Free Markets, Free People

Economics

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“Fiscal Cliff” negotiations with Democrats? Gimme the usual please …

When is the GOP (and the public) going to learn?

How many times have we heard that the only thing standing in the way of a grand bargain to reduce our growing national debt is Republican intransigence on taxes? If Republicans would only agree to dump Grover Norquist, Democrats will agree to cut spending and reform entitlements. Then, we can all join hands and sing Kumbaya as we usher in a new era of compromise and fiscal responsibility.

Except that now that Republicans have agreed to raise taxes, er, revenue, as part of an agreement to avoid the looming fiscal cliff, liberals appear to have decided that there really isn’t a need to cut spending after all.

Yup, in fact they’ve taken entitlement reform “off the table”.

Senate Democratic leaders signaled Tuesday they would not agree to any entitlement reforms before the end of the year that cut spending on Medicare and Medicaid beneficiaries.

They also said that any year-end deal to avoid the expiration of tax cuts and implementation of spending cuts — known as the fiscal cliff — must include a provision to raise the debt ceiling, which would otherwise have to be addressed early next year.

The White House and Reid have indicated they will not consider cuts to Social Security, a notable change from 2011, when President Obama said “everything is on the table,” including entitlement programs dear to his party’s base.

In other words, we’re back to “tax the rich”, raise the debt ceiling and spend, spend spend.  Meanwhile, it is left up to the GOP to “compromise” by breaking the tax pledge (led by the Judas goats, Saxby Chambliss and Lindsey Graham) or be forever branded as the intransigent “bad guys” in this.

Meanwhile, low information Americans who, by over 60% approve of taxing the rich, will buy the spin by the press painting the GOP as the cause/reason for the calamity while Democrats “lament” the problem (“but, hey, that’s now the law thanks to Republicans”) and gleefully rub their hands in delight at all the new revenue they’ll have to “redistribute”.

Some things never change, do they?

~McQ


So why are private unions in decline and government unions still strong?

If you haven’t figured it out yet, it has to do with competition in one area and none in the other.

How so?  James Taranto sums it up pretty nicely on the private union side of things:

The trouble for private-sector unions is that the global economy vastly increases the supply of labor, diminishing their bargaining power. If it’s too expensive to run a factory in the U.S., companies can simply move their facilities to other countries.

Or, labor isn’t worth what it once was thanks to globalization. We call that “economic reality”.  Back in the good old days for unions, they were getting wonderful pensions, outrageous benefits and $20 bucks an hour for a guy to open and close a blast furnace door.  Now they can make and ship steel across the Pacific Ocean and truck it to its destination in the US cheaper than we can make it.  Thus the shift of the industry from here.

The bonus for these companies?  No labor negotiation hassles, lower wages to pay (comparatively) and the option to move again if the costs again become onerous (and the steel industry has done that a couple of times).

However labor hasn’t yet allowed that lesson to sink in – well, at least unions haven’t.

Taranto points to a very recent example of the point as well as some union members who “get it”:

Last May, after contract negotiations stalled, nearly 800 IAM-represented employees walked off the job at Caterpillar’s hydraulic-parts factory. After a few weeks, more than 100 returned to work, fed up over the lack of progress in the talks and pinched by the union’s $150-a-week strike pay, some workers say.

When an agreement was reached in mid-August, the contract provided less than the one before it: The IAM gave in to an hourly pay freeze for veteran employees, an end to pensions, a doubling of health care premiums and a one-time ratification bonus of $3,100 instead of $5,000 under the previously proposed pact. The terms were almost identical to a Cat contract ratified by the UAW [United Auto Workers] a year earlier.

Doug Oberhelman, chairman and chief executive of the Peoria-based heavy-equipment maker, acknowledges that the givebacks hurt employees. But, in a recent speech in Chicago, he explained that management compared compensation to factory hands across Illinois and around the world and concluded that to be “market competitive,” Caterpillar had to insist on the concessions.

100 of the members of the International Association of Machinists apparently saw the handwriting on the wall, figured their family came first and returned to work.

So much for solidarity.

Hostess is another example of out of touch private sector unions.  When the Teamster’s union confronted Hostess over its claims it couldn’t afford their demands and giving into them would cause the company to have to liquidate, the Teamsters examined Hostess’s books and agreed.  They backed off.  Not the Baker’s union though.  Apparently their union chief never bothered to examine the books or negotiate.  He just advised his union to strike.  The result is well known and, by the way, the Teamsters were livid – not at Hostess, but at the Baker’s union.

Meanwhile a few facts have surfaced about the Baker’s union boss that should make members of unions everywhere recognize at least this guy for what he is:

BCTGM boss Frank Hurt encouraged the strike (knowing it could shut down the company).

