Matt Yglesias makes a good point about the Chicago teacher's strike:
In fact, I think Matt will eventually come around to the Libertarian side of the force. He's smart enough to recognize that unions don't create wealth- they just redistribute it. In the case of city unions, they redistribute wealth from taxpayers to union employees. Matt can understand why city taxpayers might not love this concept.
Matt's example should lead him down another track as well. Most people don't really think about where the additional wealth union workers enjoy comes from. Matt's a smart guy- he understands that this is wealth is "stolen" wealth- that is, it's taken from someone else rather than "created" wealth which is gains from free market work, trade, and technology. So who is it stolen from?
The obvious answer is their employers. In the case of government unions, this means the government, a.k.a. taxpayers. In the case of private-sector unions, the obvious answer is companies, and of course companies are just proxies for the owners- a.k.a the stockholders. Here we just have a difference of opinion- Matt thinks it's fine for one set of people to steal (he would prefer "redistribute" I'm sure) from another as long as the people being stolen from are wealthy (or at least wealthy enough to be stockholders). I disagree, but my point isn't about whether their should be redistribution.
It's a question of how that redistribution works. The idea that unions primarily redistribute from wealth from company owners is in fact incorrect. Let's take Matt's example company- AT&T. But not AT&T the wireless company of 2012. Instead, consider AT&T the telephone monopolist of 1960. Under the old regulatory regime, AT&T made a fixed profit as regulated by the FCC. Something like Price = costs * profit margin. Now there are some benefits to AT&T from lowering costs- transient benefits as well as benefits from a larger market. But in the long-term, a regulated monopolist like AT&T doesn't passes 100% of its costs onto its customers.
A union for a regulated monopolist transfers wealth from the *customers* to the union employees. In the long-term the wages gained by the union workers come from price increases paid by AT&T customers.
Regulated monopolies are fortunately few and far between in the US these days. However, the same logic applies to any industry who's workers are completely unionized! To understand why, first consider a hypothetical $1000 tax on new cars. If the government imposes this solely on car company X, then X is screwed. They cannot simply increase their prices- presumably their prices are already optimal given their costs and the competition. Almost all of this "tax" is paid by company X's shareholders- very little is paid for by consumers, since consumers have other, non-taxed options.
Now consider what happens if instead of imposing the tax on one company, the government imposes this tax on *all* car companies (which is usually how these things work). The day the government imposes this tax, car prices rise by ~$1000. Regardless of whether the tax is an explicit consumer (sales) tax, or an excise fee paid directly by the car companies, almost 100% of the tax will be paid by the consumer. It's true that since demand will fall and car companies have high fixed costs part of the price will be paid by companies, but in the long-term once car companies have adjusted to the new equilibrium, their profits margins will be essentially unaffected.
For a completely unionized industry (take the UAW for instance), union demands can be thought of as "excise taxes" on the products they produce. In fact, the UAW explicitly operated as a monopoly labor supplier, imposing almost identical wages and working conditions on the Big 3. You can think of the UAW's as a mini-government which taxed all car production and redistributed those taxes to those who happend to work at auto plants. The people who paid this tax were other middle class consumers who bought the cars. Thus the UAW served only to redistribute wealth from one set of middle class consumers to another very particular set, primarily in Michigan.
Once non-union (or more specifically, non-UAW) cars became widely available to consumers in the 80's, this broke down. Consumers were no longer forced to pay the UAW tax- the burden of the tax started to fall on the Big 3 shareholders. Eventually, the UAW burned through 100% of shareholder value and with the aid of management, they started taking bondholder and taxpayer money (in the form of direct bailouts and retirement fund bailouts).
The irony is that the great heydays of the American union in the 50's and 60's were the times when union stole primarily from each other and the non-unionized middle class. It's only been since globalization started in the 80's that unions are finally taking for shareholders.
