Free Markets, Free People

Corporations, unions, taxes and libertarian ideas

Kevin Drum has a blog post up at MoJo in which he supports a claim by Tim Lee that American Liberalism “has incorporated libertarian critiques at a striking rate over the past few decades”.  The claim is that is true especially in the area of economic policy.  For instance:

Income tax rates are way down. Numerous industries have been deregulated. Most price controls have been abandoned. Competitive labor markets have steadily displaced top-down collective bargaining. Trade has been steadily liberalized.

I guess that can all be categorized as “it depends on your perspective”.  While personal income taxes are down in comparison with where liberals would prefer them to be – especially for the rich – corporate taxes remain the highest in the free world.   And,  speaking of economics and libertarians, we at least understand who ends up paying corporate taxes – and it ain’t corporations.

This is major blind spot of the liberal side of the house.  If they admit that corporate taxes are passed along to consumers, then their basis for taxing in such a regressive manner would be questioned.  So they continue to pretend that by demanding higher and higher corporate taxes, they’re somehow calling for equity in income distribution – assuming government will take the money collected from corporations as taxes and parcel it out to those who need it most.  And further assuming that’s a function of government.

Of course what they end up doing is having corporations take money from those who must have their products but can least afford the cost of the increase driven by the taxation.  “Benevolent government” then takes the money, after it takes its cut, and passes it back to the “most deserving”, or the “most in need”.  Corporations then, are a tax collection entity, not a tax paying entity.  

What happens when corporate taxes are raised is it has an adverse effect on the corporation’s consumer base.  If they get high enough, that base begins looking for less costly alternatives or quits buying altogether.

All that to set up this next Drum statement:

The problem is that a system that generates enormous income inequality also generates enormous power inequality — and if corporations and the rich are allowed to amass huge amounts of economic power, they’ll always use that power to keep their own tax rates low. It’s nearly impossible to create a high-tax/high-service state if your starting point is a near oligarchy where the rich control the levers of political power.

You could most likely spend all day on those two sentences.  Completely left out, of course, is who is paying income taxes.  What we all know is somewhere around 50% of us aren’t.  So when we see discussions about taxes we have to keep that in mind.  More importantly – and after all the talk of having much in common with libertarianism – check out what Drum’s ideal is: “a high-tax/high-service state”.

Obviously the libertarian camp would find nothing to agree with there. 

Essentially Drum’s argument is that we, as a nation, have the right to demand such a state.  But while the “corporations and rich” own the “levers of political power” we’ll never achieve it.  Solution?  Implied: take those levers away from them.  Method?  Well all of this has been a prelude to the real reason for the post:

I am, fundamentally, old fashioned about this stuff: I think of the world as largely a set of competing power centers. Economics matters, but power matters at least as much, and I think that students of political economy these days spend way too much time on the economy This explains, for example, why I regret the demise of private sector labor unions. It’s not because I don’t recognize their many pathologies, or even the fact that sometimes they stand in the way of economic efficiency. I’m all in favor of trying to regulate the worst aspects of this. But large corporations have their pathologies too, and those pathologies are far worse because there’s no longer any effective countervailing power to fight them. Unions used to provide that power. Today nobody does.

This is the common cry of the liberal today.  The need for a “countervailing power” to fight the power of corporations – real or imagined.  Weapon of choice?  Unions.  But the power that unions fight against has nothing to do with the supposed problem with corporations that Drum has outlined.  Taxes.  Name a single union that has, in any time in the past, rallied and protested to get their corporation’s taxes raised?  They understand what such an increase could mean to labor.  As for power, unions are more concerned with the internal power of a corporation as it relates to wages and benefits.  It is only recently, with the addition of union PACs, that the union movement has begun to address corporate political power.

And if I had to guess, that’s what Drum secretly laments.  As private sector unions decline, so does any “countervailing” political power he thinks unions could wield.  Of course, it doesn’t help when they act like this .  Unions are and have been the liberal left’s power center in their war against corporations for centuries.  If you don’t believe that, you just need to review recent elections and their pattern of donations:

The UAW has considerable clout in the Democratic party. In the 2010 election cycle, the union spent $10.1 million through its political action committee, according to the Center for Responsive Politics. That was down from $13.1 million in the 2008 election.

