Why Economists Love Wal-Mart

An article in yesterday's Pittsburgh Times-Review explains why economists have a more favorable view of Wal-Mart than, it seems, everyone else:

A larger complaint against Wal-Mart charges that the giant retailer comes in and wipes out main street, puts an end to all those mom-'n-pops that are selling everything from hammers to salmon.

The other side of the story is that salmon is no longer a high-end delicacy, beyond the reach of the average household. With fresh fillets selling for $4.50 a pound in Wal-Mart's display cases, the price for an 8-ounce dinner portion is 44 cents lower than the current price of a Cheeseburger Happy Meal at McDonald's.

The end result is better nutrition in America, especially among lower-income households, and less poverty and unemployment in Wal-Mart's primary supply regions in southern Chile.

Altogether, Wal-Mart's prices, according to a study by M.I.T. economist Jerry Hausman and USDA economist Ephraim Leibtag, are saving U.S. consumers more than $50 billion a year, money that's spent elsewhere, boosting volume at other businesses and creating new enterprises, including mom-'n-pops.

The net impact? The director of economic policy for the 2004 Kerry-Edwards campaign, New York University economist Jason Furman, contends that Wal-Mart is "a progressive success story." With Wal-Mart's prices ranging from 8 percent to 40 percent lower than people would pay elsewhere, states Furman, the increase in buying power that Wal-Mart delivers, disproportionately to lower-income families, more than offsets any impact that the company has allegedly produced in the earnings of retail workers.

By the way, Jason Furman was a former student of mine at Harvard. (We had some interesting dinner conversations while I was at the CEA and he was working to unseat my boss.) You can find Jason's study of Wal-Mart here.