Should You Feel Bad for Buying an iPhone?

The “Apple employs workers in nasty Chinese sweatshops” stories continue with CNN asking us if we should feel guilty for buying an iPhone.  The short answer is “no.”  In fact, feel good that you have helped a poor Chinese worker get a job manufacturing your iPhone since your purchase has, in a small way, sustained that person’s job.  Imagine for a moment that iPhone sales suddenly dropped and Apple went into a death-spiral.  Apple’s Foxconn factory in China shuts down and the poor Chinese worker is now in even worse shape than before.  Of course, Apple could pay workers more money or improve working conditions in those factories and we would all feel better but those pesky tradeoffs remain: we would  all pay more for our iPhones.  If consumers of Apple products are willing to pay more money so that Chinese workers earn a slightly higher weekly paycheck, have shorter workdays or have better overall conditions – great.  Were we all more virtuous, perhaps we would be willing to pay the extra money but that seems unlikely.  The CNN story, to its credit, recognizes this:

In the end, consumers would be the ones who have to pay to make working conditions better for the people who make your iPhone. And it seems unlikely there are enough of you out there willing to do that.

This is more than I can say for Andrew Winston who, writing in the Harvard Business Review blog, denies that he is advocating companies pursue unprofitable paths by improving wages and work conditions.  Then, he advocates an unprofitable path by asking:

…would anybody in their right mind be disappointed with $16.5 billion in quarterly cash flow instead of $17.5 billion?

I’m guessing that Apple investors would be more than disappointed with a nearly 6 percent drop in quarterly cash flow.

…is the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labor. It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better.

A policy of good jobs in principle, but no jobs in practice, might assuage our consciences, but it is no favor to its alleged beneficiaries….as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard–that is, the fact that you don’t like the idea of workers being paid a pittance to supply rich Westerners with fashion items.

Good Enough for Government Work!

From the CBO (click the table to enlarge)

Profile of Deirdre McCloskey

The Wall Street Journal has a nice profile of McCloskey, and her new book, here.  From the article:

“Bourgeois Dignity” makes a historical argument. Modern economic growth, she claims, is a result of an ideological and rhetorical transformation. In the Elizabethan period, business was sneered upon.  In Shakespeare’s plays, the only major bourgeois character, Antonio, is a fool because of his affection for Bassanio. There is no need to dwell on how the other bourgeois character in “The Merchant of Venice,” Shylock, is characterized.

 

She contrasts this with attitudes 200 years later. When James Watt died in 1819, a statue of him was erected in Westminster Abbey and later moved to St. Paul’s cathedral. This would have been unthinkable two centuries earlier. In Ms. McCloskey’s view, this shift in perceptions was central to the economic take-off of the West. “A bourgeois deal was agreed upon,” she says. “You let me engage in innovation and creative destruction, and I will make you rich.  A commercial class that was not ostracized or sneered at was thus able to activate the engine of modern economic growth.”

A Profession at Sea?

While I don’t agree with all of it, Robert Johnson has an interesting article in Time magazine on “how to keep economists from missing the next financial crisis.”  From the article:

…economists have to recognize the shortcomings of high-powered mathematical models, which are not substitutes for vigilant observation. Nobel laureate Kenneth Arrow saw this danger years ago when he exclaimed, “The math takes on a life of its own because the mathematics pushed toward a tendency to prove theories of mathematical, rather than scientific, interest.

 

More research on economic history and evidence-based studies are needed to understand the economy…

A Better Tax System

Greg Mankiw’s Sunday New York Times editorial calls for a tax system “that looks like someone designed it on purpose,” based on 4 principles:

1.  Broader base, lower rates – but, as Mankiw admits, this is politically tricky to implement since we all like our deductions.

2. Tax consumption rather than income

3. Tax “bads” rather than “goods”

4. Keep it simple – narrowly targeted taxes and tax breaks to minimize “gaming the system”

For more details on optimal taxation, here is a paper by Mankiw, Wienzierl and Yagan reviewing the literature.  And here is a short description of James Mirrlees’ earlier work.