Cafe Hayek - Latest Comments in Morality vs. Reality

Re: Morality vs. Reality

John Dewey — Thu, 27 Jul 2006 09:15:47 -0000

Randy: "My personal experience is driving out of Chicago at rush hour (nearly 2 hours in many cases). So I'm not inclined to think that people will routinely be willing to drive to the suburbs to shop."

Would you please reconsider that argument? I don't know where you drove to, but I'm pretty certain it does not take two hours to drive from most points in the Chicago city limits to the closest suburbs. We're not talking about driving downtown Chicago to Naperville. Chicago city residents are probably already driving - during non-rush hour times - to the Walmarts in Skokie, Coutryside, and Evergreen Park right now.

Re: Morality vs. Reality

John Dewey — Thu, 27 Jul 2006 09:03:22 -0000

Randy,

I'm arguing that the big box retailers who face higher labor costs will eventually exit the city. Some may believe the big guys will accept lower profits or raise prices. The smaller retailers have no reason to do either. They aren't covered by the living wage laws, so they can continue to price products as they have before. If the big box retailers either exit or raise prices, the small retailers gain share. But if they decide to match the price increases of the big guys, they will lose share to the suburbs.

Re: Morality vs. Reality

Randy — Thu, 27 Jul 2006 08:20:43 -0000

John S.,

And I should have made clear that I was replying to John Dewey :)

Your post is on target. Economic actions by government always have reactions.

Re: Morality vs. Reality

John S. — Thu, 27 Jul 2006 08:14:33 -0000

Randy: I guess I should have made it clearer that my comment was meant as sarcasm. I don't think the city council can mandate lower gasoline prices, or higher wages. Attempting to do so will cause gas shortages and job shortages. Something's gotta give.

A few years back, some universities were proposing to pay their workers a "living wage". Did any of those proposals ever go through? If so, I would be interested to see what happened.

Re: Morality vs. Reality

Randy — Thu, 27 Jul 2006 07:02:14 -0000

P.S. John, but you're right that our basic disagreement seems to be over how hard it is for inner city residents to reach the suburbs - and that may indeed be the critical factor. My personal experience is from living in Denver and Minneapolis as a young man without a car (you shop at whatever is closest), and later, driving out of Chicago at rush hour (nearly 2 hours in many cases). So I'm not inclined to think that people will routinely be willing to drive to the suburbs to shop, nor that the big boxes will just pack up and move - I think that they can and will raise prices.

Re: Morality vs. Reality

Randy — Thu, 27 Jul 2006 06:24:06 -0000

John,

Your assumption seems to be that central city businesses can or will continue to operate with reduced or negative profits. This is the same assumption made by those who want to legislate higher labor costs. I'm thinking that those with insufficient pricing power will be forced to take the kinds of actions you describe, and that only those with sufficient pricing power will remain. And many of those with sufficient pricing power will very likely be the big box retailers.

Re: Morality vs. Reality

John S. — Thu, 27 Jul 2006 03:19:55 -0000

Now that they've solved the wage problem, maybe the Chicago City Council can tackle the price of gasoline, which is something like $3.40 per gallon in the city. How can the working poor afford that? If Council can control wages, they can control prices as well. Why not just decree that no retailer can sell gasoline for more than $1.00 per gallon within the city limits? That seems like an affordable price to me.

In fact, now that Council has shown its willingness to tinker with the levers of the local economy, the must take the blame for the continued high price of gasoline. Just as they have raised the price of labor, they have it within their power to lower the price of gasoline. Why have they not done it? I propose a march on City Hall. At night, with torches.

Re: Morality vs. Reality

suncraig — Wed, 26 Jul 2006 20:46:09 -0000

The bill is now law

"The 35 to 14 vote by a bitterly divided City Council is a victory for organized labor, a stunning defeat for Wal-Mart and the latest in a string of legislative embarrassments for Mayor Daley."

http://www.suntimes.com/out...

It's maybe veto proof even if the Mayor Daley veto it.

