Monday, December 28, 2020

The Liberal vs Libertarian Healthcare Stalemate

"There are two health policies that liberals and libertarians would both prefer to the status quo. The first is a free market plus redistribution for the poor. The second is bare bones, high-deductible national health care, with a free market for all add-ons.

The reason neither are likely to happen is mistrust. Liberals think that if they sign on for the free market plus redistribution, the redistribution won’t actually happen. Libertarians think that if they sign on for bare bones national health care, the cost will quickly increase." - via Bryan Caplan

Sunday, December 27, 2020

The Inequality Debate

 A good friend of mine, recently turned lefty, has been harping on the income inequality tune lately. It's new to him, so he finds it quit convincing. We've been going back and forth on it now for some months (see here and here, for example) but he tried to address all of my arguments in one post. See here.

My response was too long for a single comment, so I broke it down into bits. I thought I'd post it here in full (with some minor typo and other corrections) for others to see as well. It's a good intro to the income inequality debate and the response to it from those that disagree.

You can start with his post here and my response is below.

Finally, a response. You have been harping the income inequality argument for some time now, and simply ignoring the responses that have come (see here and here, for recent examples). Lets discuss.

First, family size. You write, I'm told that the increase in inequality is due to the changing family structure. More single family homes. It's interesting that a lot of these responses I get come without evidence. It's just a claim that sounds plausible.

This is the wrong way to look at it Jon. Remember, it's not the right that is making the income inequality argument, it's the left. The reason you don't find a lot of responses controlling for family size is because frankly, there are few, if any solid ones. But that speaks ill of the left, not the right: after all, income inequality is their argument - their primary argument, in many ways - and the fact that they haven't taken the time to control for such basic differences speaks badly of their academic objectivity, wouldn't you say?

With that said, all you had to do was ask. Here is one, two, three, four, five, six, seven, eight and nine responses that deal directly with family size.  Remember, it's not just divorce rates and working hours that matter, it's also immigration and more importantly, the rise in single mothers and the age of the population that matters.

Second, total compensation. Were not just talking about 401k's here, were primarily talking about healthcare costs. And when you factor those in, almost all of the income inequality disappears. Cornell University professors Richard Burkhauser and Kosali Simon write in a NBER paper:

In this paper we take estimates of the value of different types of health insurance received by households and add them to usual pre tax post transfer measures of income from the Current Population Survey's March Annual Demographic Supplement for income years 1995-2008 to investigate their impact on levels and trends in measured inequality. We show that ignoring the value of health insurance coverage will substantially understate the level of economic well being of Americans and its upward trend and overstate the level of inequality and its upward trend. (emphasis mine)

But again, doesn't the dearth of studies that take into account health care costs and 401k's say something about the academic integrity of those that constantly put forth the income inequality argument (the economists, that is)? It's like they are cherry picking the data that most fits what they want to believe.

Third, consumption inequality. Then there are mitigating factors to income inequality. Income inequality just looks at the inputs to income but what about the outputs? In other words, instead of looking at wages, lets look at purchasing power. And when you do that, you see that the trend is the opposite:

Looking at trade data between 1994 and 2005, Broda and Romalis construct inflation rates for different income groups and find that rates for the richest outpaced rates for the poorest by about 4 percent over the period. Since income inequality between the top and bottom 10 percent of earners grew by about 6 percent, the different inflation rates among income groups wipes out about two-thirds of the rise in inequality.

This study is by two University of Chicago economists. This is how University of Chicago economist Steve Levitt (and author of Freakonomics) puts it:

Their argument could hardly be simpler. How rich you are depends on two things: how much money you have, and how much the stuff you want to buy costs. If your income doubles, but the prices of the things you consume also double, then you are no better off.

When people talk about inequality, they tend to focus exclusively on the income part of the equation. According to all our measures, the gap in income between the rich and the poor has been growing. What Broda and Romalis quite convincingly demonstrate, however, is that the prices of goods that poor people tend to consume have fallen sharply relative to the prices of goods that rich people consume. Consequently, when you measure the true buying power of the rich and the poor, inequality grew only one-third as fast as economists previously thought it did — or maybe didn’t grow at all.

What caused this dramatic drop in the prices of goods purchased primarily by the poor vs those by the rich? Levitt explains that as well:

Why did the prices of the things poor people buy fall relative to the stuff rich people buy? Lefties aren’t going to like the answers one bit: globalization and Wal-Mart!