The center said that 100 percent of the union’s 2010 federal donations — $1.4 million — went to Democrats. The funds come from voluntary contributions by members and retirees.

That’s the real impact of the “demise of private unions”.  It is also why those like Drum support any effort that makes organizing easier for unions today. 

So when Tim Lee writes that "Competitive labor markets have steadily displaced top-down collective bargaining," I just have to shake my head. Competitive for whom? For the upper middle class, labor markets are fairly competitive, but then, they always have been. They never needed collective bargaining to begin with. For everyone else, though, employers have been steadily gaining at their expense for decades. Your average middle class worker has very little real bargaining power anymore, and this isn’t due to chance or to fundamental changes in the economy. (You can organize the service sector just as effectively as the manufacturing sector as long as the law gives you the power to organize effectively in the first place.) Rather, it’s due to a long series of deliberate policy choices that we’ve made over the past 40 years.

But here’s the bottom line: if there were indeed a crying need for unionization felt by the “average middle class worker”, the ability to join a union (or form one) still exists. The problem is, it’s mostly fair and thus doesn’t favor the union as previous organizing laws did.  However, if the organizing drive meets the criteria outlined in labor law,bingo, a union is born and members are able to cash in on the supposed benefits of such a relationship.

The problem, however, is fewer and fewer people apparently see any advantage in such a relationship anymore, if declining membership is any indication.  Like anything else in the world, the consumer of a product has to convince themselves that the product’s benefit justifies its price.  It seems that is no longer the case when it comes to private unions.  Drum prefers to blame the demise on “policy”.  I see it as the consumer saying, “no thanks” after the price/benefit comparison is made.  The fact is policy or law doesn’t prohibit the formation of unions.  Only votes do.  And for quite some time, the votes – of those they would unionize – haven’t favored private union organizers.

Drum concludes:

It’s worth noting, by the way, that corporations and the rich know this perfectly well, even if lots of liberals have forgotten it. They know exactly what the biggest threat to their wealth is, and it’s not high tax rates. This is why the steady erosion of labor rights has been, by far, their single biggest obsession since the end of World War II. Not taxes, unions. If, right now, you were to offer corporations and the rich a choice between (a) passage of EFCA or (b) a return to Clinton-era tax rates on high incomes, they wouldn’t even blink. If you put a gun to their head and they had to choose between one or the other, they’d pay the higher taxes without a peep. That’s because, on the level of raw power, they know how the world works.

Of course he’s right, but not necessarily for the reasons he believes.  Unions have grown into an impediment.  A costly impediment to competitiveness.  Whether anyone likes to admit it or not, labor is a commodity.  Despite the emotional arguments of the left concerning labor and “real people”, people who want to work aren’t owed a job or a certain level of compensation.  They have to be worth it to earn it. 

So yes, corporations are more concerned about unions than taxes, at least to the point that passing along increased taxes starts costing them customers. Then they pay more attention to taxes.  And if taxes do start to cost them customers? Where is the easiest commodity for a corporation to cut in order to maintain a competitive price as it collects the increased taxes?  Yes – labor.

Without apparently realizing, the liberal left’s call for increasing corporate taxes dramatically for their “high tax/high services” state is a call for more unemployment.  Unions would attempt thwart the ability for corporations to adjust headcount to remain competitive.  Result?   The US steel industry redux.

Is that really what the liberal left wants?  I can pretty much guarantee it isn’t what any libertarian would want.  But perhaps it is the fact they don’t even realize how it all works (and what they’re really wishing for) that’s the most dangerous aspect of all of this.



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16 Responses to Corporations, unions, taxes and libertarian ideas

  • Obama has gone all-in for a fascist economic model.  I’ll have a post up later today if I find the time.
    Immelt is the poster-boy for the new fascist “captain of industry”.
    Classically, UNIONS (of the compliant kind) are one-third of the corporatist collective, with BIG INDUSTRY (NEVER entrepreneurs) and BIG GOVERNMENT making up the others.  Now, the role of UNIONS is often assumed by other entities.

