Voice For Liberty

Category: Free markets

  • Wal-Mart. More hypocrisy.

    Writing from Jackson, Mississippi

    Currently it is quite fashionable to criticize Wal-Mart as the starting point for everything evil about American business. Critics allege that Wal-Mart earns too much profit, pays its employees too little, doesn’t provide its employees health insurance so they have to rely on the government, it exploits low-paid workers in China, and might even be responsible for avian flu, for all I know.

    There is no doubt that Wal-Mart is a powerful force in the economy. The Wall Street Journal on December 3, 2005, wrote “Wal-Mart employs about 1.3 million people, about 1% of the American work force. Its sales, at around $300 billion a year, are equal to 2.5% of U.S. gross domestic product.”

    But bigness doesn’t necessarily translate to profitable: “It is not, however, an especially profitable company. Its net profit margins, at about 3.5% of revenue, are broadly in line with the rest of the retail industry. In fiscal 2004, Microsoft made more money than Wal-Mart on just one-eighth of the sales.”

    Is Wal-Mart bad for poor people? Writing in The Washington Post on November 28, 2005, Sebastian Mallaby wrote: “Wal-Mart’s critics allege that the retailer is bad for poor Americans. This claim is backward: As Jason Furman of New York University puts it, Wal-Mart is ‘a progressive success story.’ Furman advised John ‘Benedict Arnold’ Kerry in the 2004 campaign and has never received any payment from Wal-Mart; he is no corporate apologist. But he points out that Wal-Mart’s discounting on food alone boosts the welfare of American shoppers by at least $50 billion a year. The savings are possibly five times that much if you count all of Wal-Mart’s products.”

    That’s a lot of money saved for consumers. Critics alledge, however, that Wal-Mart suppresses wages. It does, as it turns out. From The Washington Post article again: “Set against these savings for consumers, Wal-Mart’s alleged suppression of wages appears trivial. Arindrajit Dube of the University of California at Berkeley, a leading Wal-Mart critic, has calculated that the firm has caused a $4.7 billion annual loss of wages for workers in the retail sector.” Compare that with the amount that Wal-Mart has saved consumers. “Indeed, Furman points out that the wage suppression is so small that even its “victims” may be better off. Retail workers may take home less pay, but their purchasing power probably still grows thanks to Wal-Mart’s low prices.”

    As for health benefits, John Tierney in The New York Times on November 29, 2005 writes: “Wal-Mart is often denounced for getting ‘corporate welfare’ because some of its employees rely on Medicaid for health care and on other government aid. But so do some employees at other companies or at government institutions like public schools. Wal-Mart offers health benefits that are generally comparable to what other retailers offer.”

    For those who claim that Wal-Mart receives corporate welfare in any form, I think that readers of this website know my feelings on that. Corporate welfare is wrong.

    From The Wall Street Journal again: “But suppose Wal-Mart did look more like the company its detractors would like it to be, with overpaid workers, union work rules, and correspondingly higher prices on goods. It would not only be a less attractive place to shop, and hence a considerably smaller company. It would drive up the cost of living for the millions who shop there, thus hurting those in the bottom half of the income-distribution tables that Wal-Mart’s critics claim to be speaking for. One might expect this fact to trouble the anti-Wal-Mart forces, except that their agenda is very different from what they profess it to be.”

    John Tierney of The New York Times again: “It’s easy to understand the motives of some of Wal-Mart’s enemies. Local merchants don’t want to match its prices. Labor leaders know that they’ll lose members and dues if unionized stores suffer. But why would anyone who claims to be fighting for social justice be so determined to take money out of the pockets of the poor?”

    Whatever your feelings, Wal-Mart operates in the relatively free marketplace, so it must meet the needs of its customers, or it won’t last very long. From The Wall Street Journal again: “To the extent that mom-and-pop stores are threatened by Wal-Mart, it’s because the same people who supposedly so value their Main Street hardware store find that Wal-Mart’s selection, or prices, or parking lot — something about it — is preferable.”