China is able to produce clothes, electronics, and trinkets incredibly cheaply. Poor people spend more of their income on these sorts of things and less on fancy cars, expensive wine, etc. According to Broda and Romalis, China alone accounts for about half of their result....

MIT economist Jerry Hausman (who taught me econometrics in my first year of graduate school) and co-author Ephraim Leibtag have analyzed the impact of the entrance of a Wal-Mart superstore on local food prices.

Not only are Wal-Mart’s prices lower, but its entry also induces competitors to lower prices. The impact is much larger on the poor than the rich, both because the poor are more likely to shop at Wal-Mart and because they spend more of their income on food.

In other words, the two greatest forces in mitigating the impact of income inequality are precisely the other two things the left dislikes most: globalization via China and Walmart.

With that said, I don't want to leave the impression that I think there has been no increase in income inequality. I do believe that there has been in fact real inequality and it has been growing (and for precisely the same reasons economists generally believe: technology, greater division of labor etc). I just disagree with the magnitude and more so, the importance of it.

Fourth, culture. Much of the increase in income inequality is a result of cultural changes, specifically in marriage mating. Arnold Kling writes:

There is also another factor at work. A trend is underway in America for marriage to be increasingly “assortative.” That means children of well-educated parents tend to marry one another and the children of less educated parents tend to marry one another. This was less the case a few generations ago. For example, sociologists Christine Schwartz of the University of Wisconsin and Robert Mare of UCLA found that beginning in the early 1970s there was a striking “decline in the odds that those with very low levels of education marry up.” And they found that between 1940 and the late 1970s the likelihood that someone with only a high-school diploma would marry someone with a college degree dropped by over 40 percent.

Indeed, economists Betsey Stevenson and Justin Wolfers at the Wharton School at the University of Pennsylvania believe that a revolution in modern marriage has taken place. According to their view, two generations ago, a husband and wife married in order to share production, with the man working in the market and the woman working at home. Today, the husband and wife are both likely to work in the market, and they choose one another because they have similar tastes in consumption....

Stevenson and Wolfers point out that it may well have been the case a few generations ago that “opposites attract” and the production-based marriage benefited from differences in backgrounds and skills. Today, the consumption-based marriage benefits from the couple’s similarities. Thus, marriage becomes less a driver of mobility across income segments and more a driver of income inequality.

The full article, which I highly recommend, can be found here.

Fifth, the benefits of income inequality. Let's remember from our basic economics course that some income inequality is good. It serves as a signal mechanism to encourage more productive behavior, such as, getting an education. This is the basic argument that Gary Becker and Kevin Murphy of the University of Chicago make here.

Sixth, the irrelevance of income inequality.There are powerful arguments on why income inequality should be ignored. For example, here and here. But my favorite of em all, is the growing irrelevance of income inequality. Don Boudreaux explains:

But I here suggest that economic growth, even as it might generate ever-larger income inequality, increasingly renders these same differences in money income or wealth less and less relevant as a measure of differences in quality of life. Some examples:

- Inexpensive consumer electronics enable almost all Americans, even the poorest, to listen at their leisure to the world’s finest orchestras perform great music; contrast now with, say, 1880, when only the relatively rich could afford to hear great music – and only the superrich (by hiring their own chamber orchestras) could enjoy listening to such music whenever they wished.

- Today’s inexpensive Chevrolets and Kias are more reliable and better equipped than were top of the line Cadillacs of 40 years ago.

- Fifty years ago European vacations were a luxury enjoyed mostly by the rich and upper middle classes; today – chiefly because of inexpensive air travel – such vacations are within the means of a much greater proportion of the population.

- The clothing worn by wealthy Americans is virtually indistinguishable from the clothing of ordinary Americans; Bill Gates, Tom Hanks, and Laura Bush are not distinguished from the vast majority of Americans by their clothing. In both quality and quantity, clothing is nearly super-abundant in modern western society.

The further back you go in history, the greater were the material differences that separated rich from poor. Many of these distinctions were evident to the untrained eye (for example, the rich rode in carriages; the poor walked). Fewer of the distinctions today between rich Americans and middle-class Americans – even poor Americans – are as palpable, as salient, as stark, as were the distinctions of generations past.

