Public sector collective bargaining and tax dollar claims
Its long been argued that the present value of future public sector benefits, or what some characterize as unfunded liabilities (future cost of health-care benefits/future cost of defined benefit pension) are in essence an ever increasing claim against the stream of future tax dollars.
The implication is that as unfunded future benefits become more and more expensive to fund, more and more tax dollars are diverted from the stream of tax dollars to fund the benefits and less and less tax dollars are available for the actual business of government. Its further been argued that public sector debt held by bondholders is threatened as the stream of tax dollars must first be used for funding future benefits, then the remaining stream of tax dollars are used to provide the now reduced business of government, leaving an insufficient remainder to service past debt.
Should Unions Have the Power to Tax? - William Dunkelberg
William Dunkelberg, professor of economics at Temple University makes the case that private sector and public sector unions do in fact have the power to tax. How so?
“We have laws that prevent firms from exercising monopoly power and charging prices that are well above the real costs or value of production. But what if a group of workers conspires (usually with the help of government) to overcharge for their services at the expense of the larger public?
The UAW successfully used market power to raise their compensation above levels that the “market” was paying. In simple terms, they “taxed” individual purchasers of cars, extracting as much as $1,500 per car just for healthcare in addition to their higher wages, making it possible for union members to live better, but, dollar for dollar, buyers of cars to have less.”
“Only about 7% of the private workforce is unionized today, but their ability to “tax” union members through union dues and make political contributions gives them top priority in the White House today. Public sector unions represent about a third of public sector workers.
Here, we are held hostage by threats to not pick up our garbage or teach our children. Politicians, not facing a bottom line performance measure like GM or the steel companies but worried about re-election, give in to demands to keep voters from being unhappy. But, over time, this has produced a generally over-paid and over-benefited public sector workforce (compared to market wages).
Their generous compensation can only be supported by reducing the welfare of citizens through higher and higher levels of taxation. The “employers” (taxpayers through their elected officials) have slowly lost their ability to determine the terms of employment offers. The unions now determine working hours, hiring criteria, the quantity of “output” to be produced per day, the number of sick and vacation and holiday days, how their performance will be evaluated etc. No longer can the employer make an “offer” for a job with requirements that fit the needs of the public institution.
The workers themselves now determine these things through the exercise of union power.
Bottom line, union members get higher compensation than the market would pay, but dollar for dollar, that higher compensation comes out of the pockets of taxpayers and customers, leaving them worse off. These are not “high paying jobs” that reflect the value produced by the workers but instead reflect the power of the organized group to impose “pain and suffering” on unorganized individuals in society.
The prices companies can charge are disciplined by competition as is the wage I can earn offering my services in the marketplace. Unions seem to be exempt from this, granted the power to tax individuals to support the lifestyle to which they feel they are entitled. (1)
Unorganized Individuals in Society
One should take note and further reflect on the this statement by Dunkelberg:
“These are not “high paying jobs” that reflect the value produced by the workers but instead reflect the power of the organized group to impose “pain and suffering” on unorganized individuals in society".
Maybe there is something to this unorganized individual within society. Walter E. Williams, professor of economics at George Mason University, sheds some additional light on the “unorganized”:
With all of the union strife in Wisconsin, Indiana and New Jersey, and indications of more to come, it might be time to shed a bit of light on unions as an economic unit.
First, let's get one important matter out of the way. I value freedom of association, and non-association, even in ways that are not always popular and often deemed despicable. I support a person's right to be a member or not be a member of a labor union. From my view, the only controversy regarding unions is what should they be permitted and not permitted to do.
According to the Department of Labor, most union members today work for state, local and federal government. Close to 40 percent of public employees are unionized. As such, they represent a powerful political force in elections. If you're a candidate for governor, mayor or city councilman, you surely want the votes and campaign contributions from public employee unions. In my view, that's no problem. The problem arises after you win office and sit down to bargain over the pay and working conditions with unions who voted for you.
Given the relationship between politicians and public employee unions, we should not be surprised that public employee wages and benefits often average 45 percent higher than their counterparts in the private sector. Often they receive pension and health care benefits making little or no contribution.
How is it that public employee unions have such a leg up on their private-sector brethren? The answer is not rocket science. Employers in the private sector have a bottom line. If they overcompensate their employees, company profits will sink. The company might even face bankruptcy.
Of course, if private companies can count on federal government bailouts, as did General Motors and Chrysler, they can maintain a comfy relationship with their unions. No such bottom line exists in the government sector. Politicians have every reason to grant benefits to their political allies, in this case public employee unions. They don't pick up the tab; it's unorganized taxpayers who face higher taxes. (2)
The Aristocracy of Labor and the De-facto Aristocracy
Milton Friedman in his famous PBS documentary Free to Choose referred to unionized labor as “the aristocracy of labor”. That is, Friedman was pointing out a class of labor holding exceptional rank and privilege. (3)
The exceptional rank and privilege was gained through “rent seeking” and sponsored by politicos (the true aristocracy) through the concept of “political constituency building” in order for the politico (aristocracy) to perpetuate their class position as part of the lofty de-facto aristocracy. (4)
One then has to wonder who in the devil funds this hierarchy of aristocracy? Hmmm. Yes you guess it! You….. the unorganized tax payer! (5) The organized take advantage of the unorganized and create a hierarchy of aristocracy and all the while the unorganized are duped into funding the entire process!
