Wednesday, August 4, 2010

Government - choosing winners . . . and losers

Of late I have found Richard Posner a bit curious - while consistency may be the hobgoblin of a small mind, Posner's lack of intellectual consistency reflects less evolution and growth than it does an odd ideological bent that is reminiscent of Brad deLong or Paul Krugman.

That said, his most recent post on the relationship between unions and governance is illustrative of the fear our founders had over the role that special interests might play in society. As we all know, government selection of winners necessarily generates losers and the process of centralized planning is at best a zero sum game and most often a negative sum game.

Posner writes:

Unions are weak in the private sector; only about 7 percent of private workers are unionized. But unions are powerful in the public sector—about 30 percent of public employees are unionized—and have contributed to the high wages of such employees. By swelling the labor costs of cities and states, these high wages have forced them to raise taxes and cut benefits in the midst of the most severe economic downturn since the Great Depression.

Even in the private sector, though unions are weak, employers are concerned that the pro-union policies of the Obama Administration will result in greater unionization and hence higher labor costs. This concern is a source of uncertainty, which slows economic activity. Under uncertainty consumers increase their savings (much of which may not get invested productively, at least without a considerable lag) and producers increase their cash balances.

Leaving aside the key issues of inflexibility in labor markets and increased uncertainty, another important component of the union of labor interests with the centralized state is the combination of expanding rents available to both sides of the relationship, the impact on the losers in society not a part of this mutually beneficial, wealth destroying combination and the implications to individual liberty.

While I have not read Jonas Goldberg's book, the potential for a Peronism or other forms of state domination are clear in the presence of large unionized public work forces. While the expansion of the state is generated by both the right and the left, the left's affirmation of public unions is a clear and present danger to liberty, just as the rights insistence on sacrificing rights in forms such as the Patriot Act.

Posner points out two of many examples of the wealth destruction inherent in the union between organized labor and the state. The first is opposition to the classical liberal stance on trade and the second is for all projects funded by the $787 (now $862) billion stimulus enacted in February 2009 comply with the Davis-Bacon Act, which requires payment of union wages.

These and other less overt examples of the union between organized labor and the state generate the uncertainty that amplifies the direct wealth destruction that is inherent in the joint actions of the state and unions.

Becker's reply points out the immediate, short term and long term potential harm of the axis of a union influenced state.

The real threat to a robust recovery on the labor side has come from employer and entrepreneurial fears that once the economic environment improves, a Democratic Congress and administration will pass pro-union and other pro-worker legislation that will raise the cost of doing business and cut profits. In this way the obvious pro-union-pro-worker bias of the present government has contributed to a slower recovery, especially in labor markets. This helps explain the depressingly slow decline in unemployment rates and in the number of workers who have given up looking for jobs.

Posner asserts that the current president has paraphrased Ronald Reagan

“labor is not part of the problem. Labor is part of the solution.”

If the chief executive is referring to unions then, of course, this paraphrase is political pandering on the order of a Peron.

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