Friday, December 6, 2013

Where the National Review Obligingly Decides to Sound Like the Bad Businessperson I Mentioned in Yesterday's Post

I had been waiting some time to write about how the Republican Party increasingly sounds like the party of bad business. The article I hooked the post on was somewhat tangential, today, however, the National Review has excellent timing in sounding exactly like the fool I was wanting to write about in a post on the minimum wage.

A number of academic studies purport to show that a higher minimum wage has little or no effect on unemployment. That may be true in certain narrow short-term circumstances; for it to be broadly true in the long run, the facts of supply and demand would have to be other than what they are. In fact, a higher minimum wage is a barrier to employment for the young, the lightly skilled, and those who are not currently in the work force but wish to be, a wish that can be desperate indeed for those who have long been unemployed.
Here's a classic bad management approach. Real studies show something other than what I want so instead I'm going to assert my opinion and call it fact. Case closed.

The scary thing is that I've come across this now and then in the real world. People really do think this way. Obviously, real labor markets do not function this way. Wages are set with a combination of bargaining power and the value of the product of labor.* Raising the minimum wage will shift the distribution of income increasing investment opportunities for producers of goods purchased by low wage workers. This in turn will increase investment in these communities, spur entrepreneurship to meet demand that is now backed by currency,** and create net jobs for this sector. Individual firms may find it harder to deal with the higher wages but the systemic effect will be a net increase.

An even more incredibly stupid assertion follow a few paragraphs down.

There is a way to increase wages while increasing overall employment, and that is to raise the demand for labor. Unfortunately for the planners and schemers in Washington, doing so requires more than simply passing a law. Higher demand for labor is the result of a growing and productive economy, which requires substantial capital investment, innovation, entrepreneurship, and — worst of all from the White House’s perspective — time. If Toyota should decide to add another factory to its U.S. operations, it will not be built overnight.
 When I read this I had the immediate image of a fat, cigar chomping guy sitting in a smoky country club paying cards. Well it's unfortunate that you have to starve but you see fixing things take time, you see.

This is bullshit. Capacity utilization is still well below historical capacity utilization and well below peak. ( The industrial plant necessary for new jobs is already there sitting idle. What we lack is people with money to buy the goods this plant could produce, this just sounds more absurd and out of touch from a magazine that opposed the auto bailout and should be well aware of how many plants were shuttered just a few years ago. What does the National Review think happened to all these shut down plants? Did they get up and walk to Canada?

Then there's the standard blather about education etc. with a bunch of sniping at the Democrats over their opposition to policies without great track records. Go ahead and read the whole thing, it's worth a laugh if nothing else.

What really stand out to me, however, is that this sounds really out of touch with how modern companies do business. While there are far too many poorly run businesses that still treat labor as an expense to be aggressively cut, growing, successful business are realizing that their workforce is an asset to be invested in. A nudge, like a minimum wage increase, that will force recalcitrant business owners to review their wage practices and to really grapple with costs like turnover and efficiency gains from long term employees will probably increase the competitiveness of American businesses.

Other companies realize the systemic nature of these changes. Walmart is a great example.*** While they receive a great deal of deserved scorn for their anti-union stance they are on record as supporting a national minimum wage increase. Interestingly, they are also on record as opposing minimum wage increases at the municipal and state levels.

This isn't as contradictory as it seems to the bad business thinkers over at National Review. Walmart stores have very large catchment areas, they would be strongly negatively impacted relative to retailers located in a lower wage areas or those with smaller catchment areas which do not have to compete across jurisdictions with different minimum wage regulations. However, with a national minimum wage increase these discrepancies causing localized disadvantages won't exist. Everyone will be on an even playing field. And with its unmatched supply chain efficiency Walmart can probably generate an even greater cost advantage in a higher wage environment.

Of course, systems thinking is impossible for those with the strongly individualistic bent of the writers and editors at the National Review. However, it is the norm in large, efficient business like Walmart. This is why companies like Walmart are crushing the small and medium business owners that make up the most ideological committed portion of the right wing, people that thrive in big organizations must think and act on this level to survive while most of the managers and owners at these organizations remain committed to the idea that it is individual merit that matters and act on this assumption, both in their business decisions and in how they treat their employees. With predictable results.

* I am aware that some economic models are made using an assumption that wages equal the marginal product of labor. This is an assumption without any real empirical backing. It can be useful for scientific discovery but has no place in policy debates.

** A problem with a lot of right wing talk about economic is that it confuses demand with ability to pay. There is a huge amount of unmet demand among the poor which is not backed by purchasing power. Give these people purchasing power and the economy will adapt to meet this demand, thus creating jobs. If it redistributes from wealthier individuals this may decrease employment among those catering to this segment but due to differences in propensity to consume the redistribution should be job creating.

*** Walmart is a fascinating example of the positive and negative impacts of an amoral entity really thinking through system and process. The major discrepancy is the powerful anti-union, and anti-employee, bias that seems common in southern companies and managers.**** This is a bad thing that gets them a lot of deserved grief. But Walmart is also a leader in sustainability initiatives and is having a widespread systemic impact on everything from fisheries, to energy usage, to cleaner, healthier working environments. Walmart gets systems and it is a potential ally of many progressive causes provided these causes are pushed solely at the national level, with the big exception of anything that even hints of unionization or employee bargaining which Walmart shows an irrational hatred of.

**** This is largely anecdotal, but my experience with southerners in positions of power is that they treat people they have fact to face contact with great, and strive to get this connection with individuals at all levels, but treat anyone they never personally meet like shit. They are the worst at trying to manage from data because these strong anti-worker biases leads to really bad personnel decisions and a strong pro-management and professional level bias.

1 comment:

  1. Yeah, the whole "stop bothering my assertions with your facts" approach is pretty obvious there, though the Chicago survey (I forget what it's called, the one that polls economists) looked to give very mixed signals on the state of minimum wage research in economics. Some of the responses to the proposition ("... will there be a _noticeable_ effect of a minimum wage increase on employment") hinged on the fact that whatever the minimum wage increase did, it wasn't likely to be statistically detectable with any level of significance.

    As for your comments on labor and wage-setting, though I'm absolutely sure that the neoclassical MRP model is a gross oversimplification, I'm not familiar enough with labor economics to comment, though I have to admit that the thread of your discussion on management theory has definitely sparked some thought on my part as to the role of the firm (I agree, probably not always to be beholden to investors) and the way that relates to managerial decision making... this now has me thinking through some of my earlier ruminations on tax policy for investments and corporate income. Relaxing the assumption that companies are, by-and-large, vehicles for deriving the most profit for their investors certainly challenges some of my earlier thoughts on raising the capital gains/dividend tax and lowering the corporate tax. On this point I'm also not clear on how people would be able to incorporate in order to avoid taxes. Either way, this is great food for thought, so keep it up.