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August 28, 2006
Economic Simplemindedness Of The Wal-Mart War

The war Democrats have declared on Wal-Mart on behalf of the poor will make that constituency worse off, Sebastion Mallaby concludes in his Washington Post column today. Not only does the cost savings at Wal-Mart and other big-box discounters allow poor families to save 25% on their food bills, it provides a better economic safety net than food stamps:

Hillary Clinton and Sen. John Kerry have attacked Wal-Mart for offering health coverage to too few workers. But Kerry's former economic adviser, Jason Furman of New York University, concluded in a paper last year that Wal-Mart's health benefits are about as generous as those of comparable employers. Moreover, Clinton and Kerry know perfectly well that market pressures limit the health coverage that companies can provide. After all, both senators have proposed expansions in government health provision precisely on the premise that the private sector can't pay for all of it.

The truth is that none of these Democrats can resist dumb economic populism. Even though we are not in a recession, and even though the presidential primaries are more than a year away, the DLC crowd is pandering shamelessly to the left of the party -- perhaps in the knowledge that the grocery workers union, which launched the anti-Wal-Mart campaign, is strong in the key state of Iowa.

For a party that needs the votes of Wal-Mart's customers, this is a questionable strategy. But there is more than politics at stake. According to a paper for the National Bureau of Economic Research by Jerry Hausman and Ephraim Leibtag, neither of whom received funding from Wal-Mart, big-box stores led by Wal-Mart reduce families' food bills by one-fourth. Because Wal-Mart's price-cutting also has a big impact on the non-food stuff it peddles, it saves U.S. consumers upward of $200 billion a year, making it a larger booster of family welfare than the federal government's $33 billion food-stamp program.

Mallaby bashes Democrats for surrendering to their economically-statist Left in their mid-term campaign to demonize Wal-Mart. I noted this new offensive from the party two weeks ago, and Mallaby confirms that the entire party has fallen in line. The Democratic Leadership Council, a normally centrist caucus, has its last three chairmen all taking part in anti-Wal-Mart demonstrations this season. Tom Vilsack, the Iowa governor with rumored presidential aspirations and the current DLC leader, made sure to get in front of this war to mollify the union bosses.

And this is, of course, why the Democrats have adopted this mantle. They need to shore up their union support, and Wal-Mart is the bete noir of organized labor. They have had no success in penetrating Wal-Mart's labor force, and that failure has cut into their revenue -- revenue that unions can put to political uses. Since the Democrats overwhelmingly benefit from those political uses, the Democrats have decided to attack Wal-Mart to the point where the unions can gain a foothold with the retailer's employees.

Democrats argue that Wal-Mart pays below-market compensation to its employees, a ludicrous argument in a free market. As Mallaby notes, Wal-Mart would have no employees if it paid below the market rate. Their average compensation matches what retailers pay their employees, at least non-union retailers. John Kerry's own economic advisor concluded that their benefits package matches that of other employers in their class. If it didn't, the better workers would gravitate towards the better-compensated jobs, leaving Wal-Mart understaffed.

The Democratic cure would damage the very people that the party claims to champion. None of these economic thinkers such as Kerry, Vilsack, Clinton, or Bayh include what will happen to prices at Wal-Mart if they had to suddenly raised compensation above market levels. It would force other retailers to raise compensation, of course, but it would also force all of them to raise prices to cover for the extra expense -- or to lay off a compensatory amount of the workforce to keep internal costs stable. Low-income workers would find their buying power diminished and they would face more competition for employment from the former workers of Wal-Mart.

Anyone who actually runs a business and has responsibility for a profit-and-loss statement understands the impact of the Democratic anti-business crusade. Of course, that doesn't include Hillary Clinton, John Kerry, Howard Dean, and the rest of the hysterics screeching about the evils of a free market.

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Posted by Ed Morrissey at August 28, 2006 6:01 AM

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