Ah, another great post…

Yes, the folks at Cafe Hayek do it again. It’s another one about Walmart, but this one’s a thinker. Forget Walmart for a second and just think about the employees… It’s a great read, see it here Even if you hate Walmart, especially if you hate Walmart, give it a quick read, it’ll take all of 45 seconds. It involves the mental exercise of wondering what would happen if we put a tip jar at the registers of Walmart. To me, this is micro econ at its finest. Quick, pithy, easy to read, and thought provoking. Some of the comments on that post are worth reading too.

Isaac

That’s an interesting way of looking at things…

Many many people regard microeconomics as just another way of looking at a situation. What they fail to understand is that microeconomic theory is the distillation of what actually happens, not of some sort of agenda. Microeconomics is often called “rational choice theory”. The only assumption that it really makes is that people, when faced with a decision about allocating scarce resources (time, money, etc.) will do what is best for them. That’s it, nothing else. From this one assumption, many consequences can be mapped out. Not all decisions are monetary in nature by the way. How to allocate time is a major one for all of us. Do I spend time with my kids or get the oil changed? Is my job satisfying? DO I volunteer my free time or dedicate myself to a hobby? In any case, there are some basic, intuitive results of this assumption. When costs rise, people don’t consume as much. When prices rise, suppliers rush to provide more (this happens with labor as well). When there is too much supply and not enough buyers, prices come down until the price is low enough to clear inventories. These concepts are not open to debate, they happen all the time and are infinitely repeatable.
Yet people still act as if this was just an economist’s viewpoint. It would be like denying the role of Chlorophyl in plants. “We all need Oxygen, it’s silly to think that plants need Co2, they’d die, they’d suffocate!” For some reason many people refuse to see the good that comes out of competition for goods and wages, they refuse to see the problems created by protectionism, and they insist that people in the economy are actually victims of some sort. There is a popular myth revolving around greedy corporations “running” the economy and taking advantage of us. People are not victims of the economy, they are the economy! Unfortunately, the real secret is that those corporations revolve around us…
Misconceptions about economics in the general population are widespread. What this really means is that misconceptions about how people make decisions are widespread. People assume that things work in a manner that could not be. Many policies that have the best intentions end up only harming us. A few examples off the top of my head are minimum wage laws, price controls, farm subsidies, mandatory union hiring, and tariffs on imports. If everyone in the world, or at least the policy makers, could firmly grasp the equivalent of two semesters of micro econ, the world would be a much more stable and wealthy place. SIGH, I know, just another type of utopian ideal…

Isaac

Why are Indians worth less than Americans? (and other outsourcing thoughts)

