While I work up a response to the two comments on yesterday's post, I do want to express my pleasure at the success finally of a group of Amazon workers in establishing a union. That is a splendid first step. Let us hope there are many more like it
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60 comments:
Indeed that is good news. The bad news is that a similar vote in Alabama apparently went the other way--although there will be a recount. A few years, at a Volkswagen plant, I think in Tennessee, the union lost even though the company did not in any way oppose it.
I can understand a no vote at a company like IBM or Kodak in the mid-20th Century which paid handsome salaries and benefits in order to keep unions out. But an Amazon warehouse? Starbucks?
I endorse such sentiments. I first heard about their success, not from any Australian media outlet, but from the CounterPunch magazine. It's a dismal state of affairs to see the waning of union membership, but when you hear about such successes it gives a lift to your day. Here in Australia unions are constantly under attack by the conservative Federal Coalition government, along with help from the Murdoch media empire and rightwing thinktanks like the IPA (Institute of Public Affairs, which is subsidised by Murdoch). Indeed, it was one of the major industrial goals of Australia's most conservative, if not, reactionary prime ministers in John Howard to smash the
Australian labour union movement by the introduction of harsh legislation in Federal Parliament back in the late 1990s. Anyway, it's good to hear this news from America.
Stephen Darling
Unions are a bad thing, not a good thing.
Mark Perry has an article titled: Top 10 inbound vs. top 10 outbound US states in 2021: How do they compare on a variety of economic, tax, business climate, and political measures?
If you check the charts on that page, you'll notice that the top ten inbound states are right-to-work states. Of the top ten outbound states, eight are union states. Michigan, which is a right-to-work state, doesn't really count because it only became a right-to-work state in 2013.
That also begs the question that if unions are so awesome, why did Michigan convert to a right-to-work state? Because unions deter capital entry. That's why auto companies like Toyota and Honda located their plants in right-to-work states.
Also, while union workers can bargain for higher nominal wages, it's the market that sets the real wage, and it is the real wage that matters. Paradoxically, despite the fact that nominal wages are lower in right-to-work states, real wages are higher there. All else equal, crime rates are lower where there is more work and the tax burden is lower because there are less unemployed people.
Also, unions are violent in nature. I recall this saying:
Those who tell you of trades-unions bent on raising wages by moral suasion alone are like those who would tell you of tigers that live on oranges. —Henry George
There is one good thing that has come from unions, and that is that it drives automation by increasing capital-labor substitution. Not good for those workers left without jobs, but good for the rest of society.
Further to my comment,
Right-to-Work States Have Higher Incomes
When adjusted for cost-of-living
In addition to higher incomes, right-to-work states also added more jobs and have lower unemployment. Since 2001, right-to-work states added a net 1.7 million jobs to their payrolls — this while non-right-to-work states lost 2.1 million jobs. In addition, the unemployment rate in right-to-work states is a full percentage point lower than non-right-to-work states. Even during a tough decade, right-to-work states improved while non-right-to-work states did not.
Given the stronger economies, it’s not surprising that right-to-work states attract people from non-right-to-work states. There’s a lot of moving in and moving out of a state in any one period of time, but in just the past two years a net 400,000 people moved from non-right-to-work to right-to-work states. That’s like the entire city of Cleveland packing up and heading to greener pastures.
Those high-income states tend to be the states that shed the most people. New York, Illinois, New Jersey and Connecticut top the list. One explanation may be that, like the high-paying union jobs in Michigan, the state may have some good work — if you can get it. Workers tend to find opportunity elsewhere.
Right-to-work states have been gaining people and gaining income. And when adjusting for cost-of-living, these states also have higher incomes.
source: Right-to-Work States Have Higher Incomes
More grist for the mill,
A dollar buys more in right-to-work states
The article above has a link to the following site. While the data is from 2014, it has a chart that shows that while nominal wages are higher in New York which is a union state, real wages are higher in Kansas which is a right-to-work state. Here, have a look (the chart is titled: Kansas Has a Higher Average Income than New York after Adjusting for Purchasing Power):
The Real Value of $100 in Each State
Right to work states show up well in the statistics because they have cheaper labor. The textile and shoe business migrated from New England to the South for this reason; and it migrated further when it left the South for lower wage countries.
Apart from economic issues, strong unions offer countervailing political power to corporations which, thanks to Republican policies and the Supreme Court holding that corporations are persons for purposes of the 1st Amendment, have subjected the country to a degree of corporate control it hasn't seen since the days of the robber barons in the late 19th century.
Also, the right to work states tend to have a lower cost of living not because they are right to work states, but often bc their overall economies aren't as developed. The fact that a dollar buys more in Kansas than in NY is not an argument vs unions. It would only be that if you cd show that the absence of unions is the main causal factor in the lower cost of living. Plus you have to consider a whole range of quality of life factors (health, education, pensions etc.) not just real wages.
For the first 15 years of my legal career I represented public sector unions and their members in Michigan. Right-to-work laws allow public sector employers to exploit public employees and make it infeasible for unions to vigorously represent their members, resulting in lower wages and inferior benefits. The decision that has caused the most damage to public sector unions is Janus v. AFSCME, 585 U.S. __ ; 138 S. Ct. 2448 (2018), which gives public employees the right to refuse to pay union dues, at the same time that they benefit from the collective bargaining agreement and can require the union to represent them when the employer disciplines them. I believe that the requirement that public sector unions must still provide representation for employees who do not pay union dues violates the Fifth Amendment – it constitutes an unconstitutional taking, requiring the union to provide representation services, which requires compensation to the union representative/attorney representing the non-paying member during the grievance procedure, without the reciprocal requirement that the non-paying member pay for the service. It’s a free lunch. Public employees who do not want to pay agency shop fees should forfeit their right to union representation. Fortunately, right to work laws do not apply to private sector employers, because the U.S. Constitution does not apply to them.