    That’s the free market — people voting with dollars rather than professed feelings — at work.

  • Employer-paid health insurance

    In the past I have written on how the system in America where almost everyone gets their health insurance through their job (Let’s Pay for Our Own Health Insurance) does not serve us well. Now I have become aware of even more evidence as to why we should all choose and pay for our own health insurance.

    A Harvard study (Illness And Injury As Contributors To Bankruptcy) concluded that of families that declared bankruptcy, about half cited medical bills as the reason. Of those, 76% had medical insurance at the time they became sick. Some of the problem is that when people become seriously ill, they can’t work. After they lose their job they have no income, and they can’t pay the premium to continue their existing coverage.

    Many types of insurance, and some health insurance policies, I have found, offer an option called “waiver of premium.” This option, if selected and paid for, pays the policy’s premiums when the insured can’t. This would help in the case where people are too sick to work and can’t afford their premiums. They would still be covered.

    If your employer, through whom you get your health insurance, doesn’t offer this waiver of premium option, you realistically have no way to obtain it. But if we all chose and paid for our own health insurance, those who wished to could have this option. This is just one more reason why the current system of employer-provided health insurance does not work well.

  • Corruption in the Public Schools: The Market Is the Answer

    Corruption in the Public Schools: The Market Is the Answer
    by Neal McCluskey
    Click here to read the article.

    This is an excellent article that shows how free markets can provide the best education for our children.

    On the surface, it would seem that having government bureaucrats in charge of educating children would produce good results. For a time in America, it did. But not now. As Milton Friedman said in his commentary “Free to Choose” published in the Wall Street Journal on June 9, 2005:

    “A Nation at Risk” stimulated much soul-searching and a whole series of major attempts to reform the government educational system. These reforms, however extensive or bold, have, it is widely agreed, had negligible effect on the quality of the public school system. Though spending per pupil has more than doubled since 1970 after allowing for inflation, students continue to rank low in international comparisons; dropout rates are high; scores on SATs and the like have fallen and remain flat. Simple literacy, let alone functional literacy, in the United States is almost surely lower at the beginning of the 21st century than it was a century earlier. And all this is despite a major increase in real spending per student since “A Nation at Risk” was published.

    “A Nation at Risk” was published in 1983.

    The executive summary of “Corruption in the Public Schools”:

    One of the most frequently voiced objections to school choice is that the free market lacks the “accountability” that governs public education. Public schools are constantly monitored by district administrators, state officials, federal officials, school board members, and throngs of other people tasked with making sure that the schools follow all the rules and regulations governing them. That level of bureaucratic oversight does not exist in the free market, and critics fear choice-based education will be plagued by corruption, poor-quality schools, and failure.

    Recently, news surfaced that appeared to justify critics’ fears. Between the beginning of 2003 and the middle of 2004, Florida’s Palm Beach Post broke a slew of stories identifying corruption in the state’s three school choice programs. The number of stories alone seemed to confirm that a choice-based system of education is hopelessly prone to corruption. But when Florida’s choice problems are compared with cases of fraud, waste, and abuse in public schools — schools supposedly inoculated against corruption by “public accountability” — choice problems suddenly don’t seem too bad.

    So which system is more likely to produce schools that are scandal free, efficient, and effective at educating American children? The answer is school choice, precisely because it lacks the bureaucratic mechanisms of public accountability omnipresent in public schools.

    In many districts bureaucracy is now so thick that the purveyors of corruption use it to hide the fraud they’ve perpetrated and to deflect blame if their misdeeds are discovered. However, for the principals, superintendents, and others purportedly in charge of schools, bureaucracy has made it nearly impossible to make failed systems work. Public accountability has not only failed to defend against corruption, it has also rendered many districts, especially those most in need of reform, impervious to change.

    In contrast to our moribund public system, school choice isn’t encumbered by compliance-driven rules and regulations, which allows institutions to tailor their products to the needs of the children they teach and lets parents select the schools best suited to their child’s needs. And accountability is built right in: schools that offer parents what they want at a price they are willing to pay will attract students and thrive, while those that don’t will cease to exist.

