Economics: What might work, what should work, what has worked (command v. open market)

[Ser Scot A Ellison]

3 minutes ago, maarsen said:

Scott, singling unions out for corruption when any group of people  gathered together, or in an association, has the potential for corruption is somewhat disingenuous. A group of hockey moms, if enough money is involved, has just as much potential to be corrupt. 

Pretending such corruption doesn’t exist in Unions is just as bad.  He’s not singling them out and I believe he acknowledges that corruption is a problem in other areas too.  He’s just pointing out a serious problem with Unions in the US.

[Martell Spy]

3 hours ago, Scott de Montevideo! said:

Pretending such corruption doesn’t exist in Unions is just as bad.  He’s not singling them out and I believe he acknowledges that corruption is a problem in other areas too.  He’s just pointing out a serious problem with Unions in the US.

A much more serious problem has been the American Right's ongoing effort to gut unions. And highlighting unions as corrupt was/is a central part of the messaging in that effort.

[Jo498]

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."

- Adam Smith

https://www.azquotes.com/quote/1312502

The difference between unions and the guys Smith has in mind is that unions are more necessary because they used to be unions of the relatively powerless. Whereas the associations of the capitalists are for multiplying and leveraging the power of the already powerful. Which increases an imbalance whereas worker's unions decrease a power difference.

 

[Ser Scot A Ellison]

53 minutes ago, Martell Spy said:

A much more serious problem has been the American Right's ongoing effort to gut unions. And highlighting unions as corrupt was/is a central part of the messaging in that effort.

Understood.  I believe Unions are important.  I also believe they will be more effective if they deal with existing corruption.

[aceluby]

28 minutes ago, Scott de Montevideo! said:

Understood.  I believe Unions are important.  I also believe they will be more effective if they deal with existing corruption.

Not in a union and honestly don't know much about them, can you explain what are the current corruption issues that are plaguing unions that hinder their ability to do their jobs?

[lokisnow]

12 hours ago, Iskaral Pust said:

I agree.  I strongly dislike the corrupt cabals that unions become but the US has been severely lacking any labor bargaining power.  Corporations have formed a tacit oligopsony in the labor market and have been resolute in holding the line.  The new minimum wage laws in some cities have helped, but momentum has slowed.  I am watching carefully to see if the tightening labor market will cause companies to start competing for labor through wages.  Only a handful of jobs, like long haul truck drivers and pilots, are starting to see big inducements.

Of course the danger is that the people who most need a wage increase might find themselves replaced by automation if their wages go higher.  It only takes automation in one low skill sector — say vending interfaces in retail, fast food and casual dining — to increase the supply of low skilled workers in other sectors that didn’t (yet) automate. 

Here in la I’ve seen a lot of attempts to automate vending in retail environments, in general people avoid them like the plague.

self checkout in grocery stores is reasonably successful but is almost universally only an option when you are a 10 item or less shopper.

automated vending/ ordering at movie theatres was a complete failure, people would rather stand in line for twenty minutes than poke at a touchscreen attempting to navigate sixteen menu layers of options just to select a popcorn and soda. 

Automatdd vending/ordering at McDonald’s was even more of a failure, virtually all customers avoided the gargantuan touch screen kiosks with their impenetrable menus of doom and opted to stand in line anyway (which makes sense, one already made the decision to park and get out of the car instead of drive thru, you’re not going to opt for a touch screen at this point). One time, one person in their twenties was trying to use the touchscreen, I waited in line, ordered, waited for my order, picked it up and walked out and the same person was still poking at the touchscreen trying to get an order it was 10,000x easier to say verbally to a person than it was to try to input line item by item into a machine.

all this makes sense to me because it always took about one week of shifts to master the register options for all new employees at my high school fast food job. And that’s with a hundred repetitions a day, people doing it once a day or once a week have no chance at mastering the interface.

what has been a success in the last three years and has basically destroyed (to the point of uninstallation) the self ordering kiosks everywhere is app based ordering and pick up. That makes sense because rather than competing with drivethru or traditional ordering, it is complementary to both. And people have responded in droves. Additionally, the apps are using an interface device they’re intimately familiar with, so there is less techno panic involved.

