Thinking like an economist

At Cafe Hayek Don Boudreaux shows how thinking like an economist can help when dealing with people who don't think this way.

Opining in today’s New York Times, history professor Nelson Lichtenstein asserts that Wal-Mart uses an “authoritarian style, by which executives pressure store-level management to squeeze more and more from millions of clerks, stockers and lower-tier managers.” Then he scolds Wal-Mart for being so bigoted that it erects “obstacles to women’s advancement.”

This tale is highly improbable.

A company that squeezes maximum possible profits from its workers does not refuse to promote women simply because of their sex. Such refusals would leave money on the table by keeping many employees in lower-rank positions even though those employees would add more to the company’s bottom line by being promoted to higher-rank positions. Conversely, a company that indulges its taste for bigotry is not a company intent on squeezing as much profit as possible from its employees.

If Ms. Jones can add thousands of dollars to Wal-Mart’s annual profits by working as a manager, rather than hundreds of dollars by working as a cashier, squeezing “more and more” from her requires that Wal-Mart promote her to manager.

It’s simply unbelievable that a company with Wal-Mart’s record of consistently wringing profits from razor-thin retail margins intentionally – or even negligently – wastes the talents of large numbers of its employees by using them in ways that do not add maximum value to Wal-Mart’s bottom line.

So Nelson Lichtenstein can have either Wal-Mart maximises profits or it is anti-women, but he can't have both.