As BCTGM membership has fallen 30% since 2000, Hurt’s salary has gone up nearly 45% to over $260,000

The bakery industry union pension fund is less than 50% funded ($10 billion in liabilities), yet bakery union bosses have their own fully-funded (100%) pension plan — funded by members.

Bakery union bosses Hurt and the Sec.-Treasurer both have their kids on union payroll.

We often hear complaints about CEOs who get pay raises while their companies go down the tubes.  I wonder if the left is willing to apply the same criticism to a guy who raises his own pay 45% while losing 30% of the membership and funds his own pension 100% while shorting the union member’s fund by over 50%?

Unions also tend to play at stupid games that simply frustrate people trying to run a business and make a profit.  In this case it is two different unions fighting about who gets to plug in and unplug refrigerated containers.

A federal judge has been forced to intervene in a dispute between two unions over who is in charge of plugging and unplugging refrigerated shipping containers at the Port of Portland.

Oregon district court judge Michael H. Simon ordered the International Longshore and Warehouse Union (ILWU) to abandon its efforts to snatch the responsibility of manning the outlets from the rival International Brotherhood of Electrical Workers (IBEW).

“[The ruling] simply means that the same people who have been doing the work since 1974 will continue to do it,” said IBEW spokesman Norman Malbin.

Absurd.

The ILWU’s reaction?  It said the contract with the electrical workers represented a “lost work opportunity” for members.  Of course it was a job they’d never had nor had when they tried to take it over.  But these are the sorts of things private unions are reduced too these days.  Stealing each other’s jobs.

As we’ve covered here, the great Wal-Mart walkout wasn’t a spontaneous event or even an event demanded by the workers of  Wal-Mart.  In fact, as mentioned, only 50 of 1.4 million Wal-Mart workers even walked out.

It was a union event using the front group “OUR Wal-Mart (Organization United for Respect at Wal-Mart)”, it was all set up by the United Food and Commercial Worker’s Union.   And if flopped, hideously.  In fact, the real reason the UFCWU tried to make this happen is because their stores are uncompetitive with Wal-Mart grocery stores.  If you can drive up salaries and benefits, you’ll eventually drive up prices.  You?  They couldn’t care less about you, Mr. and Ms. Consumer.

Those examples all deal with private unions.  Competition and the cost of labor are driving the reality of today’s wages.   Unions can’t deliver on the big promises anymore.  Many have not done a good job of managing their members benefits either.  Smart companies make it clear that they will willingly provide good wages and benefits without unions.  Tack on tough economic times and the need for a union becomes even less apparent.  At one point paying union dues was considered to be a positive thing.  Workers got something for the dues that they felt was greater than the cost of the dues.   Today?  More and more are seeing those same dues as a liability.

Finally, government unions.   They remain strong because there is no competition.  And, their bosses are in bed with them, negotiating with your money, not theirs.  Government’s don’t have to make a profit to stay in business, do they?

But perhaps even their act is wearing a little thin.  Take the LAX protests by the SEIU:

At LAX, although a large crowd of union members came out to protester, CBS LA notes that ”the majority of them [the protesters] were not airport workers.” They were other members of the SEIU.

So troubled were the airport workers by the Thanksgiving Day protest, the Associated Press reports that according to a press release from former union members, “a majority had signed petitions to leave the union and called upon the SEIU to cancel the demonstration.” One former union member Fred McNeill admitted to CBS LA that it had gotten “personal” for the leadership of the SEIU, “And that’s just not right.”

Another woman, who CBS LA interviewed through her car window at the airport, said she she was a union member (she did not specify which union she belonged to), but even she didn’t agree with the way the union was blocking traffic on one of the busiest travel days of the year.

Unions on both sides have become short-sighted and petulant because their golden age is demonstrably dead.  Economic reality and a changing world have dealt them severe blows and instead of looking at ways to shore up their base and maintain their presence, they’re reduced to throwing tantrums and thumbing their noses at the very people they need to suppor their cause.

Government unions can still get away with that.  Private unions can’t.   And the only reason that difference is made is because competition and economic reality rule one side and monopoly and government protection rule the other.

~McQ


To give is to waste?

My friend George Scoville wrote a Black Friday-appropriate post on a problem with gift-giving, which touches on a broader point that libertarians should heed.

A microeconomics paper that’s bounced around econ-blogs for several years says gift-giving causes a huge deadweight loss: when someone else picks a gift for you, it may not be what you would have bought for yourself when you would have bought it, which normally implies that goods and services are being distributed inefficiently.