A recent reply I wrote to a friend of mine brought this question up in my mind. Whenever outsourcing is brought up, all that is ever discussed is how an American looses his job. What about the jobs that Indians, Chinese, or South Americans are gaining? What is it with this “Us vs. Them” mentality? People worry and fret over the possible lowering of the standard of living of the displaced worker. I find it odd than no one ever talks about the number of opportunities available to the American worker. I feel certain that what the Indian gains is far more than the American looses in the short term, and that they both come out ahead in the long term. Despite all of the outsourcing, our unemployment figure stands at 5% and our GDP keeps rising. How is this possible?
The GDP part is simple. First off, we are paying less for the same goods and services, leaving money left over for other things. This is equivalent to getting a raise and is the definition of a rising GDP. The second is that we have, if not the most, among the most productive workers in the world. The combination of high levels of skill and high levels of technology make for an unbeatable combo. But surely the reduction in wages offsets the gains from cheaper goods, right? Not a chance. The extra money that is gained from outsourcing is the source for creating new jobs. That money is spent, much of it in the domestic economy. The more motivated and entrepreneurial minded people out there will make themselves rich by taking risks and being rewarded (and some will fail and be ruined) while the rest of the people will get jobs paying them what their labor is worth.
Aha! This is why outsourcing is bad, the new job doesn’t pay as much! Once again, people get paid what their labor is worth. If their wages go down, it is because their skills are no longer valued as highly. This may sound harsh, but there isn’t any better alternative. A popular idea is to pay people more than their labor is worth. The value is not determined by previous wages or union laws, it is determined by what people are willing to take to do that job. For many lower skilled assembly jobs, that wage is set in China or India through competitive wage pricing (i.e. the wage is better than their alternatives). More and more IT work is also being done over there as well due to the ease of shifting the work. If the American workers in these newly devalued jobs lobby congress to pay them what they used to get paid, guess who gets to take up the slack? We do, either through direct payments of the good (made possible by government eliminating competition such as imports), tax subsidies (like much of agriculture), or a large number of extra unemployment benefits (like in states that have mandatory union hiring laws) all the while depriving someone in a desperately poor country that would do just about anything for a job. Where’s the justice in that? We get to support someone or some business above and beyond what they are worth just so we can keep a poor country poor? Like I asked before, why are Americans worth more than Indians? Why do they deserve to be supported and not someone that is willing to work for every dollar they earn? Clearly the most equitable thing to do is to let people earn their money. This presents people with a powerful incentive to keep their skills desirable and allows for the most efficient and therefore least expensive means of making goods. As a side benefit, we can help poor countries climb their way into prosperity. It’s a win win situation in the medium to long term, and it is the ONLY way to insure continued innovation and growth for both countries. So what moral grounds can someone argue against outsourcing? No really, I’m very curious…

Isaac

Progress is great

I’m constantly amazed at how technology keeps improving and things keep getting easier. I’m reminded of this tonight by the RSS feeds of all of the sites I keep track of on the net. It used to be that I would have to go to each one of them to see what was new. That may not sound like much, but keep in mind that I am both an internet geek and an information junkie. I have lots of sites to keep track of. With the latest version of Safari from Apple, I can simply subscribe to the RSS feeds and it will tell me when there has been an update! This has cut 20 or 30 minutes a night from my web time, and that’s a good thing. I am posting this entry from a program called Xjournal. Not only do I not need to log onto Livejournal to post, it will automatically tell me when one of my friends has posted as well! The technology that made new things possible is now being automated and I can spend my time doing something else…
This reminds me of a book I’m reading called “The Earth is Flat” (thanks dad). It is a fairly thorough explanation of the rise and causes of outsourcing. One of the biggest causes is the digitization of data and the automated processing of it. It is trivial to send the data to India these days, so it is in greater and greater quantities. Tax returns, radiology readings, news wire operation, and of course programming are all done overseas now. The upside for them is obvious, they get hired to do work, and they do it well. Our benefit is multi-layered. We of course get less expensive labor, but we also get more time. Accountants that used to be bogged down with the minutia of tax codes can now spend more time with clients in planning and organizational meetings. Yup, technology is a wonderful thing, I highly recommend the book, it’s been very good so far and I am learning lots.

Isaac

A great piece on Walmart

There was a great op-ed piece in the Washington Post about WalMart today. Many many people complain about how walmart reduces wages. It isn’t clear how this can be done, but let’s give them the benefit of the doubt and say they’re right (for a rebuttal of this, see this post). The figures the writer of the article state the the yearly loss of wages is between 4 and 5 BILLION dollars a year. That’s a lot of dough, but it isn’t the whole story. It is estimated that people shopping at walmart save 50 billion a year on food alone by shopping there, it could be as much as 5 times that amount when you factor in all of the other stuff they sell. That is what you call helping poor people…
The beauty of this is that it is all done voluntarily, no one is forced to work or shop at a walmart. Walmart’s suppliers are free to sell or not to sell to them, and the people that work for those suppliers have the same freedom. The net result is that there are a lot of people employed (and this shows that what they earn is better than their alternatives) and a lot of people save money. For a synopsis of the article, check out the always informative cafe Hayek. Isaac

