Some people are short sighted. Its not uncommon, really. We live in a world where everything is instantaneous. We don’t want diet and exercise, we want lyposuction. We don’t want to work on our relationships – we want antidepressants. Its just the way things are. Its only gotten worse with time, due to instant gratification via TV, internet, etc., but some problems are ages old. Economic fallacies are of the utmost importance because they can become wildly popular, and also wildly dangerous.
Today at work somehow a coworker and I got on the subject of Wal-Mart. My coworker and I are on opposite ends of the political spectrum, so our conversations are always interesting. In this instance, he insisted that Wal Mart was bad because they “kill manufacturers”. I can see where he’s coming from. If you aren’t up on your Wal Mart knowledge, here’s how it works.
Wal Mart buys a product from a company, let’s call them Brand X. Wal Mart, of course is a huge buyer, and can pressure Brand X to do what it wants. Wal Mart tells Brand X, “You need to make your product for a lower price in order for us to keep buying from you.” In fear of losing Wal Mart’s business, Brand X lowers the costs of its product by shipping its factory over to China. Its keeps its contract with Wal Mart, but its US factory is closed, and people are out of jobs. Simple enough to understand, right?
Someone may look at this and say right away that Wal Mart is killing jobs in America. However, when you look further at what is happening, you’ll see that Wal Mart has done a great service to American society. By demanding lower prices, consumers now have more money in their pockets. So, let’s say Brand X’s product (let’s call it Product G) used to cost $10. Now that they shipped the factory to China, they can produce the same product, and consumers can buy it for only $5. This means that the consumer now has an extra $5 left over to buy something else – thereby helping some other company.
Not only that, but because products are produced more efficiently and at a lower cost, the standard of living for Americans goes up. Instead of having only enough money for Product G, people now have enough money for Product G AND other items. Consumers’ money goes further. What they do with the money they save on Brand X’s product – it could be anything. In the end though, if society is getting the same product at a lower cost, its better in the long run.
The main fallacy at play here is one that Henry Hazlitt talks about in Economics in One Lesson. Its the problem with how many people think about economic issues. People look at short term results to specific industries. Instead, they ought to look at long term results to society as a whole. In this case, while a few jobs may be lost from moving a factory to China, more people can afford the same products and spend the money they saved elsewhere.
This flawed logic would lead us to believe that laptops are evil because they put the typewriter out of business, or that cars are evil because they put the horse and buggy out of business. While some people may lose their jobs in the short term, society benefits in the end. New products are created at lower prices. At the same time whole new industries are created. While cars did in fact put the horse and buggy market out of business, it also created new businesses – gas stations, repair shops, tire manufacturing, etc. Its impossible to see all of the new industries that came about because of one industry being put out of business.
This may seem like a dreary and inhumane outlook, but the reality is that countries have been importing and exporting goods for thousands of years. Trading labor is the same as trading anything else. In the end, people out of jobs will find new ones. They may need to learn new skills and change with the times, but its part of life. Its not right to force society to pay higher prices just so one group of people can keep their jobs. If a cheaper product can be made, its the consumer’s right to buy it.
In the end, its also the consumer’s right not to buy it. If you don’t like Wal Mart or foreign made products, then don’t buy them. But be careful. Toyota cars are made in America, while Fords are made in Mexico. Just because something is “made in the USA” doesn’t mean anything anymore. Countless products are merely assembled in America, but are actually made overseas. We live in a global economy, and things aren’t going to change. Go with the flow, adapt, and realize that “big evil corporations” like Wal Mart are raising the standard of living for millions of people in America and around the world.