Bill Gates has many more zeroes in the accounts of his finances than I have in the accounts of my finances. But I don’t see these. What is seen, what is experienced, what is palpable, as differences between Gates’s financial status and that of ordinary Americans is increasingly disappearing.

In other words, whats important here is economic growth, if you have that, income inequality matters less and less.

Update: Jon responds here. (Originally published: 12/16/2010)

Thursday, December 10, 2020

An Introduction To Racial Tensions In Los Angeles

 So I hear there was yet another racial fight at Jefferson High School in LA recently. I always find it surprising how very few people know about the significant amount of racial tension that exists in LA. I guess after having lived there most of my life and knowing that everybody around me is aware of it, you just assume other people know as well. So, since I am finding out that very few people know what is going on, I thought I'd blog about it and give the readers of my blog a leg up on the status of LA. However, given that I am Mexican/American, I will primarily give the Mexican perspective on things, since that is primarily the side that I was most privy too.

First, some background. Gangs in Los Angeles (and by Los Angeles, I mean pretty much all of the LA area, like Compton, Watts, Harbor Area and valley) are 'segregated' along racial lines: the Crips and the Bloods (and there's also Piru, but they are considered bloods by most standards) are overall Black gangs, and the '13' are overall Latino (predominantly Mexican) gangs; all Latino gangs in Los Angeles are 13s, whether or not they get along. It basically refers to "Sur 13", meaning the 'south' of California, so all Latino gangs, south of say, Bakersfield, are considered 13s. Latino gangs in the broader California are further broken up between the 14s that control most of northern California and the 13s that control all of southern California. This split between the Latinos started a long, long time ago in prison, and since every Latino gangster in Los Angeles (except for one Latino gang, but they are by far the exception) belongs to the 13s, the 13s vs. 14s fights are usually handled in the prisons, when Latinos are mixed from the northern and southern parts of the state together.

Before the mid-90s, there was the occasional Black person that belonged to a Latino gang and there was the occasional Latino that belonged to a Black gang. Some gangs, or so I've heard, even started out united as Black and Latino. Now, don't jump to the conclusion that I am saying that racial tension did not exist between Blacks and Latinos before the mid-90s, there was definitely racial tension, and a significant amount at that. It's just that it escalated after the early 90s.

Up until the mid 90s, gangs tended to kill ‘their own,’ meaning that Latino gangs fought amongst themselves and the same went for Black gangs. Yes, there was the occasional fighting that crossed racial lines, but that was more the exception than the rule. Black gangs were the same way, they were composed of Crips and Bloods/Pirus, blue and red, and tended to primarily fight each other. All Bloods and Pirus tend to get along with each other and unite to fight the Crips. Crips, on the other hand, fight against Bloods, Pirus and other Crips. So, even though there was a lot of fighting between Black gangs, they all tended to kill each other and there was limited fighting with Latino gangs.

In areas where the two groups are highly represented, such as South Central LA, Compton and Watts, the territory claimed by the two groups of gangs greatly overlapped, with each identifying almost the same particular area as their own, and both respecting each other. In several areas, the Latino and Black gangs intermingled a lot, with several Black and Mexicans speaking with the same accent and doing several of the same activities together (cock fighting, pit bull fighting, etc). Everybody just understood that each territory was their own with respect to their specific race. It was a weird system, but overall it worked and allowed the two races, usually neighbors to each other, to live together.

Also, prisons in California are extremely racial. In other words, all Latino gangsters hang out together, even if they were rival gangsters in the streets, and all Black gangsters hang out together, even if they too were rival gangsters in the streets. The Latino group is referred to as "La Eme," also known as the Mexican Mafia and 'Sur 13', and is composed of Latino gangsters from the streets, this is where the 13 comes from. To elaborate further, all Latino gangs in California are composed of two parts. The first, and some would say primary, is the fact that they are all 13s (the ones in southern California at least, the ones up north would be 14s), the second is their unique gang. So say you had Latino gang A and Latino gang B fighting each other on the streets, absolutely hating each other. When the members of these gangs go to prison, they are no longer gang A and gang B, they all become what they have in common, the 13 part of their gang. Their enemy now is not other rival gangsters, but other races. So say, for example, that you were Mexican and had a really close Black friend growing up, if you two were to meet in prison, you could not eat together, work out together, or associate with one another at all. Why? Because of your races, it's that simple.