    From the conclusion:

    When examples of fraud, waste, or abuse are uncovered in school choice programs, they typically set off firestorms of criticism from people who oppose educational freedom. Critics quickly hold up any example of malfeasance in choice schools as proof that the market can’t provide the level of accountability supposedly guaranteed in public schools. But public schools’ accountability, as has been demonstrated constantly in districts around the nation, is a myth. Worse, it’s a myth whose propagation not only blinds people to the system’s failure to control corruption but also ignores bureaucracy’s disastrous toll on educational effectiveness. Ironically, though, there is a way to have both educational effectiveness and accountability, and it’s the very thing people who oppose school choice most fear: true choice-based education.

  • The Mississippi beef plant has a lesson for us

    Writing from Jackson, Miss.

    Jackson, Mississippi has a lively talk radio station, WJNT, featuring both local shows and national shows. The hot topic of discussion on my trip to this city was what to do with the MCI settlement money, as the state had just negotiated a settlement with MCI of $100 million, for taxes MCI owed.

    Some callers (and perhaps the host) suggested that the state use this money to pay for the “beef plant.” I was curious as to what this meant. Why, I wondered, would Mississippi be paying for a beef packing plant? After a little research I learned that Mississippi had guaranteed loans to develop a beef processing plant, in the name of economic development. The plant operated for just a few months before closing, leaving the taxpayers of Mississippi liable for the loans. The cost to the taxpayers was given as $54 million.

    I am writing about this because I feel we need to be more watchful of economic development efforts that the state and local governments undertake using taxpayer money. It is easy to develop grandiose plans for endeavors that will employ many people and generate all sorts of economic benefits. But business is risky. Things don’t — strike that — rarely follow even the best plans. Often, it is the public treasury that bears the risk for a project, not the owners or direct stakeholders. If these people have the risk of the business underwritten by the public, rather than having their own funds at risk, they behave differently. We have ample evidence from recent news reports in Wichita that public officials don’t monitor the progress of both public and public/private projects as they should.

    Proponents of issuing bonds, often in the form of industrial revenue bonds or IRBs make the point that the government is not giving the business the money. That’s true, and also a great relief, as Onex has asked for one billion dollars in bonds. But the government is guaranteeing the bonds, so that if the business fails, the government, meaning the taxpayers, have to pay.

    How often does the government have to step in and pay for the bonds issued to a failing or underperforming business? We learn of the spectacular failures like the Mississippi beef plant. How many small failures does the government pay for that don’t make the news?

    Following is an article from the Jackson Clarion-Ledger from May 1, 2005.

    Is there still a beef plant in our future?
    Legislature can easily fall back into its old ways

    By Charlie Mitchell
    Special to The Clarion-Ledger

    VICKSBURG — Three questions regarding Mississippi Beef Processors:

    How did Mississippi officials risk blowing $54 million in taxpayer money in this boondoggle?

    Will anyone be going to jail?

    Can it happen again?

    Three answers:

    Too few, intentionally or otherwise, knew anything about it.

    That remains to be seen.

    Yes, but not until the (heifer) dust settles.

    The basics are clear. A few years ago, under the guise of industrial development, also known as “job creation,” state executive agencies, including the Mississippi Land, Water and Timber Board, partnered with legislative leaders to underwrite startup costs of the beef plant near Oakland in north central Mississippi.

    Studies (ignored) showed there was little demand for such a plant and, sure enough, it shut down in November 2004, having operated only a short time for few customers. Officially, a need for $5 million more of the people’s dollars for “equipment repairs” was cited. That wasn’t provided, and the plant is now defunct, in default and the state of Mississippi has to sell it, perhaps for pennies on the dollar, or pay up in full.

    Here’s a point to remember: Mississippi Beef Processors was not an abnormal act of the Legislature. It was, in fact, business as usual.

