December 11, 2016

It’s not labor unions that destroy the economy; it’s the New Deal and its awful progeny

First_United_States_Labor_Day_Parade,_September_5,_1882_in_New_York_CityTwo small minorities on either end of the political spectrum have strong feelings about Labor Day. One side sees the holiday as a celebration of all the victories hard working folks have won in securing their rights against greedy capitalists who would otherwise have them working twenty-three hours a day in sweat shops. The other side sees it as overt Marxism, so dangerous to all that’s good and holy the holiday should be renamed.

The other 95% are just damned glad to have the day off.

That the right wingers are paranoid doesn’t mean no one is out to get them. There is a very real connection between the holiday, the unions that proposed it and Marxism. American Marxists are firm supporters of unions, as were Marx and Engels themselves.

Neither is there any denying the damage unions appear to have done. Wherever labor unions are firmly entrenched, economic hardship proliferates. Outside the politically correct zone, everyone knows unions destroyed Detroit. If you have any doubt, just look at General Motors’ 2006 balance sheet. Either capitalists mysteriously ceased being greedy for the preceding fifty years or something forced them to be overly generous with pay and benefits, resulting in the bizarre preponderance of legacy benefit costs reflected there.

This would seem to be something of a paradox. How can this free association, an expression of the free market itself, be so harmful to our economic well-being?

The answer is labor unions themselves are not the problem. It’s labor union legislation, starting with the infamous “Wagner Act” (National Labor Relations Act of 1935) and continuing with subsequent legislation in the decades thereafter. These laws transformed the employment contract from a voluntary buyer-seller agreement to an involuntary one for one side.

The Wagner Act didn’t protect the right of sellers (employees) to freely associate and agree upon a minimum level of pay and benefits they would accept. They already had that right. The Wagner Act legalized violation of the buyers’ (employers) right to refuse to purchase their services. Just as sellers have a right to make collective bargaining a condition of the sale, buyers have a right to make individual bargaining a condition of their purchase.

In a free market, exchanges are supposed to happen only when both sides voluntarily agree to the price and the terms. If they can’t agree, they just don’t do business together, with each party free to buy or sell the services in question from and to others, respectively.

The Wagner Act overrides this natural law. It says the sellers are free to bargain collectively, but the buyer is not free to refuse. It makes one side of the agreement involuntary. Apart from the moral repugnancy of the idea, it causes huge economic distortions.

For example, it completely reverses the incentives for the sellers. If the buyers were allowed to negotiate freely with union and non-union members, the union would have to find a way to makes its members more productive than non-union workers to justify the higher price they ask for the same services.

Instead, unions in the present scenario have an incentive to make its workers less productive. Since the employer can’t say no, the union benefits from less productivity per worker, which results in a need for more total workers paying union dues. Anyone who’s been a new employee in a union shop will attest to the pressure from other employees to slow down one’s work in order to strengthen the union’s position at the bargaining table.

The right of buyers to buy from someone else or not buy at all is the most fundamental discipline a free market imposes on sellers. It is the only reason sellers seek to improve the quality and lower the price of their products. When this discipline is removed, prices go up and quality goes down. It’s the same phenomenon playing out in health care.

Ultimately, one shouldn’t blame labor unions for the economic misery they seem to spread. They are merely responding to incentives, just as do crony capitalists who benefit from protectionism. Put the blame squarely where it belongs, on the source of most human misery in this advanced age: government.

Enjoy the Labor Day holiday. Cook some hot dogs, crack open some cold ones and thank the hard workers the holiday is meant to honor under its rightful name. And while you’re at it, burn FDR in effigy for screwing everything up.

 

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

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