However, in the early to mid 90s, La Eme started dictating orders from the inside. They would send representatives to hold meetings with the heads of the Latino gangs and order them to stop killing ‘their own’ and direct their anger to those of other races, namely Black people. Those who violated these rules and were sent to prison would be killed. And since La Eme controls the Latino side of the prisons, and all Latino gangsters that enter prison would by default become part of their ranks, thereby needing their protection and association, this was a threat taken very seriously.

Many people thought (myself included) that it would never work. How could two gangs that had hated each other for generations, that had spilled so much blood, all of the sudden act as if nothing has happened, simply because of racial ‘unity’ and ‘fear’. Sure, they've been doing it in prison, but in prison everything is more compact, more orderly, but not so on the streets. More importantly, some thought, how could Black and Latino gangs that had grown up together in overall peace now all of the sudden become arch enemies, just out of a call for unity and threats from Latinos in prison? At the time, I thought it extremely unlikely to take effect.

Well, with time, I realized that I was wrong. Soon after, the Latino gangs that for the past generations had been rivals, started communicating and socializing. It was an odd thing to see. On the other hand, racial tension between Blacks and Latinos started to mount. First, you would hear of a Latino gang that had already been fighting with a Black gang make the fight more racial, escalating the anger between the two. Then you would hear a different Latino gang start a new fight with a Crip or Blood gang, and other gangs do the same. The ones who bore most of the brunt of this change were those few Blacks that were in Latino gangs, and those few Latinos in Black gangs. If they entered prison, they would be killed for sure. For example, I knew a Black guy from a Latino gang that told me that when he entered prison, he would say that he was Puerto Rican, because the Blacks wouldn't take him, and without the Latinos to back him up, he would be defenseless.

Killings between the two races escalated so much that there was a point where just being Mexican, or just being Black, was reason enough to get killed by the other group.

In Compton, my hometown, Black vs. Latino type atmosphere created several killings between the two, where as the two had lived overall somewhat peacefully before - did drive by’s together, overall lived in the same neighborhoods with a live and let live philosophy - Blacks in Crips and Bloods, Mexicans in 13 gangs, the escalation afterwards was huge. I'm not saying that all Latino gangs started to fight all Black gangs. There were certain areas where the friendships remained, but it is undeniable that what La Eme did escalated the racial tensions to very high levels.

Some areas, especially the Latino areas that have fewer Black people, have prided themselves of riding as many Blacks as possible. It's almost an unspoken test of what Latino gang is tougher, the one that rids more Blacks being the tougher gang. Also, after a few couple years, Latino gangs started to fight each other again, with La Eme unable to control the hatred they always had towards one another, but the racial tensions between Blacks and Latinos remained, never returning to the previous levels. In addition to this, this racial tension has spread into general areas of life and is not restricted to gangsters. If you were to go to Jefferson High school, for example, and witness the fighting, you would definitely see Latino/Black gangsters being the primary fighters, but you would also see a significant number of non-gangster Latino/Black people fighting. It has become an overall strong dislike between the two at the fundamental level.

Moreover, everything I have said here is all pretty much common knowledge in LA, you don't have to be a gangster, or in many cases, even a teenager to know this. From the kids in middle school to the adults, everybody knows a good portion of what I have said here.

With that said, I don't want to give the impression that all Latinos or all Blacks in LA dislike each other. Certainly there are many many Latinos/Blacks that are perfectly fine with one another. In fact, things are actually better now than they were in the mid to late 90s, but I would attribute most of that improvement connected with the overall fall in gang activity. Nor do I want to give the impression that all Black gangs hate all Latino gangs, or that all gangsters are like this. This is just to give a general overview of the way gangs are, and how this has affected the culture at large.

Before I end, I want to give a few words on what I am always asked after I explain the LA situation, how do you go about solving the problem? I'll be the first to admit that I don't know. There are too many historical and cultural factors at play here for any one solution to solve the problem. I could give you a stronger list of things that I believe make the problem worse, than a list that will make the problem better. And, as one of the things on the list that makes the problem worse, I would put the media's inability to classify the situation as it is. This was not a fight between 'some students and other students', or between 'one gang and another,' this was a race riot, pure and simple. It is proof of the larger race-related problem that LA has, both historically and culturally, and to deny the obvious and hide it under the rug as if it's not, does nobody any good. (Originally Published: 05/04/2005)

Tuesday, December 8, 2020

Capitalism And Slavery


DECEMBER 15, 2016

Wrongheaded notions about the economy are always in high supply. Most calamitous was the idea that central planning outperforms the market. The pulverizing poverty and tyranny of the former Soviet Union, North Korea, and similar Workers’ Paradises have ended that particular illusion.

