There was no shortage of comments on my last post, but there is one that I can clear the air about quickly.
Jeff comments
You write, “Does industry likewise have a right to create and have enforced by the state contracts which restrict supply and raise prices.” Are you honestly unaware that this happens? Have you never heard of the sugar tariffs that the federal government has had in place for decades? Do you believe they exist because of teachers’ unions in Wisconsin? Are you really unfamiliar with the pipeline between business organizations and lobbies and the legislation that gets passed in Washington and state capitals across the country? Maybe you guys are, since you and Adam complain about unions and such all the time (more Adam than you, in fairness), and yet I have no recollection of a posting decrying the negative, distorting influence of the Chamber of commerce.
My apologies for giving the impression that I was ok with agricultural restrictions. Opposition to these are practically de rigor among economics bloggers and I may not have done enough to make my position clear.
Agricultural tariffs are a disgrace, not only because they distort the market and raise prices on lower income Americans, but also because it makes it harder for Third World farmers to sell their crops abroad.
Though to be fair, this is what the Chamber said on sugar tariffs
The existing U.S. sugar program already represents a chronically flawed policy that creates and maintains an artificial gap between U.S. and world sugar prices. And now, rather than seizing the opportunity to fix this policy, Congress is poised to pass a Farm Bill that makes it much worse.
Both the House and Senate versions of the proposed Farm Bill increase, rather than reduce, price supports. And worse, the bill continues sugar marketing allotments, ostensibly to balance supplies, while simultaneously guaranteeing U.S. sugar growers an 85% share of the domestic sugar market.
Nonetheless there are points where the Chamber and I are sharply at odds. Their continued support for employer provided health insurance and the continuance of the health insurance tax exemption are among them.
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Friday ~ February 25th, 2011 at 2:33 am
Jeff
Karl, I appreciate your response, and I apologize if my comment seemed like a rant. But I suppose I had two points:
First, if you really care about these things in a genuine way (and I suspect you do), then, like Willie Sutton, you should go ‘where the money is’. Every actor tries to use whatever power is available to them to distort the market to their own advantage; it’s as old as money itself. In general, each actor in a market is trying to get as much for itself as it can. It’s not that people are immoral or corrupt; it’s just human nature. As a result, the market will be least distorted when every player has equal power, this falls out of bargaining theory. But the world is not like this and so the real world does not work like the streamlined conception of markets taught in econ 101. Do unions try to distort the labor market to benefit workers at the expense of business owners? Yes, but so do businesses (large and small), business associations, business lobbies, and the wealthy try to distort the labor market in their own interest at the expense of workers. I don’t want to get all Marxist here, workers vs. employers is just one aspect of social interactions, not necessarily the most fundamental one; nor is it the primary animating force in history. Nonetheless, in terms of influence over policies that create the fundamental structure of markets, midline estimates are that monied interests have ~20X the power of labor interests. In this world, as it is right now, if you really care about these issues, you should focus on the activities of the monied interests. (In my ideal world, every special interest would be eliminated–at least with respect to their ability to influence public policies, the outcomes of negotiated contracts, etc. But I realize that I neither live in that world, nor am going to. Therefore, I focus my energies on the biggest problems, and that is with the more powerful at the expense of the less powerful.)
