Why Populist Economics Makes Liberals Look Dumb

There's this ranting populist, Jim Hightower, who, for some reason unclear to me, gets a little 5 minute rant on NPR every morning. I've not been commuting in the car much lately, and hadn't heard him for a while. His stuff is knee-jerk anti-corporate, anti-Republican. Sometimes it's fair criticism. Often it's more rhetoric than substance. A few days ago, it was just foolish. Go ahead and read it. It's short. I'll wait.

Where to begin? How about point by point?

1) Don't blame just business people, blame consumers. The prices for goods, the number of firms that can survive in a market, whether new companies are started all depend on two fundamental forces in economics: Supply and Demand. Jim seems to want to blame everything on the supply side of the equation, as if suppliers have all the power. This perspective is understandable, if you view the word as one lonely consumer against a giant, seemingly indifferent corporation. But the fact is that, en masse, customers define markets. If people weren't buying gas guzzling SUVs, auto makers wouldn't allocate resources to develop and produce new ones. If people forsook reality TV for PBS, networks would cease developing TV shows in which contestants eat bugs and backstab each other for money and instead make more documentaries on the Civil War. But Americans like backstabbing, bug eating, and boobs. So that's what's on TV. Supply reacts to demand. If you don't like the outputs of free market capitalism, at least blame both sides of the capitalist equation.

2) Growth is bad only if you want everything to be expensive. Yes, Jim, it'd be quaint if we all lived in who-ville-esque small towns with a candy store and a hardware store and a fruit store and a butcher shop and a bakery and a dry cleaner and a pharmacist and a furniture store and a men's clothing store and women's clothing store and a kids clothing store and a pet store. And it would take us 8 hours to do our shopping, and we'd pay boutique prices for everything. But it's more efficient for us consumers, time-wise, to walk into one place, get everything we need, and get the heck home to have a few seconds with people we care about. It's also more cost effective to pool the fixed operating costs of all those individual businesses under one inventory system, one set of books, one larger set of floor space and one smaller set of management. 12 stores and 12 managers add more overhead than one big store with 3 managers. And that one big store can negotiate better deals on the products it buys and pass those savings, along with its lower overhead costs, along to customers as lower prices. So we can "say no to growth", as long as we want to offer our customers less for more: lower selection, higher prices. Lately, I haven't seen customers asking for less for more. They seem to be spending their money with firms that offer more for less. And so firms have been responding to meet that.

3) Jim, meet my little friend "Retained Earnings". Where do corporate profits go? "Why into the pockets of evil executives and super-wealthy stock owners in the form of dividends, of course!" say the populists. And they'd be wrong. Firms plow most of the wealth their operations generate back into their business. Why? If they don't continually try to improve what they can do for customers, they'll lose customers to firms that do continue to invest in improvement. I think we all understand this: when companies compete to win customers, the companies beat each other to death, and customers win. The reason all the anti-collusion laws are on the books is because firms would prefer NOT to compete. They'd rather work together to carve up markets, keep competitors out and prices high. "You take the east side of town, I'll take the west, and we'll both charge $5.00/ gallon for gas. If any new guy shows up to cash in on our game, we drop our prices to a buck a gallon till he folds, then jack our prices again." That's what happens without dog-eat-dog competition. You get wolf-eat-customer collusion. As a consumer, I like more for less, so I'm in favor of competition. Jim, you can live in the two gas station, competition-free town and pay $5 a gallon.

4) What happens when everyone takes your advice? What if my entire town decided to buy at the local bakery instead of the supermarket? The bakery has two choices to meet the demand: 1) Grow large enough to meet the demand (oops, a big company!) 2) Raise prices to deflect the demand back to the grocery store, keeping its customer base small (oops, not so cute, cuddly, and anti-profit!). The fact is that it's not possible for "everyone" or even "more people" to use "small community based" business without the "desirable properties" of the "small community based" businesses disappearing.

The bottom line: You can't have sweet, co-operative companies and low prices. You can have small, inefficient firms with possible collusion, and high prices, or you can have competitive firms of varying sizes and low prices. Can't have it both ways. Just because someone is making money doesn't mean they're doing something wrong. Just because it's capitalist doesn't mean it's evil. Big companies and dog-eat-dog competition make our lives better.