Economics and Government

Is shopping at Wal-Mart immoral?
"Big discounters help the poor make ends meet, but they create more poverty when they pay low wages and force local stores to close. It's a conundrum facing investors and shoppers alike."

By G. Jeffrey MacDonald

I thought this was pretty interesting article. Comments appreciated, I want to see what you think.

In class the other day someone asked whether we would be discussing alternative normative frameworks. We will, later. In the meantime, I think you can find a useful discussion of a topic we will explicitly discuss later, right here:

"As Berlin defined it, negative liberty refers to freedom from coercion. In this sense, liberty is a political concept, which can only be understood with regard to the issue of the use of violence among men. In other words, an individual is free if he can do what he wants to do with what he owns without anyone stopping him from doing so (i.e. using violence or the threat of it against him). As Herbert Spencer explained, this means that everyone enjoying negative liberty also has a duty to respect others doing the same (the law of equal freedom). For those interested in a non-utilitarian version of it, see one of my favorite books by Murray Rothbard’s, The Ethics of Liberty."

The entire piece is worth reading.

Here is something I posted to Economics & Liberty some time ago that might help you understand BCA.

Congress Seeks to Rein In
Special Executive Pensions
Proposal Would Push Firms
To Ensure Workers' Plans
Get Adequate Funding First
By MICHAEL SCHROEDER
Staff Reporter of THE WALL STREET JOURNAL
January 25, 2006; Page A1

WASHINGTON -- Rankled by the rich retirement payouts many troubled companies make to executives, Congress is moving to block such companies from funding the lavish packages.

The provision, tucked into legislation that would shore up the federal agency that provides a safety net for private-sector pensions, would keep financially troubled companies from setting aside any special pension benefits for top executives if their pension plans for rank-and-file employees weren't adequately funded.

I think this story provides a great illustration of something to watch out for when reading the news. What seems to be the story line that is emphasized sounds something like the following.

Congress has noticed that there are corporations with private pension plans for employees that are in financial bad shape. One example would be United Airlines which has had to significantly reduce promised pension payouts to employees. At the same time, at least some of the corporations in this trouble with their employee pension programs have been continuing to pay "executives lavish pensions." Perhaps one obvious conclusion to be drawn from this story is that corporations and corporate executives can indeed be very bad and selfish characters. Further, we might here this illustration used to question the reliance on unregulated economic activity in general.

It is this last point that one should be careful about. One may want to blame the incentives of markets for this sad state of affairs. But, as is often the case, what we see on the surface may not lead us to an accurate explanation for situation people are concerned with. I suggest that when you read a story like this it is important to always ask if government is already involved. It is often the case that politicians who are concerned about some evil of the market today are actually looking for a new public policy to fix a problem today that is the result of public policy in the past. Is that the case here? That's very possible.

The rest of the story involves a government program to insure private defined benefit pension programs. This program changes the incentives faced by the private companies. Specifically, this situation seems to me to be well described by the concept of moral hazard. If part of the risk of bankruptcy in a pension program is shifted to the taxpayers, then we can predict that private companies will respond with more risky choices in the pension programs. We can also expect more private pension bankruptcies than would be the case without the government insurance program. If a corporation can provide a pension program for employees with a government insurance backup, then it seems the corporation would see a change in incentives with respect to executive pension programs, assuming there are two different pension programs. That is, the government's insurance would free some resources that could be devoted to executive pensions as well as other activities of the corporation. So, it seems quite possible that efforts by politicians today might not have ever been thought of if Congress hadn't some years ago decided to use tax dollars to insure private defined benefit pension programs.

The It-Sucks-To-Be-Me GenerationTwentysomethings who can't stop whining about how the economy is screwing them
By Daniel Gross http://www.slate.com/id/2134007/

