Wednesday, November 29, 2006

In Defence of Wal Mart

Barack Obama, the Democratic Senator from Illinois and 2008 presidential hopeful, has publicly stated his objection to the Wal Mart Corporation’s business tactics. Obama claims that Wal Mart does not fairly compensate their workers, that they do not provide enough financial support for their employees to “send their kids to college and save enough for retirement.” Obama fails to realize, however, that not only is he wrong about a corporation’s social responsibility, he is wrong about Wal Mart’s effect on the working class in the United States. Wal Mart helps the poor.

It is true, as Obama claims, that Wal Mart drives down wages. One study, for example, found that Wal Mart lowered retail wages by $4.7 billion in 2000. Such a number, as high as it seems, pales in comparison to the amount that Wal Mart causes consumers to save – a staggering $263 billion in 2004, or $2,329 a household. Considering that all workers are consequently consumers, it is illogical to assert that Wal Mart does not help the poor.

Regardless of how much savings Wal Mart generates, it is true that the wages Wal Mart pays to some employees does not adequately support the dignified lifestyle that Americans expect – savings on consumer goods or not. The blame, however, cannot be placed on Wal Mart. It is not Wal Mart’s responsibility or duty to be socially conscious; its job is to secure profit. It is the government’s job not, in that case, to persecute Wal Mart, but to help those individuals not wealthy enough to support themselves. The fact is that Wal Mart creates jobs, and gives jobs to those who would previously not be employed.

The solution, therefore, is not to harangue Wal Mart on the evils of its wage-policies. Wal Mart sets its wages on simple supply and demand, the market principles that drive the notorious efficiency and productivity of the American economy. Instead, the government must aid those in need. An increase in the minimum wage has been proposed. That would be a mistake – it would only serve to prevent unskilled individuals from being employed. Instead, compensation must be given to those employed, but not earning enough to live decently. Not only would such compensation help those working get out of poverty, but it would also provide an incentive for unemployed to seek work.

The solution, coincidentally, already exists. Unfortunately, due to its relative complexity, it has not been advocated to the electorate (and thus not received as broad support by politicians) as much as a simpler concept such as the minimum wage. The solution is the Earned Income Tax Credit. The EITC, called “one of the biggest poverty-fighting tools in recent years” by economist Charles Wheelan, uses the income tax system to subsidize low-wage workers so that their total income is raised above the poverty line. A worker getting $11,000 a year, for example, might get an additional $8,000 through the EITC. The EITC, although it does not support the unemployed, does greatly help those employed, but earning very little. It thus compensates, for example, Wal Mart employees without compromising the efficiency of the corporation.

Wal Mart has been vindicated as an evil corporation. In truth, it is everything but – it is simply performing its duty as a business in America. Wal Mart has created jobs nation-wide and drove down retail prices across the entire sector. Its vindication is entirely unjustified. Instead of blaming Wal Mart for the plight of low-earning workers, we should turn to the government, and demand that in lieu of pushing ineffective policies such as the minimum wage, that the EITC be expanded.

Tuesday, November 21, 2006

An Army of Slaves: The Military Draft

Rep. Charles Rangel (D) has this past week called for the enactment of national conscription. He posits that a draft would reduce the likelihood that American politicians send their troops into foreign conflict, as they would face the moral dilemma of sending unwilling soldiers into danger. Such an argument, regardless of how true it may or may not be, does not justify the existence of a draft in the United States.

Freedom is a concept that is held dear by Americans. They value their individualism, and their right to live as they please, so long as it is within the (sometimes overbearing) constraints of the law. Indeed, such fundamentally American beliefs are upheld by the document all Americans hold revere, the Constitution. It is thus morally unacceptable for the government of the United States to enact a draft. A draft is governmental coercion: it is a government action undertaken to support governmental objectives. A draft, conscripting forcefully citizens into the standing army, forces the draftee into carrying out the wishes of those he does not necessarily support. It is outrageous that such force and coercion be used while calling it ‘patriotism’ in the process.

An army of slaves does not bode well for the world’s leader of freedom. And that is just what a draft would entail. Throughout its brief history, every war the United States has fought has been under the banner of freedom and liberation of those oppressed peoples of the world. Yet, especially in the Vietnam War of the 1960s, the United States operated under a cloak rife with contradictions. The soldiers used in Vietnam, to liberate the “oppressed” were in fact oppressed themselves, coerced into service, supporting government at the expense of personal liberty.

Conscription, while being morally indefensible, is at the same time economically unsound. A draft represents central planning at its finest. The government (military) coerces young men into service, and subsequently delegates them to the positions that the government deems fit, not the individual. The government, in a draft, has ultimate say in how military resources, in this case labor, are allocated. Central planning does not work as an economic system, and it doesn’t work in a military one. Inevitably, the government will misallocate conscripted soldiers, not maximizing the efficiency of the army – which could prove to be disastrous.

A volunteer army, on the other hand, tackles all the problems a draft poses. An army of volunteers ensures a military that is both willing and patriotic, ingredients critical to beneficial military morale and subsequently success. It also allows the individual to work in the capacity that he or she chooses, ensuring, as the market theory dictates, an efficient allocation of resources conducive to success.

