Democrat Economic Illiteracy Example #4972

Here are three very smart economists and our most business-savvy politician explaining why bailing out Detroit is a terrible idea.  It should already be obvious if you understand how markets and competition are actually supposed to work, but read them anyway:

David Yermack
Mitt Romney
Jim Lindgren
Todd Zywicki

Now let’s look at the Democrats’ “solution”

Mickey Kaus summarizes it as:

The New Plan? Cripple Honda! Save Detroit with Card Check! Eliminating the secret ballot and making it easier to organize U.S. Honda and Toyota workers (and imposing contract terms via binding arbitration) would “level the playing field,” says Dem. Congressman Tim Ryan. … Then when Honda and Toyota responded by importing more cars from abroad, we could have import quotas! Eventually the whole automotive sector could be planned by Congress in conjunction with existing business and labor interest groups.

Oh, this is going to be a delightful four years.

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5 Responses

  1. What’s sad is that there’s lots of talk about how businesses use strong-arm methods to discourage unionization, but none at all about how nasty unionizers can be. They are, frankly, bastards, and taking away the secret ballot will only result in more intimidation in the workplace. I don’t think “reluctant to join a union” is a protected class in workplace harassment law. Perhaps it should be.

  2. A UAW ally, Rep. Tim Ryan, D- Ohio, said enactment of the Employee Free Choice Act “would level the playing field. Each facility would be competing on the same playing field.”

    The basic function of a union (in this day and age) is to exercise monopoly power over the supply of labour. This works well for those who are part of the monopoly, but not those who are excluded from it but who are capable of doing the work, and those who would like to have more options in terms of whom to employ.

    The concept of a level playing field is that neither party begins with a structural advantage, which is fundamentally different from a competitive advantage of superiour skill, intelligence, efficiency, or the like.

    To “level the playing field” in this manner is like leveling the playing field in professional athletics by mandating that everyone take steroids. Gah.

  3. Exactly. I’ve never understood why some people fail to see that unionization is simply a legal form of price collusion. One could argue that the number of participants in a union makes it more difficult for them to create an unbreakable cartel than it would be for corporations to do the same. But that assumes government isn’t creating laws and regulations that artificially give the unions an advantage.

    The stubbornness, shortsightedness and bully tactics of the UAW always annoy me, but I have an even bigger problem with public sector unions, mainly because they often take advantage of the fact that their “employers” have split loyalties. In a private business, the management tries to negotiate for the lowest labor costs they can get while the unions try to negotiate for the highest and they eventually manage to work out a deal that both sides can live with. When government acts as an employer there are two really big disincentives for them negotiate in good faith:

    1. They are spending someone else’s money.
    2. Unions donate a significant part of their dues to support the very politicians who decide their salaries. So the politicians continue to push for higher wages for those unions and the cycle continues. The result is that in many states you often have union contract “negotiations” in which both the unions and their employers are on the same side.

    Is it any wonder that California prison guards, for example, have a top salary rate that’s 40% more than it is for prison guards in other states or that they’ve had their salaries increased by 34% over the last 5 years? Most prison guards with an associate’s degree now make over $100K with overtime.

    There’s also something that’s just distasteful about the whole idea of unionizing against the taxpayers.

  4. Agreed. In theory, there are checks on the government – especially the federal government – that could prohibit it from taking in huge amounts of money from unions, employing people selectively, and, in a roundabout way, getting the taxpayers to pay for their reelection campaigns. Of course, years of lousy Supreme Court jurisprudence has erased such checks on government power. As Americans have gotten used to the idea that their governments can run anything and stick their noses into everyone’s business, they’ve lost sight of the fact that we need watchdogs – not just against tyrannical power, but about abuse of the public fisc.

    In a private business, the management tries to negotiate for the lowest labor costs they can get while the unions try to negotiate for the highest and they eventually manage to work out a deal that both sides can live with.

    You’re missing the second part: a company which fails to do that, and either pays too much for labour or not enough, will lose business. It’s goods will either be priced too high for their quality, or they won’t be able to attract enough skilled workers. Either way, failure of a business is part of the free market, and one which ensures that fair and just wages are paid for labour.

  5. Very true. Your second point about letting poorly managed companies fail is what I was trying to get at in my original post. Those articles I linked to did a better job of explaining that than I could, so I didn’t bother to restate it, although I probably should have summarized them.

    One more point about split loyalties: Serious oversight, effective checks and a less brain-dead Supreme Court are all badly needed, but even if they all work perfectly to prevent union bribery, they will never completely solve the problem. The more fundamental issue is that politicians on the left generally agree with the unions philosophically. Their own ideology prevents them from seriously negotiating the best deal on behalf of the taxpayers.

    In a corporation, if the shareholders discover the CEO is secretly working for the union, they can fire him or sue for failure to act in the best interest of shareholders (breach of fiduciary duty or whatever the legal term is). In government, unfortunately, none of that applies because politicians don’t really represent taxpayers. If they did, our votes would have to be weighted in proportion to the taxes we pay, just like shareholders.

    Heck, many politicians base their entire campaigns on promises to get more money for people who already pay no taxes. It’s all an inevitable result of a government that is simply too big, has too much power and employs too many people in the first place…and that damned 16th Amendment.

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