Wisconsin

[Lone Wolf]

Good background!  You're right, the open shop vs. union shop distinction is an interesting one.  (I live in a right-to-work state so there are no true "union shops" here.)

I had never thought about how the elimination of the closed shop helped prevent some racial discrimination on the part of the unions.  Good stuff.  I had always only seen this through the prism of how it helped people in general participate in the labor market more freely but this a very specific and very important consequence as well.

[Wonk]

Wisconsin appears to be an advanced microcosm of what is taking place all over the U.S. and in some respects, the western world.  The fight is easily simplified: a death-match between public unions and taxpayers. 

Public union compensation is so out of line with reality that it's laughable.  The only problem is with tough times, no one is laughing but the unions themselves.  The unemployed taxpayers sure aren't laughing.  The endgame is either taxes are raised, satisfying union demands for the time being, or unions take massive hits in compensation and pension bennies. 

Unfortunately for the public unions, they are like wile e coyote after looking down and seeing that he just ran off a cliff.

[moda0306]

Wonk,

Just to keep you on your feet, I'm going to play Devil's Advocate:

1) I'm quite sure that once you compare people of equal education, government employees make at or below the average compensation.  For instance, I'm a tax accountant.  Given my qualifications and experience, if I went to the public sector and worked for a department of revenue, I would make less money and benefits would be about the same.

2) If there truly is such a difference in pay, maybe the private sector is underpaid, not the public sector being overpaid.  Maybe the union representation should be more wide-spread in the private sector as it was 50 years ago.  Maybe private sector workers feeling slighted should be mad at themselves for not collectively bargaining (something that built the middle class of the U.S.), or at multinational corporations (and the laws that protect them) for seeking the lowest common denominator and making developed countries compete with slave labor.

You seem to stage the two sides pretty simply, which I think is hardly the case.  Unions, as entities, are to benefit if their members benefit, but their members are middle-class Americans... who also happen to be taxpayers.  Also, as history indicates, unions have a tendency to set a certain level of labor competitiveness that raises non-union wages and standards as well... so I don't necessarily seeing a "tax-paying" construction worker benefitting by laying off 20% of the state workforce or significantly reducing their collective bargaining power.

[MediumTex]

I think it's also sort of silly that the Wisconsin proposal is to take away collective bargaining rights from all public sector unions except police and fire (the two unions that apparently supported the governor's campaign).

[Jan Van]

Yet another angle on this...

http://www.nakedcapitalism.com/2011/02/ ... ators.html

as reader petrograd indicates, an analysis of the state’s finances shows this shortfall to be entirely the result of spending increases planned by Walker. The state ran a modest surplus in the latest fiscal year and the projected falls in tax receipts over the next two years were less than $200 million cumulative. So this budget hysteria is a gross distortion of the state’s true condition

[moda0306]

It's funny that you can learn more about the politics of unions on an investing forum where we're not supposed to be talking overtly about politics than you can learn by trying to read articles or comments at MSNBC or Fox News.

Great posts, people.

[Storm]

Yet another angle on this...

http://www.nakedcapitalism.com/2011/02/ ... ators.html

as reader petrograd indicates, an analysis of the state’s finances shows this shortfall to be entirely the result of spending increases planned by Walker. The state ran a modest surplus in the latest fiscal year and the projected falls in tax receipts over the next two years were less than $200 million cumulative. So this budget hysteria is a gross distortion of the state’s true condition

Not to mention, this governor also refused over $800 million in federal aid.  It seems like he has ulterior motives here.  Busting unions has been his focus for many years now, and he found an opportunity to do it.

[Storm]

Here's another contrarian view of the Wisconsin situation:

http://finance.yahoo.com/tech-ticker/%2 ... BAC,C,^DJI

The basic premise is that public pension funds have something on the order of $2.3 trillion of money in them, and Wall Street wants to get their hands on it.  By busting up the unions, each worker will have to roll their pensions over into individual 401k plans, which will be charged higher fees, which will be invested less wisely (assuming union pension funds have somewhat competent portfolio managers).  Wall Street sees this $2.3 trillion as a huge cash cow that it can start sinking it's teeth into.