automated ordering at ramen is sort of a success, they persist with it although it’s a worse customer experience than a normal ordering process because it allows them to more efficiently queue the bowl assembly and also reduces dead time people spend at tables so increases the per seat profitability. It’s an interesting system for a sit down experience. Wait in line for touchscreen. Touchscreen order and pay. Wait in line for host. Host seats you. Order arrives. It’s efficient, but also frustrating to have two line waiting experiences. And I see a lot of people leaving rather than wait in the first (long) line for the touchscreen. It makes the sit down dining a faster experience, but you have to know that is the case because your perception is that it will be longer (because there’s a line out the door which always means a very long experience for sit down dining

[lokisnow]

1 hour ago, Scott de Montevideo! said:

Understood.  I believe Unions are important.  I also believe they will be more effective if they deal with existing corruption.

I don’t think there is any reason to single out unions for initial action when all evidence of all history throughout the known universe  indicates that 99.999% of the corruption is on the side opposite the unions.

youre basically whinging about the stye in the unions eye. Jesus says you shouldn’t do that. :-p

your framework implicitly implies an equal share of corruption in unions and in their antagonists. (Or even suggests unions are the sole or primary source of corruption). This is demonstrably false.

[lokisnow]

Let’s take a look at a big California example of alleged union corruption.

the bullet train. Currently it’s employing about 2000 union construction workers per day. If we just pick a nice round number and say they’re earning $50/ hour (on a ten hour daily guarantee so $550/day) that means you have a labor cost of $1,100,000 per day or 5.5 million per week or labor costs of 275 million per year.

now that is clearly evidence of corruption right?

because unions are getting 275 million out of 2 billion? Hah! If there is any corruption it is the rent seeking (skimming) done by the mega contractors awarded the multi billion dollar contracts, the corruption is NOT in the ten percent spent on labor, the corruption is in management, obviously. But just as obviously the low caste labor is going to be saddled with all the accusations of corruption etc.

bullshit.

 

now on the other hand there was a big NYt article on the second avenue subway, which is the most absurdly expensive transit project (per mile) in the history of humankind . And naturally they blamed unions and found Good problematic examples. Such as there are archaic contract provisions requiring elevator operaters and generator attendants etc.

and the NyT dutifully concluded that the cost overruns in the billions of dollars are because of their examples of a handful of extra low caste personnel still doing obsolete jobs. Yup. That elevator operator is why it’s a billion over budget, not you know because management has rent extracted and change ordered and skimmed and consulted billions in corrupt monies for themselves nope it’s the guys getting paid hourly who are responsible for billions in overruns not the guys handling the billions. Hah!

[Martell Spy]

11 minutes ago, lokisnow said:

I don’t think there is any reason to single out unions for initial action when all evidence of all history throughout the known universe  indicates that 99.999% of the corruption is on the side opposite the unions.

youre basically whinging about the stye in the unions eye. Jesus says you shouldn’t do that. :-p

your framework implicitly implies an equal share of corruption in unions and in their antagonists. (Or even suggests unions are the sole or primary source of corruption). This is demonstrably false.

Yep. And I would add that since corporations are the "job creators" we are pretty hand-tied in fighting corporate corruption. Any attempt to regulate corporate corruption leads to calls of job killing. 

[OldGimletEye]

17 hours ago, Scott de Montevideo! said:

Pretending such corruption doesn’t exist in Unions is just as bad.  He’s not singling them out and I believe he acknowledges that corruption is a problem in other areas too.  He’s just pointing out a serious problem with Unions in the US.

I for one think unions can at times engage in rent seeking behavior and at times engage in guarding parochial interest that may not be socially desirable.

