Revealed Prefereces

I was listening to the radio recently and heard a story about how Wal-mart made lots of contributions to Republican candidates and the Republican party. The story included the opinion that Wal-mart should instead be funding the Democrats because many of their workers rely on publicly funded health care. If more Democrats were elected, Wal-mart would be able to continue not giving its workers health care making it cheaper to hire them. Wal-mart (in all of its evil) must be acting irrationally.

Or is it...

Wal-mart can pay its workers less if it gives them health care. But if the health care it gives them is not worth the reduction in wages then the workers are going to be mad and go work somewhere else. So, if workers and Wal-mart have come to the decision to work together, the people who work at Wal-mart must be happier with the slightly higher wages and no health care than the lower wages and health care.

Wal-mart knows that it will likely to have to pay more in corporate taxes if a national health care system is created. The taxes it pays will be more than what it has to reduce wages by because it knows that its employees won't be willing to work for less. For example, Wal-mart would have to pay $1 million in taxes but since its employees have health care that it doesn't have to provide for them, people will be willing to work for less. The savings in wages would not add up to be $1 million meaning that the employees of Wal-mart do not in fact value the health care they will be getting at $1 million.

How do I know that the employees of Wal-mart do not value the health care more than the wages they would lose to get it? I know thanks to Wake-Up-Walmart.com. The site claims:

"Since the average full-time Wal-Mart employee earned $17,114 in 2005, he or she would have to spend between 7 and 25 percent of his or her income just to cover the premiums and medical deductibles, if electing for single coverage. [Wal-Mart 2006 Associate Guide and UFCW analysis.]."

The people who work for Wal-mart are so poor that they can not afford the health care. They would prefer to take the risk and keep the money. Clearly, that is an unfortunate decision for those people, but forcing Wal-mart to create a health care system does not improve their situation.

A law would only make both Wal-mart and its employees worse off. Whereas, passing laws that allow for Wal-mart to make its employees as producitve as possible actually would increase their wages allowing them to purchase health care when they thought it was better than the alternative.

A Pessimistic Forecast

I'm pretty much tired of politics.

Both parties claim that they're going to make things better for everyone. This is absolutely false. Why? Because there is no such thing as a free lunch.

Essentially, any government policy will have some costs and some benefits. Which means some people will be made better off at the expense of others. No government policy is going to be good for everyone.

If they were really honest with us, they'd be saying, "I promise the 51% of you who vote for me more stuff than I take from you." Look at the tax polices. Hidden in all of the claims and promises will be a different distribution of wealth than we have today. Both candidate are hoping you feel like it redistributes the pie in your favor.

We can only hope that some of the policies a president enacts are at least better for the people they help than they are bad for the people they hurt. Sounds easy enough, but in practice, it's very hard. If you try to give stuff to people they change their behavior so you have to give them more. If you try to take stuff from people then they make sure that they have less to take or spend valuable resources just making sure you can't get it.

Universal health care is great example. It has the capability to help some at the expense of a lot of people. Universal health insurance is not free because we give up all the good things that the market does for innovation in health care. Having universal health care sucks. Not having universal health care sucks.

No president is going to change that. They're just going to change who it sucks worse for.

I hate to burst your bubble on how great the next 4 years are going to be, but it ain't gonna be what you're hoping for. Improvements in just about everything worth having don't get made by governments, especially presidents.

Another View on the Liberal Media

Brilliant writers on economics and law, Becker and Posner, have posted a new entry on their blog on why Hollywood is largely liberal. This isn't a rant against Hollywood, but simply an attempt to explain the observation that there are 50 outspoken liberal actors to every 1 outspoken conservative actor*.

Posner says that it might be that actors prefer extreme political positions and the since the Left is more acceptable than the Right many of them choose that orientation. Another of his possible explanations is that if the population wants movies that offend typically conservative tastes, then conservatives will be less likely to enter into show business. For example, few conservative Christians would probably like to act in Requiem for a Dream even though the moral is largely about the negative effects of drug use.

