Thursday, May 21, 2009

What Unions Do: How Labor Unions Affect Jobs and the Economy

What Unions Do: How Labor Unions Affect Jobs and the Economy. By James Sherk
Heritage Backgrounder #2275
May 21, 2009

What do unions do? The AFL-CIO argues that unions offer a pathway to higher wages and prosperity for the middle class. Critics point to the collapse of many highly unionized domestic industries and argue that unions harm the economy. To whom should policymakers listen? What unions do has been studied extensively by economists, and a broad survey of academic studies shows that while unions can sometimes achieve benefits for their members, they harm the overall economy.

Unions function as labor cartels. A labor cartel restricts the number of workers in a company or industry to drive up the remaining workers' wages, just as the Organization of Petroleum Exporting Countries (OPEC) attempts to cut the supply of oil to raise its price. Companies pass on those higher wages to consumers through higher prices, and often they also earn lower profits. Economic research finds that unions benefit their members but hurt consumers generally, and especially workers who are denied job opportunities.

The average union member earns more than the average non-union worker. However, that does not mean that expanding union membership will raise wages: Few workers who join a union today get a pay raise. What explains these apparently contradictory findings? The economy has become more competitive over the past generation. Companies have less power to pass price increases on to consumers without going out of business. Consequently, unions do not negotiate higher wages for many newly organized workers. These days, unions win higher wages for employees only at companies with competitive advantages that allow them to pay higher wages, such as successful research and development (R&D) projects or capital investments.

Unions effectively tax these investments by negotiating higher wages for their members, thus lowering profits. Unionized companies respond to this union tax by reducing investment. Less investment makes unionized companies less competitive.

This, along with the fact that unions function as labor cartels that seek to reduce job opportunities, causes unionized companies to lose jobs. Economists consistently find that unions decrease the number of jobs available in the economy. The vast majority of manufacturing jobs lost over the past three decades have been among union members--non-union manufacturing employment has risen. Research also shows that widespread unionization delays recovery from economic downturns.

Some unions win higher wages for their members, though many do not. But with these higher wages, unions bring less investment, fewer jobs, higher prices, and smaller 401(k) plans for everyone else. On balance, labor cartels harm the economy, and enacting policies designed to force workers into unions will only prolong the recession.

Full report here

Obama’s Speech on Detainees and National Security - Washington Wire - WSJ

Obama’s Speech on Detainees and National Security - Washington Wire - WSJ

A High-Speed Rail Mirage

A High-Speed Rail Mirage, by Randal O'Toole
This article appeared in USA Today on May 20, 2009

At first glance, President Obama's enthusiasm for building a high-speed rail network linking major cities seems like a wise move. On closer inspection, however, it is clear that the plan would cost taxpayers billions of dollars and do little to reduce traffic congestion or improve the environment.

Already California, Florida, Illinois and other states are applying for funds under the president's plan. But, except for rail contractors, Americans should find little reason to like this proposal.
Although every taxpayer would share the cost of these trains, high-speed rails are not about serving the common people. Instead, they are aimed at the elite. Japanese and French high-speed trains are attractive to tourists, but they're not heavily used by local residents. Residents of Japan and France on average ride their bullet trains less than 400 miles a year.

Pricey option

Amtrak charges a minimum of $99 for its high-speed Acela from New York to Washington, but only $72 for its conventional train. Fares for unsubsidized buses on this route start as low as $20 (including free Wi-Fi), while airfares start at $99. Only the wealthy and those whose employers cover the cost will pay the $99 rail fare.

Obama's 9,000-mile high-speed rail plan reaches just 33 states, yet the $13 billion he proposes to spend would cover about 2.5% to 25% of the cost, depending on how the system is built. In contrast with the interstate highway system, which paid for itself out of user fees, high-speed rail fares would not cover the capital costs and only part of the operating costs.

Most of Obama's plan should really be called "moderate-speed rail," as it would upgrade existing freight lines to run passenger trains at top speeds of 110 mph. At around $5 million per mile, the total cost would come close to $50 billion.

Not satisfied with moderate-speed trains, California says it wants half of all federal funds so it can build brand-new 220-mph rail lines. But it's unlikely other states will settle for the slower trains if California gets the faster ones. Building fast trains nationwide would cost at least $500 billion. (By comparison, and adjusting for inflation, the 47,000-mile interstate highway system cost about $425 billion.)

Little congestion relief

Besides the high costs, these trains do little to relieve congestion. "Not a single high-speed track built to date has had any perceptible impact on the road traffic" in Europe, says Ari Vatanen, a European Parliament member. California predicts its 220-mph trains would take just 3.5% of cars off of roads. California highway traffic grows that much every two years.

Moderate-speed trains would do even less. Nor would such trains be good for the environment. Amtrak diesel trains are only a little more energy efficient than flying or driving, and pumping those trains up to 110 mph would reduce their efficiency. Because planes and cars are growing 2% more energy-efficient per year, rail would fare poorly by such measures over the next 15 to 20 years.