    When such proposals show up, usually in the form of bond bills, they are, by coincidence, like cattle, run through the line. Few lawmakers ever ask the purpose for hundreds of millions of dollars being allocated in the public’s name — perhaps because they don’t want projects in their own communities questioned.

    Anyway, now that the Oakland project is officially in the dumper, attention turns to who, if anyone, will be held accountable.

    Recently, State Auditor Phil Bryant chose his words carefully in updating the state’s press about the work of an investigative task force composed of members of his staff, the attorney general’s staff and a few representatives of the FBI.

    Bryant termed the investigation “very active,” but added there is no timetable, no deadline for completion of the review.

    But then Bryant turned his remarks to something that could be more important — residual effects of the fiasco.

    A specific example, he said, is that during the regular session after a bond bill proposing $500,000 for something called M-Quality was passed well below the radar of the state press, nine House members did ask Bryant for a background check.

    M-Quality made headlines for a few days. Day One was a story about the House approval. Day Two was a report that M-Quality existed only on paper, and in very sketchy terms. Details didn’t matter, as it turned out, because on Day Three incorporators of M-Quality withdrew their request. The issue went away.

    Bryant indicated respect for the Legislature in this matter, especially since nine (of 174 lawmakers) at least made an inquiry.

    More significantly, in the one major initiative to which public funds were pledged this year — a SteelCorr plant near Columbus — extensive background reports were made conditional to the planned allocation of $25 million in state dollars plus up to $85 million more in years to come.

    To get the money, SteelCorr had to agree to submit a business plan, officers have had to undergo background checks and credit checks, company financials had to be submitted and a market analysis for its product must be performed under the auspices of the state Institutions of Higher Learning.

    Bryant says that’s the way it should be, and was pleased to report that portions of the allocation will also be reserved to pay for state audits of the company’s ongoing performance. Clearly a step in the right direction.

    But is any of this law? Must all future gifts be vetted? Nope. Nothing official has been changed in how lawmakers operate, meaning there could easily be another Mississippi Beef Processors fiasco. Officials may feel spanked for now — but the sting will fade.

    http://www.clarionledger.com/apps/pbcs.dll/article?AID=/20050501/OPINION/505010476/1200/OPINION02

  • I, Pencil

    I, Pencil
    Leonard E. Read (Click here to read the article.)

    Do you think there exists a single person who knows how to make a lead pencil? In this article, Mr. Read shows us how there is no one who knows even a small fraction of what is necessary to produce even this simple, everyday item.

    How, then, does a lead pencil come to be manufactured? Through the uncoordinated actions of many people, each exchanging their own small amount of knowledge for something else they want.

    The absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred.

    Later on we read this:

    the configuration of creative human energies–millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.

    It is free expression of creative human energy that makes economies work at their maximum potential. Attempts by governments to interfere are bound to fail, as even the coordination of the production of a simple lead pencil is beyond the comprehension of any single person, agency, or computer program.

  • The miracle and morality of the market

    The Miracle and Morality of the Market
    Richard M. Ebeling (Click here to read the article.)

    In this short article we learn the simple mechanism that makes our economy work so well. Interference with that mechanism is not only harmful, it is immoral.

    Prices convey the information that we need to make our economy work. Here is why:

    How are the activities of an increasingly larger group of individuals successfully coordinated, so that all the multitudes of demands and supplies are brought into balance and harmony? The Austrian economist and Nobel Laureate Friedrich Hayek showed how all of the knowledge and information in society can be encapsulated in the price system of the free-market economy. In our roles as both consumers and producers we communicate to one another what we think goods, resources, capital, and labor services are worth to us in their various and competing uses through the prices we are willing to pay for them. These “price signals” serve as the means for all of us to decide and coordinate what we want and are willing to do together with other members of society.

    Because of the information conveyed by prices, is not necessary for a government to rule over the economy to cause it to function properly. In fact, government intervention in the economy is harmful, because the market is so complex that it is impossible to guide effectively.