If that’s true, then Christmas is a tremendously wasteful institution, within an order of magnitude of the income tax, and we’d be better off giving each other cash gifts.

Humbug!

First, on a technical note, that paper was written in 1993, before Amazon wish lists and social media made it easier to detect people’s interests and needs, so perhaps we’re getting better at matching gifts with recipients.

More importantly, the paper fell short of meaningfully capturing deadweight loss, because it focused entirely on the value of the goods.  Gift economies mostly operate on another kind of supply and demand: the desire for social cohesion, meaning closer relationships with family, friends, and other peers.

This is no trivial matter: relationships with people we can count on make us happier, healthier, and more successful.  Anything that helps to build and cement those bonds is valuable, and while some academics and marketers try to quantify that value (it may be more than you’d think), the normal rule is that relationships of trust should not be fungible with cash.  All societies have some social taboo against trading off the sacred and the mundane, which sometimes leads to absurdly stupid conclusions, but also allows people to build trust without worrying that anything intimate or of an extremely hard-to-price value (what’s the rest of your life worth?) will be easily sold for any of the mundane things that can be bought with cash.

It’s awkward when people give each other cash as gifts even if the amount is equal, and gift exchanges in which only one side puts any thought into it show unequal empathy.  If you put a lot of thought into anticipating someone’s wants, and that person gives you a very generic gift, it’s like being put in the Friend Zone.

The point of gifts is to trip a hardwire in the brains of social mammals: cycles of giving and gratitude that go beyond simple reciprocity.  When you’re trading cash, everyone is acutely aware of the value of what’s been exchanged, and there’s no fudge factor in the brain for “the thought that counts.”

That’s something we disagreeable, rationalistic libertarians should keep in mind, because the gift economy is a powerful force in human relations that resists and resents the intrusion of market forces, even if markets efficiently bring us the gifts.


Wal-Mart protest a flop

So how did the great Wal-Mart protest go?

According to the Bentonville-based company, roughly 50 people who are actually on Walmart’s payroll joined today’s “walkout” nationwide. The protest organizers say “hundreds” participated. Even if 1,000 took part, that’s still less than 1/10 of 1% of Walmart’s 1.4 million associates.

If you can’t find 50 disgruntled employees in an organization of 1.4 million, well, you’re a refugee from the real world.

But look at that last number.  1.4 million people have jobs because of Wal-Mart.  Then there’s the downstream effect – suppliers, etc.  My guess is you’re looking at an organization responsible or at least partially responsible for 3 to 5 million jobs in this country.

And yet it is under attack.

Now, there were protests at Wal-Mart stores.  But what should be clear is they weren’t protests by Wal-Mart’s vast majority of associates.

The “organization” which organized this flop,  “OUR Wal-Mart”,  is calling it a clear success.  I mean what else would they call it?  The fact that it only drew 50 employees in protest (50 who I assume are now ex-employees) seems to have been waived away for the fact that there were some protests.

Woo – hoo.

So who were the protesters?  You’ll enjoy this:

Seems strange then that, according to organizer OUR Walmart’s website, the group speaks for actual Walmart employees. In the “About Us” sectionof its website, this not-for-profit describes its mission as follows: “We envision a future in which our company treats us, the Associates of Walmart, with respect and dignity. We envision a world where we succeed in our careers, our company succeeds in business, our customers…” (Italics mine.)

OUR Walmart was listed as a subsidiary of the United Food and Commercial Workers Union (UFCWU) in a 2011 Department of Labor filing. While the union disputes that the two organizations are one and the same, one thing is certain: The organizers of today’s protest represent not Walmart employees, but employees of grocery stores that compete with Walmart.

Oh, I’m shocked, shocked I tell you.  Members from a union that represents the workers of stores that compete with Wal-Mart?  Ah, of course – OUR Wal-Mart.

[W]hile the anti-Walmart movement claims to be about helping Walmart employees get better health care, improved working conditions, higher pay–not to mention preventing our children from the temptation of petty thieveryit’s really primarily about stopping the threat of cheap groceries–the same ones that go a long way towards helping cash-strapped Americans put food on the table.

Emphasis mine … and the reason, as mentioned yesterday, is this model works.  It appears, at least superficially, that all but 50 Wal-Mart employees agree.  Given the consumer reaction to the protests (uh, nil, nada, zip – didn’t slow down sales a bit), it’s rather hard to understand how any sane person could call the protests a success.  But then no one said those who put together OUR Wal-Mart are sane, did they?

Not surprisingly, a union’s hand is found in a movement deceitfully claiming something that isn’t true and trying to cause problems for a company that employs a huge number of Americans and is responsible, at least partially, for the jobs of a huge number more.