The thought of a compulsory draft in the United States is disturbing. To consider it would be to support coercion, to support government intervention in how individuals lead their lives. To consider it would be to impose patriotism on the unwilling, nationalism on the reluctant. It is morally wrong, and economically unsound. A draft would be, quite simply, a disaster.

Saturday, November 18, 2006

Netherlands to BAN the Muslim Veil in Public

I react to a possible ban in the Netherlands to the Muslim veil in public with disgust. Under the auspice of a concern for national security, the freedom of an entire religion has been compromised. In reality, such a law is typical politicking and the very reason why politicians are not to be trusted.

It does not matter one iota whether or not the majority of the Dutch people support such legislation. It does not matter if just one Dutch citizen opposes this legislation, while the remaining 16 million support it. The Muslim veil claims no victims. It has utility to those who wear it and no consequences for those who don’t, or even for those who do not like it. It is therefore indefensible for the Netherlands to ban such a harmless object, merely to garner support from their electorate.

Freedom is not to be limited to the temporary preferences and tastes of the people. Freedom is to be given to all those who do not wish to abuse it. And the wearers of the veil do not wish to abuse it any more than a white Dutch citizen wearing a t-shirt wishes to abuse that. It is unfortunate (and that is a vast understatement) those wishing to wear the veil in the Netherlands must be subject to the wishes of those who perhaps will never see a veil-wearing woman in their lives. Indeed, there are only 100 in the Netherlands. What a threat.

Thursday, November 16, 2006

Milton Friedman Dead at 94

Someone who changed my life has died. That is not being overly dramatic; Milton Friedman did more to change me as a thinker than anyone else in my life. I was a languishing Republican, set in my convictions without truly seeing the world. And then I read Capitalism and Freedom. I didn’t agree with everything Friedman argued. I might not have agreed with half of it. Yet it was reading his tome that opened my eyes to way of thinking that I had previously disregarded. His systematic and unconventional approach (his ideas were considered radical at the time of publication) inspired me to examine my own beliefs and what I found was shocking. It was him, and solely him, that made me the thinker I am today. And it is him that will motivate me to continue to change, examine, and analyze. Rest in peace Mr. Friedman, I know I’m not the only one.

Wednesday, November 08, 2006

Gasoline Tax - A Further Examination

The dependence that the United States has on foreign oil is undisputed. Much of this foreign oil comes from politically volatile nations, often with foreign interests directly at odds with America. Venezuela and Iran are two glaring examples. Much ado has been made of America’s dependence on these nations, yet little has been done to curb it. Indeed, the United States is hamstrung, both abroad and at home, by its reliance on other nations for oil. Something must be done.

Pigou taxes, those that correct a market externality, appear to be taxes that correct social imbalances, or market deficiencies. A Pigou tax, for example, is a tax on cigarettes or alcohol. Yet Pigou taxes can have more far-reaching effects. A tax on gasoline consumption, another example of a Pigou tax, would not only lead to benefits domestically, but would also contribute to reducing America’s dependence on foreign oil. The Boston Herald reports that when asked if he would support an increase in the gasoline tax, former Chairman of the Federal Reserve Alan Greenspan said, “Yes, I would. That’s the way to get consumption down. It’s a national security issue.” And indeed it is. A higher gasoline tax would reduce gasoline consumption, and thus reduce the amount of gasoline America imports from abroad.

Such a reduced reliance on foreign oil-producing countries would certainly give the United States more flexibility in foreign affairs. And if one is to believe the arguments that it is oil that motivates America to involve itself in wars abroad, then a reduced reliance on the unstable countries that produce oil could perhaps even reduce the possibility of war.

Yet this is merely conjecture. And while such conjecture may indeed be correct, can such guess-work, and indeed political gerrymandering, be used to justify a significant hike on the consumption of a good many Americans deem indispensable? Perhaps it can, but it is most likely the belief of most Americans that their individual consumption of oil has little to do with America’s involvement in foreign conflicts. Therefore greater incentives are needed to make a rise in gasoline taxes more politically palatable.

Luckily, such incentives exist. The effect of gasoline consumption on the environment is becoming more and more apparent. The threat of global warming looms, and America is the world’s largest emitter of carbon dioxide. It is imperative, therefore, that America curtail its consumption of gasoline. And as it is known that the burden of a tax is shared by consumer and producer, it can be assumed that a gasoline tax will not only curb gasoline consumption, but also gasoline production. Instead, alternative energy sources will be invested in, and the reliance on gasoline will be further reduced.

The argument for a raise of the gasoline tax can be made on many more fronts. Increased revenue for the government, regulatory relief, economic growth and the reduction of road congestion are all likely byproducts of an increase in the gas tax. Yet it is the issues of national security and environmental concern that make an increase in the gasoline tax not just ideal, but imperative.

Sunday, November 05, 2006

Pigouvian Taxes: Regressive?

Pigouvian taxes are taxes levied to correct the negative externalities of a market activity. Perhaps the most significant negative externality today is the destruction of the environment. An example of a Pigou tax would be a tax on gasoline consumption in order to encourage less of a dependence on gasoline, and more investment in alternate energy sources.