I expect RidiculusSiculus, if he reads this, to lash out at me, as he did the last time I made this argument on this blog.
Another Anonymous,
Check out the chart in this article:
Federal Government versus Private Sector Compensation
Why should public sector employees earn more than the private sector employees who pay their wages? That's a form of legalized theft.
Here's some more from economist Bryan Caplan on data from the CBO:
Here’s what the CBO found:
1. After adjusting for education, occupation, work experience, and other observable characteristics, federal salaries are only 2% higher than in the private sector.
2. HOWEVER, federal workers’ fringe benefits are 46% higher than in the private sector. As a result, total compensation (salary + benefits) is 16% higher for federal workers than comparable private sector workers.
3. Overcompensation is highest for the least-educated federal workers – +36% if you’ve got a high school diploma or less. As education rises, the federal worker premium falls. Federal workers with professional or doctoral degrees actually earn 18% less than private sector counterparts.
Bryan Caplan added this at the bottom of the article:
2. Despite many virtues, the CBO report still ignores unmonetized fringe benefits, including the Big Kahuna: Job security. During the last five years, how much would the typical private sector worker have paid to enjoy the same level of job security that federal workers take for granted? We won’t have an apples-to-apple comparison until we estimate that dollar figure and add it to the final tally.
Personally, I don't think public sector workers should have unions. What they should have is a wage board that pays them equivalent to what private sector workers earn, minus some amount to account for the increase in job security.
source: The Federal Pay Scale: Inflated Yet Compressed
Ahmed Fares' comments here.
Just, wow.
I thought I'd seen everything. Little did I know ...
Ahmed,
You know the saying, “A little knowledge is a dangerous thing”? I argued that right to work laws result in lower wages and inferior benefits to state public employees. You offer me statistics about federal employees, indicating that their income is slightly higher than those in the private sector. But right to work laws do not apply to the federal government, only to state public employees.
You claim that the higher wages to federal employees constitutes theft from the private sector employees. No, it should constitute an incentive to the private sector employees to unionize. The solution to inequality – of any kind – is not to remove the inequality by reducing everything to the lowest common denominator, but to raise all levels to the highest level. It is the private sector employers whose employees are not unionized who are taking advantage of their employees. Moreover, why are you not equally concerned with the theft I have identified due to the Janus decision, which requires state public sector unions to continue to provide union services to the non-paying public employees, but not requiring that all public employees pay the union for those services, services which cannot be provided to any employees unless they are financed.
Post-script:
“Power concedes nothing without a demand.” Frederick Douglas
Unions are the mechanism by which underpaid and exploited employees, in both the private and public sectors, can make demands which their employers may not ignore, as they did in the U.S. before labor laws legalized unions. Before such legislation, unions were deemed to be illegal conspiracies, which the employers were able to suppress using the police and anti-union goons.
Ahmed,
Ahmed,
I do not know how you make a living, or anything about the labor laws in Canada, but the provision in most U.S. union contracts that an employee may not be disciplined or terminated without just cause is essential for job security. Employees who do not have a union, who do not have this job security, are employed “at will,” and can be terminated for no legitimate reason whatsoever – the employer does not like the way an employee dresses; thinks she is overweight; talked back to a supervisor who was mocking the employee; etc., etc. At the same time such provisions protect the employer’s interests in disciplining/firing unfit employees – employees who are constantly tardy, who show up for work drunk or on drugs, who are slouchers. Anyone who has ever been the victim of an unfair, imperious boss and has been fired, left with no income, unable to pay the bills, appreciates the job security which “just cause” union contracts provide. And the union cannot enforce that job security unless it has the finances to do so – the finances needed to pay the lawyer who has to take the grievance to arbitration, and to pay the arbitrator who is going to conduct the arbitration hearing. Your trivialization of the value of job security does not speak well of you.
AA
right to work laws do not apply to private sector employers, because the U.S. Constitution does not apply to them.
I don't quite get this sentence, or rather I think it's misleading. You're talking about the specific issue of union dues and state public employees. Right-to-work laws taken more broadly, which prohibit the "closed shop," certainly do apply to, and benefit, private-sector employers. That's why some private-sector employers prefer to be located in states with right-to-work laws which, as I just mentioned, prohibit a requirement that all employees of unionized company X must join the union -- in other words, right-to-work laws prohibit the so-called closed shop. (I'm not versed in all the ins-and-outs of agency dues and all that and the details of the latest SCOTUS decisions, but if you're in a right-to-work state and it's a private employer, I don't think the dues issue even arises: the employee doesn't have to join the union and doesn't have to pay any kind of dues. On the other hand, if it's *not* a right-to-work state and it's a private employer with a union, the employee either has to join the union or pay dues of some kind. [Though many years ago, when I worked for a private employer in D.C. which was unionized, employees didn't have to join the union or, afaik, pay dues, though possibly some dues were automatically taken out of their paychecks. But those of us who did join the union paid more. At least that's my recollection].)