And, watching these shenanigans, you can’t help but believe that unions are desperate – very desperate.  Here’s a company which is offering the same products as their union stores offer at significant discounts and that’s an obvious threat to their continued employment.  So they think nothing of starting a “movement” that is union backed and likely union financed to undermine that company by enticing workers, who apparently aren’t at all as disgruntled or as upset as this group has claimed, into a job action that’s guaranteed to be against their best interests and that would likely get them fired.

50 heeded the siren song and are likely now trying to figure out how to claim unemployment compensation.

And, they have the UFCWU and their apparent inability to think critically to thank for their folly.

Hey, maybe they can go apply at the union stores.  I’m sure they’re hiring, huh?  I’m equally sure they’re more than eager to hire someone who walked off their last job.

~McQ


So what would happen if Dems got all they want?

California, of course:

“The California Republican Party is functionally dead. And how is California doing, now that liberals have successfully terminated the state’s remaining conservatives?” #1 in debt, #1 in welfare, #1 in taxing the rich. And hoping for a federal bailout, I suspect. As is Illinois, which is in similar straits for similar reasons. “One-third of all the nation’s welfare recipients live in the state, despite the fact that California has only one-eighth of the country’s population. That’s four times as many as the next-highest welfare population, which is New York. Meanwhile, California eighth-graders finished ahead of only Mississippi and District of Columbia students on reading and math test scores in 2011.”

You can warn people till you’re blue in the face (no pun intended) how the blue state model is going to end up, but sometimes it is instructive to just let it happen.  Of course that assumes that those observing the train wreck try to understand how it happened and work to avoid it elsewhere.  I’m not so sure that’s the case in this nation.  But fair warning, given the fiscal road we’re on California is as much in our future as Greece:

“For a century or so, guided by brilliant private sector leadership, California was a beacon to the world, a land of opportunity such as never had existed in human history. Unimaginable wealth was created. Yet it required only 40 years of liberal governance to bring the whole thing crashing down. Today, California is the most spectacular failure of our time. Its government is broke. Productive citizens have been fleeing for some years now, selling their homes at inflated prices (until recently) and moving to Colorado, Arizona, Texas and even Minnesota, like one of my neighbors. The results of California’s improvident liberalism have been tragically easy to predict: absurd public sector wage and benefit packages, a declining tax base, surging welfare enrollment, falling economic production, ever-increasing deficits. Soon, California politicians will be looking to less glamorous states for bailout money. Things have now devolved to the point where California leads the nation in poverty.”

California is a state which has modeled blue government for decades, despite warning of where it’s continuance would lead.

And, shockingly to the left, it has ended up right where it was predicted it would end up.  Yet, they blindly and willfully continue to march along as though the reality will change and economic laws will disprove themselves if they just persist in their actions.

California is our future.  Our near future.  See, it’s pretty much as simple as this:

If a country runs a deficit (as a percentage of GDP) that is equal to its growth rate, the debt level will remain constant. This year U.S. GDP will be a little less than $16 trillion, and its historical growth rate is 3.25%. That works out to what we might call a “safe” deficit of $520 billion, or even $600 billion if you allow for a little inflation. Last year, however, the U.S. deficit was $1.1 trillion — or roughly $500 billion too much.

That gap could be closed by ending all tax cuts, tax breaks and stimulus payments for everyone, according to the Tax Policy Center. But two-thirds of the burden would fall on the middle class — something both political parties want to avoid. All the proposed tax increases on the wealthy, however, even combined with the end of the payroll-tax cut, would raise only $295 billion. So unless there were spending cuts twice as big as the ones currently scheduled, the deficit would still be too large.

Those sorts of cuts aren’t even being discussed.  Imagine, if you would, radical cuts in the size and scope of our current federal government.  Imagine subsidies of all sorts being eliminated.  Imagine backing government out of many of the areas it has no business.  Imagine simplifying the tax code and giving business a warm fuzzy feeling about the business atmosphere by freezing regulation and in some instances rolling them back.  Imagine all of that, because none of it is going to be done.

Instead, the solution is to “tax the rich”.

So let ‘em have it (only if they repeal the Hollywood tax cut).  Tax the rich.  And when it doesn’t work, and it won’t (in fact, I’m not sure what “work” means in this particular case since the amount to be collected is a mere drop in a 1.6 trillion dollar ocean of debt that’s planned each year for the foreseeable future), they’re left with a lot fewer excuses, huh?

Not that they won’t try to point fingers when their grand plan crashes.

Yup, in the end it all looks like we’re headed to California.  Apparently we’re going to have to recreate that debacle on a national level before the blinders come off of the public and the realization that you can’t spend more than you have forever finally sinks in.