My second point concerns your claim that the primary effect of labor unions is to harm the working poor. This could be true, but the manifest fact is that working class people are much better off in states where unions are strongest and worst off where unions are weakest. Moreover, working class people had the most economic security in the US during the mid-20th century when unions were at their peak, and less in the early- and late-20th century before and after that peak. In addition, In those first-world countries where the working class have the most economic security (e.g., the Netherlands), unions are in much better shape. These are obvious and powerful correlations. You cannot simply make that claim and ignore these facts. Do you suggest that these are all coincidences? That is possible, the null reaches even r=1 with some probability, but it is a terrible explanatory mode and it is not clear why you would think anybody would take you seriously. Now, as I used to tell my students back when I taught stats, correlation doesn’t prove causation and we don’t necessarily know what the underlying causal model is. It is possible to have a positive correlation between two variables when the true direct causal relationship is negative because those variables are situated within a complex network of causal forces which, taken as a whole, have the effect of flipping the true relationship. This is possible, but it is not easy, and it becomes increasingly less easy the stronger the positive correlation. (Try to generate such a model for a Monte Carlo simulation.) You need to provide an account that explains these facts away and data that bolsters that account. Incidentally, since the original discussion was in terms of teachers’ unions and education reform, it’s worth pointing out that the same issue hold true there: The stronger teachers’ unions are, the better the educational outcomes. If DC is excluded as an outlier (it clearly does not follow the same trend as all other states), 25% of the variability in the quality of educational outcomes can be explained by the strength of teachers’ unions alone. This is huge. Moreover, it is true whether you are looking at reading scores or math scores in either 4th, 8th, or 12th grade, or at average freshman graduation rates. None of this is necessarily determinative, but it is something that needs to be addressed if you want to claim that teachers’ unions are the primary problem with education in America today.
One final, tangential point: regarding the Chamber of Commerce, I honestly suspect they oppose sugar tariffs because they represent many businesses (e.g. soda and snack companies) which are less profitable as a result of them, and not due to any commitment to principle.
I do appreciate your sincerity.
Best, Jeff
Friday ~ February 25th, 2011 at 12:55 pm
anon
“One final, tangential point: regarding the Chamber of Commerce, I honestly suspect they oppose sugar tariffs because they represent many businesses (e.g. soda and snack companies) which are less profitable as a result of them, and not due to any commitment to principle. ”
That’s not saying much. By assumption, all inefficient policies are such that someone stands to gain if they’re repealed: it’s just that in most cases the parties which are made worse off by repealing the policy are too dispersed to oppose it effectively, whereas the special interests which support it are concentrated and can collectively exert more influence. The Chamber of Commerce is a concentrated group, but one with little interest in the issue, since most of the gains from repeal would not accrue to business owners.
Friday ~ February 25th, 2011 at 1:49 pm
Jeff
This is all true. I didn’t think I was saying much; it was a small point. Nonetheless, while most of the gains would not accrue to the entities they represent, if none of the gains did or if they ended up–ever so slightly–the loser on the deal, I believe the Chamber would no longer be opposed to sugar tariffs.
Friday ~ February 25th, 2011 at 1:42 pm
Hal
What Jeff said, of course, but I’ll add my two cents from a non academic viewpoint.
Out here in the private sector, one of the things we do is make a list of things that we need to do. Then we prioritize them. Then we start picking them off from the top. It works well.
From my POV, whatever problems collective bargaining in the public sector (and the private sector for that matter) creates, it’s pretty clear that data is mixed at best and even if you’re interpretation is maximalist, it really isn’t that big of an issue in relative terms.
So when I see y’all take up unions, collective bargaining and “economic populism” in general as “the primary thing” that liberaltarians want to excise from the liberal movement, then I naturally assume this is item #1 on your list.
Consequently, I have to assume that one or more of the following is true:
a) You haven’t actually made a list and prioritized it
b) You have made the list and the priorities appear out of alignment with observable reality
c) You know what the priorities are, but you chosen to ignore them
I’m sure there are other explanations, but those are my top three.
Just taking education, for example, it’s pretty darn clear that if you exclude schools in areas with high poverty rates, then the USA is doing pretty okay. So, the problem, apparently, has something to do with poverty. Given the known linkage of children growing up in poverty and nutrition, we know that the mental ability gap between poor kids and kids who have proper nutrition is set by the age of 3.
And so it would seem that if you made a list of priorities for fixing the education problem, the first thing on your list would likely have to be fixing the nutrition issue, because it seems like the root of a lot of issues that we’re trying to fix.
Instead, you and Adam appear to be focused solely on HRM issues. Why? It appears to be partly ideological. It’s about money, too, and the worship of efficiency. But it doesn’t seem to have anything to do with actually fixing the problem in the first place.