I'm not a big fan of people working 20 years at a cushy government job, and getting a guaranteed six digit retirement for life, but at the same time, I can see the other point of view that people do deserve a reasonable retirement after dedicating their lives to a career.  My tax dollars go to support this as well, and somethings gotta give.  What we are seeing right now is the renegotiation of contracts that were signed in much better times.

I'm not sure what the long term solution is.  It will probably be some combination of austerity measures combined with further printing of money and kicking the can down the road to the next generation.  I also wouldn't put it past our current politicians (of both parties) to privatize most pension funds and let the fox guard the henhouse...  Imagine how bad social security would have been if we privatized it several years before 2008 like they wanted to.

[MediumTex]

Storm,

RE Wall Street wanting to get its hands on the pension funds:

I don't think this is part of the story at all.  Who do you think already manages those pension funds?  The Wall Street institutional investor advisory industry.  It would be moving money from one pocket to another.

[Lone Wolf]

I'm not sure what the long term solution is.

The long-term solution is to end collective bargaining for public jobs.  Any other approach will inevitably yield results like what you're seeing: promises that can't be kept, unimpressive results for very high prices, and public servants "calling in sick" so that they can protest on the taxpayer's dime (complete with fake doctor's notes.)

If the pay and benefits for a given job are not high enough, a public employee should walk away.  In the private sector, if pay and benefits for a position are not satisfactory, you ask for more compensation or you walk.  If you are not being paid what you are worth, you find someone who'll properly compensate you.

[Pkg Man]

The purpose of unions is to raise total compensation (wages and benefits) to a higher level than would exist in a free market.  In the process they also tend to lower employment.  So in my view any policy that reduces the power of unions is a step in the right direction. 

BTW, I would say the same thing about companies that have monopsony (one buyer) or monopoly (one seller) power.

[Storm]

Storm,

RE Wall Street wanting to get its hands on the pension funds:

I don't think this is part of the story at all.  Who do you think already manages those pension funds?  The Wall Street institutional investor advisory industry.  It would be moving money from one pocket to another.

Perhaps I wasn't as clear as I meant to be.  I think it is plausible, as think of the large state employee pension funds as managed by fairly competent investment advisors who are able to negotiate lower fees for their transactions.  By splitting up the workers into individual 401k or IRA accounts, they no longer have investment advisors working on keeping those fees low, so they end up paying higher fees overall, feeding the wall street machine.  Sure, it's just moving money from one pocket to another, but the new pocket has holes in it that coins can fall out of...

[moda0306]

Pkg Man,

Unions are products of the free market, even if they are somewhat regulated/supported by politicians.   They may bargain for very socialistic compensation, but that's what their membership collectively decided.  I agree they have too much power, but so does Wal Mart.  Private sector unions are no different than a partnership/corporation in some ways:  A group of people that decide that they can accomplish more for themselves if they come together and form a functioning entity and act as a unit instead of competing as individual players in the market place.

Monopolies (oligopolies moreso) are also natural products of the marketplace.  Companies realize they can accomplish more by joining together than by competing in a perfect competition environment.

The "free market" can actually result in a number of different levels of wages/benefits.  With all else equal, the bargaining power of the two sides (as set by the free market players) plays a huge role in what those wages end up being.  Kind of like Wal Mart... with their size, they can demand lower prices from their suppliers than if Wal Mart was 100 different independent stores.  Wal Mart acheived that size through basically being better than the competition.  Not through anti-capitalistic coercion.  That said, capitalism, at some point, is self-destructive, in that the very perfect (or good enough) competition that was supposed to be the beating heart of why it works becomes less and less about being better and more and more about controlling the market they're in.

[Wonk]

Lively discussion we've got going.  Good to see we can all stay civil when talking about heated issues like politics (is religion next?)

Wonk,

Just to keep you on your feet, I'm going to play Devil's Advocate:

1) I'm quite sure that once you compare people of equal education, government employees make at or below the average compensation.  For instance, I'm a tax accountant.  Given my qualifications and experience, if I went to the public sector and worked for a department of revenue, I would make less money and benefits would be about the same.