Moreover, high-speed rail consumes enormous amounts of energy and emits enormous volumes of greenhouse gases. These would cancel out any operational savings over cars and planes.
Interstates paid for themselves out of gas taxes, and most Americans use them almost every day. Rail requires huge tax subsidies and would regularly serve only a small elite. Which is the better symbol for the America President Obama wants to build?

Seven Bad Ideas for Health Care Reform

Obamacare to Come: Seven Bad Ideas for Health Care Reform. By Michael D. Tanner
Cato, May 21, 2009

President Obama has made it clear that reforming the American health care system will be one of his top priorities. In response, congressional leaders have promised to introduce legislation by this summer, and they hope for an initial vote in the Senate before the Labor Day recess.

While the Obama administration has not, and does not seem likely to, put forward a specific reform plan, it is possible to discern the key components of any plan likely to emerge from Congress:
  • At a time of rising unemployment, the government would raise the cost of hiring workers by requiring employers to provide health insurance to their workers or pay a fee (tax) to subsidize government coverage.
  • Every American would be required to buy an insurance policy that meets certain government requirements. Even individuals who are currently insured — and happy with their insurance — will have to switch to insurance that meets the government's definition of "acceptable insurance."
  • A government-run plan similar to Medicare would be set up in competition with private insurance, with people able to choose either private insurance or the taxpayer-subsidized public plan. Subsidies and cost-shifting would encourage Americans to shift to the government plan.
  • The government would undertake comparative-effectiveness research and cost-effectiveness research, and use the results of that research to impose practice guidelines on providers — initially, in government programs such as Medicare and Medicaid, but possibly eventually extending such rationing to private insurance plans.
  • Private insurance would face a host of new regulations, including a requirement to insure all applicants and a prohibition on pricing premiums on the basis of risk.
  • Subsidies would be available to help middle-income people purchase insurance, while government programs such as Medicare and Medicaid would be expanded.
  • Finally, the government would subsidize and manage the development of a national system of electronic medical records.
Taken individually, each of these proposals would be a bad idea. Taken collectively, they would dramatically transform the American health care system in a way that would harm taxpayers, health care providers, and — most importantly — the quality and range of care given to patients.

Full report:

Download the PDF of Policy Analysis no. 638 (505 KB)
View this Policy Analysis in HTML

Historic compromise on tough fuel economy rules: 'Ford Might Not Survive'

'Ford Might Not Survive.' By Henry Payne
Planet Gore/NRO, May 22, 2009

Detroit, Mich. — Washington’s lap-dog press obediently wagged their tails yesterday at The One’s announcement that autos would have to achieve an absurd 35 mpg in six years (a 40 percent increase in little over one product cycle). Even the Detroit Free Press — which might ask whether the bankrupt industry in its backyard could afford government edicts that will increase their per vehicle costs from $2,500 to $8,000 — fell in line.“President Barack Obama announced a historic compromise on tough fuel economy rules,” gushed Washington reporter Justin Hyde, that “were a ‘harbinger of a change’ for Washington.”

The only dissonant note in the Free Press account was a stray thought about whether anyone would actually buy Obama’s dream cars. “The wild card remains consumers,” allowed the Freep. In a consumer-based market economy, consumers are a “wild card?”Fortunately, media watchdogs still exist.

Los Angeles Times reporter Jim Tankersley took the novel approach of calling sources to find that the “great victory” (as Obama pal Guv Schwarzenegger put it) reached by automakers, greens, and pols was not all hugs and kisses.In fact, Ford had cold feet about the deal right through the weekend. As the only Detroit company without a direct line to Uncle Sugar, Ford faces the massive costs of new mandates alone.

On Sunday, just two days before Obama’s big Rose Garden announcement, reports Tankersley, “a senior Ford executive said the company had run the numbers again and concluded it might not survive if it accepted the deal.”

Ford might not survive.

“In the end, with more number-crunching and another application of White House pressure, Ford did not bolt,” continued the Times report. And since we know the Obama adminstration threatened Chrysler secured debtholders into submission, “White House pressure” is a loaded term.

Whatever pressure was brought, Ford also likely got guarantees that it would have access to the 3 percent of cap-and-tax revenue Mich. Rep. John Dingell has negotiated as part of the upcoming energy bill.

In an industry where government wields unprecedented power, we need watchdog journalism.

The Times report also bucked its media brethren by actually talking to Republicans and the picture got even more chilling.

"These exact companies were fighting this . . . tooth and nail six months ago, and now suddenly they love it?" Rep. John Campbell (R., Calif.) said, accurately reconstructing the recent past. "No, they don't love it. This is what this administration is doing: This administration is autocratically forcing people to do whatever it wants."