LFC,
I have to clarify what I meant. You are correct that state right-to-work laws apply to both public sector and private sector employers in that state. But they do not apply to federal employees, so I thought that the federal employee statistics which Ahmed cited were not relevant. Private sector employers and labor unions are not governed by state law, they are governed by the National Labor Relations Act (Wagner Act) (1935); the Taft-Hartley Act (1947); and the Landrum-Griffin Act (1959). Prior to Taft-Hartley, unions could include closed shop provisions in their collective bargaining agreements, requiring that new employees join the union. Section 14(b) of the Taft-Hartley Act, however, outlawed closed shop agreements, which allowed the states to enact right-to-work laws which did not require employees to join private sector unions. However, this did not eliminate agency shop provisions, which require that even if a private sector employee does not join the union, s/he still has to pay union dues. So, what I should have said above is that right-to-work laws, which only apply to private employers in states, do not affect federal employees, and therefore the statistics which Ahmed was citing had nothing to do with right-to-work laws.
But this still leaves agency shop in place, which right-to-work laws may not eliminate. So why would private sector employers prefer to set up shop in right-to-work states if their non-union employees can still be required to pay union dues? Because it gives them greater leverage in fighting new unionization efforts to establish a union where one does not already exist. The employer can appeal to employees who are not pro-union to vote against unionizing, since they cannot be forced to join the union, but if a union is formed, the union can force them to pay dues under an agency shop provision. So they will vote against forming a union to avoid having to pay union dues.
(Continued)
In the public sector, agency shop provisions were held to violate the 1st Amendment if the union dues were used to support political positions that some employees did not support. Requiring them to pay union dues violated their right under the 1st Amendment, which applies to public sector employers under the 14th Amendment, not to be forced to engage in “compelled” speech (like the Supreme Court decision which held that the New Hampshire license plates which read “Live Free Or Die” violated the 1st Amendment). Under such circumstances, the non-union public employees were still required to pay “fair share” union dues – a percentage of the regular union dues which could only be applied to collective bargaining issues.
However, in Janus the S. Ct. also held that even the requirement that non-union public employees pay fair share union dues violated the 1st Amendment, because some non-union employees even oppose collective bargaining agreements which affect the public employers’ coffers in ways that some public employees may disagree with. Therefore, public employees can both opt out of joining the public sector union and also refuse to pay any part of the union dues, leaving it up to the employees who do support the union to both join the union and finance the union. This allows the non-union employees to both refuse to pay any union dues, but still insist that the union enforce the collective bargaining agreement in their favor, e.g., the just cause provision of the collective bargaining agreement in the event the non-union employee is disciplined or terminated. Under the duty of fair representation doctrine, the union must represent all of the employees, not just the union members. I believe that requiring a public sector union to provide a legal defense to a non-union employee who refuses to pay union dues violates the 5th Amendment – “No person shall … be deprived of … property without due process of law[.]” Requiring the public sector union to provide a service (union representation) to a non-union employee who refuses to pay any union dues is depriving the union of its property – its service, , paid for by the union members, – without compensation. It equates to a form of involuntary servitude. The solution should be to abrogate the duty of fair representation’s application to non-union public employees – they should not be allowed to insist on enjoying the benefits of collective bargaining if they are not willing to help pay for them. After the Janus decision was issued, I contacted the AFL-CIO headquarters indicating that I thought this aspect of the decision violated the 5th Amendment and encouraged them to file such a lawsuit. They never got back to me.
"Also, unions are violent in nature."
Google "Pinkertons," Homestead," and "Harlan County" for a start.
"They say in Harlan County
There are no neutrals there.
You'll either be a union man
Or a thug for J. H. Blair."
AA
Thank you, that's v. clear and comprehensive and corrects a couple of misunderstandings on my part.
P.s. Was Janus the case that overruled Abood?
When I got my first job with the Dept. of Justice in 1966, after getting out of the Army, my salary as a GS-11 was $9,221. This was 124% of the median household income of $7,400. Today a GS 11 starts at $56,983, which is 84% of the median household income of $63,521.
OFF TOPIC: It's worth looking at those median income figures in light of college tuition costs. Tuition for my three years of law school (1960-1963)was $3,750. It was probably a little higher in 1966, but not by much. Today a single year at the same school is $61,626.
LFC,
Yes.
The rights that unions give you are meaningless if you don't have a job. You can talk about how awesome unions are until you're blue in the face, but it means nothing to someone who is unemployed.
As I wrote earlier, unions deter capital entry. And unlike the other factors of production, capital is mobile. Without capital, there is no production. So the production takes places elsewhere, and you can follow it there, or you can sit and starve where you are, your union rights notwithstanding.
I also wrote earlier about capital-labor substitution. Ball State University did a study that showed that 87% of job losses in US manufacturing were due to automation, the remaining 13% were due to off-shoring. Most of the job losses in the latter come back in trade in the export sector.
As I'm sure you know, unions are strongest in the manufacturing sector. It was those high union wages that encouraged automation. Of what use are those high wages if they leave you unemployed?
As regards Amazon, I did a Google search for you for "Amazon" and "robots". Here's a quote:
At the center of this debate is Amazon, a company that employees hundreds of thousands of employees in its massive warehouse network, which is also a company whose investment in robots and other automation technologies means it could one day be a huge job eliminator, too.
In 2012, Amazon spent $775 million to purchase a young robotics company called Kiva Systems that gave it ownership over a new breed of mobile robots that could carry shelves of products from worker to worker, reading barcodes on the ground for directions along the way.