The Political-Economy of the Organized Aristocracy Hierarchy and the Unorganized
Once in a great while a sea-change occurs in which the unorganized metaphorically
storm the castle walls and want accountability, the end of the hierarchy of aristocracy, and no longer are they willing pay the tax collector the tribute needed to perpetuate the aristocracy class.
Oh but no! You see, being in the aristocracy is comfortable. Holding exceptional rank and privilege at the expense of the unorganized is the high life. (6)
Hence the hierarchy of the aristocracy must reshape the argument. The unorganized, now enlighten enough to be metaphorically standing outside the castle walls with torch and pitchfork in hand, are portrayed as the evil doers. It becomes time for the “organized” to show their organizational prowess!
The hierarchy of the aristocracy slips out the back gate of the castle and begins to protest the end of the hierarchy of aristocracy. You see, the debate must be reshaped. That is, the unorganized are really the evil doers. That the unorganized are mistaken and that you must pay tribute to the life style of the entitled as its your lot in life. That its blasphemy to believe other than what is written from on high. And what is written is that you pay and we receive.
That is, the hierarchy of the aristocracy is merely a fuzzy little white rabbit.
Notes:
(1) http://www.cnbc.com/id/41717876/Dunkelberg_Should_Unions_Have_the_Power_to_Tax
(2)http://townhall.com/columnists/walterewilliams/2011/03/03/public_employee_unions
(3) http://miltonfriedman.blogspot.com/
(4)(5) http://thelastembassy.blogspot.com/2011/03/state-tax-revenues-consequential.html
(6)http://washingtonexaminer.com/politics/it039s-wonderful-life-working-government
Saturday, March 5, 2011
Public Sector Unions Have the Power to Tax?
Friday, March 4, 2011
Thursday, March 3, 2011
Politico Kabuki Theater: Debate, Insight, and Political Civility
Debate: a discussion, as of a public question in an assembly, involving opposing viewpoints.
Insight: an instance of apprehending the true nature of a thing, especially through intuitive understanding; penetrating mental vision or discernment; faculty of seeing into inner character or underlying truth; an understanding of relationships that sheds light on or helps solve a problem.
“Civility” regarding political rhetoric and political discourse
In recent months a proposition put forth in the political arena has been “civility” regarding political rhetoric and political discourse. Some politicos point toward people supposedly acting in a violent manner due to heated political rhetoric. Other politicos say no connection exists between political rhetoric and exogenous violent events. Still other politicos point to the fact that US politics has never been “civil” and love to point toward the Jefferson -Adams uncivil statements/politics. Yet other politicos point toward continued uncivil rhetoric even after the issue of civility recently surfaced in the political arena e.g. Wisconsin protester rhetoric and Wisconsin democrats rants in the Wisconsin house.
Politicos and the debate environment
Don’t be fooled. One must remember the “civility” proposition is put forth by and for politicos. Politicos always want to shape the environment in which they debate. The current “call to civility” has nothing to do with civility and has everything to do with shaping a debate environment.
Debate vs. Insight
Regardless of civil debate or non-civil debate, politicos rarely have anything to offer remotely resembling insight. Debate and shaping debate environment has nothing to do with insight.
Hence politicos want to shape a debate environment, perform the political Kabuki dance of debate, point-counter point, and give us the normal politico results of zero insight and plenty of politico smoke laden hot air.
You see, since insight is not a politico strong suit, they merely act the part of politicos and focus attention on “civility”, a non-issue issue, direct media attention to “civility” and go about their merry way debating into infinity and beyond with exactly zero insight.
Politicos are Politicos
Politicos want James and Jane Goodfellow to focus on a non-issue issue, shape their own political debate environment, and continue with their 2,362,222 rendition of the Kabuki dance of debate providing their audience with a never ending sting of opposing view points all the while shedding no light on how to solve problems.
The Kabuki dance of debate is to divert your attention. Its frustrated actors, also known as politicos, providing you political entertainment while solving zero problems. Maybe the following quote puts the politico Kabuki dance of diversion-debate-entertainment into perspective:
Remember, every single second on television, no matter what the apparent content, is entertainment. - Don Luskin
Wednesday, March 2, 2011
State tax revenues, consequential spending, and public sector union “rent seeking”
State Tax Revenue, State Spending, and the Real Estate Bubble
State government tax revenue and associated state government spending was in fact related to the real estate bubble. Related in that much tax revenue was generated by the real estate bubble.
