Compulsory Unionism and Public Debt

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.