But it also gave Amazon the technical foundation on which it could build new versions of warehouse robotics for years to come, setting the stage for a potential future where the only people inside Amazon’s facilities are those employed to maintain and fix their robotic replacements.
Today, Amazon has more than 200,000 mobile robots working inside its warehouse network, alongside hundreds of thousands of human workers. This robot army has helped the company fulfill its ever-increasing promises of speedy deliveries to Amazon Prime customers.
source: How robots are transforming Amazon warehouse jobs — for better and worse
We need a guaranteed minimum income paid for by taxing billionaries like Bezos and after that, let the robots do the work, at least in boring, meaningless jobs like working in Amazon warehouses.
I, for one, welcome our new robot overlords.
s. wallerstein,
The purpose of taxation is to release resources. You don't get that by taxing Bezos more because Bezos has a low marginal propensity to consume, which means Bezos will go on spending as he does now. The extra money you give workers in that minimum income will add to demand, but will add nothing on the supply side. That will lead to inflation, which the Fed will counter with higher interest rates, thus taking the money away from those poor workers and giving it back to Bezos again in the form of higher interest payments on his wealth.
What fiscal policy giveth, monetary policy taketh away.
As Scott Sumner says, the Fed moves last.
Here in Canada, we have headlines like these:
Investors expect Bank of Canada shift to half-percentage-point rate hikes
TORONTO, March 29 (Reuters) - As Canada's inflation outlook worsens, investors are betting the country's central bank will begin hiking its key interest rate in half-percentage-point increments, with the first of the rarely used upsized moves possibly coming as soon as next month.
Ditto for the US.
As recently as December, Fed officials had expected to raise rates just three times this year. Now, its projected seven hikes would raise its short-term rate to 1.875 per cent at the end of 2022. It could increase rates by a half-point at future meetings.
Again, the Fed moves last. Whatever the government does, the Fed will counteract to the same degree in the opposite direction.
For the 247th time, the fiscal multiplier is roughly zero
Keynesian economists have never been able to accept my assertion that the fiscal multiplier is roughly zero because the Fed steers the (nominal) economy. There’s a mental block on their part (or on my part from their perspective) that prevents us from seeing eye to eye on the issue, even if we agree on the need for monetary stimulus. —Scott Sumner
I should note that the power of monetary policy is asymmetric, weak on the stimulus side, i.e., "pushing on a string", and powerful on the restrictive side, i.e., "pulling on a string". We're about to see the power of a central bank on the restrictive side.
The Fed is going to take all your money away in higher interest payments on your debt and give to Jeff Bezos where he won't spend it because he already has a yacht.
Ahmed Fares,
You assume that in a system with a minimum guaranteed income and in which billionaires are heavily taxed nothing else is going to change, that the fed is eternal and unchanging, that the capitalist system in its present form is eternal and unchanged and given by God from Mount Sinai.
I assume that humanity can invent a new economic system, a more just one.
Ahmed Fares
In a better system capital would be less mobile, less able to take advantage of offshore tax havens etc. Would require some co-ordinated action across natl govts. We're beginning to see a little bit of this, re corporate minimum taxes, but more is needed.
Also you say Bezos would benefit from the Fed's higher interest rates. Probably he wd a little bit but only a little bit, bc most of his wealth is likely not in interest-bearing accounts. Rather, his wealth is likely in the stock market, offshore havens, it's
in yachts, houses, fancy cars, his Blue Origin company, etc. etc. And it's not as if the stock market is going to go up reliably and quasi-automatically in response to the Fed raising interest rates. Even the most casual observer knows that's not the case.
s. wallerstein,
As an MMTer, we are taught to think in terms of resources and not in terms of money. This position is not unique to MMT. Here, Scott Sumner quotes Matt Yglesias (Matt's quote is the part in bold):
I have often advocated a progressive consumption tax. If you try to “tax the rich” without reducing their consumption, then you aren’t actually taxing the rich. Who are you taxing in that case? Perhaps you are reducing the amount that the rich put into investment projects. Or maybe you are reducing the amount that the rich donate to charity. But if you are not reducing the consumption of the rich, then it’s hard to see how you are freeing up resources that can be used to help the non-rich.
In a recent post, Matt Yglesias did a nice job of explaining how public policy is ultimately not about moving money around, it’s about shifting resources from one use to another:
I do see the view, from a standpoint of abstract cosmic justice, that it’s annoying to see someone like Elon Musk or Jeff Bezos get so rich without contributing more to the Treasury. So there is a case for taxing wealth or unrealized capital gains or at a minimum changing the stepped-up basis rule. But fundamentally, I do think there are profound reasons why things like VAT and payroll taxes are the workhorses of European welfare states. Musk is not employing 10,000 butlers who can be taxed away and turned into preschool teachers. Inducing him to liquidate financial assets and fork over the proceeds does not generate any real resources that are available for new use. What a Nordic-style tax system does is broadly constrain consumption in order to free up resources for more extensive consumption of health, education, and other social goods.
Also, whether Bezos "goes on spending as he does now" has no causal connection to "the release of resources."
Suppose Bezos is taxed at rate X and he buys an expensive painting. Then he's taxed at rate X + 1 and he still buys the painting. So what? Assuming (a big "if") the govt is able to close off his tax loopholes and havens, it will get more money from him.