The average firefighter in California is paid $50K/yr with very generous benefits and pension.  Some make $200K+.  The firefighters in my town (not a small one) are volunteers.  They get paid nothing but gratitude.  We, of course, donate generously whenever asked.  A firefighter from CA and one from my town might both have bachelor's degrees, but it matters not.  What matters is what level of taxes people of a given city/state are willing to pay for the services they request. 

2) If there truly is such a difference in pay, maybe the private sector is underpaid, not the public sector being overpaid.  Maybe the union representation should be more wide-spread in the private sector as it was 50 years ago.  Maybe private sector workers feeling slighted should be mad at themselves for not collectively bargaining (something that built the middle class of the U.S.), or at multinational corporations (and the laws that protect them) for seeking the lowest common denominator and making developed countries compete with slave labor.

You seem to stage the two sides pretty simply, which I think is hardly the case.  Unions, as entities, are to benefit if their members benefit, but their members are middle-class Americans... who also happen to be taxpayers.  Also, as history indicates, unions have a tendency to set a certain level of labor competitiveness that raises non-union wages and standards as well... so I don't necessarily seeing a "tax-paying" construction worker benefitting by laying off 20% of the state workforce or significantly reducing their collective bargaining power.

The problem with this approach as I see it is it starts with capital.  Capital wants to be treated properly regardless of whose hand its in.  So it seeks safety or growth in productive endeavors (usually enterprise).  That capital employs people.  It produces jobs.  It advances civilization.  It changes hands freely and without force. 

Public unions, on the other hand, don't produce anything.  Instead, they artificially drive up the cost of services that could be obtained elsewhere in a more efficient manner.  Their existence is based on the willingness of the people who write checks in the form of their taxes.  When the taxpayers feel they are getting fleeced or can get equal services for less elsewhere, they deserve the right to pursue that in one way or the other and without the shackles of collective bargaining.  Unfortunately, the unholy trinity of union police, union firefighters and union teachers play the sympathy trump card whenever cuts are called for.  The fear mongering is outrageous.  Fortunately, guys like Chris Christie have brass balls and can lead the way for others to follow.

Good grief, I'm starting to sound like Mish....

Anyway, my admittedly drawn out point is that the reason why the private sector is not underpaid is because Mr. Market votes on it.  Prices too high due to union labor?  Fine.  Mr. Market will buy the good or service elsewhere or Mr. Market won't buy it at all.  Mr. Market doesn't get to freely hire and fire public unions.

[LNGTERMER]

http://www.democracynow.org/2011/2/22/m ... all_street
This perhaps puts this in perspective.

[Lone Wolf]

Unions are products of the free market, even if they are somewhat regulated/supported by politicians.   They may bargain for very socialistic compensation, but that's what their membership collectively decided.  I agree they have too much power, but so does Wal Mart.  Private sector unions are no different than a partnership/corporation in some ways:  A group of people that decide that they can accomplish more for themselves if they come together and form a functioning entity and act as a unit instead of competing as individual players in the market place.

I would completely agree if an employer had the freedom to associate or not with the union.  Unfortunately, they do not.  Once unionization has occurred, the government forces you to the negotiating table with them forever.  It is illegal to attempt to sever this connection.  This is the strict opposite of what you could consider a free market interaction.

I have no problem with people choosing to form any kind of labor cartel that they wish so long as nobody is forced (via law or other forceful means) to deal with them.

By comparison, if you don't like Wal-Mart, you simply don't shop at Wal-Mart.  You remain free.  If you don't like the union that has taken over your (or what you thought was your) business, you have no options apart from surrender, selling out, or closing up shop.

That's why I don't fear the businessman but I do fear the politician.  The politician can compel me with force.  The businessman cannot legally do so.  The obvious exception is the businessman who purchases the services of a politician to use force on his behalf.  In either case, the solution is the same: reduce the size of government and strictly limit the situations in which the politicians can employ force of law against their citizenry.

