Thursday, February 24, 2011

A Rambling Rant On Unions And Other Shit

FLG has been thinking about the union question lately, given all the hub-bub on the topic. During that thinking he realized that he isn't as clear as he should be regarding from where his positions derive.

Broadly speaking, he views unions as an attempt to use politics to direct economic resources. Again, broadly speaking, he thinks this pretty much adheres to how he views the two sides of the political spectrum. Those who would like to use political influence on economics, as far as FLG is concerned, are almost always trying to deal with short-term distributional issues, and are less concerned about the long run dynamic effects. This pretty much applies to the economic policies of the EU just as much to unionization.

And to be completely honest, FLG thinks what makes the recent fight in Wisconsin so emotional on both sides isn't really about the nominal issue at hand, bargaining rights and pensions and compensation for the public workers. Sure, those are certainly important on both sides. But it's really about unions as political, not economic actors. By which FLG means, not just people coming together as a political force to negotiate with owners and management, but unions as a voice in politics more generally. Unions as organized political forces with resources that can be mobilized toward progressive ends. Unions as a tool to win elections.

But FLG's analysis is problematic. For example, management is a group of people coming together toward some goal. Moreover, companies lobby governments for handouts or tax breaks or whatever, which can all be described as short-term distributional issues and less concerned about the long run dynamic effects.

In fact, FLG got into a huge argument with his MBA class about a particular Brazilian aircraft manufacturer, yes, that one, there's only one. Everybody seemed to view it as a success. Coincidentally, FLG wrote a paper a few years ago on the company.

FLG argued that it flew in the face of economic theory for a developing nation to produce a highly advanced product like an aircraft. It just didn't make sense. That it was the product of 1960s and 70s import-substitution policies that were dumb. It was then privatized and scrimped along from subsidies. Only relatively lately has it even been anywhere close to something of a successful business.

FLG's classmates looked at the current performance of the business, and the projected performance moving forward, and deemed the project a success. One classmate called it an example of successful public-private partnership.

FLG demurred. You cannot just look at whether a profitable company emerges at some point in time. It's not even a question of whether the company's discounted profits are greater than the funds poured into it over the years. It's a question of whether the money used to develop and prop up the Brazilian aircraft industry over the last half century or so could have been put to better use somewhere else. FLG actually had to bite his tongue to prevent himself from punctuating the end of every sentence with the word, "dumbfucks." Anyway, just goes to show why we should all be skeptical of the advice of business executives on economic policy.

Getting back to the point at hand, unions. There's been an on-going series of posts over at LOG, led mainly by E.D., about (And unions. (There are even more.)

FLG has been thinking through these. Again, FLG sees unions as a political tool to determine economic outcomes, and in particular, short-term distributional issues. Several people have commented when FLG made this point previously that the dichotomy FLG presents between economic and political is false.

FLG accepts that this may be true insofar as most human activities involve a political and economic aspect. Presidential campaigns, the very summit of the political world, involves a lot of economic resources, and even as mundane an economic transaction, like buying bread, might involve political considerations. Is it locally sourced? Organic? Fair-trade certified?

But what FLG means by political versus economic is something like this. There are finite resources and infinite wants. In a perfect competition environment, nobody has any real power, and goods get distributed efficiently. Likewise, when an individual goes to the grocery store to buy produce, about as close to perfect competition as can be found in the real world, it's pretty strictly economic. The hard reality of finite resources comes to the fore. Maybe you don't want to buy blueberries when they aren't in season. Instead, you buy apples, which are. Yes, fair trade, etc can come in, but by and large it's a strictly economic transaction for most people. Utility versus price.

When you start to involve larger groups of people, then politics comes into the fray and it becomes much trickier. First, no group of people have the same preferences, so you have to find some way to pool them. Second, and this isn't an economic insight but more of a psychological one, groups of people can convince themselves of things that are untrue, especially when they are confronted with a adversary. This has several knock on effects that pose problems.

Short aside: Issue 1, varying preferences, is a big reason why FLG thinks Corporate Social Responsibility is a big bunch of shit. All apologies to UD. The only thing FLG is confident that all the shareholders of a company want is to make money. FLG can see if there is some sort of direct effect on the bottom line. So, if energy price fluctuation are a big problem, then FLG could see a solar-powered factory or something to lower costs. But these more nebulous, amorphous things some people dream of as a nirvana of using corporate funded charity projects would be supplanting management's charity preferences for those of the owners, and FLG strongly objects. You should hear him on that point in MBA class. End of aside.

But what FLG really worries about, and he wishes he could explain this better, is the extent to which somebody views the world through a political lens seems to warp them into believing anything is possible. So, think of it this way. A group of people can get together and decide to believe anything. The really diehard leftists, and FLG doesn't even really mean Americans, but more like out and out French Socialists or European union bosses, really do seem to believe that there aren't finite resources. Or, perhaps more importantly, they don't worry about the effects of their decisions on future economic growth. FLG guesses what he is saying is that people on the far Left pretty much see everything as the outcome of a series of political struggles.

