Welcome to econ talk part of the library of economics and liberty. I'm your host Russ Roberts of George Mason University my guest today is Richard Epstein professor of law at the University of Chicago and a senior fellow with Stanford University's Hoover institution Richard welcome to econ talk it's very nice to be here today. We're going to talk about Walmart Walmart is a lightning rod issue for a lot of Americans at all different parts of the economic spectrum. It's also a lightning rod

for intellectuals which is quite a strange phenomenon but I know you have some interesting thoughts on the legislative environment that Walmart has found itself in recently. Tell us a little bit about that yeah Walmart basically has to face two problems one of which is a problem that it shares with every other company in the United States which is that if you start to look around there are all sorts of statutes having to do with wages and with employment conditions that generally impede the efficient flow of capital and the effective distribute

distribution of goods and services but they are not picked on in any kind of a special way and they just negotiate this as best as they can. But Walmart is a very distinctive firm in terms of the way in which it designs its compensation packages for workers and the way in which it uses these huge physical layouts in order to distribute goods and services economically to its customers.

And one of the things that it's been able to do consistently is to under sell all the tribals in very many markets it now has a basic income of about 288 billion dollars the last because I saw and around a small profit margin off of that of around 3% or 10 billion dollars.

So what happens is if you've got somebody with a very distinctive profile it's going to always look it's opponents are going to always look for ways to get differential with selective legislation in which will place an immense burden upon Walmart and the other big box retailers who are in its position and will do so in a way that leaves relatively unscathed amid somewhat smaller and perhaps less nimble competitors.

And so the second problem that Walmart faces is what do you do when you start getting hit by legislation that applies to you and only you and which is deliberately organized in ways that are designed to upset your business plan.

Now the source of that legislation politicians will will paint it as their desire to help the little guy but of course the underlying source of that legislation is the failure of certain retouch particularly grocery stores to adapt to adapt their unionized their less nimble less flexible and they are lobbying for these legislation.

Yeah look I mean essentially what happens is everybody wants to travel under the mantra of consumer welfare and there's no doubt that at least somebody in some of these disputes has to be right about that.

The general way in which you promote consumer welfare is to leave firms alone and let them decide the mix of quality price and convenience that they all put to consumers and they will pick very well for themselves.

But what happens is the unions and by the way it's not just unions remember these unions work for firms and if the unions go down in those firms the firms are going down themselves.

They are going to form a coalition. Walmart is in Bentonville Arkansas it is not necessarily a local business it doesn't have strong political ties.

The legislation that you see in Maryland comes at the state level and in a place like Illinois it comes in the city of Chicago depending on where it is that you think you have the greatest power.

And what do you do? Well essentially there are two kinds of targets that you can hit. One of them is you can start to have zoning laws. Now I mean one has to be very clear about what a zoning law is and how it operates and essentially what zoning laws do is they create these sort of neutral and impersonal zones.

It was part of the administrative expertise movement of the 1920s and 30s and it gets carried vote. But what we discover with zoning is that zoning can be done as part of a comprehensive plan.

But then there's a second tier in which variances from zones or special cases have to be considered administratively on a one off basis.

And what these guys have managed to do is to take control of a place like Chicago with the various zoning boards and commissions and say Walmart you are not welcome.

And what that does of course is it completely destroys the business plan because they can't open up doors unless they were to downsize to a fraction of their original size which means that they can't give the mix of goods and services that customers want consistent with their business plan.

The only way they can stop this is to go elsewhere. Now in the case like Chicago there's a certain degree of foolishness associated with these kinds of regulations because the city is as these scenes go relatively small and skinny along the lake so that you could go to Evergreen Park or you could go to Oak Park at some place nearby, open up the shop, give them the real estate taxes, draw off the sales tax revenues and get large numbers of customers from Chicago who will migrate over the border.

That's why the mayor regards this strategy as one of absolutely suicidal implications because as far as he's concerned if this thing gets passed and it's right now before the city council with a favorable vote from it and it has to go through a mayoral veto and perhaps override he says I'm going to have to raise the property tax in order to offset the decline in the sales tax.

Now describe that legislation Chicago would have required that the city council pass.

Well I mean the Chicago one is actually the zoning stuff is separate but I sort of mixed to stories the legislation is typically health and wage legislation and the union strategy and the rival strategy is figure out a minimum wage or a health package which is less than you provide your workers currently but more than Walmart supplies to at least some of its workers put that in as a statutory minimum only for large corporations.

In this case companies that have a billion dollars in sales and 900 or 90,000 square feet of store space and so forth and if that thing goes through then they can't open up there because they won't be able to maintain their own profit margins which is so narrow anyhow if they have to meet that rate structure so they're going to go migrate out.

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