Re: Morality vs. Reality

John Dewey — Wed, 26 Jul 2006 13:42:57 -0000

Randy: "the government intervention will create an unfair situation - which free people will restore to a fair situation in short order."

I agree. But I don't agree that restoration means inflation of prices. Instead:

- economic activity increases in the close-in suburbs, which are not very far at all;

- city retailers keep prices low to match the close-in suburbs;

- high labor cost, big box retailers exit as leases expire;

- city of Chicago loses more tax revenue to the suburbs;

- Chicago city services decline slightly.

We may disagree about how easily city residents can get to the close-in Chicago suburbs.

Re: Morality vs. Reality

Randy — Wed, 26 Jul 2006 12:52:20 -0000

John,

Re; "Retailers in the city will be forced to match the lower suburban prices."

At the periphery, this will certainly happen to some extent. But its no small feat to drive out of Chicago. I think it more likely that businesses will either raise prices, fail, or relocate to the suburbs - the latter two options further enabling those who remain in the central city to raise prices.

My main thought is that equilibrium must be, and therefore will be, restored. People will not freely participate in an unfair transaction. They may grumble about the deal, but if it is truly unfair, if there is no value in it, they will not participate. So what we know is that the current wages are not unfair. If they were, no one would accept them. Therefore the government intervention will create an unfair situation - which free people will restore to a fair situation in short order. I don't know all the details as to how they will do it. But I know that they will.

Re: Morality vs. Reality

John Dewey — Wed, 26 Jul 2006 12:24:30 -0000

Randy,

A statewide living wage might have the impact you've suggested. All prices might be inflated by the amount of the minimum wage increase. The big box retailers would not factor in labor costs in choosing locations.

If suburban governments do not also lift their minimum wage, residents of the city need only cross the city limits to obtain goods at the old prices. Retailers in the city will be forced to match the lower suburban prices.

Will big box retailers remain in the city or relocate to lower cost suburbs? I think Chicago is only about 10 or 12 miles wide at most points. Why would a Walmart 5 miles from the city limit remain there?

Re: Morality vs. Reality

Randy — Wed, 26 Jul 2006 11:34:57 -0000

So what does mandating a living wage of $10/hr + $3/hr in benefits really mean? It means that in a very short time, $13 dollars will buy only what the current minimum wage buys today, but workers will be forced to take roughly 23% of their compensation in the form of benefits. They will have an even harder time making it from paycheck to paycheck, but by God they'll have the benefits that they "need".

Re: Morality vs. Reality

Randy — Wed, 26 Jul 2006 11:13:40 -0000

Elias,

I just don't think the wage numbers are real. That is, the question for Walmart and Target is whether or not they can adjust to the new numbers - primarily, can they raise prices? And I think the answer is probably yes. The higher wage requirements will have an impact on the entire region (as someone above pointed out, even the mom and pops will have to raise wages to keep good employees) so Walmart and Target should have no problem raising prices to return the equilibrium. And if they can't, they will have to close doors. Because I don't see the reality changing, because equilibrium will necessarily return in short order, I see no point in a business decision which has no other purpose than to make a political statement.

Re: Morality vs. Reality

Elias — Wed, 26 Jul 2006 10:42:19 -0000

I have one small quibble with Roberts’s write-up. I think he’s insufficiently cynical about Wal-Mart’s and Target’s profit maximization strategies.

Plainly, Roberts thinks that if it’s still profitable for those companies to operate in Chicago if it goes ahead with its “living wage” law, then they’ll do so. I’m not so sure. If I were advising those companies, I might counsel that they take the following approach: Conspicuously close up shop whenever any state or municipality erects a cumbersome “living wage” law—even when it’s still profitable to maintain a business there. Sure, you’d lose that source of profit, but you also might induce other communities not to go ahead with similar measures. And the net gains from squelching other communities’ “living wage” campaigns might outweigh the benefits of maintaining a profitable business in a “living wage” area. In other words, contra Roberts, it might make sense for corporations to play chicken over “living wage” laws. “Threats” and “saber-rattling” might be apt descriptions.