College graduates (and twentysomethings who haven't gone to college) are in a world of hurt. The deck is stacked against them: student loans and credit-card debt, budget deficits and McJobs, high housing prices and generational warfare waged by more-numerous baby-boomers.
The economic jeremiad written by a twentysomething is a cyclical phenomenon. People who graduate into a recessionary/post-bubble economy inevitably find the going tough, which compounds the usual postgraduate angst. And with their limited life experience and high expectations, they tend to extrapolate a lifetime from a couple of years. I know. Back in the early 1990s, when my cohort and I were making our way into the workforce in a recessionary, post-bubble environment, I wrote an article on precisely the same topic for Swing, the lamentable, deservedly short-lived David Lauren twentysomething magazine. If memory serves, the headline was something like "Generation Debt."
Of course, as I penned those words on my tiny, crappy Mac and rode my bike through Midtown to deliver the piece (that's how things were done before the Internet), the economy was beginning to heat up. What followed were seven fat years in which exciting new industries were created, the stock market rose, and interest rates fell. As the 1990s wore on, most of my pals who had lamented their student loans, crappy jobs, and gross apartments found great jobs, loving spouses, and better housing.
And so, here we are again. Now, today's twentysomething authors are clearly onto something. College is more expensive today in real terms. There's been a shift in student aid—more loans and fewer grants. The Baby Boomers, closer to retirement, are sucking up more dollars in benefits. There's more income volatility and job insecurity than there used to be. So, why are these books—Generation Debt in particular—annoying?
It's not that the authors misdiagnose ills that affect our society. It's just that they lack the perspective to add any great insight. Writing in the New York Times this weekend, economics reporter David Leonhardt called Strapped, "a grim tale of one-sided generational warfare." Draut argues that "with the possible exception of having a larger array of entertainment and other goods to purchase, members of Generation X appear to be worse off by every measure" than prior generations. Huh? How about the Internet and Starbucks coffee and Lipitor and not having to worry so much about AIDS or crime or Mutual Assured Destruction or getting drafted into the Army and getting sent to Vietnam?
Also, many of the economic issues the authors identify—job insecurity, low savings rate, income volatility, the massive ongoing benefits cra-down—affect everybody, not just twentysomethings. And the people hurt most by these escalating trends aren't young people starting out. They're folks in their 50s and 60s, middle-managers at Delphi whose careers have ended, coal miners in West Virginia who face death on the job, the people at IBM who just saw their pensions frozen.
Today's twentysomethings, by contrast, have their whole lives in front of them. Want a cheaper house? Quit Manhattan and move to Hartford, Conn. Want to make more money? Pick a different field.
In Kamenetz's book, there are plenty of poor, self-pitying upper-middle-class types, disappointed that they can't have exactly what they want when they want it. Sure, it's tough to live well as a violinist or a grad student in New York today; but the same thing held 20 years ago, and 40 years ago. To improve their lot, twentysomethings have to do the same things their parents should be doing: saving more, spending less, building skills that are marketable, and aligning aspirations with abilities. It's tough to have a bourgeois life at 26.
Kamenetz also makes cavalier statements about economics and career development. "The job market sucks," she proclaims. It may not be as good as it was in the 1990s, but suck is a pretty strong term. She complains that a $700 personal computer, a necessity for any young person, is expensive. Huh? Computing is incredibly cheap. The first PC I bought, that crappy, tiny Mac, cost $2,000 in 1990 dollars.
Kamenetz complains that: "No employer has yet offered me a full-time job with a 401(k), a paid vacation, or any other benefits beyond the next assignment. I have a savings account but no retirement fund. I can't afford preschool fees or a mortgage anywhere near the city where I live and work." Of course, Kamenetz doesn't have kids to send to preschool. And chances are, by the time she does, she'll be able to afford preschool fees. Most people in their 20s don't realize that their incomes will rise over time (none of the people I know who have six-figure incomes today had them when they were 25), that they will marry or form a partnership with somebody else, thus increasing their income, and that they may get over having to live in the hippest possible neighborhood.
Look. It's tough coming out of Ivy League schools to New York and making your way in the world. The notion that you can be—and have to be—the author of your own destiny is both terrifying and exhilarating. And for those without marketable skills, who lack social and intellectual capital, the odds are indeed stacked against them. But someone like Kamenetz, who graduated from Yale in 2002, doesn't have much to kvetch about. In the press materials accompanying the book, she notes that just after she finished the first draft, her boyfriend "proposed to me on a tiny, idyllic island off the coast of Sweden." She continues: "As I write this, boxes of china and flatware, engagement gifts, sit in our living room waiting to go into storage because they just won't fit in our insanely narrow galley kitchen. We spent a whole afternoon exchanging the inevitable silver candlesticks and crystal vases, heavy artifacts of an iconic married life that still seems to have nothing to do with ours." The inevitable silver candlesticks? Too much flatware to fit in the kitchen? We should all have such problems.
And does her fiance have one of those crap temporary jobs all the drones in her generation are destined to hold forever? Not really. He's a software engineer at Google.