    The moral dimension of the market refers to how in a free society, people enter into transactions freely, choosing those that they believe will benefit them:

    There are none who are only masters and others who are simply servants. In the market society we are all both servants and masters, but without either force or its threat. In our roles as producers … be it as men who hire out our labor for wages, resource owners who rent out or sell our property for a price, or entrepreneurs who direct production for anticipated profits … we serve our fellow men in attempting to make the products and provide the services we think they may be willing and interested in buying from us.

    Yet we know there are those who wish to interfere with the working of a free market through various means. All attempts to do this reduce the amount of liberty we are able to experience.

    Too many want to dictate how others may make a living, or at what price and under what terms they may peacefully and voluntarily interact with their fellow human beings for purposes of mutual material, cultural, and spiritual betterment.

    Often the concept of free markets is viewed as contrary to a moral society. Those who advocate government programs to make us better off are portrayed as noble, virtuous, and smarter than the rest of us. This article shows us that they are not that at all — they are immoral. Why? Almost all these programs forcibly take money from one person and give it to another to whom it does not belong. There is no moral right for anyone or any government to do that, no matter how noble the cause appears.

  • Let’s Pay for Our Own Health Insurance

    Having most people obtain medical insurance, and therefore their healthcare, from their employers is a peculiar tradition that leads to several less-than-optimal situations.

    I would venture to guess that most employees don’t know the cost of their insurance. They probably pay a portion of the cost through a deduction on their payroll checks and they know what that amount is, but that is a long way from knowing the total cost. Knowing — and having to pay for — the entire cost of something is a good motivator for controlling its cost.

    It makes no more sense for employers to provide health insurance than it does for employers to provide auto or homeowners insurance.

    With employer-provided coverage, when people change jobs, they likely lose their coverage.

    At most companies, employees are not rated according to their likely healthcare expenditures. There may be a cost for a single employee, another cost for an employee and spouse, and another cost for employee with spouse and children. Never have I seen a case where the cost to the employee was based on how many children there were in the family, even though each additional child adds a predictable risk and associated cost. Other types of insurance, such as auto and homeowners, are priced very carefully based on the characteristics of the driver, auto, and property being insured. This illustrates that present health insurance plans are not so much insurance against catastrophic loss as much as they are pre-paid healthcare plans that cover every little cost. But even then, they aren’t priced very carefully according to their likely cost.

    Having employers provide healthcare removes choice from employees. If an employee doesn’t like the plan offered by their employer, they are certainly free to purchase one they prefer. But this will likely be more expensive, partly because of the fact that employer-provided plans are paid for with pre-tax dollars. A plan that is privately purchased would be paid for with after-tax dollars.

    Removing the ability to choose health care plans from most people also removes competition amongst health care plan providers. Introducing competition to the marketplace is good for consumers.

    The fact of employer-provided health insurance creeps into issues such as same-sex marriage. Advocates of same-sex marriage or civil unions point out that same-sex partners are denied the employer-provided health coverage that their partner enjoys.

    What if we decided to stop employer-provided health coverage? There are a few obstacles.

    Currently, since health insurance is often paid for with pre-tax dollars, people would pay more in tax. This could be overcome, of course, by lowering tax rates.

    It may be that employers, since they often purchase insurance plans for large numbers of employees, are able to get price discounts based on volume. Wholesale purchasing, so to speak. I do not know how this would impact families purchasing plans one at a time. There may be significant sales costs. Certainly families would face choices and would have to think about them. But being more informed is better.

    Some people, undoubtedly, would decide to forgo the purchase of health insurance, and therefore risk becoming a burden to us all if they become ill. This is a real problem because currently our healthcare system treats those who can’t afford to pay, sometimes with little concern given to if they will ever be able to pay. (Recently the New York Times and Wall Street Journal have given coverage to cases where hospitals have aggressively collected debts from poor people. The Times thought this a tragedy.) The fact is that the cost of care given to those who can’t — or won’t — pay is paid for by the rest of us who do pay. It would take a disciplined system to refuse to treat those who have chosen to forgo purchasing insurance.