But, there is this idea out called Theory of The Second Best. Stripped down, it basically means that the best way to counter one market distortion is to introduce another. If labor markets were purely competitive then perhaps there would be no need for unions as workers could simply leave bad jobs or managers and go find another job. But in the real word, we know there are significant cost to obtaining new employment. In short, there are a lot frictions in obtaining a new job, largely because most workers don’t have all the information to know where a new job might be, and this the reason why people don’t model labor markets as the purely competitive model found in Econ 101 textbooks, but often use search and matching models. Because of the frictions in the labor market and the cost of finding a new position, this gives employers the ability to exercise a degree of monopsony power which is not desirable. The only way to counter this distortion from the theoretical ideal is to make another distortion by boosting workers ability to bargain for higher wages.

And also, particularly here in the United States, where the Supreme Court has basically made the giving of money tantamount of speech, it is hard to think of another way to allow labor to raise as much cash as their corporate and business competitors. And of course unions allow labor to have it’s opinions and concerns heard, without the Chamber of Commerce crowd trying to dominate the conversation and suck up all the oxygen in the room. Unions might rent seek from time to time, but they are an effective counter to corporate rent seeking.

I’m just old enough to remember when unions were popular with conservative sorts of people, at least for a little awhile, when they were challenging the power of the communist leaders of Poland. Organized labor is perhaps an effective check on both political commissars and “libertarian” overlords.

In a perfect world, corporations wouldn’t try to rent seek. But, that is not the world we live in. So we need a policy of second best.

11 hours ago, Martell Spy said:

Yep. And I would add that since corporations are the "job creators" we are pretty hand-tied in fighting corporate corruption. Any attempt to regulate corporate corruption leads to calls of job killing. 

Republicans, along with their chamber of commerce allies are very very good at this sort of thing. Very good.

We all know how it will go down. They will portray unions as killing the “small business” of dear old Ma and Pa Kettle. And you know, how could someone be such a mean old prick?

Anyway, Ma and Pa Kettle may not in fact be “small business owners” but in fact are quite rich and are just couple of old miserly bastards who’d begrudge a nickle.

Or maybe and Ma and Pa kettles business really is just getting buy and higher wages will lead to their business’ demise. But keeping Ma and Kettles business in operation isn’t a really good idea of it is leading to socially inefficient wages (which I mean basically: higher wages that won’t have many adverse unemployment affects).

Or maybe their business just does fine because now workers with higher wages buy more stuff from them.

[Martell Spy]

12 minutes ago, OldGimletEye said:

I for one thin unions can at times engage in rent seeking behavior and at times engage in guarding parochial interest that may not be socially desirable.

But, there is this idea out called Theory of The Second Best. Stripped down, it basically means that the best way to counter one market distortion is to introduce another. If labor markets were purely competitive then perhaps there would be no need for unions as workers could simply leave bad jobs or managers and go find another job. But in the real word, we know there are significant cost to obtaining new employment. In short, there are a lot frictions in obtaining a new job, largely because most workers don’t have all the information to know where a new job might be, and this the reason why people don’t model labor markets as the purely competitive model found in Econ 101 textbooks, but often use search and matching models. Because of the frictions in the labor market and the cost of finding a new position, this gives employers the ability to exercise a degree of monopsony power which is not desirable. The only way to counter this distortion from the theoretical ideal is to make another distortion by boosting workers ability to bargain for higher wages.

And also, particularly here in the United States, where the Supreme Court has basically made the giving of money tantamount of speech, it is hard to think of another way to allow labor to raise as much cash as their corporate and business competitors. And of course unions allow labor to have it’s opinions and concerns heard, without the Chamber of Commerce crowd trying to dominate the conversation and suck up all the oxygen in the room. Unions might rent seek from time to time, but they are an effective counter to corporate rent seeking.

I’m just old enough to remember when unions were popular with conservative sorts of people, at least for a little awhile, when they were challenging the power of the communist leaders of Poland. Organized labor is perhaps an effective check on both political commissars and “libertarian” overlords.

In a perfect world, corporations wouldn’t try to rent seek. But, that is not the world we live in. So we need a policy of second best.

Republicans, along with their chamber of commerce allies are very very good at this sort of thing. Very good.

We all know how it will go down. They will portray unions as killing the “small business” of dear old Ma and Pa Kettle. And you know, how could someone be such a mean old prick?