Becker offers a possibility that since people in Hollywood are more likely to have affairs, get divorced, live alternative lifestyles, and use drugs, it makes sense that they would prefer a more liberal set of political policies.

I'd like to submit my own thoughts to the subject. There are many unions for actors, directors, writers, and crew. The unions are an attempt to raise wages in these industries while simultaneously keeping competitors out. Why keep competitors out? The stars earn huge amounts of money and many new actors are willing to work for very little in order to break into the industry. The competition from these new actors would drive wages down if not for union rules on how much you can pay an actor.

If you're in Hollywood and part of the union, you definitely want liberal pro-union policy makers. If you're outside of the union earning little and trying make it big, you still want liberal social policies like unemployment benefits, minimum wage and free health care.

The next question is, why are the stars are liberal in spite of the fact that they lose a lot of their money to the high tax bracket they're in due to the progressive tax system? Practically everyone they work with wants the benefits of a liberal social policy. During the writer's strike, imagine what would have happened to Conan, Leno or Letterman if they had hired scab writers. The major players must retain pro-union pro-liberal stances in order to have workers in the writer's rooms, in the dressing rooms and behind the camera.

You might even be able to test if this theory is correct. The prediction is that if you look at other industries where there is a lot of competition for entry level positions, but very high earnings for a small group of "stars," then you would find more liberals. Sports is the closest industry I can think of and you don't typically think of athletes as being very liberal. Perhaps this is due to the fact that players can not actually form a union whereas management does form a cartel that is legally protected.

*Potentially an exageration. I do not know what the ratio would really be.

A Metaphor

Imagine a see-saw. We sit at one end look at how high the other end is. If we could just get to the other side, then we could enjoy the view from there. We rush over to the other side only to find when we get there that now, it's just as low as before. The highest point is actually at the fulcrum, but if we chase the moment, we never stay there because it appears that we can do better if we leave our current spot.

I think our economy is like that. We sit at one end and think of all the great laws we can pass which would get us to the high part of the see-saw. But the laws change the incentives and what seemed like a good position doesn't really exist. So we change our laws again. Trying to get to the high part of the see-saw. Even though it seems like we can get better, we're just stuck. Better to just choose the middle and stick with it.

Six of one...

What is worse, only being told what you already believe to be true or only being told what someone else believes to be true?

It seems like a completely free media will do the first. People who are not interested in challenging themselves will choose to listen to reports that interpret the facts of a situation in a way that supports their beliefs. Liberals only read the New York Times. Conservatives only listen to Fox News.

What could be done to prevent that from happening? Place some restrictions on the ownership of the media? Consolidate the media into a government owned monopoly? It doesn't seem like any set of rules could eliminate the problems of the first situation without bringing about the problems of the second.

I suppose people who aren't interested in uncovering the truth will always be a problem. There's no reliable way to enforce the Truth because it is difficult to discover what is true in the first place. Does the marketplace of idea encourage people to find the Truth? Or do some people refuse to buy knowledge because they have too low of a demand for it?

Is the Truth always even valuable to have? Rephrasing, is it harmful to not know the Truth? Let's say communism is right. It would be better for everyone to if we were all oraginized under a communist system of production. Thinking about it in a natural selection sense, would a communist survive any better currently? It seems likely that they wouldn't.

Can we advocate a self-less pursuit of the Truth where all people would spend all of their time and energy attempting to figure out the world? Where would we even start- a scientific or religious approach?

Since many of these questions lack universally appealing answers, I think it is impossible to advocate anything but a free exchange of ideas. Even if rhetoric can sway more people than rational argument. Even if the incentive to find the Truth may not always exists in sufficient enough quantities to always find it. We merely must accept the fact that things aren't perfect, but they also can't get better.

"It's the Economy, Stupid"

According to CNN, the economy is the most important issue to voters. I think is absolutely false. The only people that the economy matters to is economists. At best, the economy is an abstraction that carries some vague connotations about wealth and the unemployment rate. Here is my claim, people don't care about the unemployment rate, they just care if they are employed. People don't care about average wages, they only care that they are getting richer*.