Other less disastrous but equally mistaken notions about the economy remain on the loose — for example, that tariffs promote prosperity.

But the most far-fetched myth that I’ve encountered recently is that the wealth of the modern Western world, especially that of the United States, is the product of slavery.

I first encountered this notion during a talk I gave in Toronto. I explained to the college-age audience how extraordinarily wealthy all of us are today compared to our preindustrial ancestors. I wanted them to understand the great benefits of capitalism. During the Q-&-A session, a young woman informed me that the wealth we enjoy today is the product of slavery.

At first I thought she was speaking figuratively, as in “workers under capitalism really are slaves.” Having heard such an argument before, I was half-expecting it. But no. What she meant is that the modern world’s prosperity is the product of the pre-20th-century enslavement of Africans in the Americas.

“But slavery ended in the United States in 1863!” I responded. “Look at all the wealth produced since then — telephones, automobiles, antibiotics, computers. None was built with slave labor.”

She anticipated my response. “Not directly. But the capital that made these innovations possible was extracted from slave labor. The wealth accumulated by slaveholders is what financed the industrialization that makes today’s wealth possible.”

I looked at her in raw disbelief. (Not a good strategy, by the way, for a public speaker.)

Collecting my thoughts, I pointed out that slavery had been an ever-present institution throughout human history until just about 200 years ago. Why didn’t slaveholders of 2,000 years ago in Europe or 500 years ago in Asia accumulate wealth that triggered economic growth comparable to ours? Why is Latin America so much poorer today than the United States, given that the Spaniards and Portuguese who settled that part of the world were enthusiastic slavers? Indeed, the last country in the Americas to abolish slavery was Brazil — in 1888, a quarter-century after U.S. abolition. By American and western European standards, Brazil remains impoverished.

And why, having abolished slavery decades before their Southern neighbors, were Northern U.S. states wealthier than Southern states before the Civil War?

I don’t recall my young challenger’s response. I recall only that I was as little convinced by it as she was by my answers.

The fact is that slavery disappeared only as industrial capitalism emerged. And it disappeared first where industrial capitalism appeared first: Great Britain. This was no coincidence. Slavery was destroyed by capitalism.

To begin with, the ethical and political principles that support capitalism are inconsistent with slavery. As we Americans discovered, a belief in the universal dignity of human beings, their equality before the law, and their right to govern their own lives cannot long coexist with an institution that condemns some people to bondage merely because of their identity.

But even on purely economic grounds, capitalism rejects slavery because slaves are productive only when doing very simple tasks that can easily be monitored. It’s easy to tell if a slave is moving too slowly when picking cotton. And it’s easy to speed him up. Also, there’s very little damage he can do if he chooses to sabotage the cotton-picking operation.

Compare a cotton field with a modern factory — say, the shipyard that my father worked in as a welder until he retired. My dad spent much of his time welding alone inside of narrow pipes. If you owned the shipyard, would you trust a slave to do such welding• While not physically impossible to monitor and check his work, the cost to the shipyard owner of hiring trustworthy slave-masters to shadow each slave each moment of the day would be prohibitively costly. Much better to have contented employees who want their jobs — who are paid to work and who want to work — than to operate your expensive, complicated, easily sabotaged factory with slaves.

Finally, the enormous investment unleashed by capitalism dramatically increases the demand for workers. (All those factories and supermarkets must be manned.) Even if each individual factory owner wants to enslave his workers, he doesn’t want workers elsewhere to be enslaved, for that makes it more difficult for him to expand his operations. As a group, then, capitalists have little use for slavery.

History supports this truth: Capitalism exterminated slavery. 

Sunday, December 6, 2020

The Increasing Invisibility of Income Inequality

by DON BOUDREAUX on MAY 9, 2004

Take a thoughtful libertarian and a thoughtful left-liberal for a latte, listen to them converse, and you’ll find agreement on a surprisingly wide range of issues. One issue, though, that will almost certainly not be agreed upon is the significance of income inequality. The left-liberal’s deep concern about this issue, and the libertarian’s (and conservative’s) relative unconcern about this issue is striking.