Further, it’s clear from the larger group of right wing thinkers that they have zero interest in dealing with the fundamental issues because the first thing they do is attack the very programs that attempt to deal with the fundamental issue. That would be the Women, Infants and Children (WIC) program.
Maybe WIC isn’t the best or most efficient way to do what it’s trying to do. But it does exist and as we say out here in the private sector, something that actually exists is far more efficient than the perfect program that doesn’t actually exist.
Maybe we could save some bucks by getting better contracts with teachers. What isn’t clear is that we would improve actual education.
So, priorities! Low hanging fruit! If you’re focussing on something that isn’t clear what the benefit will be, and ignoring the higher return priorities, then you have to expect people questioning why you’re focussing on such.
Friday ~ February 25th, 2011 at 1:53 pm
Jeff
This is essentially what I was trying to say, only said with shorter, clearer paragraphs.
Friday ~ February 25th, 2011 at 3:16 pm
anon
“Out here in the private sector, one of the things we do is make a list of things that we need to do. Then we prioritize them. Then we start picking them off from the top. It works well.”
What is “the top” here? As economists our specialization is solving problems related to money, resource allocation and incentives. So we should listen carefully when an economist tells us that union bargaining is creating bad incentives among teachers and school administrators, and suggests ways to solve these issues effectively without altering the parties’ bargaining position. It’s less clear that economists can say anything interesting about childhood nutrition.
Friday ~ February 25th, 2011 at 4:32 pm
Hal
Sure. Discussion about priorities is always part of the game. But again, what are you trying to accomplish? Some perfect state of contract efficiency? Where does this inefficiency fall on the priority list?
Inefficiencies are part and parcel of life. Some are more important than others. Some we just have to accept because they’re the result of compromises with other priorities.
And what are the distortions caused by the supposed bad incentives? Are they so egregious that they take priority over other issues? Again, as far as I can tell the data on this is mixed at best. Even if you take the maximalist position, I just can’t see the relative cost of such being anywhere close to – for example – the impact of prenatal nutrition on the exact same domain – i.e. the utility of our educational system.
So, if an economists job is to solve problems in resource allocation, money and incentives, I would still claim that solving nutrition issues caused by poverty literally swamp any issues caused by collective bargaining by teachers. And by “swamp” I mean several orders of magnitude.
And if this really is the job of economists, why would someone focus on the minor issues of inefficiency and completely ignore the Jupiter size problem of allocating resources to WIC – or whatever one would suggest as alternative.
One estimate I saw was that for every $100 spent on WIC, this saved $47,000 in downstream costs to society.
Now, if that isn’t something that should float the boats of economists, then I think they need electroshock therapy.
Monday ~ February 28th, 2011 at 2:34 pm
David B
I am also very confused by opposition to WIC – I remember working in our local grocery store growing up. The WIC program included specific requirements for the products that could be purchased and were based on the ages of the children involved.
The program included education and ongoing case management rather than a simple monthly dump of food stamps. There are really two issues in childhood malnutrition – parents that cannot afford to feed their children properly and parents that don’t know how to feed their children in healthy ways. The WIC program seems to address both.
Saturday ~ February 26th, 2011 at 11:46 am
Edwin Perello
I just have to say, the comments here are pure gold.
Monday ~ February 28th, 2011 at 3:42 pm
Hal
The paper by Dean Baker pointed to by Kevin Drum (yea, I know. Sue me) sums up this issue pretty clearly:
The Origins and Severity of the Public Pension Crisis
The point being that there really wouldn’t be a pension crisis if the entire market hadn’t fallen off a cliff. So the whole issue – modulo Adam’s arguments on contract efficiency and some issues on distorted incentives (both of which I find highly dubious, but that’s just me) – is a derivative issue, not a primary issue.
Again, focussing on a problem that is a symptom of a far larger problem certainly has the effect of casting one’s priorities in a very bad light.