Anyway, Ma and Pa Kettle may not in fact be “small business owners” but in fact are quite rich and are just couple of old miserly bastards who’d begrudge a nickle.

Or maybe and Ma and Pa kettles business really is just getting buy and higher wages will lead to their business’ demise. But keeping Ma and Kettles business in operation isn’t a really good idea of it is leading to socially inefficient wages (which I mean basically: higher wages that won’t have many adverse unemployment affects).

Or maybe their business just does fine because now workers with higher wages buy more stuff from them.

Well, most people work for large corporations. Ma and Pa Kettle and their 10 employees may be quite happy. But it's rather immoral to allow Walmart to enslave millions of workers in order to make 12 people happy. 

As for unions, going on a corruption hunt among America's unions seems a lot like kicking the balls of the little kid that just got a major thrashing from the Koch brothers bullies. And then proceeding to give a Wet Willie to every American worker.

[OldGimletEye]

Just now, Martell Spy said:

Well, most people work for large corporations. Ma and Pa Kettle and their 10 employees may be quite happy. But it's rather immoral to allow Walmart to enslave millions of workers in order to make 12 people happy. 

I definitely agree with what you're saying. I'm just foretelling how Frank Luntz and company will try to spin things.

[Martell Spy]

Just now, OldGimletEye said:

I definitely agree with what you're saying. I'm just foretelling how Frank Luntz and company will try to spin things.

I hear you. I'm just a few beers in and worked up by Dr. Amp.

[Spring Bass]

12 hours ago, lokisnow said:

self checkout in grocery stores is reasonably successful but is almost universally only an option when you are a 10 item or less shopper.

automated vending/ ordering at movie theatres was a complete failure, people would rather stand in line for twenty minutes than poke at a touchscreen attempting to navigate sixteen menu layers of options just to select a popcorn and soda. 

That's pretty striking. It's the total opposite here in Utah - self-checkout is in virtually all of the major chain grocery stores, libraries, and movie theaters (although most folks still seem to pay for concessions in person), and it's heavily used. Many times I've seen lines for the self-checkout section when crewed cashier stations were either thinly lined or available. 

RE: Union corruption

It's really varied a lot based on the unions. The Longshoreman unions were notoriously corrupt for a long time, and had been kicked out of several trade union federations for criminal behavior (the mafia is still heavily tied into corruption on the docks in the New Jersey-New York area).  Teamsters had corrupt leadership for a long time as well, although I think they've improved a bunch. The skilled trades unions had corruption issues depending on the city. 

But on the other hand, most unions haven't really been more corrupt than any other large organization or government department. 

[Ser Scot A Ellison]

10 hours ago, Martell Spy said:

Well, most people work for large corporations. Ma and Pa Kettle and their 10 employees may be quite happy. But it's rather immoral to allow Walmart to enslave millions of workers in order to make 12 people happy. 

As for unions, going on a corruption hunt among America's unions seems a lot like kicking the balls of the little kid that just got a major thrashing from the Koch brothers bullies. And then proceeding to give a Wet Willie to every American worker.

Why does the State have to impose the same standards upon a business with 12 employees as one with 12 million employees?  The economies of scale mean that the business with 12 million employees will be able to handle the compliance requirements with much greater alacrity and much less cost in time and personnel than the 12 person business that is struggling to stay profitable.  I strongly suspect that large businesses push for regulations to be uniform regardless of business size to make it more difficult for small businesses to compete with them.

[Martell Spy]

35 minutes ago, Scott de Montevideo! said:

Why does the State have to impose the same standards upon a business with 12 employees as one with 12 million employees?  The economies of scale mean that the business with 12 million employees will be able to handle the compliance requirements with much greater alacrity and much less cost in time and personnel than the 12 person business that is struggling to stay profitable.  I strongly suspect that large businesses push for regulations to be uniform regardless of business size to make it more difficult for small businesses to compete with them.

They don't and you are probably right on that. With Seattle's minimum wage law it was purposely made on easier on smaller businesses, based on number of employees.

Helping small businesses plays well on the stump. Once the politician is elected though the incentives change. 