This issue is too big to grapple with fully over a leisurely latte (or in a blog post). But I here suggest that economic growth, even as it might generate ever-larger income inequality, increasingly renders these same differences in money income or wealth less and less relevant as a measure of differences in quality of life. Some examples:

– Inexpensive consumer electronics enable almost all Americans, even the poorest, to listen at their leisure to the world’s finest orchestras perform great music; contrast now with, say, 1880, when only the relatively rich could afford to hear great music – and only the superrich (by hiring their own chamber orchestras) could enjoy listening to such music whenever they wished.

– Today’s inexpensive Chevrolets and Kias are more reliable and better equipped than were top of the line Cadillacs of 40 years ago.

– Fifty years ago European vacations were a luxury enjoyed mostly by the rich and upper middle classes; today – chiefly because of inexpensive air travel – such vacations are within the means of a much greater proportion of the population.

– The clothing worn by wealthy Americans is virtually indistinguishable from the clothing of ordinary Americans; Bill Gates, Tom Hanks, and Laura Bush are not distinguished from the vast majority of Americans by their clothing. In both quality and quantity, clothing is nearly super-abundant in modern western society.

The further back you go in history, the greater were the material differences that separated rich from poor. Many of these distinctions were evident to the untrained eye (for example, the rich rode in carriages; the poor walked). Fewer of the distinctions today between rich Americans and middle-class Americans – even poor Americans – are as palpable, as salient, as stark, as were the distinctions of generations past.

Bill Gates has many more zeroes in the accounts of his finances than I have in the accounts of my finances. But I don’t see these; no one sees these. What is seen, what is experienced, what is palpable, as differences between Gates’s financial status and that of ordinary Americans is increasingly disappearing.

Saturday, December 5, 2020


by DON BOUDREAUX on JULY 6, 2005

Dear Mr. Ebnet:

You are "saddened" that Ireland is becoming economically prosperous. No, that’s not quite right (or fair of me): You are "saddened" because Ireland is losing its "identity" as its people cooperate ever more closely with more and more peoples from around the world in a process that improves their standards of living.

The sight of "foreign manufacturing plants" in Ireland burdens you with "oppressive melancholy." You regret that Gaelic is fading today everywhere as a spoken language, save in the western coast of Ireland – the part that remains poorest and that hasn’t yet been much affected by globalization.

You expressly hope that other countries don’t follow Ireland’s recent path, lest they lose their "identities."

Reading your letter reminds me of a conversation I had about five years ago with a friend – a dear and good friend – who just returned from her first trip to Ireland. She was disappointed because Ireland "looks a lot like America."

This American friend of mine wanted Ireland to be filled with cute little thatched-roof cottages inhabited by gentle peasant-folk tending their gardens, feeding their pigs, and looking about merrily in verdant meadows for four-leafed shamrocks. My American friend was appalled that the Irish share her taste for material wealth – for houses with solid roofs – for modern appliances – for automobiles and broad, smoothly paved roads – for shopping centers, airports, fusion-cuisine restaurants, and all the other blessings of a worldwide market.

Of course, my American friend didn’t quite see herself in this way. She simply didn’t see or think. To her – a middle-class American woman for whom material wealth is the norm – the expected opportunity to gaze first-hand upon simple peasants going about their peasant-ways in their peasant-clothes in their peasant-settings was almost something of a right. "How dare they not be as I expect them to be!" was her unsaid theme. "How dare they enjoy similar things to those that I enjoy! How dare their country look like mine! This unexpected set of affairs makes my vacation to Ireland less pleasant."

In other words, this friend of mine – like you, Mr. Ebnet – selfishly wants other people to be museum pieces for her enjoyment. You and she dislike signs of material progress in Ireland because you live in the United States, with ready access to an abundance of material wealth that the Irish are just now beginning to enjoy themselves.

You blithely wish that the Irish had remained poor so that you would have continued, during your visits from America, to luxuriate in their quaint languages and enjoy gazing upon Ireland’s natural vistas unaffected by advanced commerce.

And you want other peoples to reject the wealth that the Irish (and Americans) now enjoy so that they retain their "identities" – identities as poor, peasant-dominated societies.

