That Mr. Mindeman considers an economic discussion of the federal stimulus package a “waste of valuable blogging space” is disappointing, but hardly surprising. Discussion of the stimulus program, like Senate resistance to the stimulus bill, just gets in the way of getting on with the implementation. Things would go a lot smoother if we “stimulus deniers” could simply be declared enemies of the people and shuttled of to some Gitmo-like reeducation center.

Following a wish list of his proposed “secondary effects” of green industry jobs, which are actually potential direct benefits and not secondary effects as we ostensibly have been discussing (the unseen negative effects of an economic policy) — Mr. Mindeman writes:

But with Government stimulus (sorry, I have to use that word again), the initial changeover can be accelerated by a large government investment now. The economy as a whole would get those secondary benefits more quickly and costs would be recouped. And in addition, new industries would be created to meet new energy needs.

I would be satisfied to simply point out that Mr. Mindeman confirms his confusion between “secondary benefits” and “secondary effects” in his statement of faith. We are not on the same page and discussion, like resistance in Mr. Mindeman’s ideal collective, is futile. But then he has to go a spoil it all by saying something stupid and predictably partisan in response to my example of Wal-Mart increasing wealth and purchasing power by using technology to reduce the cost of sales.  

To wit:

This tailor who makes a coat for $200 via his own labor and $100 of materials, is by definition a small business. In theory, his business would grow if he does a good job and people recommend him to their friends. But along comes Wal-Mart. They decide to make the coat for $180 by the following:

— reduced wages for employees (loss of wealth)

— demanding cost reductions from suppliers (loss of wealth)

— which in turns causes the supplier to lay people off(loss of wealth)

— which in turns causes that supplier to look for cheaper raw materials outside the country — more job loss (loss of wealth)

— in addition, Wal-Mart maintains low cost by moving its employees into government sponsored health programs (societal burden)

— and, Wal-mart drives wages furthur down by fighting off unions which keeps out more livable wages (more loss of wealth)

— and in the end, Wal-Mart drives the tailor out of business because he cannot compete on price (more loss of wealth)

Let’s look at this logically. First, Wal-Mart does not “make coats.” It purchases coats from suppliers. In my example, Wal-Mart is not buying cheaper coats (which it could do were there a market for cheaper coats). Wal-Mart, is purchasing coats from the tailor (at a wholesale price) and because of its more efficient operation, is able to increase its profits by retailing the same coat at $180. Wal-Mart makes more money, and consumers can buy the same quality coat for $20 less, which gives them an additional $20 in purchasing power. Nothing in that example has anything to do with the bullet points Mr. Mindeman raises, but I will nonetheless address them.

Mr. Mindeman complains that Wal-Mart pays low wages, and I’m going to throw in his point that Wal-Mart is non-union here because unbeknownst to him, he has a valid point. Labor is a commodity that has a market value. Employees are paid for the value they provide to employers, not on their wants or needs. Wal-Mart offers a wage and is able to find employees because working for Wal-Mart at the wage it offers is a better alternative than whatever other employment is available to potential employees. If potential employees have a better option, Wal-Mart will not be able to staff its stores and will have to raise it wage scale. This is where the union issue becomes valid.

If Wal-Mart overvalues or undervalues the worth of an individual employee, the effect on Wal-Mart with thousands of employees is insignificant. However, if an individual employee overvalues or undervalues his worth in the market, it can have significant impact on that individual person. Therein lies the value of unions. A standard union wage for what can be considered commodity jobs provides employees with information about their relative value in the market. (Please, we are not talking about the value of individuals as human beings, whether they are good parents or whether or not their mothers love them; we are talking about market realities.) Doing so, unions serve a valuable and productive purpose.

However, when unions, backed by government intervention, push wages above market value, they actually work against job and wealth creation. The visible direct benefits are higher wages for those employed. The unseen secondary effects are willing workers unemployed at a lower wage, higher consumer prices, and lower returns for capital providers to the business. The reality that faith-based union advocates ignore is that union’s enemy is not management; the enemy of union workers are those workers willing and able to do the same job at market wages. Much more could be written about unions’ detremental effects on the economy, but on to Mr. Mindeman’s next Wall-Mart fallacy.