Why did the big tax bill have to be a big giveaway to massive corporations and rich heirs? A small business tax giveaway would be a lot more popular, but that is never offered.

I would add in some cases you want universal regulation. You don't want small businesses waiving safety laws or paying 2$/hour.

[OldGimletEye]

18 hours ago, Scott de Montevideo! said:

Why does the State have to impose the same standards upon a business with 12 employees as one with 12 million employees?  The economies of scale mean that the business with 12 million employees will be able to handle the compliance requirements with much greater alacrity and much less cost in time and personnel than the 12 person business that is struggling to stay profitable.  I strongly suspect that large businesses push for regulations to be uniform regardless of business size to make it more difficult for small businesses to compete with them.

Well even if small business aren't regulated, some of them may find it hard to stay in business with rising wages because of spill over effects. Some of them may just not have the demand for their products in the face of rising wages. But, that doesn't mean job losses in the aggregate.

When the Republican Party and their Chamber of Commerce of allies run ads about "job killing unions" they aren't going to put the CEO of Walmart on TV bemoaning the fact that he may have to give up that summer home in the Hamptons or he might have to take one less vacation to some exotic place. No they will put some "small business" owner bemoaning the fact they can't compete because of wages are too high or something like that. And that may be true for some small businesses.

Even now you see a lot of stuff in the media, even in allegedly liberal papers like the New York Times bemoaning how some "small businesses" can't find workers, since labor markets have somewhat improved over what they were for the last decade or so. But, given how horrid the labor market has been for many people over the last decade or so, it's kind of hard to feel a lot of pity for employers that complain about not being able to find workers at the wages that they think they should have to pay, rather than dealing with the fact that workers have better choices than they did over the last decade or so, and they might have to raise wages to attract workers. Workers are berated about the workings of the market all the time. But, then some people who berate workers about how the market works are seemingly finding out they don't like how the market works either, evidently.

[lokisnow]

https://www.nytimes.com/2018/07/25/business/europe-ecb-wages-inflation.html?action=click&module=Top Stories&pgtype=Homepage

 

economists “mystified” at sticky low wages.

 

i find this easy to explain it is an information assymmetry problem and a paralyzing choice problem and it is all on the employer side.

First we have employers who have access to massively more data about wages and prevailing wages on macro and micro scales and they have personnel who can parse that data and deliver verdicts. 

Second you have seemingly everyone available to work for you, since the internet has collapsed space in job searching, thus employers face every hiring decision by trying to too perfectly match, their pool is too broad.

Management is NOT raising wages because they know from their excess of data that they can still fill jobs at lower wages even if it takes longer. In other words they have shifted the prevailing wage from being a million variable sector and localized micro ecosystems to being a non variable non sectoral and non localized macro system.

 In other words wages aren’t going up because too much data has insulated management from the local variables.  they feel less pressure because they can use data to PROVE they can keep paying the same sticky low wages and it has generally worked.

which ties into the second point, once wages are no longer local, that means the hiring process has to be non local in order to secure the perfect match data says is there.  Management is overly comfortable with employing a low wage matching approach to hiring because high wage matching approach is   how all management is hired. Because they get a good deal from a system that maximizes their compensation they assume the matching system is also a good when implemented to minimize compensation (the “you’re lucky to have a job” ethos).  But the matching systems used for executive hires is only good in shallow pools of candidates, it is not a very good approach if the pool is deep and broad because now you’re faced with too many choices, leading to paralysis or slow hiring and sticky low wages

 

 

 

 

[Iskaral Pust]

On the point of union corruption, there are different tiers.  

The worst tier is direct, abusive corruption, e.g. organized crime takes over the union.  This happened pretty widely in blue collar areas like longshoremen, teamsters, garbage collectors, etc.  The union secured above-market wages but then extorted bribes from workers to get those jobs (not just paying union dues), extorted personal bribes to reduce their bargaining demands or promise no strikes, used the union to cover illegal activity like smuggling, violently extorted employers (e.g. threats to burn down construction sites) and literally fought off competition from non-union labor.  A combination of the decline of unions and decline of organized crime has reduced this, but if the opportunity grows again then the problem will grow again.  Even now, there is still huge personal corruption in unions. I especially see it in my industry with the union reps who oversee the pension assets of their members: they are blatant and unashamed in seeking inducements from firms who want to manage those assets (and levy an above-market fee on them), commonly referred to as pay-to-play.