In other words, Bezos' "marginal propensity to consume" is irrelevant bc the govt doesn't care about his consumption habits, esp not at the margins. What it cares about (in this scenario) is getting him to pay more to the govt in taxes.
Yglesias' quote that if you don't the reduce the consumption of the rich, you aren't taxing them makes very little sense.
If a billionaire pays the govt a million dollars, the govt has a million dollars which it can then, if it chooses, redistribute to those who have less.
Whether the billionaire still goes on buying wine, paintings, and other luxury goods doesn't affect much of anything. It's not "taking resources" out of the economy unless you assume that the contemporary painter whose canvases sell at 10 million a pop would otherwise be working in an Amazon warehouse or wherever and increasing the GDP somehow more. Which is a strained assumption, to say the least.
Contrary to Yglesias, when you get Musk to "liquidate financial assets and fork over the proceeds" you *are* generating "real resources" bc you can take "the proceeds" and, for example, increase funding of community colleges, say, which will train more people (say, nurses or physicians' assistants) who will add "real resources" to the health care system.
LFC,
"The problem with these people is that they think money grows on rich people." —Stephanie Kelton (Professor of public policy and economics at Stony Brook University)
You're still thinking in terms of money and not in terms of resources. The government as the issuer of fiat currency has no need for money because it creates money when it spends. In point of fact, the money it collects in taxes it throws away.
The purpose of taxation is to regulate aggregate demand. This you do by taxing the middle class to free up resources. You should tax the rich anyway to reduce their political power, but you must tax the middle class to free up resources, as taxing the rich does not release resources.
The rule is that for someone to spend more in an economy, someone else has to spend less. If you tax Bezos an extra dollar, he will not reduce his consumption by a dollar. When you give that dollar to a poor person who will spend it, aggregate demand will rise by a dollar, which is inflationary. The central bank has to then step in and increase interest rates such that you take away that dollar from the poor person.
To repeat, the Fed moves last. If the government gives money to poor people to help offset the increased cost of higher interest rates, the Fed will have to raise interest rates to a level higher than would have otherwise been the case. Were the Fed not to act, then inflation would destroy purchasing power that way and destroy the currency in the process. There is no choice in any of it.
LFC,
If a billionaire pays the govt a million dollars, the govt has a million dollars which it can then, if it chooses, redistribute to those who have less.
From an economics perspective, it makes no difference if the government taxes a billionaire a million dollars and gives it to those who have less, or just prints the money up. The effect is exactly the same. Aggregate demand will rise by a million dollars, which will lead to higher inflation, which in turn leads to higher interest rates, which in turn reduces aggregate demand by various channels of monetary policy. Those who have less will be no better off, and the rich will be no worse off.
To repeat what Scott Sumner said, the fiscal multiplier is roughly zero. Not one, or one point something, but roughly zero, as in having almost no effect. This is referred to as "monetary offset".
Why the Fiscal Multiplier is Roughly Zero
If the central bank is steering the economy or, more precisely, nominal aggregates, such as inflation and nominal GDP, then fiscal policy would be unable to impact aggregate demand. As an analogy, imagine a child attempting to turn the steering wheel of a car. The parent might respond by gripping the wheel even tighter, offsetting the push of the child. Even though the child’s actions would initially change the direction of the car, ceteris paribus, the parent will push back with equal force and correct this turn to keep the car on the road.
"Unions are a bad thing, Not a good thing"
And fire departments are a bad thing also. And that goes triple for police. And even more for military. Total wastes of resources in a perfect world.
Maybe you might read up on some of the history of the actual world to get a clue about who and how unions have helped over the years. And who it is that opposes them.
And as an MMTer also, I think it is important to say that most MMT economists I have read do not seem to share Ahmed's views of labor unions, or his ideas about how the labor market works in actuality. Many would disagree with the somewhat pro-capitalistic, libertarian point of view that Ahmed seems to support in these comments here.
I'm not ready to accept the MMT proposition that the govt has an *unlimited* ability to create money in any amounts with no kind of adverse effects.
"The purpose of taxation is to regulate aggregate demand."
No, I don't accept this proposition either.
Consumption is only one part of aggregate demand, at least as I learned it many years ago. (I don't know, do economists not use the C + I + G formula anymore?)
Whether a rise in aggregate demand is inflationary depends on a lot of things I would think, including supply conditions, tightness of labor and other markets etc etc.
The notion that when a poor person's purchasing power increases, inflation must increase, and the Fed then has to raise interest rates -- it doesn't always work that way. The Fed is raising rates now, but not nec. b/c poor people's purchasing power has increased.
What do you mean by "free up resources"? How does taxing the middle class do that? Let's say I'm middle-class person X. My taxes go up, so I cut down on discretionary purchases. Let's say I stop going to restaurants or buying take out (assume no pandemic for simplicity's sake). How does that free up resources? The restaurants won't go out of business, they might change their menus to appeal to a more upscale crowd, but no resources have been freed up in this example. You've just changed one middle-class person's consumption habits. You can multiply that to scale and you still haven't freed up resources that I can see.
You seem to think "resources" denotes some material thing, unlike "money," which is meaningless. But when Bezos bought his multi-zillion dollar yacht, he didn't pay for it with resources. He paid for it with money. He caused resources to be used up in the building of the yacht, but that's a different point.
Here's another question.
Last month I received a small check from the IRS. Someone in the understaffed IRS bureaucracy had finally gotten around to reviewing my tax return from last year and they said I had calculated something wrong and that I had paid them a little bit more than I actually owed.
