Free Markets, Free People

Dale Franks

Dale Franks’ QandO posts

The burdens of voluntary association

Since the passage of the public employee union reforms in Wisconsin the past year, things have changed for the public unions. They have to recertify by member vote every year, and they can no longer collect dues directly from members’ paychecks. The response of one union has now been to decertify itself, as reported by Inside Higher Ed.

The Teaching Assistants’ Association at the University of Wisconsin at Madison dates to 1966. In 1970, following a four-week strike, the graduate students at Madison became the first T.A. union to win a contract. Over the years, the union — affiliated with the American Federation of Teachers — has been a leader in the drive to promote collective bargaining for graduate student workers.

Last week, after hours of debate, the union’s members voted not to seek state certification to continue to act as a collective bargaining agent…

Union leaders said that they couldn’t function well if they had to effectively be in a perpetual organizing drive for the annual union votes, and also if they had to pay annual fees to be certified…

Seeking certification year after year, [Adrienne Pagac, co-president of the union,] said, "would have meant diverting resources and neglecting all of the other things we do for members – representing them at the work site, being advocates for them, engaging our community." Pagac added that "being a union member is not just about sitting across the table from management and hammering out a contract. It’s about democracy in the workplace.”

…The union faces challenges as it adjusts to the limits imposed by the state law. Under the old contract, union dues were automatically deducted from the paychecks of the 2,700-2,800 graduate teaching assistants at Madison. Now the Teaching Assistants’ Association must seek dues from members by itself.

Quite apart from the idea that the workplace is a fairly inopportune place for "democracy"—at least if the cold wind echoing hollowly through the empty streets of Detroit is any indication—it clearly isn’t about democracy. If it was about democracy, then an annual recertification vote would be viewed as a plus, not an obstacle. I mean, regular elections are something we associate with democracy, as I understand it. The practice in the past was to have the certification vote taken once, after which the union is perpetually certified. That’s nothing more than a version of "one man, one vote, one time" that we associate with various "democratic" revolutions in the Third World. But for this union, at least, having democracy in the workplace by holding a certification vote every year is too much of a burden.

No, this has almost nothing to do about democracy in the workplace and everything about the gravy train pulling into the station at the end of the line. It was a great gig while it lasted. As soon as you could get a majority of employees to certify your organization, you were certified forever.  The state collected your dues money without fail every paycheck, and if any of the employees ever got dissatisfied, you had the resources to slap them down.

Now, all of the sudden, you have to convince the rank and file to send you their dues payments voluntarily. And every year, you have to convince them to voluntarily recertify you. The rank and file now have both purse power and democratic power to punish you, rather than the reverse. It seems that a voluntary association is inconvenient. You have to make members happy. Listen to them. Perhaps, even, respond to their concerns in a timely and effective manner. Voluntary association imposes a web of mutual obligation, unlike a top-down command system.

Now, the union just isn’t as fun. And it isn’t certified any more, either.

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Observations: The QandO Podcast for 21 Aug 11

In this podcast, Bruce and Dale discuss Rick perry, the Obama jobs plan, and much more.

The direct link to the podcast can be found here.


As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

No hyperinflation yet

One of the key worries about the Federal Reserve’s policy of Quantitative Easing has been the fear that it would result in hyperinflation at some point. But, Mike Shedlock, writing at Business Insider, asserts that inflation is not what we should be fearing: deflation is. Despite his rather self-centered, Ooh-look-what-a-cool-boy-I-am writing style, he makes an excellent point, and provides some valuable insight.

Shedlock actually has a rather different definition of inflation and deflation than most do, as he doesn’t concentrate primarily on the money supply or price levels, but rather the state of credit markets.

Inflation is a net increase in money supply and credit, with credit marked-to-market.

Deflation is a net decrease in money supply and credit, with credit marked-to-market.

Complete loss of faith in currency.

The first two definitions have nothing to do with prices per se, the third does (by implication of currency becoming worthless).

