Compulsory Unionism and Public Debt

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Writing in Forbes, Richard Epstein examines a few of the unseen costs that accumulate when state, county, and local governments make labor contracts with public employee unions:

So what happens in bad times? First, no public employee loses either a job or a dollar in pension benefits. Ordinary citizens lose two ways: jobs are cut—unemployment in California just hit 10%—and taxes are raised. What makes this pill all the more bitter is that unions happily wave the libertarian banner of freedom of contract to lock in the status quo. Public unions point to court cases that require the state to honor its employment contracts just like other agreements. Translation: The downturn is everyone else's problem.

This seductive plea of contractual probity ignores the dubious mechanisms that put these obligations into place. State collective bargaining agreements give unions monopoly power; state legislative maneuvers, often backed by pro-union legislators, sweeten the deals already made. These pension deals are never negotiated at arm's length in competitive markets between parties who are free to go elsewhere. Instead, a monopoly union extracts its compensation packages from government officials, many of whom depend on union support to hold public office. These contracts are the kind of self-dealing arrangements that would never be tolerated between a corporation and its key officials. And the subsequent sweeteners simply take property from the majority of citizens who can neither block the transaction nor withhold their tax dollars.

Read the rest here. Jon Entine on the coming pension fund implosion here.

NEXT: High Fidelity, Low Quality

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  1. This site gives us one possible way out of the debt:
    http://repudiatethedebt.org/

  2. My first job as king will be to outlaw public unions.

  3. My first job as king will be to outlaw public unions.

    Only the ones who go on strike. That includes blue flu like sickouts. When Ronnie fired PATCO strikers, I cheered. Planes didn’t start falling into the ocean, the country didn’t grind to a halt. Except the illegal strikers who thought he was bluffing, everybody won.

    The public employee unions that piss me off the most are the cop unions. It should be obvious why.

  4. The following laws are on the books in states across the U.S., and combined they utterly neuter public employee unions:

    1) Right-to-work laws.
    2) Prohibition of government officials from engaging in collective bargaining negotiations.
    3) Prohibition of public employee strikes.
    4) Prohibition of government entities from withholding the political activities portions of union dues.

    Depending on specific cases in specific states, you might have to grandfather current contract provisions until the expiration of the contracts, of course.

  5. And where, pray tell, is MNG to tell us what a wonderful thing unions are and how the only people who criticize them are handlebar-mustache twirling robber barons?

  6. “When Ronnie fired PATCO strikers, I cheered.”

    One of my few good memories from the eighties.

  7. I am a lawyer who represents public sector unions. The majority of my clients are police unions. What exactly is the reason for the animus towards them?

  8. Can somebody tell me just what purpose, exactly, public employee unions serve?

    Aren’t all the usual arguments for unions mostly-to-entirely laughable when you are talking about public employees? Public employees certainly aren’t being exploited by capitalists, most of them have some kind of grievance due process because they belong to the civil service.

    Just what do these unions do?

  9. And the subsequent sweeteners simply take property from the majority of citizens who can neither block the transaction nor withhold their tax dollars.

    They can, do, and increasingly will, withhold their tax dollars.
    Just watch.

  10. These union threads are just not the same without joe around. We should all leave comments on his newsvine page to woo him back.

  11. I am a lawyer who represents public sector unions. The majority of my clients are police unions. What exactly is the reason for the animus towards them?

    1. Cop gets caught on videotape beating up a nun. The union breaks land speed records ensuring his rights are are preserved.

    2. Cops like to refer to other citizens as civilians. They do this knowing that being a cop is nothing like a being a soldier. One of the more obvious reasons is the USMC is not unionized. Engine mechanicss in the Air Force do not get to collectively bargain for pay scales. When a sailor goes to captain’ mast, no union representative is standing there with him.

    You want to play soldier? Pretend there is some sort of LEO/citizen seperation? Let me show you what it’s like.

    In a just world, blue flu = dismissal.

  12. The majority of my clients are police unions. What exactly is the reason for the animus towards them?

    The cops who murdered Kathryn Johnston should be on death row. Explain to me why they are not.

  13. Just what do [public sector] unions do?

    Protect idiots from well deserved termination?

