Posted by on April 17, 2017

I occasionally try to get an opinion piece published in The Wall Street Journal.   It never works.

Even when I write something that is totally in line with the WSJ’s editorial policy.  Even when I point out the number of times when I have “scooped” this policy[1].  They never care.

A particularly cynical, and clever, friend of mine has suggested that I need to create an institute to which I can appoint myself the president and janitor.  I can then sign my editorials as its representative.  A title might persuade where perspicacity, logic and style have failed.

Someday I may take this step.  But until then, I will publish my aborted attempts in this blog.  Below is an attempt from February, covering one of my bêtes noires, public sector unions.[2]

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With the arrival of Donald Trump and his cabinet nominations, it seems that “conflict of interest” is the phrase of the day in Washington.  Yet the most flagrant and widespread example is rarely mentioned.  I am talking about the conflict between public sector unions helping to elect state and local politicians, who then sit across the table from them in negotiations over salary and benefits.

Unions are dying in the private sector.  The latest figures from a database managed by academics Barry T. Hirsch and David A. Macpherson show private sector union membership falling in both absolute and percentage terms since the mid-1970s.  From roughly 15 million members in 1973, equalling about 24% of the workforce, they now have about half the members and comprise only 6% of the workforce.

Meanwhile, the pattern for public sector unions is virtually the mirror image.  Membership has more than doubled since 1973.   As a percentage of the public sector labor force, union membership experienced strong growth in the late 1970s as laws supporting public sector collective bargaining spread, and has remained in the range of 34-37% since the 1980s.  The bulk of these union members are employed at the state and local level.

These relative patterns are instructive.  Whereas both private and public sector unions benefit from the power of collective bargaining, public unions uniquely enjoy a further avenue of influence: the ability to promote the political interests of their ostensible bosses through contributions, endorsements, voting and campaign activism.  Unlike private sector unions, the demands of which must be tempered by the competitive nature of their industries, they also have the benefit of working for monopolies which often provide essential services such as public transport; this magnifies their bargaining power.   It is not implausible to attribute the relative success of public sector unions to these advantages.

And the public sector unions have not been bashful in pursuing this additional leverage.  The Center for Responsive Politics reports that, since they started keeping records in 1990, public sector unions and their affiliates rank first, third, fifth and eighth in their list of top organizational contributors to federal campaigns.   (Information on donations to local elections is not readily available, but it is hard to imagine that this would show a materially different pattern.)  As important, unlike many of the corporate donors which demonstrate little skew in their giving, the unions donate virtually 100% to Democratic Party and other liberal politicians.

Public sector workers also vote.  Studies have shown that they have roughly a 40% greater tendency to vote than private sector workers.  In addition to dollars and votes, they also contribute endorsements and shoe leather.  Endorsements, particularly from popular professions such as the police, firemen and school teachers, carry weight.  Public unions are prominent campaign organizers and mobilizers.  It is not possible to put a dollar amount on this additional help, but its value is surely not lost on local politicians.

These efforts seem to work.  Although it is very difficult to disentangle the effects of collective bargaining from those of political influence, there is strong evidence that public sector unions substantially increase the compensation of their members and therefore the cost of government.  A study by the Heritage Foundation found that collective bargaining increased the cost of state and local government by about $2,300 to $3,000 per family, for a nationwide cost of between $127 to $164 billion in 2014 alone.  Moreover, they have achieved these results without the trade-off in lower employment they would have inevitably experienced in the competitive private sector.  The study found “government unions avoid this trade-off through political activism.  Their lobbying and political activities raise the demand for government services overall, enabling them to raise government pay without reducing government employment.”

Other studies, conducted by scholars from the University of California, Berkeley, and Stanford, and the Mercatus Center at George Mason University, show that political activism plays a clearly distinguishable role in increased returns to public sector employment.

Public sector unions have an even bigger impact on benefits than salaries.  Benefit agreements are complicated and their true costs are easily obfuscated through arcane actuarial calculations.  Benefits are often deferred and not fully funded, which means that they do not affect taxes until well after the political gains have been pocketed.  Not surprisingly, the study from Berkeley and Stanford found that things like pensions and post-employment medical coverage lurk in an “electoral blind spot” that allows police and firefighter unions to capture even greater increases in benefits than they do in salary: an increase of well over $2 in benefits for every $1 increase in salary.

The impact here is potentially enormous.  As of FY 2014, state and local pensions reported liabilities of approximately $4.8 trillion.  But this figure is notoriously underreported, notably through an unrealistically high discount rate.  The Hoover Institution reports that a more appropriate calculation would put this figure at about $7 trillion.  With a base this large, even a small amount of political favoritism could easily run into the hundreds of billions.

What is to be done?