    • Immelt is the poster-boy for the new fascist “captain of industry”.

      IOW, Orren Boyle.

      • At a recent conference, GE CEO Jeffrey Immelt claimed that America’s economic crisis was not simply an economic crisis. It was instead a “reset”, where companies that intersect with government will “prosper… and people who don’t understand that will get left behind.”

        He somehow avoided saying “new order“…but just barely…

  • As record levels of federal spending bring us ever closer to a tipping point, the Obama administration blissfully continues business as usual. We have seen no real plan, no strong leadership, no apparent willingness to confront the growing danger on the horizon.

    I seem to recall a commenter from academia claiming hold Obama was going to get serious about deficit spending … anytime now.
    Meanwhile, there is talk of the government getting into the drug making business.  Given that FDA is the gatekeeper on new drugs, I feel a “conflict-of-interest” coming on.

    • Again, consistent with the fascist economic model, which is MUCH more dangerous in the U.S. than socialism would be.
      It leaves the false impression that capital remains in the hands of its owners, while taking the most important aspects of ownership…control.

  • They have to be worth it to earn it. 

    It isn’t about their worth. It is about the worth of their labor.

  • Unions have never been much concerned about employment.  They don’t mind having fewer members as long as the members they do have are making way way above the national average for their job.

  • Private sector union membership has declined because they have sought (and achieved) success through politics and government power rather than through collective bargaining. Why join a union, when the government supplies what unions used to supply?
    Public sector unions will continue to thrive, because government workers see a direct connection between the political power the union wields and the workers gain.

    • Exactly.  This leaves many (most?) people – including the blue collar workers who used to be the sine qua non of unions – wondering just exactly what the point of having them is.  And when people see union workers getting paid far, far more than the rest of us for the same work… well, it doesn’t take a huge leap of logic to start thinking of the unions as less “helping the working man” and more “greedy b*stards”.  Finally, the unions are very overt about their political agendas.  Once again, normal people – including blue collar workers – wonder about this: is THIS what unions are for?  Butting into political issues that have nothing to do with their workers?

  • 1) Unions can add value when they’re effectively like a guild. The IBEW is not necessary, but it does manage the “gotta know the Code” parts of being an electrician.
    2) There is a thing called the “Lump of Labor Fallacy” – labor is notoriously not-a-commodity.  The Lump of Labor is a remarkably weak fallacy, but one way to view it is that if labor was a commodity, we’d never see low unemployment again. granted, it may *become* the case that labor is more substitutable over time but it’s not right now.

    • That might be true if there wasn’t government intrusion in the form of a minimum wage and such, which acts to eliminate employment opportunities that aren’t worth what the minimum wage requires.

  • Unlike the income tax, corporate taxes are a consumption tax that disproportionately affects those on the lower rungs of the socio-economic scale.  Keeping with the reality that liberals actually despise the poor–despite their stated objectives–consumption taxes are highly regressive, if not mitigated by something along the lines of the Fair Tax provisions that allow for a tax-free level of spending for the necessities of life.
    Drum, Krugman, Iglesias, et al have been beating this issue like a two dollar drum (heh!) for decades, and nothing has or will changed…ever.  If the federal government granted every American a $10 million “prize,” tax-free tomorrow, a year from now there would be the same (or greater) number of “poor” people.  You can’t fix relative poverty by legislative fiat or tax policies.

  • I don’t know why liberals or gov’t in general complains about big businesses and the power they wield, after all they created them.  They were the ones who create the regulatory and reporting  burdens that can only be shouldered by big business and still remain profitable.   If you were to try and start an oil company today in this country you would go out of business before you completed your first environmental assessment much less drilled your first well.

  • Hrm… so he says that:

    Your average middle class worker has very little real bargaining power anymore, and this isn’t due to chance or to fundamental changes in the economy.

    But earlier he points out that:

    100 percent of the [UAW]’s 2010 federal donations — $1.4 million — went to Democrats.

    What happens to your average middle class worker who doesn’t support Democrats?

    Maybe private sector workers are tired of paying dues that support a political machine that spends millions of dollars a year to support a party that may not represent their ideological views?  Or their interests?