Mr. Mindeman claims Wal-Mart demanding cost reductions from suppliers reduces wealth. I will assume that even Mr. Mindeman is not suggesting that if a supplier can produce the same quantity and quality for less cost that is a reduction in wealth. I’m going out on a limb here thinking Mr. Mindeman means Wal-Mart is evil because it makes suppliers cut their price to Wal-Mart.  Why would a supplier do that? Because just like Wal-Mart, the supplier seeks to maximize his profits. If our tailor sells a hundred coats a year at $200 but can sell thousands of coats to Wal-Mart at $170 a coat, what do you think he will choose to do? He sells more coats, perhaps uses some of his new profits to expand his line or reduce his cost with the purchase of technology. If that new technology prompts the tailor to lay off people, those people will suffer. But in net aggregate, far more jobs are created by the productive use of capital than are lost. New wealth is created.

Again, I will give Mr. Mindeman the benefit of the doubt and assume by “cheaper” materials he doesn’t mean materials of the same quality but lower cost; he means the poor supplier squeezed by evil Wal-Mart will seek inferior quality “cheep” materials. By adding from “outside the country,” Mr. Mindeman (I must assume) is making the “imports/bad, exports/good” argument. The latter discussion is beyond the scope of a brief comment, but suffice it to say here that a) if a supplier to Wal-Mart lowers its quality, it risks losing its contract; b) if it finds the same quality materials at lower cost outside the country and imports them consequently lowering the cost of its products, the net aggregate effect is benefit to consumers and the economy, albeit at the expense of those employed by the higher cost domestic supplier. Ultimately, dollars spent on foreign goods must come back to the United States through the purchase of our products or as investment in our economy.

Mr. Mindeman complains that Wal-Mart moves people into government sponsored health programs rather than paying their health care. As the saying goes, “Don’t blame the pigs for eating if you keep filling the trough.” No question, that practice benefits Wal-Mart. It amounts to a corporate subsidy, which I was under the impression Mr. Mindeman thought was good – at least when applied to industries he likes. He doesn’t like Wal-Mart, therefore the subsidy is bad. For the economy, it probably is. But Mr. Mindeman’s inconsistency vis-à-vis corporate subsidies once again illustrates he is not arguing from economic principle. His argument is the faith-based contention that government will subsidize the “right” industries, which just happen to be those he favors.

Taking my example out of context, Mr. Mindeman claims Wal-Mart puts the tailor out of business. My tailor is a supplier who prospers by selling coats to Wal-Mart. Granted: Wal-Mart does influence the closing of small businesses whose value proposition cannot compete. That is the “creative destruction” of a free market. You can’t sell slide rules when an electronic calculator can be had for less than a buck (but think how many more people could be employed crunching numbers if we still used slide rules?). There is a limited market for people willing pay $200 for a coat when they can get the same quality coat for $180. That is how wealth is created and purchasing power increases.

I’ll end this discussion acknowledging the valid moral point that Mr. Mindeman attempts to disguise as economic principle – the creative destruction inherent in a free market system does cause real pain to real people (this severe recesion, however, has more to do with government policy than creative destruction). If we elect not to pass a stimulus package, if we let market work, people will lose their homes to foreclosure, companies will go out of business and people will lose their jobs. People will suffer. And although facilitating a market-based recovery is the economically sound way to combat the recession and, considering secondary effects, the right way to minimize the pain, leaving the discussion at that begs the moral question of dealing with real-life victims of the recession and errant government policy.

The strategy of a trillion-dollar government stimulus only disguises the people problem; it does not solve it. The opportunity cost of pumping a trillion dollars into the economy to prevent some people from suffering is that many more jobs will be lost or prevented from coming into being at the same time inflation lowers purchasing power and the quality of life – even for those people who directly benefit from the stimulus package.

Instead of trying to manage our way out of painful economic situation caused by government mismanagement of the economy, better to accept the pain and deal with it directly. Instead of trying to tweak a trillion dollars worth of stimulus, let the market work. Let the economy sort itself out. Let the foreclosures happen, the companies close and the jobs be lost. Let capital and labor flow to its most effective use. AND let us practice what we preach and consider the secondary effects — the negative consequendes of that policy.

How do we deal with people who cannot immediately find a place in the new economy? Should we provide direct taxpayer assistance? Through more government programs or in the form of vouchers that enable people to participate in the market economy? Should we provide direct taxpayer assistance for job training and education? Government programs or vouchers enabling people some choice in deciding their own affairs? Should we even direct money to specific choices through housing subsidies, for example, or simply provide individual assistance at some level and allow people to make unfettered decisions about how to best rebuild their economic viability?

The moral question of dealing with creative destruction in a free market is a luxury the productivity of the free market enables us to pursue. It is not a “gift” granted by the coercive compassion of command and control government. It is fitting and proper that we consider the plight of people displaced by the current economic situation; but in doing so, we must recognize our action is primarily a moral activity, not an economic issue, and treating it as such. The stimulus package is simply, ALL things considered, a very bad idea.