Supporters of public sector unions claim that, like the decision in Citizens United, their political activism is “protected speech” under the First Amendment.  This is certainly true.  But these supporters would never tolerate a situation in which a business were allowed to make substantial contributions (in cash and in kind) to politicians and then obtain a very large and lucrative contract (since employee expenses are the largest cost of local government) on a purely negotiated basis with no competitive bids (since non-union workers are not allowed) and with a significant amount of the value of the contract in the form of deferred payments which are difficult for voters to understand and which hit their pocketbooks long after the deal has been struck.  This flagrant conflict of interest is exactly analogous to the situation with public sector unions.

This is a classic case of what economists refer to as an “agency problem,” where the politicians act as the highly imperfect and conflicted agents of the voters, who are themselves badly informed.  So let’s start by trying to minimize the role of the agents and inform the public better.

Why don’t we have government employee contracts negotiated by third parties and then submitted directly for approval to the voters, along with precise information on the tax implications of the pay agreement? In addition, why don’t we require that any form of deferred compensation be 100% pre-funded on a completely arm’s-length basis — no fudging allowed — so that there is no inter-temporal wealth transfers between current employees and future taxpayers?  The unions would then be free to make their case and local taxpayer advocacy groups would also be free to make theirs.  First Amendment rights would be protected on all sides.

Lately, we have had lengthy discussions about whether a foreign politician raiding the minibar in a Trump hotel violates the Emoluments Clause of the Constitution.  But this is literally peanuts in comparison to a conflict of interest that is staring us in the face, almost certainly costing us hundreds of billions, and undermining the solvency of our state and local governments.  It is time that we focus on the conflicts that really matter.

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Police Unions and Police Violence

The Cato Institute has recently been making a good point[3] about the political role of unions in furthering police violence.

The argument is that the electoral strength of unions undermines the ability of local politicians to monitor and control the police force.  Certainly, the ability and willingness of unions to protect their own is legendary.  They do this through contractual work rules and disciplinary procedures.  But they also do this at the ballot box.

The response of many local politicians is to pass the hot potato to the federal government.  What may appear to be a reluctant acceptance of a Department of Justice review is often a charade in which municipal politicians shirk their politically explosive responsibility.

In my opinion, the cops are, in general, on the side of the angels.  We also make their jobs dramatically more difficult by asking them to do the impossible, particularly in the area of drug enforcement.  I also think that things like DOJ rules on profiling in places like Chicago have had an enormous chilling effect on the police and have directly contributed to the explosion of homicides in that city.

With all of that said, however, there are a material number of bad apples in the police force.  It is the role of local politicians to find and remove them.  Another major strike against public sector unions is that they undermine this process.

Roger Barris

Weybridge, United Kingdom

 

[1] Some examples: I offered to write an editorial on the failings of the primary system.  There was no interest.  Yet, it was followed a couple of weeks later with an editorial that said “The American primary system, which has thrown up two presidential candidates who are despised by 60% of Americans, is broken….”  I was also way ahead of the WSJ on the unlikelihood of a presidential run by Michael Bloomberg (and his rationale), the role of political correctness in enabling Trump, the tendency of Democratic nominees to SCOTUS to vote en bloc, and the political weakness of Democrats with minority voters over school choice.   I could go on, but since I am just venting, I will spare my readers more.

[2] You might have a sense of déjà vu when reading this.  I briefly covered some of these thoughts in an earlier blog.

[3] See here and here.

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Comments

  1. Jack Rubin
    April 17, 2017

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    Roger, you have made an error I see often repeated. You use the term liberal when the term Progressive is more accurate. When you note support for Democratic and liberal politicians you use the term as typically described in the press when. Progressives are anything but endorsers of liberty, supporters of the rights of every man and in favor of cronyism of their peculiar sort. Please don’t perpetuate the fraud that Progressives are liberals.

    • Roger
      April 17, 2017

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      Thanks for the comment.

      I agree that Democrats are not “liberal” in any classical or natural meaning of that word. Unfortunately, they are not “progressive” in any natural meaning of that word, either. So, no matter which term I use, I help perpetuate a fraud. So, I will continue to use “liberal” and “progressive” interchangeably, by which I will mean someone on the left of the political spectrum.

      Roger

  2. Anonymous
    April 24, 2017

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    Come on guys, get your history right: ‘liberal’ is a term of the left, as is ‘progressive’: they mean things like equal, free and pro-change, things the original right, the conservatives, hated, because they endorsed conserving the old order, for obvious reasons, i.e. inequality, limited freedom and ever so moderate change. Democrats have every right to claim it. Whether the left is right about promoting these ideas, is obviously a very different topic. The genius of american politics is that it obscures this critical difference… for all its pretend commitment to straight-talk … It allows republicans to claim the democratic heritage by quietly equating political liberalism (= progressivism) with mere economic liberalism (= low taxes). Mind-boggling that people still take this difference seriously in this day and age.

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