.

Still, I take it as a small win for Libertarianism.

EPA By Any Other Name Would Be as Captured

From CNN:

And Sen. Barbara Boxer, a California Democrat who has long battled with the agency's administrator, Stephen Johnson, said the instructions showed that Johnson is "turning the EPA into a secretive, dangerous ally of polluters, instead of a leader in the effort to protect the health and safety of the American people."

Capture Theory anyone? This is the only way things can turn out with the EPA, we would all be a lot better off without it. A second best would be for it to be heavily restricted from the ability to levy actual regulations of processes and limit it to regulations of outcomes instead.

How My Wife Could Be a Behavioral Economist

My wife has two interesting incentive schemes for her workout and dieting scheme:

1. She keeps a King Size 3 Muskateers Bar at home, in plain sight, on the kitchen counter. Not her favorite treat, but is good. Why does she keep it out in plain sight? When she is out someplace where she would be tempted to have a dessert of some kind, she thinks to herself "no, I have that 3 Muskateers Bar at home." By the time she gets home, she is able to refuse the 3 Muskateers Bar, which is now several weeks old.
2. She downloads her favorite books to her iPod nano, which is really only convenient for her to wear when working out. She says she finds herself wanting to go work out so that she can listen to the books, and sometimes stays longer thinking "just one more chapter."
   

CNN iPoll on the Housing Bail Out

Copy and pasted from CNN webpage at 1:45 p.m. on 7227/2008:

How do you view the housing rescue bill?

Needed boost to economy	27%	27558
Bailout of reckless homeowners	73%	75899
Total Votes: 103457

I'm surprised by the one-sidedness of this, though it is not a very scientific poll. Could this bailout bill become an important campaign point this election season?

Man Faces Jail Time for Shooting Lawn Mower

From CNN:

A 56-year-old Milwaukee man is accused of shooting his lawn mower because it wouldn't start.
...
He told police: "I can do that, it's my lawn mower and my yard so I can shoot it if I want."
...
Walendowski could face up to an $11,000 fine and six years and three months in prison if convicted.

Really? Six years in prison and an $11,000 fine? Plus, I find it hard to argue against his logic. I guess it depends on how potentially dangerous he was to the public, but I personally have wanted to execute a few malfunctioning devices as of late. Fortunately I don't own a gun.

Name the Unintended Consequences...Credit Card Reporting

Flying around the blogs is the story that the new housing bail-out bill contains a provision that all credit card transactions must be automatically submitted to the IRS. This begs the following questions:

1. What will be the unintended consequences of this, if passed into law? Fewer e-Bay transactions? Less readable purchase descriptions on your credit statement? More readable?
   
2. I would guess there are somewhere around a billion transactions per day. Can they really do anything practically useful with that information?
3. What does this have to do with housing? I know, riders need not matter.
4. Can they make the data available to economists? Pretty please?
   

The People You'll Meet

At a barbeque today, I listened to two mothers stress over whether or not they were going to get their children vaccinated. Why? They didn't trust the government on the safety and benefit of vaccines. Okay, fair enough, but since they each drove a van that each had a "Hillary for President" sticker, I had to ask them if they were in favor of Universal Health Insurance from the government. Indeed, both of them were.

I'm curious as to how one lives with the internal contradiction of not trusting the government on the safety of vaccination but do trust the government on all things health care? Also, I wonder how many of these people are out there?

My thoughts from Rome

I'll be home soon, but a few observations:

- This whole Obama trip is getting a lot of coverage here in Europe. I'm on the fence as to whether it will help or hurt him in the American polls; prior to today, I felt that it would hurt him , but I'm thinking a mild positive bump for him at home as a result as of this afternoon. I don't know. McCain could be countering better (at least from what I see here). He seems weak for an election battle; if Obama can continue to upstage him without attacking him directly, it could be a landslide by November.

- Right before I was in Istanbul, there was a shooting there at the American embassy (or at least near it). At the time, and I haven't seen anything since, they attributed it to Al Qaeda. This felt wrong right from the get go. I haven't seen anything since, but I'm curious how it plays out. It is not like them to have a car full of shooters who do their deed and then flee the scene.

- Ice is a big deal here; if you want it with your soda, you have to ask for it. Which got me to thinking: If you want to preserve the ice as long as possible, do you a) pour the glass full, drink a small amount and then keep filling the glass to the top level, or b) fill the glass to the top, drink it to the bottom, then fill it once it is empty back to the top? Each soda fills roughly two glasses, if used by the latter description. I'm thinking that the former approach leads to better preservation, but the assumptions abound. Fieldwork seems to confirm my suspicions.

- I have discovered the best pizza in the world; Pizza di Leoncino surpasses anything pizza I've taken in, by a fair margin. I've been twice already, and plan on at least another trip before I make the trek back on Wednesday.

- One quick note: My column on Friday dealt with the privatization of the West Virginia worker's compensation system. I received an email from a member of BrickStreet who noted that they actually have no shareholders; as a mutual company, they are owned by their policyholders. That makes for some interesting incentive situations-- those pursuing surplus on the demand side are the same people pursuing surplus on the supply side-- but problems likely arise only in small number scenarios. Anyhow, my apologies for the oversight. I may well write about this aspect in the near future-- it's an interesting scenario.

Can I Get Some Help Here?

Yesterday I ordered a new item off the menu of Taco Bell, and I didn't like it. This morning I tried a route to work that I never tried before, and it took me longer than usual by about six minutes.

I am currently writing my congressman, asking for financial relief at the taxpayer expense for a refund of the taco, and compensation for the additional gas I used in error.

I hope they support my bailout.

Fake Economists at the EPI

From a CNN story:

"This reflects a stark reality in America: in the face of the rising cost of living for low-wage workers, the federal government is not guaranteeing a fair wage," said Mary Gable, an EPI economist, in a statement.

I also noticed that our government refuses to guarantee the existence of unicorns and leprechauns, how very disappointed I am in them. However, my interest is in them claiming Mary Gable to be an economist. She is not, she has a bachelors in political science and a masters in social services. I wonder if CNN assumed she was an economist, or if EPI presented her as one (i.e. sloppy journalism or a dishonest EPI). It should be noted that EPI does have several PhD economists on staff, so its not a supply problem on their end, probably just a product problem.