Furthest Right

We Told You So: How Unions Destroy Your Economy

As often pointed out around here, contrarians deny reality so that they feel more important. It is like cursing the gods to feel like a god. Out of this individualistic pathology, or “me first over all else,” contrarians find themselves forced to use social pressure to cause humans to behave as if this fake reality were real.

Through that, they derive the idea of socializing externalities, which means spreading the cost among all members of society. Over time, this decreases the wealth of everyone so that only the mega-rich can have anything, and paralyzes the economy by making money less available for investment in the future.

Unions, insurance, the welfare state, and rent control all represent this desire to spread the misery. On the other hand, food cooperatives and credit unions represent the opposite, which is using economies of scale through bulk buying to extend the reach of the individual.

For example, there are two ways to buy tobacco. First, free stuff from government and artificially-lowered prices. But the alternative is for me and four friends to go in on buying five pounds of the stuff, then parcel it out to each other and therefore, get the lower bulk price instead of paying retail (“never pay retail” is the Eleventh Commandment).

The equivalent in a workforce is for the workers who perform above the average to go in to the employer and negotiate for higher wages. A union on the other hand imposes a type of tax in order to subsidize all workers and the union itself, which leads to huge amounts of cash that attract organized crime and communists.

In the 1980s, four decades of unions really wrecking American business peaked when they extracted so much money from the American auto industry that American cars cost twice what was required for a Japanese car, were frequently “lemons” or unfixable disasters, and needed much more repair than the Japanese alternative.

Chrysler corporation hit on a solution, which was to outsource most parts and often whole drivetrain assemblies, then put the parts together in the US, so that the car was technically American-made but really built all over the place, reducing the workforce needed in the US and breaking the back of the unions.

Responding to that, and on the crest of a wave of Leftist political successes everywhere, the unions have come back with a plan to extract higher wages from the American automakers, but this will possibly doom the auto industry in America by raising its costs above what the market will bear:

Unions are monopolies — they enjoy a legal privilege from the government to be the sole provider of labor in a particular market — and they display precisely those economic pathologies associated with other monopolies, i.e., they harm consumers by charging prices above the competitive market rate.

Nobody likes doing business with a monopoly.

So, in the long run, production shifts to areas where the monopoly can’t reach (as in offshoring manufacturing work) or to places where the monopoly’s effects are reduced (as in the shift to right-to-work states).

You may recall that capitalism is essentially economics, and Austrian economics seems to describe it the most clearly, which is as a series of tradeoff between market decisions: price, supply, performance, opportunity. In that mindset, the problem with unions is that they raise costs above what the market will support.

Corporations do not calculate wages by black magic. They have numerous stakeholders, first and foremost being the shareholders, since stock price determines the value of the company and therefore, how much it can borrow. In our complex economy, ability to quickly acquire money to change direction or shore up losses is essential.

Wages, as the biggest cost to employers, are carefully calculated to take into account costs outside of the wages themselves. For example, employee turnover and internal lossage loom large in these equations; so also do any benefits, training, or facilities costs.

Unions wreck this by demanding uniformly high wages, which benefits the low-quality employee as much as the high-quality employee, and raising costs through strikes and sabotage. This makes domestic industry more expensive than foreign options, so outsourcing, offshoring, and automation follow in its wake.

If you wonder why the gig economy came about, think about how much more effective a company can be if it does not fear having its business model destroyed by strikes or artificially-inflated wages. (Companies also struggle with other parasitic costs like taxes, regulations, affirmative action, lawsuits, crime waves, and currency deflation).

Every now and then, you will see the anti-union argument stated in plain terms, but it is ignored because unions are tied to the left:

But because the unions drive wages above competitive levels, they cause some of the workers to be put out of work. Many of these workers would have rather driven their own bargain and worked for a lower wage, but they can’t do so legally.

[T]hey go out and find other work. If they find work in the non-union sector, that drives down wages there. Indeed, one of the main findings of the late H. Gregg Lewis, the famous labor economist at the University of Chicago, is that unions in their heyday, the 1950s and early 1960s, caused union wages to be 10 to 15 percent higher and non-union wages to be 3 to 4 percent lower.

This means that unions are not a victimless crime. Everyone else pays by effectively having wealth transferred from their jobs to pay for the union jobs, and the chaos this creates in the job market ensures that lots of people are working sub-optimal jobs simply so they can get ahead.