If the main purpose of taxation is to regulate aggregate demand, then why in the world is the IRS bothering to do this? The small check they sent me is not going to change my consumption habits at all, so its effect on aggregate demand will be zero. I mean, it was enough to buy a few hardcover books, maybe, but I didn't go to a bookstore and do that when I received the check. I just deposited it in the bank.
Jerry Brown,
MMT is agnostic as regards labor unions. You can be on the right or on the left and still follow MMT. You would know that if you had read Bill Mitchell.
LFC,
When middle class people stop going to restaurants on account of higher taxes, the labor being used in those restaurants is freed up to be used elsewhere.
As for my other points, I always assume an economy operating at full capacity. Yes, you can take money from the rich and give it to the poor without inflation if the economy is below capacity, but you could just as easily print up the money. Either way, there would be no inflation. But once the output gap closes, you would have to stop doing that. If you don't, the Fed will take care of that for you.
As for your point about the IRS and taxes, taxes affect people differently based on their marginal propensity to consume. I think a few dollars here or there don't matter for most people.
Jerry Brown,
Here's your quote (bolding mine):
MMT is not a new regime that we will shift to.
A government does not suddenly ‘apply’ or ‘switch to’ or ‘introduce’ MMT. We can’t abandon MMT like the Soviet system was abandoned.
Rather, I wanted people to see MMT as a lens which allows us to see the true (intrinsic) workings of the fiat monetary system.
It helps us better understand the choices available to a currency-issuing government.
It allows us to understand that most choices that are couched in terms of ‘budgets’ and ‘financial constraints’ are, in fact, just political choices.
There are no financial constraints on a currency-issuing government, only real resource and political constraints.
MMT at this stage is about understanding.
In that sense, MMT is neither right-wing nor left-wing – liberal or non-liberal – or whatever other description of value-systems that you care to deploy. —Bill Mitchell
LFC @ 9:03, I'll go through your comment, just to try to clear a few things up.
"I'm not ready to accept the MMT proposition that the govt has an *unlimited* ability to create money in any amounts with no kind of adverse effects." This is not an 'MMT' proposition. They do not say that.
"The purpose of taxation is to regulate aggregate demand." That is indeed one effect of taxation according to MMT- but there are others and this is not the 'fundamental' purpose of taxation for a currency issuing government according to MMT. That would be to create a demand for the currency by imposing taxes that need to be paid in that currency.
"Consumption is only one part of aggregate demand, at least as I learned it many years ago. (I don't know, do economists not use the C + I + G formula anymore?)" Yes they do and MMT pays more attention to this kind of definitional equation than most economics does.
"Whether a rise in aggregate demand is inflationary depends on a lot of things I would think, including supply conditions, tightness of labor and other markets etc etc." Absolutely. And I doubt you could find an MMT economist that didn't agree with you.
"The notion that when a poor person's purchasing power increases, inflation must increase, and the Fed then has to raise interest rates -- it doesn't always work that way. The Fed is raising rates now, but not nec. b/c poor people's purchasing power has increased." Yes you are right and that goes back to your previous points. What Ahmed might have been referring to could be the idea of differing 'marginal propensity to consume' between different income strata that I think is associated with Keynes.
And then the taxes free up resources thing. I can explain the thinking behind that if you are interested, but it would take quite a bit more time.
Ahmed Fares, there are no MMT economists that I know of that think it is useful to assume an economy is usually operating at full capacity. Most of them criticize 'mainstream' economics because this assumption is embedded in their analysis.
And I am well aware of Bill Mitchell's writing on the subject. And I agree with him. The point is he would not agree with your characterization of unions by any stretch of imagination. And you know that if you have read him.
@ Jerry Brown
Thanks.
Too late in the evening for me to write anything further now.
Ahmed,
Your anti-union comments, supported by your convoluted economic analysis, reminds me of this scene from It’s A Wonderful Life.
https://www.youtube.com/watch?v=CwS54n7ECCQ
Post-Script:
In the movie, Mr. Potter’s first name is never revealed. He is only referred to as “Mr. Potter.” Query: Did J.K. Rowling select the name of “Harry Potter” as the name for her protagonist as a generous, empathic foil to Lionel Barrymore’s selfish, greedy Mr. Potter?
When I had a more active law practice, I did a fair amount of wrongful termination cases, representing non-union employees who had been terminated without good cause. Under Michigan law, the good cause requirement could be based on a statement in an employer’s policy manual, or something said during the job interview, which implied that discipline or termination had to be justified by “good cause.” It never ceased to amaze me how the employer’s attorneys came up with creative theories to avoid the good cause requirement, as if they stayed up late at night figuring out how to screw employees. The doozy theory was the post-termination good cause discovery theory. The theory was, if during the discovery phase of the lawsuit, the employer’s attorneys found something that the employee had done before the termination, about which the employer did not know, but if the employer had known - like that on September 9th prior to the termination on October 15th - the employee had taken two pencils home and kept them, this would have constituted good cause for termination, even if the reason given for the termination did not constitute good cause. When I first encountered this theory, I thought surely the courts will not buy this counterfactual malarkey. But buy it they did. So, I made sure to emphasize, even more than I had previously, before my clients were deposed to warn them to keep their answers short; answer only the question you are asked; do not volunteer anything; and remember, regardless how friendly the opposing attorney may seem, s/he is not your friend.