Such a tax, considering the importance of the environment, and the gravity of the situation, seems to be a viable and effective tool to curb gasoline consumption. Yet many argue that the tax is not morally defensible on the grounds that it is inherently regressive - that is, the tax would be more of a burden on the poor than on the rich. As conventional taxes go, such a regressive effect seems to be contradictory to the purpose of taxes themselves. Yet the purpose of a Pigou Tax is not to raise revenue for the government, nor to create more equality. The purpose is to correct negative externalities of the market and regardless of whether the tax is 'unfair' or not, the effectiveness is what is most important, and therefore the fact that the tax is regressive must be disregarded.

Nevertheless, the fact that a gasoline tax is regressive is apparent, and makes the tax an issue of political importance rather than solely an economic one. Therefore, some form of compensation for the poor must be available, if not to make it more morally appeasing, then to make it more politically viable. One possible solution is to take the revenue from the gas tax and distribute it in an expanded Earned Income Tax Credit (EITC). The Earned Income Tax Credit is a refundable tax credit that reduces or eliminates the taxes that low-income working people pay (such as payroll taxes) and also frequently operates as a wage subsidy for low-income workers. The credit would not just be given to those who are harmed by the gasoline tax (indeed that would give the poor an incentive to consume gasoline, exactly the opposite aim of the tax,) but would be distributed to all poor, as it is now. Such a scheme would at the same time reduce consumption of gasoline and alleviate the strains of poverty.

A hike in the gasoline tax is a necessary component of the attempt to save the environment. Such a tax, along with an expanded EITC, would contribute both to reducing gasoline consumption as well as reduced dependence on volatile oil producing states. Such advantages, at an expense that can hardly be considered tremendous, as other options to transportation certainly exist, would greatly benefit America as well as the environment.

Saturday, November 04, 2006

Can Microfinance Work in America?

Muhammad Yunus and the Grameen Bank of Bangladesh were jointly given the Nobel Peace Prize this year. The focus of Yunus and his bank is microfinance - small loans given to the poor, most commonly women. The success of microfinance has been acclaimed by many, indeed, the payback rate has been surprisingly high and the fact that it helps the poor is undisputed. Many have insinuated that microfinance can solve the plague of poverty entirely - that is going too far, but microfinance is certainly a useful tool in alleviating the effects of poverty.

That said, microfinance is primarily thought of as a developing country-centric tool. There are indeed microfinance organizations in the United States - 246 in 2003, most of which were nonprofit. Yet the concept has not taken hold, especially not in impoverished areas. Commercial banks are, for obvious reasons, reticent to enter the realm of microfinance, and indeed, there is not much incentive for them to do so. But the Grameen Bank is an example for all to see that microfinance can be conducted by companies and organizations that are not nonprofit.

So, the question that begs to be asked, if microfinance is a feasible option in the United States for profit-seeking organizations, is clear: can it work? The question must be examined in the respect of alleviating poverty, and not in garnering profit. Although it may be irresponsible to disregard the profit motive in a dog-eat-dog economic environment such as the United States, the primary purpose of microfinance is to alleviate poverty and must be examined as such. So again, can it work?

Gary Becker, 1992 Nobel Laureate, writes, "Economic growth requires secure property rights, encouragement of private enterprise, openness to international trade, stimulation of education, limited and sensible regulations, and reasonably honest government. Microfinance makes only a small direct contribution to any of these variables." Becker is correct, but is commenting on the effectiveness of microfinance in developing countries. In the United States, where all the institutions and requirements for economic growth that Becker mentions are present, microfinance certainly can help alleviate poverty.

Some may point to the Small Business Administration, a governmental agency which aids small businesses, as an adequate substitute for microfinance in the United States. Yet, as it is a government organization, it is a terribly inefficient instrument for poverty reduction, and indeed a private sector replacement -commercial microfinance- would be far more effective. Microfinance in the United States is, however, vastly different from that in developing countries. In the latter microfinance is given to encourage primarily women to start low-technology enterprises, such as fruit stands. In the United States such ventures would be fruitless – there is simply not enough demand for fruit stands for it to be an economically viable solution for a poor family. Instead, microfinance needs to be conducted on a larger scale in order to fully ameliorate the would-be business starter. But the risk for a $5,000 loan is significantly higher than that for a $500 loan, and as such it is understandable why commercial microfinance would be seen as unviable in the United States.

Nevertheless, budding entrepreneurs throughout the United States, including those with hardly a penny to their name, abound, and available capital to them would surely in some instances reap rewards. The Small Business Administration itself, in the loans it has made, has, despite defaults, been able to actually make money for the government. How? Increased tax revenues from companies that it has helped. Quite simply, the fact that a governmental organization has been able to make money is a huge indication that the private sector can and should make itself involved in similar ventures.

The lack of a significant commercial microfinance presence in the United States, where demand would certainly be high, is troubling. It can only be hoped that the spreading popularity of microfinance will take hold in the United States, where its benefits will certainly be clear for all to see in the reduction of poverty.