Worst perhaps of all may be the resentment penalty. Workers in union shops no longer get rewarded for better performance; rewards are now dictated by union rules. Consequently, there is no way to get ahead, so they leave for greener pastures, leaving the incompetents behind, who then do a terrible job, and the consumer pays.

Eventually this leads to hiring more people to do the same amount of work, hyper-specialization of jobs so that there is some accountability, and lots of internal staff to manage union complaints and other worker problems. Eventually this confines industry to the point that it in turn becomes parasitic, extracting maximum prices from consumers in order to offset the sabotage from within:

GM published highlights of its latest offer on Monday, including a 20% wage increase over four years that will bring the yearly earnings of almost all the company’s UAW-represented staff to about $82,000 for a full-time schedule. There were also higher employer pension contributions and better terms for temporary workers.

Germany and Detroit specialize in different kinds of vehicles, but as high-wage centers of vehicle production, they have some things in common. At home, both have stepped back from making lower-margin small cars in favor of their trademark high-value franchises—gadget-rich luxury vehicles in Germany and huge pickup trucks and sport-utility vehicles for Detroit.

But the price of focus might be flexibility: If the market turns, Detroit in particular will look exposed. Pent-up demand is supporting the U.S. market for now, but higher interest rates and gas prices could eventually push American consumers back toward smaller, cheaper cars. The average four-year new-car loan cost 8.3% in August, the highest rate since 2001.

When the unions hit, companies moved the production offshore as much as possible, but once unions came back and began raising costs again, these companies focused on high-end products in order to keep profits relatively consistent. Nonetheless, these companies have shrunk in the years since costs were raised.

Now most Americans drive foreign cars because they are relatively better priced and better quality. With the rise in cost from unions, domestic carmakers cut corners, and consequently they were out-competed by companies who were making twice the profit per vehicle.

It turns out that unions have an effect on government as well. Since a vast regulatory apparatus has been created to manage unions and their legal rights, this bureaucracy inevitably becomes cozy with the unions, and this spreads corruption as it turns the system against itself:

We told you last summer about Starbucks’ complaint that the National Labor Relations Board was colluding with union representatives to tip organizing elections at its coffee stores in the union’s favor. Now the suspicions are confirmed, and the NLRB has some housecleaning to do.

A report by NLRB inspector general David Berry was released recently by the House Education and the Workforce Chairwoman Virginia Foxx. It found that a union election in NLRB Region 14 in St. Louis had been subject to “gross mismanagement,” which “could have a significant adverse impact.” The actions by the regional office “called into question the Region’s neutrality in the process,” the IG says.

The report chides the labor board’s regional director for having “lacked the appropriate candor when interviewed during our investigation.” That’s notable because it suggests the mistakes were “more than mere inadvertence or negligence.”

When your job is to keep the unions happy, you hire people who like unions. Those in turn hire others. Soon the entire agency is dedicated to union happiness, and this spreads into activism especially as affirmative action and political nepotism results in whole teams being Leftist.

Costs, as usual, get passed on to the consumer.

Not only that, but unions donate a great deal of money to the Democratic party and to Democrats individually. They are frequently linked with organized crime as well. Oftentimes, union administrators make really good money for pretending to care about the workers whose jobs will soon be gone:

According to filings reviewed by Fox Business, Shawn Fain, who was elected to lead the United Auto Workers (UAW) in March, has earned over $340,000 in the last year.

The outlet reported that the firebrand had earned $187,259 leading a UAW training program and a further $160,130 in his previous role as administrative assistant at the union.

With an annual salary of $347,389, Fain, 54, is now considered to be part of the top 5 percent of earners in his home state of Indiana.

We doubt that Mr Fain will stick around to see what happens once American automakers can no longer compete with anyone outside of the realm of pickup trucks and SUVs, for which better foreign alternatives now exist. Likely the government will pay for the bailout to keep the stock valuable, since so many retirement funds own it.

That cost will be passed on the consumers, too, this time as both taxes and higher prices.

In the end, these companies are probably going to become a lot smaller if not vanish entirely. Their last best plan seems to have been to take government money to sell electric vehicles, and demand for those has dropped off radically in recent months.

When the workers are standing around looking at closed factories, will they then realize how the unions have played them? More likely, like most humans, they will rationalize their decision as having been good and invent a new scapegoat to blame for their predicament, starting the parasite cycle over again.

Tags: , , , ,

Share on FacebookShare on RedditTweet about this on TwitterShare on LinkedIn