The next tier is exploitative collusion.  This is most often seen in public sector unions where membership are a big voting bloc and huge campaign contributors in return for ever higher above-market benefits at the expense of tax-payers.  The politicians and unions collude and no-one protects the tax-payer as either the funder or receiver of services.  You end up with bureaucratic capture, where career civil servants suck the municipality dry while unions fight to keep low productivity jobs intact.  It’s especially prevalent in the big Democratic cities with a large low income population: Detroit, Newark, Chicago, Baltimore, etc.

The lowest tier is simple rent-seeking.  The union uses its power to preference members over corporations and consumers.  Corporations with no pricing power go out of business (because no-one will finance their losses) and for the others prices go up and service quality goes down (think of France).  Corporations make less profit, but not that much less (or else capital drifts elsewhere instead), but consumers absorb an ongoing cost and eventually it filters into lower GDP growth and lower job growth.  This is why “labor reforms” were central to Germany’s economic boom since reunification and are a constant topic in the west European countries with high unemployment.  

One of the major social contracts in the last 50 years, varying by country, is the extent to which labor/voters want strong wages or maximal employment.  The mercantilist countries like Germany, China and Japan have all sacrificed labor/household spending power to maximize jobs.  The quality-of-life countries like France, Italy, Greece (and,in a way, much of Latin America) have gone the other way.  In most cases the govt feels the path they are on is the only way their people will allow them to stay in power.  US is unusual here because a majority of the electorate seems to want a change in priority but are being successfully deflected by politicians who have been captured by corporate donors.  In the US most people have jobs and have access to cheap consumer goods, but the jobs are precarious.  Improving pay, benefits and job security would leave fewer people with a job (especially low educated minorities) and make consumer goods more expensive.  There is room for a net improvement to labor at the expense of capital, reversing the trend of recent decades, but only for a while.  Eventually you need higher productivity for wages to outpace consumer inflation, but productivity is only higher for the highly educated and the highly automated (fewer jobs).  We don’t like the idea of govt subsidizing corporations like Walmart but the progressive policy platform essentially requires that low productivity employees will have to be subsidized by taxpayers.  As the value of education increases, the low educated can either be unemployed, very low paid, or low paid and subsidized by taxpayers.  There is no path to them all, or even most of them, having well paid jobs.

None of that means that I like the tacit oligopsony currently in operation in the US labor market.  Every year my company restricts me and all my peers with a paltry budget for pay raises for our employees, and no flexibility to offer higher wages to get new hires.  We hire lower quality or leave jobs unfilled to avoid pay going up.  And my own pay doesn’t go up either.  From the board & CEO level they have decided on absolute discipline on pay.  They can rely on the personal switching costs to keep turnover down.  Most other big companies are doing the very same.  Having reached this unusual power over pay, they will be reluctant to give it up until there is enough business growth opportunity to make it worthwhile to compete on pay for talent, which is a high bar since most industries are now entrenched oligopolies.  Ironically that won’t happen until wages rise to boost aggregate demand.  So corporations have ended up in a prisoners’ dilemma.  The best way to break that is for an external agent to force them to a new Nash equilibrium, e.g. govt increases minimum wages or else labor collectively insists.  Union bargaining on a company by company basis can’t break the prisoners’ dilemma, it just forces each company to individually choose between a strike or offshoring/automating or slowing investment.

[Jo498]

How does one figure out the "marginal productivity" of a firefighter, a teacher or a police officer? For most civil servants the concept does not make any sense. Obviously, even if there are hardly any fires and low crime, one needs a certain minimum of firemen and police just in case. So one can hardly make a quotient with the number of firemen employed and their cost and the number of fires or something like that.

(I am not an economist but I read that even in typical production industries the marginal productivity of another worker is almost impossible to calculate objectively.)