James Pethokoukis

Politics and policy from inside Washington

Wal-Mart and rent seeking

Jul 1, 2009 19:53 UTC

Government intrusion into the marketplace has so many unintended and unforeseen consequences — like Wal-Mart (!) coming out in favor of government mandate that employers provide health insurance. Why? Here is how a flabbergasted Heritage Foundation explains it:

Why would Wal-Mart – the nation’s largest employer – endorse such an idea. Simple: It would cripple many of their competitors. Much ink has been spilled on the effect Wal-Mart has on small retailers. Wal-Mart’s large size enables them to extract low prices from manufacturers, and that – combined with efficient, computerized inventory operations enables them to undercut – and sometimes drive out of business – small “mom-and-pop” retailers.

An employer mandate to provide health insurance would enhance Wal-Mart’s cost advantage. Wal-Mart has 1.4 million U.S. employees, and can negotiate a health insurance contract for them all at once. As a large multi-state employer, they can self-insure and provide coverage under federal ERISA regulations, which exempts them from costly compliance with most state health insurance regulations.

Wal-Mart’s small competitors have neither of these advantages. Employers with less than 20 employees often pay more than twice as much per employee for the same coverage, and small employers must comply with sometimes-onerous state regulations.

Supporting the employer mandate is just another way large business can harness the forces of government to hobble their smaller competitors. The employer mandate would impose much higher costs per employee on small retailers than it would on Wal-Mart. They would have to charge higher prices to compensate, which would put them at a substantial competitive disadvantage. Many of these small retailers would be forced out of business.

And the befuddled Michael Cannon of the  Cato Institute has a moment of clarity:

A couple of years ago, I shared a cab to the airport with a Wal-Mart lobbyist, who told me that Wal-Mart supports an “employer mandate.”  An employer mandate is a legal requirement that employers provide a government-defined package of health benefits to their workers.  Only Hawaii and Massachusettshave enacted such a law.

I couldn’t believe what I was hearing.  Wal-Mart is a capitalist success story.  At the time of our conversation, this lobbyist was helping Wal-Mart fight off employer-mandate legislation in dozens of states.  Those measures were specifically designed to hurt Wal-Mart, and were underwritten by the unions and union shops that were losing jobs and business to Wal-Mart.

But it all became clear when the lobbyist explained the reason for Wal-Mart’s position: “Target’s health-benefits costs are lower.”

I have no idea what Target’s or Wal-Mart’s health-benefits costs are.  Let’s say that Target spends $5,000 per worker on health benefits and Wal-Mart spends $10,000.  An employer mandate that requires both retail giants to spend $9,000 per worker would have no effect on Wal-Mart.  But it would cripple one of Wal-Mart’s chief competitors.

COMMENT

The plan that is most likely be passed excludes employers with 25 or less employees from the mandate.

Posted by carole | Report as abusive

The slim odds of cap-and-trade making it into law

Jul 1, 2009 17:59 UTC

A great point from Pete Davis over at Capital Gains and Games:

On April 1, 2009, 26 coal and manufacturing state Democrats joined all 41 Senate Republicans in favor of Senator Mike Johann’s (R-NE) amendment to the Budget Resolution, S.Con.Res.13, disallowing the use of “reconciliation” to pass a Climate Change bill.  “Reconciliation” would allow passage by a majority vote instead of the 60 votes normally needed to pass major bills.  It would also prevent extraneous killer amendments.  Some of those 26 Democrats may feel secure enough of their reelection chances to vote in favor of a Climate Change bill this fall, but many won’t.  That’s why I’d be surprised if the Senate can pass a Climate Change bill this year.  I could be proven wrong if President Obama can mount enough public pressure on those 26 Senate Democrats to turn them around, but that would be a tall order.

Why was Obama so wrongly optimistic on the economy?

Jul 1, 2009 14:11 UTC

So David Leonhardt of the NYT attempts to explain why the Obama administration was overly optimistic about the economy in its now-infamous “unemployment will not go above 8 percent” forecast:

Here are two possible explanations that the administration was so wrong. And sorting through them matters a great deal, because they point in opposite policy directions. The first explanation is that the economy has deteriorated because the stimulus package failed. Some critics say that stimulus just doesn’t work, while others argue that this particular package was too small or too badly constructed to make a difference. The second answer is that the economy has deteriorated in spite of the stimulus. In other words, the patient is not as sick as he would have been without the medicine he received. But he is a lot sicker than doctors realized when they prescribed it. To me, the evidence is fairly compelling that the second answer is the right one.