To determine whether we are currently experiencing inflation or deflation, he uses the following criterion:

Symptoms of Deflation

  1. Falling Credit Marked-to-Market
  2. Falling Treasury Yields
  3. Falling Home Prices
  4. Rising Corporate Bond Yields
  5. Rising Dollar
  6. Falling Commodity Prices
  7. Falling Consumer Prices
  8. Rising Unemployment
  9. Negative GDP
  10. Falling Stock Market
  11. Spiking Base Money Supply
  12. Banks Hoarding Cash
  13. Rising Savings Rate
  14. Purchasing Power of Gold Rises
  15. Rising Number of Bank Failures

He then goes through all 15 criteria and shows fairly persuasively that—according to his definition, at least—we are in the middle of a credit-led deflation, despite the fact that consumer prices are rising. certainly, asset prices are declining.

Which, I think just means we’re having stagflation, if today’s CPI numbers are to be beleived.

In any event, as I’ve been saying since 2008, the danger of our policy mix is not inflation in the short-term, but rather a recreation of the Japanese response to the currency crisis/deflation of 1992 that brought about the "Lost Decade". We’ve actually doubled down on the Japanese policy, and are experiencing the same economic result.

So, businesses and consumers are holding tight to their wallets, adjusting their balance sheets…and waiting.  Yes, there’s tons of cash sitting in banks right now that isn’t going anywhere, and as long as banks have a shortage of credit-worthy customers seeking loans, all of that cash is gonna keep sitting there are excess reserves.

Meanwhile, the one thing that has kept the dollar buoyed as the world’s reserve currency is that there’s really nowhere else to go. As attractive as the Euro might have seemed a couple of years ago, there’s a real chance that the Euro is on it’s way out, except perhaps as the joint currency of France and Germany.

What I would point out, though, is that Shedlock’s definition of hyperinflation is a state that exists as a result of a psychological event, not the result of something one can forecast via some predictive empirical  measurement. That’s unsettling, because you can never quite predict when a psychological breaking point in public trust is reached. No matter how deflationary credit might be at the moment, if we begin seeing a serious, sustained rise in price levels for consumer goods, I’d be a little worried. A steep fall of the dollar’s price in the FOREX market would be worrisome, too. If hyperinflation is the result of a psychological shock disconnected with any sort of statistical measurement, then I’d be careful finding too much comfort in statistics.

The numbers say that deflation is our biggest problem right now, though, and I’d say that’s generally right. If the economy picks up and those excess reserves begin to flow into the hands of consumers though, I’d be looking very hard at the Fed as the velocity of money picks up, to see how they plan to sterilize the excessive growth in the monetary base they’ve created.

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The economic miracle of food stamps

Secretary of Agriculture Tom Vilsack is excited. He’s bullish on jobs. The reason is because the Administration has a fantastic job creation program already in place: Food Stamps. You see, 1 in 7 Americans are now on food stamps. And this triumph of the  American economy means more jobs for everyone. Having 14% of Americans receiving food stamps, you see, is an Administration economic success story!

Well, obviously, it’s putting people to work. Which is why we’re going to have some interesting things in the course of the forum this morning. Later this morning, we’re going have a press conference with Secretary Mavis and Secretary Chu to announce something that’s never happened in this country — something that we think is exciting in terms of job growth. I should point out, when you talk about the SNAP program or the foot stamp program, you have to recognize that it’s also an economic stimulus. Every dollar of SNAP benefits generates $1.84 in the economy in terms of economic activity. If people are able to buy a little more in the grocery store, someone has to stock it, package it, shelve it, process it, ship it. All of those are jobs. It’s the most direct stimulus you can get in the economy during these tough times.

Here’s the video of Sec. Vilsack’s exciting statement:

Why, I now wish I was on food stamps. Then every dollar I spent would add $1.84 to the economy. Unlike now.

I mean, sure if I was some sort of racist doubter, I might wonder why, as food stamp use has increased over the past couple of years, GDP growth has declined or been very anemic. I might wonder why, if I was cynical and racist, huge increases in unemployment and millions added to the food stamp rolls were formerly a sign of economic failure, not a jobs program to be touted.

But I’ve learned so much in the past day! I’ve learned that increasingly large rolls of unemployment recipients, and an increasingly large population of food stamp recipients grow the economy and create jobs. I’ve learned that these are signs of success rather than failure. I’ve learned that if every American was on Food Stamps, we’d grow the economy by 84%. I’ve learned we have always been at war with Eastasia.