  14. Epstein is a smart man, but this is full of shit.

    I mean, by his logic the government should not contract with corporations because many of the legislators “depend” on corporate money and the corporation has so many employees that their votes are important to the legislators that they will just run roughshod over our poor politicians.

    “Just what do [public sector] unions do?
    Protect idiots from well deserved termination?”

    This is the confusion here. A union contract protects all the workers from certain things. For example the famous one that kept the NY schools from firing the guy who got arrested and they just had to put him in a room by himself with pay. The union had contracted for all employees to have some due process before termination. That’s the kind of thing I would try to contract for. It protects the wrongly accused employee, but at the price of yes affording some protections from dolts and bad people. That’s what general policies do, and unions push general policies because their job is to thwart the arbitrary will of management.

  15. I mean, by his logic the government should not contract with corporations because many of the legislators “depend” on corporate money and the corporation has so many employees that their votes are important to the legislators that they will just run roughshod over our poor politicians.

    If that’s so, I like his logic. None of the legitimate functions of government require contracting with corporations either.

  16. The union had contracted for all employees to have some due process before termination. That’s the kind of thing I would try to contract for. It protects the wrongly accused employee, but at the price of yes affording some protections from dolts and bad people.

    Thats the crux of the problem. The road to hell is paved with good intentions and all that. Ninety percent of the time those union protections end up applying the dolts and dimwits because they are the ones who most often need ‘protection’ from termination. Because in general it would make about as much sense for a company to fire a good worker as it would make sense for you to shoot yourself in the foot.

    As much as you would like to fall back on the bad ol’ days when unions were needed to protect the workers safety and such, nowadays with plenty of workplace legislation, health & safety, minimum wages, and a fairly accessible legal system the main purpose of union has become revenue generation through dues and attempting to gain power and control over assets that don’t belong to them.

    Unions could eliminate a lot of bad publicity, by simply coming out and stating now way in hell is this organization going to put its name on the line for this slacker/dumbass/etc. The problem being of course that a union is a collective oranization, and that slacker/dumbass/etc might have some friends who could vote to decertify, or there could just be a lot slackers/dumbasses/etc on the payroll and heck if they let this one get fired the rest could get fired too and that means less union dues.

  17. That’s what general policies do, and unions push general policies because their job is to thwart the arbitrary will of management.

    How dare those who own a company arbitrarily decide how to run it.

  18. Public sectors unions have a severe systemic drawback that private sector unions do not have.

    In the private sector dispute, the three parties involved: the ‘workers’ the ‘owners’ and the ‘state’, all have separate overall interests. With the public sector, the ‘state’ and the ‘owners’ are esentially the same people. Paradoxically, because of how the ‘state’ actually works, the complete unification of two of the parties places the system out of balance to the benefit of the workers and to the detriment of the state.

  19. “How dare those who own a company arbitrarily decide how to run it.”

    Yes, how dare they when a signed contract about such things is in effect between the employer and employees.

    “Ninety percent of the time those union protections end up applying the dolts and dimwits because they are the ones who most often need ‘protection’ from termination.”

    I don’t buy that. Power corrupts, and people in power, say in a job setting, often use it in stupid irrational ways. It’s amazing how many libertarians have such little faith in people in many ways (the distrust of democracy and such), but they do in employers. I guess employers are some fully rational robots or something…

    “Because in general it would make about as much sense for a company to fire a good worker as it would make sense for you to shoot yourself in the foot.”

    I know. It would be as crazy as a peanut butter maker selling peanut butter that would make its own customers sick.

    Oh wait.

    “Unions could eliminate a lot of bad publicity, by simply coming out and stating now way in hell is this organization going to put its name on the line for this slacker/dumbass/etc.”

    Argh. I don’t think you caught what I said at first. General rules protect people generally. If you have a rule in a contract that says that employees cannot be fired without a review hearing of their case then yes that will help the slacker/dumbass but also the ‘innocent’ good worker taking a bum rap. How else will you make such rules (“no employee will be fired unless he is a slacker/dumbass…” The protections are meant to help demonstrate who is the slacker/dumbass).

  20. Kolohe
    I’m not sure what you’re saying. Merging the interests of two parties in a three party negotiation should act to the detriment of the third party, i.e., the unions. And you see this (like how public unions often have no right to strike, etc).

  21. Merging the interests of two parties in a three party negotiation should act to the detriment of the third party

    It should but it doesn’t – that’s why I called it a paradox.