Henry Blodget sees it this way:

We suspect Obama, Summers, Geithner & Co. just decided that they had to issue rose-colored projections about the unemployment rate and recovery or they would never have a hope in hell of ramming such huge spending increases through.  And if the forecasts proved optimistic?  Well, by then, maybe everyone would have forgotten.

My spin:  It’s not so much that a more negative forecast would have prevented Obama from spending large amounts of money, it’s that he would have been forced to tilt the stimulus more in favor of tax cuts which work a lot of faster  than government spending (though both are pretty inefficient as “stimulus”).

And Obama wanted to spend billions on his “investment agenda (healthcare, education, infrastructure), not tax cuts.  (And if he had spent the $2 trillion that some liberals wanted on stimulus, it surely would have crowded out the rest of his agenda, plus rattled the bond markets.) So he gambled that monetary policy would keep the economy from getting as bad as it has. And he lost. Did Team Obama purposely give a bad forecast, or did its old fashioned Keynesian approach merely lead it astray? Good question. Either way, it’s the Obamacrats’ economy now.

COMMENT

OMG did you really use Henry Blodget to back-up your point? Henry Blodget!?!?! That son-of-a-bitch lacky who has a life-time ban from the SEC for stock manipulation, mail-fraud, insider trading, and wire-fraud while a top director at a major (and now defunct) trading house? A guy who has such an enormous mouth and grating attitude that he makes Jim Cramer look like a Buddhist monk!! How can I take anything you say seriously again? Maybe you should join Rush Limbaugh’s radio show and be his side-kick…

Posted by the Shah | Report as abusive

Looking at the Consumer Financial Protection Agency

Jul 1, 2009 13:52 UTC

This is one of my favorite parts of the consumer protection bill:

The Agency shall have no authority under this section to declare an act or practice in connection with a transaction with a consumer for a consumer financial product or service to be unlawful on the grounds that such act or practice is unfair unless the Agency has a reasonable basis to conclude that the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and such substantial injury is not outweighed by countervailing benefits to consumers or to competition. In determining whether an act or practice is unfair, the Agency may consider established public policies as evidence to be considered with all other evidence.

My spin: I think the whole mortage crisis was “reasonably avoidable” with just a smidgen of consumer education. That is where the solution should be, not ANOTHER agency.

COMMENT

Sounds to me like another one of the “We do have to do something” ideas. An agency without a clear mission and the authority to carry out that mission is nothing but wind and more of what we have heard and seen.

Posted by f belz | Report as abusive

Fed Succession Watch: Yellen the Dove

Jul 1, 2009 13:25 UTC

For SF Fed president Janet Yellen, it’s deflation first, inflation later:

I’ll put my cards on the table right away. I think the predominant risk is that inflation will be too low, not too high, over the next several years.  …  First of all, this very weak economy is, if anything, putting downward pressure on wages and prices. We have already seen a noticeable slowdown in wage growth and reports of wage cuts have become increasingly prevalent—a sign of the sacrifices that some workers are making to keep their employers afloat and preserve their jobs. Businesses are also cutting prices and profit margins to boost sales. Core inflation—a measure that excludes volatile food and energy prices—has drifted down below 2 percent. With unemployment already substantial and likely to rise further, the downward pressure on wages and prices should continue and could intensify.

For these reasons, I expect core inflation will dip to about 1 percent over the next year and remain below 2 percent for several years. If the economy fails to recover soon, it is conceivable that this very low inflation could turn into outright deflation.

COMMENT

Commodities are singing another tune.

Also, would you lend money to the federal government at a 4.5% fixed rate for 30 years? Heck no!

Posted by Austrian School | Report as abusive

Did Obama just raise your credit card rates?

Jul 1, 2009 12:50 UTC

Flood the White House switchboards! Considering that the government is about to be a 34 percent owner of Citigroup, couldn’t Team Obama have quashed the company’s decision to raise rates on 15 million cardholders — just as new curbs legislated by Congerss are about to kick in?

Perhaps, but such a move wouldn’t have made much business sense: a) unemployment continues to rise; b) higher unemployment mean higher default rates; c)  add that to the reality that financial companies already face more writedowns on commerical real estate and other loans; d) the money to deal with these losses has to come from somwhere. So Uncle Sam the stakeholder has different priorities as Uncle Sam the consumer advocate.  Of course, consumers may soon have an official consumer advocate to help them deal with finanicial product issues — such as enforcing new credit card rules. Of cours, one side effect could be higher rates and less credit availability.

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