Why should other people want to make these sacrifices for you, Mr. Ebnet? Are you willing to make like sacrifices for them? Are you, for example, willing to go off to live in the Minnesota woods in an unheated log cabin with no running water or electricity? No car? No supermarkets? After all, I’m sure that visitors to America would really appreciate gazing upon a true American pioneer, living just the way our great-great-grandparents lived.

If you’re not willing to take this step, Mr. Ebnet, please tell me why you expect the Irish and other peoples in places less affluent than the U.S. to do so? Or, at least, please explain why your selfish desires about how Ireland and other countries should look and sound deserve a hearing given that the people who live in these places obviously want more material prosperity.


Don Boudreaux (whose grandmothers were born Teresa Flanagan and Estella Ryan)

Thursday, December 3, 2020

Where Would General Motors Be Without the United Automobile Workers Union?

 04/19/2006 George Reisman

This is a question that no one seems to be asking. And so I've asked it. And here, in essence, is what I think is the answer. (The answer, of course, applies to Ford and Chrysler, as well as to General Motors. I've singled out General Motors because it's still the largest of the three and its problems are the most pronounced.)

First, the company would be without so-called Monday-morning automobiles. That is, automobiles poorly made for no other reason than because they happened to be made on a day when too few workers showed up, or too few showed up sober, to do the jobs they were paid to do. Without the UAW, General Motors would simply have fired such workers and replaced them with ones who would do the jobs they were paid to do. And so, without the UAW, GM would have produced more reliable, higher quality cars, had a better reputation for quality, and correspondingly greater sales volume to go with it. Why didn't they do this? Because with the UAW, such action by GM would merely have provoked work stoppages and strikes, with no prospect that the UAW would be displaced or that anything would be better after the strikes. Federal Law, specifically, The National Labor Relations Act of 1935, long ago made it illegal for companies simply to get rid of unions.

Second, without the UAW, GM would have been free to produce in the most-efficient, lowest cost way and to introduce improvements in efficiency as rapidly as possible. Sometimes this would have meant simply having one or two workers on the spot do a variety of simple jobs that needed doing, without having to call in half a dozen different workers each belonging to a different union job classification and having to pay that much more to get the job done. At other times, it would have meant just going ahead and introducing an advance, such as the use of robots, without protracted negotiations with the UAW resulting in the need to create phony jobs for workers to do (and to be paid for doing) that were simply not necessary.

(Unbelievably, at its assembly plant in Oklahoma City, GM is actually obliged by its UAW contract to pay 2,300 workers full salary and benefits for doing absolutely nothingAs The New York Times describes it, "Each day, workers report for duty at the plant and pass their time reading, watching television, playing dominoes or chatting. Since G.M. shut down production there last month, these workers have entered the Jobs Bank, industry's best form of job insurance. It pays idled workers a full salary and benefits even when there is no work for them to do.")

Third, without the UAW, GM would have an average unit cost per automobile close to that of non-union Toyota. Toyota makes a profit of about $2,000 per vehicle, while GM suffers a loss of about $1,200 per vehicle, a difference of $3,200 per unit. And the far greater part of that difference is the result of nothing but GM's being forced to deal with the UAW. (Over a year ago, The Cincinnati Enquirer reported that "the United Auto Workers contract costs GM $2,500 for each car sold.")

Fourth, without the UAW, the cost of employing a GM factory worker, including wages and fringes, would not be in excess of $72 per hour, which is where it is today, according to The Post-Crescent newspaper of Appleton, Wisconsin.

Fifth, as a result of UAW coercion and extortion, GM has lost billions upon billions of dollars. For 2005 alone, it reported a loss in excess of $10 billion. Its bonds are now rated as "junk," that is, below, investment grade. Without the UAW, GM would not have lost these billions.

Sixth, without the UAW, GM would not now be in process of attempting to pay a ransom to its UAW workers of up to $140,000 per man, just to get them to quit and take their hands out of its pockets. (It believes that $140,000 is less than what they will steal if they remain.)

Seventh, without the UAW, GM would not now have healthcare obligations that account for more than $1,600 of the cost of every vehicle it produces.

Eighth, without the UAW, GM would not now have pension obligations which, if entered on its balance sheet in accordance with the rule now being proposed by the Financial Accounting Standards Board, will leave it with a net worth of minus $16 billion.

What the UAW has done, on the foundation of coercive, interventionist labor legislation, is bring a once-great company to its knees. It has done this by a process of forcing one obligation after another upon the company, while at the same time, through its work rules, featherbedding practices, hostility to labor-saving advances, and outlandish pay scales, doing practically everything in its power to make it impossible for the company to meet those obligations.