    Let me refine my point.

    In the private sector, the ‘owners’ are actually subdivided into two segements – the actual owners(e.g. stockholders) and the managers. Historically the owners and managers were always seen as having aligned interests. This is increasingly not the case anymore, and is of course a root cause of many present problems. But as far as both these groups relate the government and specifically to the unions, there is generally enough alignment between owners and managment to overcome this recent divergence. At the very least, there is an abudance of competing interests.

    Additionally the private sector has one other faction – the customer – while not a part of the labor/managment/govt negotiations, does act to keep everyone honest. Or can act to make the argument moot.

    In the public sector, the ‘stockholders’ are voters, and the ‘managers’ are elected officials. But most of the other interests have been conflated. What ‘customers’ there are also are the ‘owners’ but for the most part in the dynamic we’re talking about do not exist at all. The managers have a singular interest – keeping their job as managers (there is no difference between the private and public sector on this particular point). But unlike the private sector manager, they have much less risk of their jobs completely disappearing. So they generally give the ‘workers’ whatever they want, because the downside risk of the workers turning against them exceeds the downside risk of the ‘owners’ (i.e. voters) turning against them. Thus, the ‘government’, which remember, in the private sector negotiation is a completely different entity (and has to please part of each constituency – who gets favored alters throughout history but is never completely one sided), the goverment is completely co-opted by the management and the workers at the expense of the owners. And at the expense of the customers to the extent they count at all.

    If you think about it the dynamic of public sector unions is not too much different than the dyamic when there is military control of the goverment.

  22. MNG, you’re putting the cart before the horse.

    You’re saying that unions exist to thwart the arbitrary will of owners; and that it is right to thwart such because the owners signed a contract with the union.

    In short, what was the union’s justification BEFORE the contract was signed?

  23. I recant all the stupid left-wingnut crap I’ve been posting on these boards. I’ve finally decided you Libertarians are correct.

  24. Historically the owners and managers were always seen as having aligned interests. This is increasingly not the case anymore, and is of course a root cause of many present problems.

    This is an excellent point, which most people do not recognize. It’s not just governments and their employees who work in concert against the interests of their bosses (the taxpayers).

    If you take the example of General Motors, corporate management and the UAW have for decades colluded to transfer wealth from the stockholders (the owners) to themselves (the employees). They were successful for a long time, but their stupidity and greed eventually led them to basically destroy the company.

  25. “In short, what was the union’s justification BEFORE the contract was signed?”

    To get such a contract.

    That was easy. Now I can spend some time reading Kolohe’s post and since they are usually thought provoking, think about it and try to respond.

  26. Kolohe
    Interesting view, but I’m not buying it. “Management” in the government is both the politicians who make the ultimate calls and the actual public sector administrators of the various agencies. I think the former are, more than you think, afraid of being turned out by the “customer” (the voters, ultimately they are the “owners” too but their power is limited to choosing high level management at regular intervals). This puts a pressure on them to make sure the employees don’t get too much (and thus anger the customer) which offsets the fact that the employees are also part of the customers (and ultimately owners).

    A government enterprise may be more like a company where the employee’s union owns a significant amount of voting stock (but not a majority).

    P Brooks
    Good point. The principal/agent one is a thorny one for corporations. Management has its own interests which are not exactly aligned with the stockholders, and the corporate form gives management a lot of tools in which to exploit this. I often think that a good corporate reform would be one that would empower stockholders relative to management.

  27. You overestimate the turnover in government. It took George Bush’s singular talent to switch Congress to another party’s control in less than a generation. In addition, the antipathy toward him in the second term is an outlier; without the 22nd amendment, Clinton, Reagan, even a non-watergate Nixon could have all been plausibly elected to a third term.

    And where public sector unions are really ingrained – at the state and local level – the turnover stats are even worse. Check out these numbers from 1994, a year stated as having an “unusually large turnover in the membership of state legislatures.” Incumbency rates that year were still over 75% everywhere and 100% more than a few places.

    Can there be any doubt that the influence of the public sector unions (e.g. prison guards) were a major player in the near recent bankruptcy of the state of California (not there isn’t a lot of blame to go around)

  28. And the biggest difference between GM and the govt is that if the former mismanages their union contracts (or other affairs), they cannot then turn around and fix their mistake by forcing everyone at the point of a gun to buy a $30K car. The latter can.