Do the Poor Deserve Life Support? A woman who couldn't pay her bills is unplugged from her ventilator and dies. Is this wrong?
By Steven E. Landsburg http://www.slate.com/id/2133518/

Tirhas Habtegiris, a 27-year-old terminal cancer patient at Baylor Regional Medical Center in Plano, Texas, was removed from her ventilator last month because she couldn't pay her medical bills. The hospital gave Ms. Habtegiris' family 10 days' notice, and then, with the bills still unpaid, withdrew her life support on the 11th day. It took Ms. Habtegiris about 15 minutes to die.
Bloggers, most prominently "YucatanMan" at Daily Kos, are appalled because "economic considerations," as opposed to what the bloggers call "compassion," drove the decision to unplug Ms. Habtegiris. I conclude that YucatanMan either doesn't understand what an economic consideration is or doesn't understand what compassion is, because in fact the two are not in conflict.
Here, for the edification of bloggers everywhere, is an example of an economic consideration: If you ask people—and especially poor people—what their most dire needs are, you'll find that "guaranteed ventilator support" ranks pretty low on the list. OK, I haven't actually done a survey, but I'm going out on a limb here and predicting that something like, say, milk, is going to rank a lot higher up the priority list than ventilator insurance.
In fact, I'll go further. The back of my envelope says that a lifetime's worth of ventilator insurance costs somewhere around $75. I'm going to hazard a guess that if, on her 21st birthday, you'd asked Tirhas Habtegiris to select her own $75 present, she wouldn't have asked for ventilator insurance. She might have picked $75 worth of groceries; she might have picked a new pair of shoes; she might have picked a few CDs, but not ventilator insurance.
She might even have picked something health-care related—a thorough physical exam, or, if there were better markets for this sort of thing, $75 worth of health or disability insurance. I doubt very much, though, that with $75 to spend, she'd have chosen to insure against needing a ventilator as opposed to any of the other minor and major catastrophes to which we mortals are susceptible.
Now let me remind you what "compassion" means. According to Merriam-Webster Online (which, by virtue of being online, really ought to be easily accessible to bloggers), compassion is the "sympathetic consciousness of others' distress together with a desire to alleviate it." By that definition, there is nothing particularly compassionate about giving ventilator insurance to a person who really feels a more urgent need for milk or eggs. One might even say that choosing to ignore the major sources of others' distress is precisely the opposite of sympathetic consciousness.
There is room for a great deal of disagreement about how much assistance rich people should give to poor people, either voluntarily or through the tax system. But surely whatever we do spend should be spent in the ways that are most helpful.
Therefore there's no use arguing that the real tradeoff should not be ventilators versus milk but ventilators versus tax cuts, or ventilators versus foreign wars. It's one thing to say we should spend more to help the poor, but quite another to say that what we're currently spending should be spent ineffectively.
This is not to deny that the health-care system needs a massive overhaul; it does. But that's not the issue on the table here. The issue is: Given the current system, should or should not the federal government (or Baylor Medical Center, or somebody) effectively guarantee that nobody will ever die for lack of a ventilator? In other words, should poor people be given ventilator insurance?
The bloggers at Daily Kos say yes. But for the same cost, we could give each of those people a choice between ventilator insurance on the one hand or $75 cash on the other hand. If it turns out that I'm wrong and they all want the ventilator insurance, so be it. But why not at least ask them?
You can't do that with every government service. You can't offer people a choice between police protection and its cash value, because police patrols tend to protect entire neighborhoods at once, not just specific individuals. You might not want to offer people a choice between a flu vaccine and its cash value, because you'd really prefer to have vaccinated neighbors. But critical life support isn't like that; the benefits are targeted to specific individuals. There's no reason those individuals shouldn't be allowed to choose different benefits if they want them.
Tirhas Habtegris would probably have taken the cash. Then she'd have gotten sick and regretted her decision. And then we as a society would have been in exactly the same position we were in last week—deciding whether to foot the bill to keep Ms. Habtegris alive a little longer.
At that point, there's a powerful human instinct to come to the rescue. Well, more precisely, there's a powerful human instinct to demand that someone else come to the rescue. (I'm guessing that in the wake of the Habtegiris case, nobody at the Daily Kos has taken to funding ventilator insurance for the poor.) Be that as it may, choices have to be made. A policy of helping everyone who needs a ventilator is a policy of spending less to help the same class of people in other ways. Accounting for "economic considerations" means—by definition—trying to give people what they'll value the most. In other words, economic considerations are the basis of true compassion

Arnold Kling:

"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."

I think Kling's commentary offers a useful perspective that one needs to consider when doing policy analysis. You should read the entire piece.