Labor Unions & Free Markets (Show 075)

These notes were written by a listener, Steve, who is a member of the talkObjectivism Facebook group.

Is there something wrong with labor unions? Mosley questions the source of his dislike for unions: Maybe people have a right to collaborate in order to fight for their needs, higher wages, etc.

When unions are in private companies, there is a ceiling to claims that unions can make. When the company can no longer make a profit, the union can’t keep demanding raises and benefits. (The current GM troubles are a good example of this). When unions are in government industries, there is no ceiling to the costs of demands, because the government (therefore the taxpayer) has an essentially bottomless pocket.

One example of unions and related government/labor issues is the minimum wage. We discussed the alleged benefits of government mandated wages. While some claim these mandates benefit “the poor,” in fact they only benefit those who are already employed at some level above the minimum wage. When minimum wage levels are increased, the pool of capital available for labor has to be distributed among fewer people. This means people get laid-off, or at least not hired. Historically, every time the minimum wage has been increased, unemployment has gone up. Since the minimum wage keeps the unemployed from entering at the bottom of the economic ladder, it keeps unskilled laborers (who are willing to work for less) from competing with the more experienced, higher paid workers.

A coalition of “bootleggers and Baptists” is formed. Those who honestly believe (however misguided) that wage increases benefit people are joined by the labor union elders who have a stake in protecting themselves from competition.

Mosley goes on to explain the background of the Pittsburgh public port authority system, and rumors of a private system coming along. Steve calls in with the story of the Trans-Santiago bus system as told by Professor Mike Munger of Duke University, on the EconTalk podcast put out weekly by the Library of Economics and Liberty. The Chilean government municipalized what was once an open market of over 300 private bus companies. The bus market used to run in the black, about a $60 million dollar per year industry. After outlawing private buses and municipalizing the service, the government bus system is now about $600 million in the red.

Arthur calls in to remind that in weighing any two “imperfect systems” there is a difference between a government system and a private system. Government systems tend to be stagnant, and can only be as good as the committee that engineers it. In a public system, the goods and services offered improve through a constant process of trying to satisfy the consumer. Arthur also points out that all goods have to be produced by someone, even when they are paid for by the government (the taxpayer). The government doesn’t produce – it can only redistribute the funds of those who do.