I don’t think that’s what’s actually going on here, mind you. But it would have been nice for Roberts to at least have grappled with the thought. Otherwise, however, like I said, I think it’s a good illustration of bad journalism.

Re: Morality vs. Reality

andrew duffin — Wed, 26 Jul 2006 07:08:17 -0000

Slightly off-topic, but I thought for a moment I was reading an old item from the 70's.

Is the mayor of Chicago STILL someone called Daley?

Has it become some sort of hereditary honour?

Or is this still the same guy?

Astonished.

Re: Morality vs. Reality

JohnDewey — Tue, 25 Jul 2006 23:54:24 -0000

Teri Pittman: "Much of the anti-Walmart bias is class based. It's a blue-collar store"

That's certainly the current WalMart reputation. But WalMart's have also been successful in upper middle income suburbs - the affluent neighborhoods. Despite the furious opposition from a vocal minority in those affluent neighborhoods, Walmart is moving in everywhere. Rival suburbs are competing for the huge increases in sales taxes a Supercenter generates.

Some of the affluent class will resist Walmart to their death. Their neighbors will just ignore them and pocket the savings Walmart allows. And Walmart's reputation will slowly change.

Re: Morality vs. Reality

waltermb — Tue, 25 Jul 2006 17:13:12 -0000

When I hear about situations like this, I think that the attitude of retailers is myopic. They make hollow threats and protest new laws, but when they get passed, they take no action for fear of hurting themselves in the short term.

However, I think what is needed is for a retailed to take a stand. Therefore, rather than threating to not open stores (and thus deprive people of something they never knew to begin with), these stores should give people a taste, and then yank it away. Specifically, in the runup to this law passing, they should hire as many people as possible and then when the law passes, fire all of them. I concede that this is a bit mean, but such drastic actions are needed to prevent worse laws from being passed in the future.

Re: Morality vs. Reality

happyjuggler0 — Tue, 25 Jul 2006 13:42:24 -0000

I managed to miss the part that the ordinance doesn't take efect until July 1 2010.

It will pass because of the lead time. It should be interesting to see what happens in four years.

Re: Morality vs. Reality

suncraig — Tue, 25 Jul 2006 13:40:55 -0000

The Alderman whose on business Ald. Tom Tunney (44th), who is also a small business owner and vocal opponent of "big box," added to Austin's criticism. He said the plan, which has been debated for many months, would ultimately lead to fewer jobs and hurt all businesses in the community –especially the small businesses it was designed to protect.

Share your thoughts on this story on the ChicagoDefender.com message board.

"You're telling employers that they need to pay $10 plus $3 in benefits," Tunney said. "If there's a Wal-Mart in the community, every business will be affected, sooner [rather] than later."

Tunney owns three of the four Ann Sather restaurants on the North Side, where, he said, workers start at the minimum wage but have a chance to work up to better pay and benefits. On Thursday, Tunney said that the "big box" ordinance threatens to put him out of business because he would have to raise labor costs to keep workers from applying to larger stores.

"If a Wal-Mart replaced Wrigley Field, every business in Lakeview would be paying $10 plus $3 and that shock on the system is going to reduce incentives for employers to open their doors," he said.

"Ann Sather may just close," he added. "Our labor costs in the restaurant business is close to 40 percent now...We've got a property tax bill that has tripled. Now how much can you put on small business – especially if they own the real estate – before they say: 'Wait a second, I'm in the wrong business."

But Ald. Joe Moore (49th), whose amendment to phase in the minimum wage over four years passed the City Council Finance Committee in June, said Tunney's small business would be untouched if the ordinance passes.

"I don't see how they could close," he said. "They're not affected by the ordinance."

Instead Moore accused the measure's opponents, like Tunney, of talking tough to intimidate aldermen into voting down the proposal.

"All I can say is, Chicken Little is alive and well in the City of Chicago," he said. "Everyone's talking about the sky is going to fall...Since they have failed to beat the ordinance on its merits, they're now resorting to scare tactics."