[MediumTex]

Lone Wolf,

Harry Browne got to the heart of the matter when he said that from a marketplace perspective government has simply obtained a monopoly on the use of force and coercion, and its activities in the marketplace consist of leveraging this monopoly to achieve its desired ends.

[Lone Wolf]

Harry Browne got to the heart of the matter when he said that from a marketplace perspective government has simply obtained a monopoly on the use of force and coercion, and its activities in the marketplace consist of leveraging this monopoly to achieve its desired ends.

Browne's ability to boil something down to its essence was without peer.  It's such a pleasure to read the writing of someone with great clarity of thought and clarity of communication.

[AdamA]

http://mypinksalmon.blogspot.com/2011/0 ... endas.html

This is my Uncle's blog, with his take on Wisconsin, and related issues.  Curious to hear what people think...

[Wonk]

http://mypinksalmon.blogspot.com/2011/0 ... endas.html

This is my Uncle's blog, with his take on Wisconsin, and related issues.  Curious to hear what people think...

I don't share his views, but fortunately, everyone has a right to their opinion.  I grew up decidedly working/middle class.  Father worked in a union shop.  I was sympathetic at times to the union cause.  That is, until I found out my Grandfather, who worked in the trades, had his ladder knocked out from under him in the 60s by union tradesmen. 

I went a different route and started my own company.  When I became responsible for the income statement, I learned real quick what's fair, not fair and the true meaning of risk.  I tried my best to offer great pay, benefits and environment for my employees because I cared for them as human beings.  If the market rate was $10-$15/hr for a job, I'd pay $15 + benefits.  Would I pay $25 for artificially inflated union labor?  Hell no.  Not good enough?  Great--there's the door. 

The thing is, I disagree with his assessment that the middle class is being used in this fight.  I still consider myself middle class.  I want a world where people are free to exchange labor for capital as they see fit, with little regulation.  It allows for more social mobility when the barriers for entrepreneurship are lowered. 

He referenced an article on the Koch brothers funding the Wisconsin fight:

http://blogs.forbes.com/rickungar/2011/ ... ic-unions/

I say great, let me shake their hands.  I've always admired the Koch dynasty and have Charles Koch's book "The Science of Success" on my reading queue.  John Mackey is another guy I highly admire.  Any movement to crush union power in all forms is one I can get behind.

Dinner conversations with the extended family(and my ardently socialist father in law) at the Wonk household are always lively, as you can imagine.  I've always gotten a kick out of the phrase "our jobs."  As in, "our jobs are being shipped overseas."  Or, "our jobs are getting cut because of some unsympathetic governor."  Really?  Do the workers own those jobs?  No, whoever cuts the paycheck owns those jobs.  If the union folks don't like it, I would direct them to leave and open up their own business and see what it's like.

[AdamA]

Wonk--

Thanks for taking the time to read it.  Very intersting to hear your response.  

I don't really know enough to agree or disagree either way.  I just thought it was kind of interesting that his central point seems to be that many of us receive handouts in one form or another.  Some are just less obvious than others.  



 

[Reub]

I have actually heard that off-shoots of the AFL-CIO are actually fomenting and encouraging revolution in, not Wisconsin, but in Algeria and Egypt and who knows where else. Could this be true?

[moda0306]

Paul Krugman's column on Wisconsin.

http://www.nytimes.com/2011/02/25/opini ... .html?_r=1

[AdamA]

I have very tough time picking sides in this.  Have heard very articulate arguments made both ways.

[moda0306]

Adam,

Your uncle's a very smart, interesting guy.  I like when people can step out of the fire for a second and put things in some context that doesn't fit into some pre-defined political box or soundbite, whether I agree with them or not. 

People like that show how 3 dimensional political/economic opinions can be... it's not a 1-dimensional sliding scale like so many try to stage it as.  Many on this board are inflationists, maybe a few less deflationists... but few are supportive of easy money.  Krugman's a deflationist (and a welfare statist) and would probably make a lot of the same points MT makes, but he believes the only way to improve private balance sheets is to use monetary and fiscal policy that may worsen the public balance sheet (which he believe is not very constrained at this point... he uses Japan as an example).  Interesting to see where people's opinions start to differ from each other.