Sunday, December 2, 2012

Is Walmart Evil for Paying Low Wages and Trading with China? Maybe so...

Is Walmart evil for paying low wages or because they offer chinese products.

1. Low Wages:

Who earns low wages?  Usually it’s low skilled less productive people.  Typically they're young with few skills and little experience or older people who have become less productive due to the limits placed on them by their age.  People who earn higher wages are typically more productive with more experience.  This is why plumbers, electricians, engineers and doctors never have to worry about earning a minimum wage.  Their goods and services are valued higher in the monetary sense because the demand for their goods and services relative to the supply of their goods and services is higher.  This is determined by consumers.  Employers don’t determine the value consumers place on a good or service.  If employers were the only ones that determined the value of an employee then employers could just value their workers at a million dollars and pay them a hundred thousand dollars per hour.   

It might be better explained by talking about what the consequences of raising the wages of wal mart workers.  

One possible outcome of Wal Mart implementing a policy of no one is allowed to earn less than $20/hour.  This means that if Wal Mart can put a machine in place which costs less than $20/hour to own and operate, they will replace a human job with a machine.  So if there’s a machine that can stock shelves and it costs $15/hour to own and operate accounting for the purchase price, depreciation, maintenance, etc. then it is in Wal Mart’s best interest to fire shelf stockers and buy shelf stocking machines.  If Wal Mart can pay low skilled workers $10/hour then it’s more profitable for them to hire people than buy the machine.

Another possibility is that Wal Mart can raise the prices on their products to maintain profitability.  This means that the costs of the wage increase passes on to the consumer in the form of higher prices on items sold at Wal Mart.  So if a pair of shoes used to cost $10 at Wal Mart, that same pair of shoes now might cost $12.  Wal Mart consumers then have to do more work for a pair of shoes or make do with less.  So paying $12 instead of $10 means that a consumer is left with $2 less than they otherwise would have had.  Instead of having a pair of shoes and a $2 pair of socks, they now just get a pair of shoes for $12.

One more possibility of Wal Mart implementing pay raises to $20/hour.  Since businesses are in competition with each other, if they raise prices too much people can just go to another store.  So there is only so much that Wal Mart can do to pass on the costs of pay raises in the form of price raises.  Let’s say Wal Mart decides to take less in corporate profit.  Then people who invest in Wal Mart stock have less of an incentive to keep their investment.  They can always sell Wal Mart stock and go invest in another company.  So now maybe Wal Mart was going to put up a store in a new market, but instead decide not to.  People in that market are then denied a choice of shopping at Wal Mart.  So maybe those consumers have to continue paying higher prices.  That means they have to make do with less or just work harder for the same amount of stuff.

This is very much related to the arguments against minimum wages which can be researched.  Resources will be listed in the description for further reading.

2.  Chinese products:  

Some people seem to be under the impression that if they purchase a product from China it somehow hurts our economy.  Somehow Americans lose something when they trade with China. This animation will give a demonstration of one community, regardless of size, trading with another community.  It gives a visual of how no one loses anything when making a voluntary trade.  The only way a Chinese company will send over a product is if they are getting something in return.  So that means an American company has to produce something that a Chinese company wants.  We typically use money as a medium of exchange so we don’t have to directly barter with the Chinese, but that just gives the Chinese a wider variety of American goods or services that they can purchase.  So if I give a Chinese person $1 for a pen, that Chinese person then has $1 to spend on an American product.  Even if the Chinese person takes that $1 and trades it with another country, it just makes the ultimate chain of transactions more complex, but it doesn’t change the nature of trade.  An American dollar is a claim on an American resource.  It’s required by law that American companies accept dollars whether it’s a Chinese person who has a dollar or an American.  It’s not necessary for there to be a law requiring people within a certain geographical region to accept a particular money, but that will be covered in another video.

Now someone might say yeah maybe on net as a country we don’t lose anything by trading with China, but what about the business who can’t compete with a Chinese company.  So lets talk about an American pen company.  What does that mean if they can’t compete?  Well, it means the Chinese pen company can make pens and ship them half way around the world more efficiently than an American pen company can make pens and ship them across the country.  So maybe that American pen company goes out of business.  Now those resources that used be put towards inefficiently making pens can now be used to make something else.  So maybe investors in the pen company pull their money out and invest in a technology company that can efficiently allocate resources in making some kind of software.

Henry Hazlitt has a great book called Economics in One lesson where he describes this process in great detail.

So I have explained why Wal Mart isn’t evil for paying low wages and trading with China.  Is that the end of the story?  No.  If you want to hate Wal Mart for something, you CAN hate them because they receive the same benefits special benefits from the State as any other large corporation.  They get special tax breaks from the State.  They benefit from the barriers to entry imposed by the State which prevent small businesses from competing like licensing and complicated international trading laws and regulations.  NAFTA is the North American Free Trade Agreement.  And because it was created by politicians it accomplishes the exact opposite of its stated goal.  It prevents free trade.  Maybe I’ll cover that in another video.  

I felt it was important to direct people’s anger at Wal Mart into the correct direction.  If you hate Wal Mart it should be because they get benefits from the State, NOT because they pay low wages or trade with China.  Well let me know what you think in the comments and subscribe to my channel.

Watch my video about the subject and get visuals on these ideas:

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