Learning is fun.

I now hate all of you who use your un-American paychecks to by food with your un-American earnings, instead of helping the economy out by getting food stamps. Now I know you hate America. And freedom.

By the way, I’ve started picking up these odd radio signals  from somewhere in the vicinity of Fomalhaut B. I just thought somebody should know about that…Maybe give Krugman a call.

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More on those Texas jobs

In addition to what Bruce wrote below, I’d like to point you to Political Math’s analysis of Texas’ job performance. In this analysis, he takes the criticisms we’ve been hearing for the last two days and refutes them, point by point, using actual BLS statistical data. It’s a great job of analysis, with, like, charts, and stuff. They key takeaway:

My advice to anti-Perry advocates is this: Give up talking about Texas jobs. Texas is an incredible outlier among the states when it comes to jobs. Not only are they creating them, they’re creating ones with higher wages.

And he has the actual statistical work to back that claim up. For instance, here are two of the charts he presents, that I have superimposed to create a single chart showing the employment level in the US, compared to Texas. It’s most instructive:

TX vs US Unemployment

This single chart says a whole lot.

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California’s Amazon tax has been successful…

…In encouraging Internet entrepreneurs to leave California. Who saw that coming? Besides, you know, everyone outside of Sacramento.

Last month, news broke of one California-based online entrepreneur who had decided to ditch California and move to Nevada in the aftermath of Gov. Jerry Brown signing the law.  ”I always figured that in California, home to Silicon Valley and a million tech startups, they’d never pass a law like this,” said Nick Loper, who formerly operated ShoesRUs and has now opened a new venture, ShoeSniper.

Per the piece in which Loper is quoted, more than 70 affiliates had at that stage already left California, according to online businesses.

Then, last Thursday, another online entrepreneur, Erica Douglass, posted a mock “It’s Over” letter to California on her blog. Douglass, who sold an internet company she had built for $1.1 million in 2007 when she was just 26, cited multiple reasons for moving to Austin.  Among them were unnecessary paperwork requirements mandated by the state, and high taxes as well as business fees.  However, the straw that broke the camel’s back, was according to Portfolio, Brown signing the Amazon Tax into law.

Apparently, the thinking was that Amazon would never halt its California affiliate program—though they’ve done so in every state that’s passed a similar law—and, Lord, the money, it would start rolling in! And even if Amazon did close down the California affiliate programs, why, the affiliates would simply switch to other affiliate programs, and the state would still get it’s money. It was a win-win for everyone.

Well, Sacramento was right about one thing: The affiliates are switching. To other states.

To be fair, it was slightly more realistic than Sacramento’s other plan, which was that flying unicorns would swoop in to sprinkle magic pixie dust on the state’s economy. Sadly, that plan was tabled in the Assembly’s budget committee. At least if they’d gone with that, I’d still be able to make a little spending money off Amazon.

Is it just me, or is the Tree of Liberty looking a little…parched?

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And after that, let’s raise the minimum wage to $100/hr

It’s true that to be a progressive, one has to have the ability to believe nine impossible things before breakfast. But, surely even progressives have some limits to credulity. I’d like to think so, but then I see something like this, that even the barely literate should recognize as foolishness.

President Obama has lately been pushing a number of policies that he says will create jobs, including extending unemployment benefits. This is puzzling, since new benefits obviously will not create jobs for unemployed people, who after all are the ones who need work. But White House Press Secretary Jay Carney explained Thursday that paying out unemployment checks “is one of the most direct ways to infuse money directly into the economy because people who are unemployed and obviously aren’t running a paycheck are going to spend the money that they get. They’re not going to save it, they’re going to spend it.” True, they probably will spend the money, on their mortgages, on food, and other necessary expenses. But Mr. Carney attributed miraculous qualities to these government handouts, saying “every place that, that money is spent has added business and that creates growth and income for businesses that leads them to decisions about jobs, more hiring.”

Of course, unemployment benefits do none of those things.