Both sides are awaiting a showdown in council chambers during the next City Council meeting July 26, when Moore said he is "confident" the ordinance will be put to a vote.

Re: Morality vs. Reality

suncraig — Tue, 25 Jul 2006 13:32:53 -0000

There opposition but it might be to late,

"If City Council goes ahead and passes the "big-box" ordinance, it would show a couple of things. The first, of course, is that despite bad schools, the lack of black faces on construction sites and double-digit unemployment rates in black neighborhoods, unions still have a firm grip on this town.

Under the proposed ordinance, superstores such as Wal-Mart and Target would be mandated to pay employees at least $10 an hour and $3 in benefits by July 1, 2010.

But underneath the feel-good rhetoric about all those poor black folks needing to make a living wage, the real battle with Wal-Mart is between the superstore and unions that are trying to organize its workers.

That's reason enough for union members to want to stick it to Wal-Mart. But what about the thousands of black people who are stuck in the unemployment line?

I put that question to the Rev. Michael Pfleger of St. Sabina Catholic Church because, quite frankly, I was surprised he was supporting this ordinance.

"We need to have jobs where people can work and still not be in poverty," he told me. "Wal-Mart has billions of dollars in profits. You should share your profits with your workers. I'm totally against this craziness that any job is better than no job."

http://www.topix.net/conten...

http://www.suntimes.com/out...

Re: Morality vs. Reality

donny — Tue, 25 Jul 2006 12:53:38 -0000

Thank god that officials aren't concerned with the wages small business owner's make. My family business's biggest customer just went belly up, owing us about seventy thousand. Not having the ability to pay ourselves as little as we want, working as many hours as we want, we might not be able to recover.

So should we recover, if we can't pay ourselves as much as some politician thinks? Or if we can't pay ourselves as much as the general populace thinks? Both should mind their own bloody business.

Re: Morality vs. Reality

Teri Pittman — Tue, 25 Jul 2006 12:34:19 -0000

Maybe they would prefer for Walmart to provide union jobs, much like the janitorial company my husband worked for. The union took out $50 a month and he made $10 an hour. The union didn't even negotiate the contract for that wage. The school district insisted the workers be paid that much.

Much of the anti-Walmart bias is class based. It's a blue-collar store and it's hated by the same folks who dislike NASCAR. Walmart continues to be one of the few companies left where it is possible to start out on the floor and work your way into management. It's too bad that these officials are never concerned about the hourly wage that small business owners make.

Re: Morality vs. Reality

Randy — Tue, 25 Jul 2006 12:12:15 -0000

Jeff,

I agree, it is frustrating. So let them have their way. Let them raise the minimum wage to $12/hr, nationalize healthcare, nationalize childcare, nationalize education, double or triple entitlements of all kinds. Its what they say they want. So give it to them. What will happen? The numbers will change but productive people will still come out ahead. And the unproductive will still be blaming others for their problems.

Re: Morality vs. Reality

John Dewey — Tue, 25 Jul 2006 12:04:27 -0000

Randy: "Wrong time - and they look immediately after the law takes effect when negative effects such as price increases or fewer employment opportunities will take place gradually over the years."

Exactly!

If Tennessee's minimum wage increased to $7.50 an hour, I would cut the hours in my bookstores immediately. But that would affect only a couple of employees. When my next lease comes up for renewal, in 2008, I would likely close a store and lay off 8 or 10 employees. A $2.00 hourly increase would reduce profits enough that I wouldn't risk signing a new five year lease.

Re: Morality vs. Reality

Randy — Tue, 25 Jul 2006 11:15:39 -0000

I don't trust the studies that show no negative impact, because they simply don't match my experience of human nature. I don't know what they're missing, but I know they're missing something.

If I had to venture a guess, I'd say that they are looking in the wrong place at the wrong time. Wrong place - they measure employment at existing employers when the jobs lost are in startups that don't happen. Wrong time - and they look immediately after the law takes effect when negative effects such as price increases or fewer employment opportunities will take place gradually over the years.