The most salient difference, completely absent from his armchair psychologizing, is surely that public school teachers work for the government. If AT&T workers get a better deal for themselves, that may well mean a worse deal for people who bought AT&T stock in past years but I'm not going to cry on their behalf. By contrast, if Chicago public school teachers get a better deal for themselves that may well mean a worse deal for Chicago taxpayers.I completely agree with Matt here. Matt's not afraid to criticize his own side- it's one of the reasons I read Matt despite his being a raving lefty.
In fact, I think Matt will eventually come around to the Libertarian side of the force. He's smart enough to recognize that unions don't create wealth- they just redistribute it. In the case of city unions, they redistribute wealth from taxpayers to union employees. Matt can understand why city taxpayers might not love this concept.
Matt's example should lead him down another track as well. Most people don't really think about where the additional wealth union workers enjoy comes from. Matt's a smart guy- he understands that this is wealth is "stolen" wealth- that is, it's taken from someone else rather than "created" wealth which is gains from free market work, trade, and technology. So who is it stolen from?
The obvious answer is their employers. In the case of government unions, this means the government, a.k.a. taxpayers. In the case of private-sector unions, the obvious answer is companies, and of course companies are just proxies for the owners- a.k.a the stockholders. Here we just have a difference of opinion- Matt thinks it's fine for one set of people to steal (he would prefer "redistribute" I'm sure) from another as long as the people being stolen from are wealthy (or at least wealthy enough to be stockholders). I disagree, but my point isn't about whether their should be redistribution.
It's a question of how that redistribution works. The idea that unions primarily redistribute from wealth from company owners is in fact incorrect. Let's take Matt's example company- AT&T. But not AT&T the wireless company of 2012. Instead, consider AT&T the telephone monopolist of 1960. Under the old regulatory regime, AT&T made a fixed profit as regulated by the FCC. Something like Price = costs * profit margin. Now there are some benefits to AT&T from lowering costs- transient benefits as well as benefits from a larger market. But in the long-term, a regulated monopolist like AT&T doesn't passes 100% of its costs onto its customers.
A union for a regulated monopolist transfers wealth from the *customers* to the union employees. In the long-term the wages gained by the union workers come from price increases paid by AT&T customers.
Regulated monopolies are fortunately few and far between in the US these days. However, the same logic applies to any industry who's workers are completely unionized! To understand why, first consider a hypothetical $1000 tax on new cars. If the government imposes this solely on car company X, then X is screwed. They cannot simply increase their prices- presumably their prices are already optimal given their costs and the competition. Almost all of this "tax" is paid by company X's shareholders- very little is paid for by consumers, since consumers have other, non-taxed options.
Now consider what happens if instead of imposing the tax on one company, the government imposes this tax on *all* car companies (which is usually how these things work). The day the government imposes this tax, car prices rise by ~$1000. Regardless of whether the tax is an explicit consumer (sales) tax, or an excise fee paid directly by the car companies, almost 100% of the tax will be paid by the consumer. It's true that since demand will fall and car companies have high fixed costs part of the price will be paid by companies, but in the long-term once car companies have adjusted to the new equilibrium, their profits margins will be essentially unaffected.
For a completely unionized industry (take the UAW for instance), union demands can be thought of as "excise taxes" on the products they produce. In fact, the UAW explicitly operated as a monopoly labor supplier, imposing almost identical wages and working conditions on the Big 3. You can think of the UAW's as a mini-government which taxed all car production and redistributed those taxes to those who happend to work at auto plants. The people who paid this tax were other middle class consumers who bought the cars. Thus the UAW served only to redistribute wealth from one set of middle class consumers to another very particular set, primarily in Michigan.
Once non-union (or more specifically, non-UAW) cars became widely available to consumers in the 80's, this broke down. Consumers were no longer forced to pay the UAW tax- the burden of the tax started to fall on the Big 3 shareholders. Eventually, the UAW burned through 100% of shareholder value and with the aid of management, they started taking bondholder and taxpayer money (in the form of direct bailouts and retirement fund bailouts).
The irony is that the great heydays of the American union in the 50's and 60's were the times when union stole primarily from each other and the non-unionized middle class. It's only been since globalization started in the 80's that unions are finally taking for shareholders.
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