State government tax revenue and state government spending from 1995 until the demise of Lehman was related to the following two propositions:
(1) that politicos through the mechanism of government fueled the real estate bubble by creating public policy (community reinvestment act, Fannie and Freddie, etc.) that caused an inordinate amount of capital to be directed into residential and commercial real estate as well as causing marginal buyers to enter the market as these marginal buyers now qualified for loans of which they would not have qualified without government intervention into the market,
(2) that John B. Taylor’s book Getting Off Track is likely the most empirical explanation of the creation of a cheap money bubble by the Federal Reserve. That the cheap money bubble, in and of itself, set the stage (created the environment) for the ensuing financial shenanigans in the residential and commercial real estate markets, (1)
As the real estate bubble was in its many stages of bubbling-up, state tax revenue began increasing at an increasing rate. The tax revenues thrown off by the real estate bubble helped fill state tax coffers.
From the mid 1990’s until the recession of 2001 state governments increased spending in an unsustainable fashion. During the 2001 recession states suddenly found themselves with spending outpacing revenue and the alarm bells went off. Enter the Federal Reserve created cheap money bubble. (2)
As the Federal Reserve induced cheap money bubble played out the real estate bubble continued. As the bubble continued through its stages headed for its eventual collapse, the transactions associated with the bubble continued to throw off tax revenue to state governments.
Hence we have a real estate bubble beginning in the mid 1990’s and ending basically with the collapse of Lehman. We also have state tax revenues increasing in the mid 1990’s, dropping off momentarily during the 2001 recession, then marching on until the demise of Lehman.
Rent Seeking
During this period of increasing state government revenue “rent seeking” increased. What is “rent seeking”?
‘ "Rent seeking" is one of the most important insights in the last fifty years of economics and, unfortunately, one of the most inappropriately labeled. Gordon Tullock originated the idea in 1967, and Anne Krueger introduced the label in 1974. The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors. Elderly people, for example, often seek higher Social Security payments; steel producers often seek restrictions on imports of steel; and licensed electricians and doctors often lobby to keep regulations in place that restrict competition from unlicensed electricians or doctors.’ (3)
During this period of basically uninterrupted state government revenue growth, one stealth rent seeker was public sector unions. Hence increasing tax revenue of state government became a natural rent seeking target for public sector unions. With increasing state government revenues, union representatives of public sector unions lobbied, through rent seeking, for their supposed right to the increased tax revenue stream. The rent seeking activities of public sector unions is “stealth” in that:
(1) wage increases make too much headline hence the unions want additional employee benefits and retirement benefits as these benefits generally don’t make headlines like a “wage” figure makes headline,
(2) work place rules, sick pay, vacation time, etc. are buried in state employee manuals were the public have minor access,
(3) “total compensation” is then much enhanced yet the “wage” figure still seems somewhat reasonable.
What goes up must continue to go up and rent seeking rigidity
Rent seeking activities are not something granted by "government". Governments do not "think" nor grant benefits. Its important to remember that politicos through the mechanism of government think and grant benefits.
Governments never learn. Only people learn. - Milton Friedman
Politicos that grant rent seeking activities generally due so through a phenomena known as political constituency building. That is, by granting rent seeking activities the selected beneficiaries then become supporters of the particular politico or group of politicos. Hence any reversing of the rent seek activity is opposed by the beneficiaries and hence opposed by the sponsoring/associated politico or group of politicos.
Taking back a rent seeking benefit, reversing such benefits, voids the concept of what goes up must continue to go up. You see, rent seeking activities are in no way related to Sir Isaac Newton proposition that what goes up must come down.
Hence the past rent seeking activities, in this particular case rent seeking activities of public sector unions, becomes rigid in that neither the beneficiary (union) nor sponsor (politicos) want to return any rent seeking gains.
Tax revenue and rent seeking
Politicos like to discuss "government tax revenue". That is, politicos love to label items in political terms. One must not lose sight of the fact that "government tax revenue" is really your tax dollar. Politicos love to lament special interest groups. Yet the same politicos grant rent seeking requests on a regular basis to build constituency.
Hence politicos use your tax dollar to build constituency. Nice huh?
Notes
(1) Getting Off Track, , How Government Actions and Interventions Caused, Prolonged, and Worsened the Finacial Crisis, John B. Taylor, Hoover Institution Press, 2009.
(2) Red Ink Rising, The Economist, print edition, 08/09/2001.
Tuesday, March 1, 2011
State Debt Threatens ObamaCare?
State governments are broke and some states appear on the verge of bankruptcy. There are plenty of components to the financial woes of the several and many states. One of the components is Medicaid. State budgets are straining under existing Medicaid costs.
ObamaCare is predicated on expanding Medicaid rolls exponentially. State governments would be crushed by the added expense of expanded Medicaid participants and their associated cost. Further, the crushing additional cost would be atop the existing Medicaid rolls that appear unsustainable from a state budget prospective. That is, adding a crushing cost atop an unsustainable cost creates an impossible cost.
Meanwhile, Obama is now taking a position that states can opt-out of ObamaCare as long as they institute a plan exactly like ObamaCare. Huh?
Take four minutes and watch the above video with Larry Kudlow and Governor Sam Brownback of Kansas discussing Medicaid's crushing costs and Obama's new non-proposal proposal.