Sometimes it’s hard to keep up with all the muddled thinking that is passed off as keen economic insight in much of the mainstream media.
My thoughts along these lines started last week with this David Ignatius/Washington Post op-ed in which Ignatius extols the virtues of undertaking a “fundamental national mission, equivalent to President John F. Kennedyís call to put a man on the moon” to solve everything from General Motors’ current problems to dependence on foreign oil, Americansí high living, and the decline of manufacturing in America. Ignatius’ enthusiasm is fueled by Amory Lovins recent book, Winning the Oil Endgame: Innovation for Profits, Jobs and Security (RM Institute 2004), which calls for a big government plan of higher taxes and government subsidies to facilitate fundamental change in the materials used to build such big things as automobiles and buildings. Although Ignatius admits that he knows nothing about the financial viability of Lovins’ big plan, that doesn’t stop him from endorsing it enthusiastically:

I’m no technologist, so I can’t evaluate the technical details of Lovins’s proposal. What I like is that it’s big, bold and visionary. It would shake an America that is sitting on its duff as foreign competitors clobber our industrial giants, and it would send a new message: Get moving, start innovating, turn this ship around before it really hits the rocks.

Of course, Ignatius ignores the little detail of what happens if those carbon-fiber composite automobiles that are created as a result of the government money don’t sell all that well. I guess we’ll just have to work around that later.

Meanwhile, on another front, that big, visible company that no one should like — Wal-Mart — continues to be a hot topic of misinformation. This round of criticism of the retail giant began after this John Tierney/New York Times ($)op-ed had the temerity to note that Wal-Mart is actually a good company that provides many benefits to its workers and the communites that it serves. That uncharacteristic pro-Wal-Mart stance provoked the standard the usual outcry of anti-Wal-Mart sentiment from the anti-capitalists in the media and government, including the following letter to the editor of the Times:

“The Good Goliath” (column, Nov. 29), John Tierney’s defense of Wal-Mart, misses the point. Nobody denies that Wal-Mart offers low prices to consumers. What opponents of Wal-Mart’s practices argue is that the social good of low prices must be balanced against other important values.
Putting our children to work in factories would cut costs to consumers, but we all believe that this is morally unacceptable and would hurt our country in the long run.
In the same way, many of us believe that Americans working hard at full-time jobs should not be receiving wages that keep them living in poverty without health care.

Now, let’s get the letter-writer’s thinking straight. Inasmuch as employers have the chief moral responsibility of providing philanthropic assistance to workers and the hugely profitable Wal-Mart can afford to pay higher wages (its owners can do without those profits, you know), Wal-Mart is greedy for failing to pay higher wages and fringe benefits to its workers.
Well, there is a reasonable position against Wal-Mart, but the foregoing is not one of them. Wal-Mart employs about 1.3 million people, which is about 1% of the American workforce. It is not a particularly profitable company — it makes, on average, a net profit of about 3.5% on annual revenues of around $300 billion. Microsoft made more money than Wal-Mart on about $40 billion of sales in 2004.
Thus, Wal-Mart makes money by selling a lot of things to many people at small markups. Yet, because it is a big company, many people — most of whom presumably don’t shop at Wal-Mart — assert that Wal-Mart exploits its workers who apparently can’t get a job with an employer who would take proper care of them. Not mentioned in such common criticism is the fact that Wal-Mart’s average starting wage of $9.90 per hour is already nearly double the national minimum of $5.15 per hour and that the company provides a wide range of medical insurance options to its workers, including health savings accounts. Implicit in the misdirected criticism of Wal-Mart is that the government really should do something about this unfeeling corporate behomoth.
Finally, on the “more government regulation of business is good” front, this Joseph Nocera/NY Times ($) op-ed concludes without any meaningful basis that the Sarbones-Oxley legislation has been a success in cleaning up the corporate scandals that provoked the legislation in the first place. Nocera — who recently took the equally dubious position that Eliot Spitzer has lofty standards — essentially begins with the conclusion that SOX is a good law and then uses mostly anecdotal statements from the legislation’s supporters to buttress his conclusion.
However, Nocera’s piece simply blows right over any real cost-benefit analysis of the legislation. For example, one of the primary purposes of SOX was to fix bad auditing, which presumably facilitated the corporate scandals beginning with Enron. But one of the primary results of the SOX legislation has simply been to enrich auditors. In the meantime, accounting scandals such at those at AIG and Refco continue to occur — wait a minute, wasn’t that what SOX was supposed to halt? Similarly, Nocera simply ignores the increasing number of public firms that are delisting because of the cost of complying with SOX, the negative impact of the increased cost of public equity financing resulting from SOX, and the decreasing supply of people who are willing to take the risk of serving as directors of a public company because of SOX. Successful legislation, indeed.
By now, you are probably asking the quite legitimate question of “where are you going with all of this?” My point is that all of the these proposed policies — big government plans are good, big Wal-Mart is bad and should be controlled, and more government regulation of business is good — rely on the underlying assumption that the exercise of governmental power is reasonable regardless of the cost. Ignored is the fact that the governmental action may well be flawed and either exacerbate the perceived problem or create another one that is worse. Thus, rather than relying on dubious assumptions of the benefit of governmental control, what is really needed is sound cost-benefit analysis of the effect that such proposed policies will have on beneficial risk-taking that creates jobs and generates commercial growth. From my vantage point, feeling good about the inspirational goal of more governmental control usually comes at the high price of denying the individual freedom that is complementary to a bustling economy.