Wisconsin A-Go-Go

The following in no way purports to be definitive; it is more a matter of ventilating some ambivalences and raising some questions.

My attitude toward unions themselves is an uneasy cross between what I learned from Austrian economics (for novices, this is not the economics of Austria, but a school of thought) and what I learned from law school. Austrian economics: in an economically perfect world, an employer would pay the lowest wage the market would bear. In such a world, collective bargaining would be unlikely because it would serve little purpose other than saving negotiation time, because as soon as the union asked for a higher-than-scab wage, the employer would reject it (unless the reduction of transaction costs offered by collective bargaining made up for it). This also means that the union’s primary leverage that we know from the real world, the strike, would be pretty ineffectual. But that aside, there is no reason in principle why a fan of laissez-faire would be opposed to unions and collective bargaining, as, in said perfect world, they would be creatures of agency law and contract or something very like.

So why do we have them at all, public or private? Because they are, ultimately, creatures of the state, just like corporations are. A vast, complex network of laws I don’t even pretend to understand give unions a status and various powers and privileges beyond anything that agency and contract law would confer. This means that your intuition, if you have it, that unions in some fashion must have employers over a barrel to some degree, is essentially correct. But gaze up at that italicized phrase again. Corporations too are creatures of the state and confer all sorts of interesting benefits on shareholders, the principal one being limited liability (when the corporation goes belly up, they don’t come after the shareholder’s assets). We have collectively decided to do this because, though it gives a class of business enterprises a great deal of power, it’s worth it, we judge, in terms of the friendlier environment toward enterprise, innovation and risk. This greater social power makes it easier for corporations to dominate employment negotiations, and since everyone more or less is an employee, to dominate society. So we counterbalance that by conferring on unions special privileges and forcing corporations to deal with them.

This has various predictable effects. It to some degree slows the very things we want corporations for (enterprise, risk, innovation), but bear in mind that the corporation exposes its workers to these risks too (admittedly less than if they went into business for themselves, though). It raises the overall compensation package and working conditions, but by reducing the funds the employer has available per employee, it drives down employment in exactly the same way that rent control famously creates housing scarcity. It creates a competitive disadvantage in relation to labor markets beyond our political control which lack unions. Ultimately, unions represent the rent-seeking of the laborer, and as with all rent-seeking, those who collect no economic rents tend to be annoyed when they view this from the outside. Nonetheless, union members are still engaged in productive activity, and if they weren’t, there would be no employment for them at all because the employer would be unable to market their non-existent product. The question is, what sort of society do we want to live in? And that question is answered, as always in a democratic society, by the political process. We have decided we don’t want a feudal world in which no one dares invest their money by lending it, in which no one dares risk their own assets by borrowing, in which technology and prosperity stagnate, and where all large enterprises will have to be initiated by the state or church (as in the Middle Ages). But we also don’t want a world of company towns, company stores, hazardous and oppressive working conditions, a kind of serfdom by another name. And while we want there to be unions, we don’t want there to be too many of them, which is why less than 15% of our economy is unionized. In short, in trying to find a balance between a post-Deng China and a pre-Thatcher England, we have decided that the world we want is this one. If you don’t like this, here is your ballot, there’s the ballot box, knock yourself out.

In such a world, there are all sorts of nifty goods and services, and some of us can’t afford the ones we would like (schooling, for example). As a result, the People in their wisdom have decided to tax those who can afford these things on their own, to get them for those who cannot. When we turn our attention to Wisconsin, do not forget that before there were economic rent-seeking public unions, there was an economic rent-seeking public which voted themselves goodies at the expense of the well-to-do, largely, their own private sector employers. This is the bed the public makes for itself. And yes, the people who comprise the public unions engage in productive activity. A schoolteacher does not suddenly become transformed from a vital participant in our dynamic economy to a parasitical zombie simply by having the owner of the account that writes her paychecks shift from private to public. The principal effects are, members of the public get easier access to certain goods and services, and the labor market gets distorted accordingly (for example, I was originally trained as a title insurance examiner, and the existence of public universities has caused us to be shy one title insurance examiner).