New wallpapers

     I got sick and tired of looking at the same 15 or 20 pictures that been rotated randomly for my wallpaper on the computer. I don’t have that many of my pictures digitized, and besides, how long can you look at your own stuff? So I went on a downloading binge… I concentrated on music folks. My favorites so far are a picture of Glenn Gould crouching on the floor of a studio behind a bunch of mic stands, an amazing shot of Thurston Moore in concert, and a shot of the minutemen. Hmm, I just realized that they are all in B&W… There’s also a bunch of Kim Gordon, Bob Dylan, Kathleen Hannah, Jacqueline Dupre, Mudhoney (who could forget the cover of Superfuzz Big Muff?), and other assorted idols in my music pantheon… I’ve also added some “tube porn”, really beautiful shots of vacuum tubes… yes I am a geek, leave me alone! I am now filled with delight as my wallpaper changes each 5 minutes, sometimes it doesn’t take much to make me happy.


Isaac

I have also downloaded a bunch of pictures of Louise Brooks, one of the few, if only actresses I have ever dreamed of…

Isaac

Adam Smith 101

     I got involved in an online discussion about how digital has taken over the photo marketplace. This was on an analog discussion board, so some people were looking for someone to “blame”. This particular guy was claiming that it was a plot by greedy salespeople and manufacturers to make more money. I think we can all see how silly that is, the salespeople and manufacturers are indeed making money, but only because consumers are demanding those goods. Many people fail to apply the same logic to other companies. The same rules apply whether we are talking about cameras, oil, food, etc. Companies are ALWAYS trying to make as much money as they can. Some times are better than others, but it is up to them to figure out how to make money with the current demands of consumers. The consumption is worth more than the price of the good, otherwise the transaction wouldn’t have taken place. It’s a win win situation, even when the price is high. The corperation gets revenue and the consumer gets something they value more than the money they paid. It’s one of the primary misunderstandings involving trade, trade is always mutially beneficial, otherwise it doesn’t happen. Trade is always good wheather it’s between two people, a corperation and a person, or between countries, it is always mutually beneficial. We should worry more about the trade that is not allowed to happen…


Isaac

It was nice

     It was a nice thanksgiving at mom’s. Didn’t do much, but that’s fine with me:-) Ate lots of food and I got lots of leftovers since mom and Rick were going to hae another thanksgiving dinner today. Nathan gave me a great idea. I asked how hard it would be to make a pot pie, he suggested that I make a shepard’s pie instead. I did that today and thanksgiving leftovers have never tasted so good… I consider it a plus anytime I can cook something new and it turns out OK. I figure most of the turkey will be gone by tomorrw, that’ll give me the perfect excuse to use the pesto that Butler sent up with me… MMMMMMM. 

     I tried my hand at radio hunting coming back. That’s when you constantly surf through the channels looking for something you’d like to hear. It’s tough because of the limited playlists, but I managed to hear “I’m a Man” by the Spencer Davis Group (who was Spencer Davis anyway?) and “Funkytown” by Lipps Inc. I own that LP, there’s only 4 songs on it, the version of Funkytown that gets played on the radio is heavily edited, gotta admit that I like the FM version better…
     Dad has built shelves for my stereo system! I will now have something to put my components on instead of having them strewn across the floor. He did it in a week, wish that I had mentioned it to him earlier:-) Now that I know that other people are doing things for me for Christmas, I feel the need to get on the ball myself. I’m aiming to have all my shopping done by the middle of Dec. Now if I only knew what people wanted…

Isaac

My day is made…

I just heard “She Bop” in Korean… I hope that the lyrics are about the same, but who knows… Anyway, I thought that was funny since I hadn’t heard that at all in several years. I’m heading down to my mother’s tonight for my second thanksgiving. It’ll be cool to see my brother twice in one week! Everyone have a great thanksgiving!

Isaac

I’m going down to dad’s and Butler’s tomorrow and will be back on monday. We’re going to have an early thanksgiving since Coleman (Butler’s daughter) is down from NYC. This means I’ll actually have two thanksgiving dinners this year. Usually I have to alternate between the parents, it’ll be good to see both for thanksgiving dinners this year:-) 


Isaac