For example, FLG reads Jean Quatremer. Quatremer's analysis of the financial troubles with Greece and other Eurozone countries almost always blamed one of two things -- banks, who were using their economic muscle to unfairly contradict the democratically chosen political policies of various countries, and thus infringing on their sovereignty OR the newspaper stories of UK financial press who have a serious hate on for the political and economic policies on the continent. FLG can't ever remember Quatremer acknowledging that perhaps the Eurozone countries had unsustainable fiscal arrangements. That is to say Quatremer never seem to acknowledge that countries face the fundamental problem of infinite wants and finite resources. It was always some sort of plot by powerful players, not the result of certain economic truths.

Look, to some extent, he's right. There's always a proximate cause and that proximate cause is usually some powerful interest. But it's folly to say Greece's problems boil down to the proximate cause of the bond market or banks not wanting to lend it money. Moreover, it's folly to simply assert that this wouldn't have happened save for the financial crisis. Greece was always going to go off the cliff. Everybody knew it. And of course it would've happened during a financial crisis because that's when these things happen. As Buffet said, you see who is swimming naked only when the tide goes out.

Something similar is happening with unionization and budgets here. Not to the extent as it's happened in Greece. Yes, the economic situation is causing acute pain that will subside, but there are really budget problems. Yes, taxes could probably be raised without causing long-term economic damage. But you only can raise them so much. Pointing to the highest they've ever been historically as sort of guide to what could be, as FLG hears commentators like Robert Reich do, isn't a useful economic analysis. So, things will get better and taxes will probably go up, but systematic cuts will have to be made and public sector unions are a huge roadblock to these.

But, getting back to what FLG was saying earlier, this really isn't about budget battles. This is about unions as a broader political tool. Unions who can influence elections. This is about unions getting people elected, not about the proximate budget issue. And to be honest, FLG thinks the big issue with public sector unions is that both sides realize how great the incentives are for those unions in particular to be politically involved. The UAW certainly has political interests and would be involved in politics. But ultimately they negotiate for what matters with auto management. Public sector unions have a direct, powerful incentive to get people elected.

What's scary is that, again, if people together can convince themselves of things that might not be true. They view everything as solely as the outcome of political battles. And they are highly incentivized to fight in those political battles. Then there's this tendency that FLG has noticed to give less attention to more fundamental, long-term economic realities.

FLG's glad he got all that off his chest. Whew.


Anonymous said...

I think for the most part I agree with what you are saying. As for Greece - it's important to recall some of the insanity -thanks to Unions- that brought Greece down -read closely to catch it :

"George Papandreou, prime minister, was last week forced to activate the EU-IMF rescue package after three previous rounds of austerity measures failed to convince financial markets that Greece could bring its public finances under control.

"On top of the wage freeze, public sector workers will lose their “13th and 14th month” salaries, paid at Christmas and Easter, and see further cuts in allowances.

"Andreas Loverdos, social affairs minister, told the Financial Times that pensioners would also lose seasonal bonuses as part of an overhaul of the underfunded state pension system. The average retirement age would be raised from 53 at present to 67, he said."
13th and 14th months of salary?????
Then this -last month:

ATHENS, Jan 17 (Reuters) - Greek civil servants will strike for 24 hours on Feb. 10 to protest against government austerity measures, their union said on Monday.

Labour unions have staged repeated strikes since the government cut public sector wages, froze pensions and increased taxes in return for a 110 billion euro ($146.4 billion) bailout last year from the European Union (EU) and International Monetary Fund (IMF).

"The (EU/IMF) memorandum's policies are testing the limits and the tolerance of the Greek people, and especially the poorest, the workers, the unemployed and the pensioners," public sector union ADEDY said in a statement.

ADEDY, which represents half a million workers, said it wanted to coordinate with the private sector union to stage a joint strike in February.

Private sector workers, which have been less affected by austerity than civil servants, have also clashed with the government in recent months over the opening of closed professions such as architects, lawyers and pharmacists.

Pharmacists have called for rolling 24-hour strikes on Wednesday, Thursday and Friday this week.

"We reject the government's plans. We are against the moves to extinguish the Greek drugstores," the pharmacists' association said in a statement. "We are determined not to allow our eradication."

Mrs. P

Anonymous said...

This is a good read:

Particularly like line as our community organizing President and his party/allies understand this better than any previous administration - even FDR's:

"but it doesn’t take a majority to cause civil unrest."

Mrs. P

Anonymous said...

Apparently, the pro-union protestors in WI have convinced themselves that if you support the Guv', and are Jewish, you are "bad".

Also like how she supports Israel "when they're not being assholes."

How world peace of her.

Mrs. P

George Pal said...

This has gone beyond, in most instances, public sector unions as a broader political tool for the purposes of influencing elections. There have been few incentives to fight political battles for some time now as the political parties learned it was in their best interest to become a political class – parties without distinctions.

An adversarial dynamic became symbiotic; it’s only now reverting to form after it’s become evident the budgets passed over the last couple of generations were ponzi schemes. The only question left is whether the political class is up for a fight every bit as much as the union members. I doubt it.

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