Quite apart from anything else, unemployment benefits are usually far less than than, say, an actual paycheck from an actual job. The very best that might be said about unemployment benefits is that they cause job losses overall to be slightly less severe than they might otherwise be, as the distribution of said benefits ameliorates the chain reaction of job losses as unemployed workers receive some money, rather than no money at all. And, of course, it prevents the jobless from going completely under financially.

But to believe Mr. Carney, one must believe that larger numbers of people receiving and spending substantially less money creates more economic growth. This is magical thinking. If it were true, the obvious solution would be to completely shut down the productive economy, and provide every inhabitant with a government dole check. No doubt economic growth would explode if Mr. Carney were correct, although who would then be available to fill the millions of new jobs is quite beyond me.

Further, it could be argued that for low-skilled—hence, low-income—workers, extended unemployment benefits are a positive disincentive to get a job at all. After all, why work 30 hours a week delivering pizzas, if, in return for an abundance of leisure time, you can simply cash a government check every week? And, perhaps, do a little work under the table to help get by.

It also ignores the reality of where the money for these government benefits is actually coming from. It either has to be extracted from the productive economy in the form of taxes or it has to be borrowed. If it’s the former, it means less money is available in the private sector to, say, invest and create jobs. If the latter, then it adds more debt to the economy, which may not be the most practical solution if the problem is too much government debt in the first place, crowding out private investment and hindering growth.

Seriously, at what point does even the sheep-like herd of White House correspondents rise from their supine positions and tell Mr. Carney that some arguments are too stupid to be presented to their readers with a straight face?

Dale Franks
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I, for one, welcome our new alien overlords

Paul Krugman was on CNN yesterday, as a guest on “Fareed Zakaria GPS”. I’m glad of it, because he provided us with this gem:

If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better–

I guess since the Nazis and Imperial Japan are no longer with us, an alien attack threat is all he’s got left. In one sense, he’s right. If aliens were coming to attack us, we’d do whatever we had to do, and damn the expense. Of course, the aliens, assuming they were really interested in killing us all off, would probably stop close to the asteroid belt and drop bolides on us until we said "uncle". Or were extinct. Which would solve our financial problems.

Here’s the thing about military spending. we consider a lot of military spending to be on durable goods.  We count it that way as part of GDP. But these goods are NOT durable goods.  They are consumables. We build them with the expectation that they will be quickly, and violently consumed in combat. And outside of combat, they generally have no useful role in society.

But let’s assume he’s right. We have a massive space armaments buildup, everyone goes back to work, and we borrow another $14 trillion to do it. Great. 18 months later, everybody is working in the armaments factories, thousands of "space fighters" and orbital x-ray lasers are buzzing around in near earth orbit, command bunkers are built deep in the earth’s crust…woo hoo! The economy is booming again.

Then we find the threat has been mistaken.  There aren’t any aliens coming to attack us. Are we really better off? I mean, we’ve been better off for a couple of years, while we were preparing for the aliens, and everybody was working. But what happens now?

Now we have a huge stockpile of useless military equipment that we have to destroy, or borrow more money to maintain. Demand for plasma cannon and shield generators disappears. The armaments factories close down, and those jobs are gone forever. We have rung up a $30 trillion debt to purchase a massive amount of goods that have no constructive purpose, and generate no wealth. And what wealth we did have is now sunk into space weaponry we can’t use for…well…anything. What we can use, we have a glut of, and have to either destroy or surplus out.

So, where do all the jobs go now? How are we better off? All the alien-fighting military and civilian jobs evaporate, our national wealth has been sunk into useless alien-fighting equipment, and we’re now carrying a debt of 200% of GDP. It seems to me that we’re now worse off than we were before the alien scare.

This is Keynesianism taken to the furthest logical extreme: We’d be better off creating a massive buildup of useless and unusable military equipment, because it would stimulate the economy. The trouble is, how do we pay for it once we’ve done it?

Frankly, if the aliens do come, I’d prefer that we do nothing. If they can cross the vastness of interstellar space, their technology is so far ahead of ours that any attempt at defense would be futile. And, of course, I presume that any society so advanced would, if nothing else, deliver us from Prof. Krugman’s brand of irrational economics once and for all.

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