  29. To get such a contract.

    I agree, MNG. But what you have to explain is why it is right for the unions to be seeking to limit the arbitrary exercise of the owners’ property rights, before a contract is signed.

  30. J sub D | March 6, 2009, 4:06pm |

    The public employee unions that piss me off the most are the cop unions. It should be obvious why.

    Your frequent busts by cops for doing meth with tranny hookers?

    Just a guess … :o)

  31. And you see this (like how public unions often have no right to strike, etc).

    Not being “allowed” to strike was recently enacted in Hawaii, by the unions and their pet legislators, because they got much better deals from the binding arbitration than they could have gotten in a strike. From the POV of the unions, this is a bug, not a feature.

    And any assertions about the powerlessness of public unions displays an incredible ignorance of real-world conditions. You want to explain how one of the few sectors of the economy gaining workers during this recession is unionized public workers, and try to reconcile this with the crazy notion that these unions have no clout?

  32. Last line of first paragraph should read “From the POV of the public unions in Hawaii, being allowed to strike is a bug, not a feature.”

  33. There are many reasons who public unions could be bucking the trend. Public employees start out with more rights than private ones (think first amendment rights), maybe they come to like having some bulwark agains the arbitrary whim of management and so listen to the union pitch with more interest. Another reason is that government, unlike other sectors, is growing, people there feel more secure, more likely to risk talking about and forming a union, etc.

    Turnover in government may not happen all the time. Heck, it doesn’t happen on corporate boards all the time either. Yes there are good institutional reasons for that. But no it doesn’t mean that either can be unresponsive to the people they are accountable to for too long.

    “But what you have to explain is why it is right for the unions to be seeking to limit the arbitrary exercise of the owners’ property rights, before a contract is signed.”

    Are you asking why it is right or why they do that? The latter answer is easy: because it’s in the employees interests and unions are organizations that represent employee interests.

    If you ask why it is right, then for the same reason that it is right for an agent to represent someone in negotiating employment terms. The union acts as the agent. It’s power comes from collective action, because if one person threatens to walk off a job that employs hundreds of people that person has minimal bargaining power from such threat, but if 90% of the employees do the threat has some bite to it.

  34. I can’t think of any district where the public employees union members makes up a majority of potential voters. So politicians in those districts certainly have some check on just taking from the majority to toss to the union employees.

    If a company does bad, customers stop supporting it and it goes bankrupt. If a government (an administration) does bad, voters stop supporting it and it gets replaced. Public employees, union or not, try to influence their employer as the government but as they are not a majority anywhere I can think of it’s not much different than a company in which union employees own a good chunk of voting stock…

  35. MNG,

    I can’t think of any district where the public employees union members makes up a majority of potential voters

    DC?

    If not a majority it is close.

  36. Public employee unions protect public employees, and the public services they provide, from political patronage and petty tyrants. Every worker deserves the right to due process. The firing of public employees is more often sought because they have angered some politially powerful patron than because they are an idiot or dumb-ass.

    Of course, I believe that private sector employees should protect their rights through unions as well.

  37. If a government (an administration) does bad, voters stop supporting it and it gets replaced.

    Heh. So every local, state, and federal administration that has been reelected in American history must have been doing a good job. That’s a courageous position to take.

    Somehow, I don’t think you’re thinking through your positions, MNG, just throwing spaghetti at the wall to see what sticks.

  38. “Turnover in government may not happen all the time. Heck, it doesn’t happen on corporate boards all the time either. Yes there are good institutional reasons for that. But no it doesn’t mean that either can be unresponsive to the people they are accountable to for too long.”

    That’s me just a couple posts above your last one. You might want to read my positions before accusing me of not sticking with them…

    Are their institutional things that protect bad government officicals from being turned out? Yes. Incumbency is a powerful thing. There are institutional things that protect bad corporate officials from being turned out too. But that’s not to say that a horrible government official, like a horrible corporate official, does not, by being horrible, increase their chances of being turned out, and thus there is some incentive in both cases to do a good job.

    Heck if anyone is just throwing stuff on the wall to see what sticks it might be the person who had all these questions about the unions right to oppose the arbitrary will of management and then just dropped them without responding to my answers…Now who was that guy?

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