The upside and the downside of unionizing these public sector workers seems to be roughly the same as with the private sector.* Without unions, these employees would be serfs of the state. With unions, they become economic rent-seekers. Now in a regime of progressive taxation, there is one person this should really really piss off: the high-income taxpayer who can afford to purchase these goods and services privately, for they get hit twice, first by the voters who tax them to get the goodies (one can assume that asset distribution is pyramidal, so the high-income taxpayers can’t just band together and constitute a democratic majority) and then by the workers who make the goodies demanding higher compensation. In a democracy, it sucks to be rich, which is why, as Plato brilliantly explained over two thousand years ago, for the rich it is really not the political system of choice.

What to do? Well, to limit your taxes as much as possible, you need to win over a democratic majority of people whose interests really aren’t served by the elimination of the public goods and services (remember, they can’t afford them if they are privatized, that’s why they created the mechanism for their public production in the first place). How do you do that? Through propaganda and bribery. You demonize the people who build their roads while they drive on them, teach in their schools while they depend on them, and call them thieves, when really, its the voters who are the ‘thieves’ and the only ‘victim’ here is yourself. You appeal to their moral sense by expressing solidarity with their hostility to thievery and promise to tax them less. Then they vote for your agents, and you tax them, and yourself, less. But you don’t close the schools, end the road and sewer repair, shut off the public lights and stop putting out fires. You are not an idiot. You simply borrow money to pay for it all, money to be paid back by them. That way the public comes to believe that the services appear by magic, disengaged from their taxes, and political competition comes to seem to be simply between those who would tax you more and those who would tax you less. It’s a win-win-win, for the rich, for the regular folks, and for the people who serve them. Until someone discovers that there is no money for any of it. And when that happens, you can always tell the people that the servants stole the silverware. Because we all know that the solution to a systemic crisis is misdirection and hysteria. At least, that has always worked for me when my bank account is overdrawn.

So: you want to know who are the heroes and who are the villains in Wisconsin? Democrats? Republicans? There aren’t any. Wisconsin did this to itself. And all that the rest of us can do is stand by in dumb-founded amazement, relieved to know that It Can’t Happen Here. Because Here, fires really do put themselves out, roads really do repair themselves, classes really do teach themselves, etc. etc. etc.: money flows like a river and self-righteousness like an ever-flowing stream.

*Perhaps not. See comments below for the labor-captures-management-and-negotiates-with-itself phenomenon, which would tend to be peculiar to the public sector

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4 comments on “Wisconsin A-Go-Go

  1. Pliny the Elder says:

    Except that it is not really like that, at least not from the inside. One of the problems in government employment, including my own, is that “management” and “workers” are just not sufficently adversarial. The dead giveaway is the seamless transition that workers can make to enter management. In my agency, all the “managers” were “workers” up until the day of the promotion. When they negotiate, they are negotiating with the taxpayers money with little incentive to economize. In California, the benefits are completley divorced from reality. For instance, the average working San Jose police officer earns $100,000 per year, which sounds sweet until you find out that the average retiree earns $98,000. Non-emergency employees in Berkeley can retire at 55 after 30 years service and receive 90% of their pay. No private entity could survive routinely providing such compensation.
    I do not find it accidental that FDR opposed public sector unions; he was a perceptive man.

  2. poseidonian says:

    Fair enough. I think most of the above can be boiled down to exasperation with some political stuff circulating that seemed to imply that public services had no value, and the public had no role in their creation.

    I am obviously affected somewhat by my view from the ground, and there are some differences: the administration, which is drawn from the ranks of the unionized professoriate, has brought about a situation where the tenure-line faculty are being gradually replaced with fixed term instructors and adjuncts. Now these are unionized too, but it’s a couple of different unions, and my impression has been that *that* relationship is adversarial as it ought to be. So here it’s a mixed picture. I certainly prefer privatized arrangements for efficiency’s sake, and want reasonable balancing where public workers are involved. And I’m sensitive to the pension issue too: I renounced my PEBB participation voluntarily when I took my position.

  3. Pliny the Elder says:

    Pensions are at the heart of most of this (ignoring what I hope is the small number of people who simply hate unions). Government can use the pension system to bribe employees into docility and then future elected folks are stuck with having to make it work. Oakland’s pension system is currently 500 million short. A private company would run afoul of various federal and state laws if they played these sorts of games. The Bell, CA situation was simply the system at its extreme: when the SF police chief retired last year her salary was higher than Presidnet Obama’s, and her pension pays more than CJ Roberts earns full time.

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