Perhaps, a decent definition of the economy is how easily are people able to produce and trade. When the news trots out statistics about the interest rate, GDP, and the wage gap those are all crude measures of something immeasurable. Any of these statistics can change wildly from month to month. They don't give a clear picture of how things are going.

The economy is like poker. You've got your cards and you have all the cards you need for a flush except one. Your last chance if for it to come up on the river. Mathematically, there is about 1 in 6 chance that the card you'll need comes up. Based on that probability, your opponent's bet, and the amount of the pot, there is a best strategy. Either fold when you get into that situation or go for it. Let's say the best strategy is to not bet, but you do anyway and win. That's great. You won that round, but playing as if you expect that card you need on the river isn't going to work out for you in the long run.

The same thing is true about the economy. Changing policy based on monthly or quarterly changes in economic statistics is a bad strategy. You may take advantage of something randomly, but as time goes on, that policy is going to cost more than it's worth and its going to make some better off by making many more worse off.

I can't help but feel like political candidates are always looking to do things now at the expense of tomorrow and for some at the expense of everyone else. Why get rid of the gas tax now? It won't do anything in the long run except have people drive farther in less efficient cars. Why increase taxes on the wealthy? It will just discourage investment.

Sigh.

*Actually, people probably do care about average wages. They would be happy to know they are above average, so a falling average wage could make some people happier.

The Way Out

I've been thinking about the last post a lot lately. Mostly as I fall asleep, which is makes it hard to type up. But I'm fairly convinced I have a response.

A quick recap:
A salesman has four bottles of water which he can sell to the two guys who are stuck on an island. One guy has $100 and the other has $10. The richer guy can buy all four bottles at $25 a piece and the poor guy won't get any. Thus the market does not distribute the water based on minimizing thirst.

So what's wrong with that? On, one level, nothing. The market does not make its criteria for distribution thirst minimization, but allocating goods to those who are willing to pay for them.

But the simplicity of this hypothetical example makes the market seem much worse than it would if there I added a couple facets that more closely approximate real life.

The first problem is that there is only one good. So if the rich guy spends all his money on the water, it doesn't matter, he doesn't give up anything to do that. If there were two goods, then spending money one water has a cost (i.e. he can't spend the money on food). Since he gets less and less thirsty with each bottle he drinks, the rich guy is more likely to spend the rest of the money on food which should leave some water for the poor guy to consume.

It is possible for us to increase the amount of money the rich guy has. This would allow him to continue to consume all of the food and water. However, each good we add increases the amount of disparity in money that the guys have to have in order for that to occur. In other words, with as many different types of goods as the real world has, for the poor person to be totally priced out, there would have to be a huge income disparity.

The second problem is that production and consumption are completely separate in the example. People are constrained to consume no more than what they can produce or produce then trade for unless they have wealth flowing to them from some other source.

I'll change the example so that the guys are producing water. One guy produces 4 bottles and the other produces zero. Since the rich guy owns his bottles, the poor guy gets nothing. Again, to minimize thirst, I could take two bottles from the rich guy and give them to the poor guy.

The problem now is that there really are two goods here. One is leisure. The rich guy who produced the bottles had to give up some time to do it. The rich guy lost leisure and water. By reallocating water, leisure is now not allocated equally. Not only do you have to know each guy's preference for water and leisure to allocate the two goods in the fairest manner who have to have some way for the worker to be compensated. Since you can't transfer leisure, that becomes difficult.

My feeling is that the information problem is so huge, that you really can't get much better by reallocating. Any forced reallocation will result in hidden costs that will make the reallocation not as good as it would seem on the face of it and potentially even make things worse. And this doesn't take into account that the process of allocation will change the incentive to produce so that by redistributing goods there are actually fewer goods to work with. So while the market can seem unfair (though it actually isn't as bad as it is sometimes characterized) it does have many good qualities.