Is not the real disskusion that needs to be held, the one that arises from automation/digitization. Employees who work 24/7, never get sick, do not need vacation, do not get pregnant, and do not work worse because of a dispute in the marriage, etc. etc. do not need a union.
In particular, this development will not leave any area of "physical work" untouched. It has long since ceased to be "just" about jobs in banks, administrations and so on. The construction industry, which has so far been largely resistant to this "robot technology", is successfully experimenting with so-called 3d printers, which in the foreseeable future will be able to eliminate 2/3 of the jobs on construction sites and replace the last 1/3 by specialized technicians. In the end, perhaps 5-10% of jobs will remain that are performed by humans.
So, by far, it will not only affect Amazon's warehouses, but also the production sites of the goods that are turned over in these warehouses.
Another Anonymous,
re: the hold-up problem
In economics, the hold-up problem (or commitment problem) is central to the theory of incomplete contracts, and shows the difficulty in writing complete contracts.
The hold-up problem is a situation where two parties may be able to work most efficiently by cooperating but refrain from doing so because of concerns that they may give the other party increased bargaining power and thus reduce their own profits. When party A has made a prior commitment to a relationship with party B, the latter can 'hold up' the former for the value of that commitment. The hold-up problem leads to severe economic cost and might also lead to underinvestment.
That underinvestment is what I was referring to when I said that unions deter capital entry. While the union helps the workers who have union jobs, it drives capital away, leaving other workers unemployed.
In the example of Michigan before it was a right-to-work state, new capital investment and the associated jobs went to the right-to-work states instead.
So when you say unions are good for workers, which workers in particular are you referring to, the ones that have union jobs or the ones that don't have jobs at all because of unions?
You know who else is anti-union? Michigan.
A majority of Michiganders -- 51 percent -- support Right to Work legislation, while just 41 percent oppose it, according to a Mitchell Research and Communication poll released exclusively to the Detroit News Tuesday. Pollster Steve Mitchell calls that "very solid support." Previous surveys have showed support as high as 55 percent.
Another Anonymous,
Europe has much stronger labor laws that protect workers. The price they pay for that is higher unemployment rates as compared to the US. Because it's so hard to fire workers, businesses respond by not hiring them in the first place, having their existing workers work overtime instead.
The law of unintended consequences.
Every Western European democracy has a lower gini co-efficient than the U.S. does. That's what counts in the end, how the income and wealth are distributed.
The hideously unequal income and wealth distribution in the U.S. is a major factor behind the rise of Trump and the populist far right.
@ Ahmed,
you know, I have read your comments here carefully and I must confess that I cannot always follow your interesting arguments, which is not your fault, but mine. I am not an economist.
However, I am a bit confused by your evaluations. You write:
"... That underinvestment is what I was referring to when I said that unions deter capital entry ... "
in the same sentence further, the conclusion (valuation) follows:
" ... While the union helps the workers who have union jobs, it drives capital away, leaving other workers unemployed."
The effect you describe may be as you say, but the cause, i.e. the lack of capital inflow, is not prevented by the union after all, it is not done by the investors. The motivation of the investors may of course be: Because there is condition A at location A, I do not invest, but prefer to invest at location B because condition A does not apply there. Condition A is always negative for my profit.
It is a difference whether one constructs mathematical models or whether one tries to expose oneself to reality in which, in contrast to mathematics, there are "acting subjects". These decide, rationally or irrationally, in any case however in such a way that we can judge them regarding their actions. Thus we learn that behind "the capital" there is a decision maker who "does not invest" and behind "the union" someone who "does not distribute anything".
Your sentence seems like this: " " is pure ideology !
RPW's original post was about the Amazon workers in Staten Island (iirc) who voted to unionize. That decision is not going to deter capital from investing in NY. There is no very plausible causal pathway from "some Amazon workers in NY voted to unionize" to an exec in an unrelated business saying "hmm, we'd better reconsider our decision to open a store or [a widget factory] in Buffalo now that those Amazon workers in Staten Island have decided to unionize." I don't think that's how decisions of this sort are made.
Of course there are businesses who prefer right to work states but there are others that may care more about being in a state w a more highly educated workforce, for ex, or one with better infrastructure, or whatever. Only a tiny percentage (I forget the exact figure) of the U.S. private sector is unionized now.
Ahmed,
As best I can tell, your argument comes down to the following: The world being what it is, and employers and business owners being what they are, unionizing can never succeed, because the employers and business owners will always find some way to get around the unions, by, for example, going to states which discourages unions via right-to-work laws; or where the workers are less educated and would rather take lower pay just so they can avoid paying union dues. So, the net effect of unionizing ultimately hurts workers and unionizing is futile. Workers should just accept the realities of life and the human condition and not unionize. Employers and business owners win by default.
Your argument superficially sounds logical and irrefutable. But it isn’t, and your conclusion is wrong.
If I may analogize (sorry s. wallerstein): Suppose there is a dam which springs a leak. The residents of the nearby town rush to seal the leak, and the leaking stops, momentarily. But then another leak springs up in another part of the dam, and the townspeople rush to seal that leak. But then another, and another, and another leak springs up. The townspeople are tired and conclude there is nothing they can do to stop all the leaks. So they throw up their hands in futility, and let the dam collapse, swamping their town. But they failed to see what the solution was – rather than spending their time sealing the leaks, they should build another new dam directly in front of the old dam, built with better materials and stronger. Don’t give in to the realities of dams and hydrodynamics. Fight back. They don’t have time to build a new dam, you say. There are not enough townspeople to get it done in time? Well, then the townspeople should go to the next town down the river which will also be flooded if the dam breaks, and persuade them to join them in building the new dam. The more people who help building the new dam, the sooner it will get built – before the old dam bursts.
