Wal-Mart Critic Krugman Confounded By Capitalism

Paul Krugman teaches teaches economics at Princeton, and has done the same at MIT. Enron evidently thought enough of his understanding of the dismal science to hire him as a consultant - though Krugman has at times been reluctant to disclose that fact. But judging by his latest anti-Wal-Mart jeremiad [subscription required] in this morning's New York Times, you really have to wonder how much the good professor of economics . . . understands about capitalism.

Krugman's portrait of Wal-Mart is a caricature of greedy management conducting what he calls a "war on wages." Krugman has apparently gotten hold of a couple leaked internal Wal-Mart memos that discuss ideas for keeping labor costs under control. Among the ideas: increasing the percentage of part-time workers, since they qualify for fewer benefits, and limiting raises for long-term employees.

Krugman suggests that the only thing that permits Wal-Mart to "impose" its "brutal strategy" is a legal climate, created by Republicans who "come down on the side of the wage-cutter," that makes unionization of Wal-Mart workers more difficult.

Can Krugman really believe this? You sense he is stuck in some kind of fantasy time-warp in which Wal-Mart managers are Monopoly-millionaires in silk top hats, cackling as they run their fingers through piles of gold pieces and dream up new wage-cutting schemes that they will "impose" on workers.

Has the Times columnist ever heard of something called . . . the free market? Wal-Mart can no more "impose" wages on workers than it can impose high prices on customers. All Wal-Mart can do is offer wages. If workers find the offer attractive, they will accept it, taking new jobs at Wal-Mart or remaining in the Wal-Mart jobs they already have. If other employers offer more attractive employment terms, workers will reject Wal-Mart's offer. Wal-Mart would then have to improve its offer until it is able to attract the number and quality of workers it seeks.

There is no such thing as a free lunch in the free market. If in the short run unions "succeed" in imposing higher-than-market wages, they ultimately threaten the competitiveness and even the survival of employers and the jobs they provide. See the plight of US automakers for a good example.

Wal-Mart is the nation's largest employer. When new Wal-Marts open, job-seekers tend to turn up in droves. Those facts are the best proof that - far from "imposing" below-market wages - Wal-Mart is offering opportunities better than what more than a million Americans have concluded they can find elsewhere.

It could be time for Prof. Krugman to give up teaching and take a crash course in Market Economics 101. Who knows? Perhaps Milton Friedman might even be willing to sit down with him for a while.

Finkelstein lives in the liberal haven of Ithaca, NY. Download podcasts and webcasts of Mark's award-winning TV show 'Right Angle' here. Contact Mark at mark@gunhill.net

Economy Wages & Prices Wal-Mart New York Times