    In a Reason Magazine article titled Mandatory Health Insurance Now! we find this paragraph:

    Why not just tell Americans they are responsible for buying their own health insurance from now on? If people couldn’t pay for medical care, either through insurance or out of pocket, they wouldn’t get it. “After people begin to notice the growing pile of bodies by emergency room entrances,” Tom Miller wryly suggests, “they will quickly get the message and go get medical coverage.”

    The solution to the problem, the article says, is in the slogan for a proposal by The New America Foundation: “Universal coverage in exchange for universal responsibility.” All of us would have to purchase our own insurance plans. The employer-provided plans would end. The problem, of course, is that even a plan covering only catastrophic expenses for a family of four might cost $3,600 annually, which is out of the reach of many low-income families. So the rest of the taxpayers would have to subsidize the purchase of these plans. We already do this now, so does anything change?

    Yes, I think things would change for the better. If we could truly enforce the “universal responsibility” part of the plan — everyone has to pay his or her own way — this plan has a chance.

    Additional reading:
    To Guarantee Universal Coverage, Require It
    Health Insurance Required
    Insurance Required
    Universal Coverage, Universal Responsibility: A Roadmap To Make Coverage Affordable For All Americans (full report)

  • Why I don’t listen to Rush Limbaugh

    There have been periods when I listened to Rush Limbaugh, but it has been many years since I listened regularly. Now I hear his show only when I happen to be driving while it is on the air. When I do hear it, I realize that I don’t miss it.

    I think the people who criticize Mr. Limbaugh as being merely an entertainer are correct. He provides entertainment to people who enjoy his style of humor and satire. I decided that I didn’t like it anymore, and I stopped listening. As serious political commentary, though, his show falls short in several ways.

    He often makes fun of people because of their name. I remember during the California electricity crisis he referred to Governor Gray Davis as “Gray-out” Davis. There are many more examples of this type of name-calling and ridicule. These are funny the first time or two that you hear them, but using them repeatedly, whenever you refer to the person, reminds me more of schoolyard teasing than of reasoned argument.

    His hypocrisy concerning his drug use troubles me. In the past, he has been quite harsh on drugs and drug users. His admission of his addiction was hailed as a courageous act, but he admitted it only as it was about to be revealed in the news media. He has used his wealth to defend himself in ways that few others would be able to, which is his absolute right. But the way he has acted for his own benefit is very different from what he has advocated for others in the same situation.

    Limbaugh seems to value education, but he never graduated from college. It seems like he didn’t make a serious attempt at college. I think he would say that he doesn’t need a college education, that he educated himself. Many people who fail to graduate from college say this. I wonder how they know what they missed.

    His boastfulness — “talent on loan from God” — is tiresome. I realize that much of it is playful, but to me, it becomes old very quickly. I’m glad I don’t hear it much anymore.

  • Political decision-making increases conflict

    A recent column by economist Walter E. Williams (Why we’re a divided nation) strongly makes the case for more decision-making by free markets rather than by the government through the political process.

    When decisions are made through free markets, Dr. Williams says, both parties win, because in a free market, parties voluntarily enter into only those transactions that benefit them.

    When decisions are made for us by the government, however, it is almost always the case that one party’s gain is someone else’s loss. Therefore, there is conflict. The more decisions made through politics, the more potential for conflict. Coalitions arise in order to try to get more from the government, and the most effective coalitions “are those with a proven record of being the most divisive — those based on race, ethnicity, religion and region.”

    The final paragraph of the column is this: “The best thing the president and Congress can do to heal our country is to reduce the impact of government on our lives. Doing so will not only produce a less divided country and greater economic efficiency but bear greater faith and allegiance to the vision of America held by our founders — a country of limited government.”

    In an earlier post, I mentioned some columns by Dr. Williams that I thought were important. This column is certainly one of his best, as it very simply, in one short page, shows us a major fault in our current political landscape.