The solution to the realities of life and business which you identify is not to abandon unionizing altogether, but to persuade workers in every state to unionize, so that the employers and business owners will have no place to go in the United States where there are no unions. This is not feasible, you say? Well, it won’t be feasible if the workers listen to rationalizations like yours. The solution to the realities you identify is not to give in and give up, but to fight back. Workers have to be persuaded that they are all in this together, whether they live in New York or Mississippi. As the union song goes, Solidarity Forever.
Employers and businesses will respond by just not hiring new employees, you say. Well, how long can that last? Workers get sick; they move; they die. Employers will always be able to find scabs who will be willing to work without a union just to put food on their table and clothe their family, you say. Don’t deter those scabs by beating them up. Have the union supporters and the union organizers join ranks and share their food and clothing with the scabs, so that they do not have to go crawling to the employer for scraps. There are two sides to the realities of life argument, not just the employers’ side. Change the realities in favor of the unions.
But then the businesses will just go overseas, you say. As long as there is a weak link in the chain somewhere, employers and businesses will find some way to exploit it. But do the families of all these businesses want to move to another country? Change the laws so that these businesses cannot use the money they earn in other countries to pay themselves salaries here in the United States.
(Continued)
You point out the statistics in Michigan that indicate a majority of Michigan citizens prefer right-to-work laws over unions. The unions should point out to these Michiganders that right-to-work laws in the private sector do not prohibit the union from collecting agency fees, so they will still have to pay union dues – union dues which will be used to get them higher pay and better benefits. Why should they settle for lower pay and inferior benefits just so they don’t have to join a union upon being hired? And the solution in the public sector is to file a lawsuit challenging the right of a non-union employee who refuses to pay any union dues, but who has been terminated without cause and demands that the union represent him in court, to refuse to do so and let the employee sue the union. Then argue that requiring the union to represent the free-loader violates the Fifth Amendment- if you want union representation, you have to pay for it. No tickee, no representation. (I am willing to file such a lawsuit and represent any public sector union which wishes to make this argument by refusing to provide union representation to an employee who refuses to pay fair-share union dues, but who demands representation to challenge his being disciplined by the employer.)
This sounds like Communism, you say. Well, not really. I am not saying take the assets of the employers and businesses away and distribute them to the workers. Use the union mechanism to force the employers to negotiate collective bargaining agreements which improve the income and benefits of the workers. Force them to do it by negotiation, not by government ukase.
The alternative of declaring defeat based on the current business reality leaves workers forever at the mercy of employers and businesses. There is an alternative reality which favors all workers. The unions have to educate them that biting off their noses to spite their faces is not an intelligent thing to do.
Another,
For once, I agree 100% with what you just said.
Thank you. You even like my analogy?
It's your best analogy so far. Any analogy which helps unionize workers is a great analogy!
Post-Script:
I have thought of a faster way in which a public sector labor union can challenge the Fifth Amendment violation aspect of the Janus decision. Rather than waiting to find a non-paying public employee who demands to be represented in a union grievance challenging his being disciplined by the employer, a public sector labor union should file a lawsuit against the public sector employer seeking an injunction against the employer to desist paying the employees who refuse to pay their fair-share union dues the differential between the pay scale in the current collective bargaining agreement and the CBA which existed before Janus was decided. Argue that paying these employees the increased wages violates the Fifth Amendment because it allows these employees to benefit from the time and effort which the union negotiators expended on negotiating and enforcing the new CBA, without having paid for that time and effort. This constitutes a “taking” in violation of the Fifth Amendment (and the comparable provision in the state’s Constitution). I am willing to represent any union which is willing to file such a lawsuit, for free.
Capital is mobile and holds the power until it decides to build a plant somewhere, and then it has sunk costs. If a union forms, the power then swings over to labor. But then other businesses decide not to locate there.
Detroit currently has a population of a little over 600k.
Of the large shrinking cities in the United States, Detroit has had the most dramatic decline in the population of the past 70 years (down 1,210,457) and the second-largest percentage decline (down 65.4%). While the drop in Detroit's population has been ongoing since 1950, the most dramatic period was the significant 25% decline between the 2000 and 2010 Census.
Previously a major population center and site of worldwide automobile manufacturing, Detroit has suffered a long economic decline produced by numerous factors. Like many industrial American cities, Detroit's peak population was in 1950, before postwar suburbanization took effect. The peak population was 1.8 million people.
Following suburbanization, industrial restructuring, and loss of jobs (as described above), by the 2010 census, the city had less than 40 percent of that number, with just over 700,000 residents. The city has declined in population in each census since 1950. The population collapse has resulted in large numbers of abandoned homes and commercial buildings, and areas of the city hit hard by urban decay.
One of the reasons given for that decline was automobile manufacturing moving to right-to-work states.
As for the idea that you could solve the problem of businesses locating in right-to-work states by unionizing everywhere, that would just increase capital-labor substitution. Businesses in union states have two options: locate in right-work-states or replace labor with capital. Remove the first, and you'll get more of the second.
AA, a SC that is capable of doing Shelby Co, Janus, Rucho, etc. would have no problem deciding against a union claim.
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