Even Schwarzenegger pointed out the 800-pound Rottweiler in the room. "All of a sudden, the car manufacturers needed . . . the taxpayers' money," he said. "So in order to get that help, I'm sure that President Obama said: 'OK . . . here's what you need to do.' "

Translation: Let me make a deal youse Detroiters can’t refuse.

WaPo: A good credit card bill that isn't really needed

A Good Credit Card Bill . . . WaPo Editorial
. . . That isn't really needed
WaPo, Thursday, May 21, 2009

WHY, YOU MIGHT ask, did Congress pass new credit card legislation just months after the Federal Reserve Board adopted what Fed Chairman Ben S. Bernanke described as "the most comprehensive and sweeping reforms" of credit card accounts? The legislation isn't identical to the Fed reforms, but it is awfully similar. As much as anything, this is about Congress not wanting to let a ripe issue go by -- especially one with more popular appeal than, say, bailing out banks.

Redundant as the bill might be, the basic changes make sense. Credit card contracts, and all the fine print that comes with them, have become far more complex over the years; few would disagree with that. To help clarify the terms, the Fed issued a number of changes under the Federal Trade Commission Act and the Truth in Lending Act. Included were requirements for simplified language to help customers understand what they are agreeing to, requirements for a 45-day notice of rate increases (rather than 15), and summary tables of changes in key borrowing terms to make the information more obvious. The Fed also restricted the circumstances under which interest rates could be increased on outstanding balances or accounts with promotional rates; ensured that consumers have adequate time between receiving a bill and having to make a payment; prohibited double-cycle billing; and required that payments be applied to balances carrying the highest interest rates or across the board on balances carrying different rates and not just to balances with the lowest rates.

The Fed rules aren't scheduled to take effect until July 1, 2010, and Congress wanted to speed things up: That's the rationale for a legislative package. However, the time Congress has taken to put the bill together means most changes won't be phased in much sooner than the Federal Reserve rules will be. Congress also has added some measures, including penalty restrictions and disclosure requirements regarding how long it would take to pay off a debt if only the minimum amount were paid each month, as well as an absurd provision that would allow visitors to national parks to carry concealed weapons. But for the most part, the legislation is strikingly similar to what is already set to be phased in.

Increasing clarity is sensible. The new restrictions also make sense on balance, though there will be trade-offs: lending, especially to small businesses and low-income people, who happen to be the riskiest borrowers, will be negatively affected. Fortunately, Congress has resisted the bad idea of placing a cap on the interest rates that companies can charge. Overall, ending the model under which profits stem from customer confusion is a sensible reform -- even if Congress didn't need to jump into the game to get us there.

About Those 'Speculators' . . . Pension funds also got whacked by Uncle Sam

About Those 'Speculators' . . . WSJ Editorial
Pension funds also got whacked by Uncle Sam.
WSJ, May 21, 2009

Remember how President Obama blamed Chrysler's bankruptcy filing last month on "a small group of speculators" who turned down Treasury's $2 billion final offer for their $6.9 billion in debt? Well, it turns out that hedge funds and other short sellers weren't the only secured creditors who got a raw deal from Uncle Sam.

Indiana Treasurer Richard Mourdock revealed this week that his state's police and teacher pension funds have lost millions of dollars in the Chrysler "restructuring." Indiana's State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher's Retirement Fund "suffered, at a minimum, a loss of $4.6 million due to the action of the Federal government," reports Mr. Mourdock.

Far from being speculators, these funds represent retired public employees, including cops and teachers. The funds paid a premium to buy "secured" status, only to discover that they were politically outranked by the United Auto Workers in the White House hierarchy.

"In the past, to be 'secured' meant an investor was 'first in line' in the event of a bankruptcy and 'non-secured' creditors would receive value after secured-creditors were paid," Mr. Mourdock says. "In the Chrysler bankruptcy, however, secured creditors received $.29 on the dollar even as non-secured creditors received higher values and ended up with a 55% ownership of the new company, which is fundamentally wrong and a dangerous precedent to the capital markets."

We've worried that the Chrysler sandbagging would discourage bond investment. And, sure enough, Mr. Mourdock says that from now on no funds under his control will invest in the secured debt of "General Motors, other manufacturing companies, or those insurance companies who have or will be receiving bailout funds." Given the recent actions by the feds, he adds, "the risk is too great for any prudent investor to accept."

This isn't political grandstanding. Public investment officials like Mr. Mourdock have a fiduciary duty to seek maximum returns for retirees. The question for all public officials responsible for investing pension money is whether they too should conclude that investing in U.S.-aided companies now carries so much political risk that it violates their legal obligations. Such are the wages of White House disdain for legal contracts.

How to Win the 'Long, Hard Slog' -

How to Win the 'Long, Hard Slog' - By Douglas Feith
Obama is right that we need to be better at civilian national-security operations.