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Economics 101 for Bob Beckel

Bob Beckel, the liberal voice on Fox News Channel’s extremely successful The Five, likes to go off on rants regarding Wal-Mart. On Friday he was in rare form, damning the world’s largest retailer (and this country’s largest employer) for having caused more rival businesses to close than any other in history, and for buying most of its merchandise abroad. On other occasions he has complained that Wal-Mart doesn’t pay its employees a “living wage.”

Beckel’s first claim is probably true and the second certainly is. The third claim, however, is economic sophistry.

Wal-Mart is a profit-seeking corporation. It is, in other words, a wealth-creation machine, nothing more, nothing less. Its management, therefore, has a fiduciary duty to the stockholders to maximize the return on their invested capital. It does that in the following three ways.

First, by paying the lowest wages that will supply the company with a satisfactory work force. If Wal-Mart can get a satisfactory worker for a given job at $7.25 an hour, why should it pay more? Bob Beckel never pays more than he has to in order to get what he needs; why should Wal-Mart? Wal-Mart employees are not indentured. They’re perfectly free to search for a job that pays better than the one they have. If they don’t, it’s because they have the best job around for their skill set and particular circumstances. If market forces do not produce a “living wage,”—about as subjective a term as you can find, right up there with “fair”—then it is government’s function to make up the difference through the Earned Income Tax Credit or other mechanism. Corporations are not WPA projects and shouldn’t be used as such by government fiat.

Second, by paying the lowest amounts for merchandise of satisfactory quality. In a globalized world, that often means buying goods manufactured abroad. The high-wage American economy cannot compete with low-wage third-world countries when it comes to low-tech manufacturing. Most of the cost of a T-shirt or a pair of socks, after all, is the labor. With transportation costs now very low, thanks to containerization, and tariffs at the lowest point in history—a policy pursued by both Democratic and Republican administrations over the last 70 years—buying abroad is the only option for most of the merchandise sold at Wal-Mart. Does Bob Beckel think it’s a good idea for Wal-Mart to buy domestically if that means T-shirts that cost $20 each?

Third, by offering better prices, better quality, and more choices to its customers. Thousands, perhaps tens of thousands, of mom-and-pop, Main-Street retail operations have gone out of business because of Wal-Mart. That is because the customers of those concerns found that they got better deals at Wal-Mart and started shopping there, instead of on Main Street. That was tough, no doubt, on mom and pop, but that’s the “creative destruction” that is an ineluctable aspect of capitalism. Without old-fashion businesses adapting or dying, the economy stagnates and innovation disappears. Just ask anyone who has lived in a socialist economy.

And while it was tough on tens of thousands of moms and pops, it was great for Wal-Mart’s tens of millions of customers, whose standard of living has been raised by Wal-Mart’s low prices, high quality, and convenience.

If Bob Beckel were to have his way—and he won’t—the American standard of living and the size of the American GDP would both decline sharply as prices rose and quality declined. That, of course, would mean fewer total jobs. As with so many liberals, Bob Beckel’s heart is in the right place. But the heart is an organ very ill-suited to economic analysis.


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