Whether or not it will too late to salvage the country at that point, remains to be seen.

~McQ


Would you hire these people?

Amazing, but not atypical of a lot of thinking in this country these days:

The union that brought the 85-year-old baker of Twinkies and Wonder Bread to its knees is holding out hope that a buyer will salvage chunks of the company and send the union’s members back to work, even as Hostess Brands Inc. gears up for a fire sale.

[...]

While Hostess has said the shutdown would result in the loss of more than 18,000 jobs and place the fate of more than 30 American brands in jeopardy, union President Frank Hurt said he believed there was “more than a good chance” that a buyer quickly would swoop in to buy the profitable parts of the company and give his union’s members their jobs back.

Give them “their” jobs back?

See, if I was a buyer, the last people I’d hire are those whose inability to think beyond what the union demanded they do that caused a company to liquidate and “their” jobs to go away.  Because I’d not want to give them the chance to gum up the works at my company.   So I’d ensure that they understood that “their” jobs went with Hostess.

By the way, Frank Hurt isn’t hurting.  He’s still got his six-figure job with the union that “their” jobs, since gone, helped pay for.

Said Teamster Luigi Peruzzi, a Hostess driver in Detroit for 25 years:

“I think they [the Baker's union]made a terrible choice based solely on terrible information from their leadership.”

Not that their “leadership” will suffer for it or anything.

~McQ


So, economically, how’s the election working out for us?

If you’re at all concerned about the economy, the answer is likely “not very well”:

U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.

Half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.

Nationwide, business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009. Corporate investment in new buildings has declined.

At the same time, exports are slowing or falling to such critical markets as China and the euro zone as the global economy downshifts, creating another drag on firms’ expansion plans.

Why are we seeing this happen?  As it stands, most corporate spenders see no possibility of the hostility toward corporate America easing and also view whatever is to come in January concerning taxes and tax policy to likely be a lose-lose for them however it goes:

Corporate executives say they are slowing or delaying big projects to protect profits amid easing demand and rising uncertainty. Uncertainty around the U.S. elections and federal budget policies also appear among the factors driving the investment pullback since midyear. It is unclear whether Washington will avert the so-called fiscal cliff, tax increases and spending cuts scheduled to begin Jan. 2.

Companies fear that failure to resolve the fiscal cliff will tip the economy back into recession by sapping consumer spending, damaging investor confidence and eating into corporate profits. A deal to avert the cliff could include tax-code changes, such as revamping tax breaks or rates, that hurt specific sectors.

Or, as before the election, an unstable business climate persists which does not provide any incentive to expand, spend or hire.  In fact, as indicated above, it is providing precisely the opposite incentives.  It’s one reason the GDP forecast for the country has been downgraded again to 1.5% (Mexico, for heaven sake, has GDP growth of 3.2%).

But when you vote for the status quo, well, you get what you vote for — enjoy.

~McQ


6,000 union members cost 12,000 other workers their jobs

In a case study of cutting your nose off despite your face, union members who walked out on strike at bankrupt Hostess Brands (makers of Twinkies and other well known products) and refused to return to work by yesterday have forced the company into liquidation.  Of the 18,000 workers who will lose their jobs, about one-third were union members.

The company had offered a compensation package that had cuts (to include an 8% pay cut).  These were necessary during bankruptcy reorganization to keep the company afloat.  The union refused the package and walked out.

Apparently, 100% of nothing is much better than 92% of something … especially in this job market.

Congratulations Bakery, Confectionery, and Tobacco workers and the Grain Millers International Union, among others.  You put the capital “S” in Stupid, Selfish and Shortsighted (a crown previously held by the former union members of Eastern Airlines).

But I’m sure this will somehow end up being blamed on “greedy Capitalists” and be declared a “market failure” by the usual suspects.

~McQ


Entitlements: The Siren’s song

The cultural corruption of entitlements should, by now, be well known. But it also is just as well known that our current system incentivizes the “Santa Claus” form of government vs. that of the night watchman. The end state is inevitable. It isn’t a matter of “if” but “when”.

“The more government takes in taxes, the less incentive people have to work. What coal miner or assembly-line worker jumps at the offer of overtime when he knows Uncle Sam is going to take sixty percent or more of his extra pay? Any system that penalizes success and accomplishment is wrong. Any system that discourages work, discourages productivity, discourages economic progress, is wrong.” – Ronald Reagan

You’d think that would be self-evident. Apparently it’s not. And if you doubt that, watch what happens next year as our “leaders” try to figure out how to get us to pay their way out of the mess they’ve made (and for which we’ve never, ever held them accountable).

~McQ

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