Ninth, without the UAW tens of thousands of workers — its own members — would not now be faced with the loss of pension and healthcare benefits that it is impossible for GM or any of the other auto companies to provide, and never was possible for them to provide. The UAW, the whole labor-union movement, and the left-"liberal" intellectual establishment, which is their father and mother, are responsible for foisting on the public and on the average working man and woman a fantasy land of imaginary Demons (big business and the rich) and of saintly Good Fairies (politicians, government officials, and union leaders). In this fantasy-land, the Good Fairies supposedly have the power to wring unlimited free benefits from the Demons.

Tenth, Without the UAW and its fantasy-land mentality, autoworkers would have been motivated to save out of wages actually paid to them, and to provide for their future by means of by and large reasonable investments of those savings — investments with some measure of diversification. Instead, like small children, lured by the prospect of free candy from a stranger, they have been led to a very bad end. They thought they would receive endless free golden eggs from a goose they were doing everything possible to maim and finally kill, and now they're about to learn that the eggs just aren't there.

It's very sad to watch an innocent human being suffer. It's dreadful to contemplate anyone's life being ruined. It's dreadful to contemplate even an imbecile's falling off a cliff or down a well. But the union members, their union leaders, the politicians who catered to them, the journalists, the writers, and the professors who provided the intellectual and cultural environment in which this calamity could take place — none of them were imbeciles. They all could have and should have known better.

What is happening is cruel justice, imposed by a reality that willfully ignorant people thought they could choose to ignore as long as it suited them: the reality that prosperity comes from the making of goods, not the making of work; that it comes from the doing of work, not from the shirking of it; that it comes from machines and methods of production that save labor, not the combating of those machines and methods; that it comes from the earning and reinvestment of profits not from seizure of those profits for the benefit of idlers, who do all they can to prevent the profits from being earned in the first place.

In sum, without the UAW, General Motors would not be faced with extinction. Instead, it would almost certainly be a vastly larger, far more prosperous company, producing more and better motor vehicles than ever before, at far lower costs of production and prices than it does today, and providing employment to hundreds of thousands more workers than it does today.

Few things are more obvious than that the role of the UAW in relation to General Motors has been that of a swarm of bloodsucking leeches, a swarm that will not stop until its prey exists no more.

It is difficult to believe that people who have been neither lobotomized nor castrated would not rise up and demand that these leeches finally be pulled off!

Perhaps the American people do not rise up because they have never seen General Motors, or any other major American business, rise up and dare to assert the philosophical principle of private property rights and individual freedom and proceed to pull the leeches off in the name of that principle.

It is easy to say, and also largely true, that General Motors and American business in general have not behaved in this way for several generations because they no longer have any principles. Indeed, they would project contempt at the very thought of acting on any kind of moral or political principle.

One of the ugliest consequences of the loss of economic freedom and respect for property rights is that it makes such spinelessness and gutlessness on the part of businessmen — such amorality — a requirement of succeeding in business. Business today is conducted in the face of all pervasive government economic intervention. There is rampant arbitrary and often unintelligible legislation. There are dozens of regulatory agencies that combine the functions of judge, jury, and prosecutor in the enforcement of more than 75,000 pages of Federal regulations alone. The tax code is arbitrary and frequently unintelligible. Judicial protection of economic freedom has not existed since 1937, when the Supreme Court abandoned it, out of fear of being enlarged by Congress with new members sufficient to give a majority to the New Deal on all issues. (Try to project the effect of a loss of judicial protection of the freedoms of press and speech on the nature of what would be published and spoken.)

Any business firm today that tried to make a principled stand on such a matter as throwing out a legally recognized labor union would have to do so in the knowledge that its action was a futile gesture that would serve only to cost it dearly. And a corporation that did this would undoubtedly also be embroiled in endless lawsuits by many of its stockholders blaming it for the losses the government imposed on it.

But none of this should stop anyone else from speaking up and making known his outrage at what the UAW has done to General Motors.

This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author's web site is included. (Email notification is requested.) All other rights reserved. Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. His book is available through, and on his web site. See his Daily Articles Archive and read his interview in the Austrian Economics Newsletter. You can contact him by mail. To comment on this piece, go to the blog.