Friday, February 23, 2007

Maybe the first time I've ever disagreed with Sowell

Thomas Sowell, to me, is one of the finest writers on economics we've ever seen. He clearly lays things out in ways laymen can understand.

But for the first time, I think he dropped the ball:

Senator Barack Obama recently said, “let’s allow our unions and their organizers to lift up this country’s middle class again.”

Ironically, he said it at a time when Detroit automakers have been laying off unionized workers by the tens of thousands, while Toyota has been hiring tens of thousands of non-union American automobile workers.

Labor unions, like the government, can change prices — in this case, the price of labor — but without changing the underlying reality that prices convey.

Neither unions nor minimum wage laws change the productivity of workers. All they can do is forbid the employer from paying less than what the government or the unions want the employer to pay.

I refer back to my minimum wage post. Sowell's argument makes perfect sense as long as you assume that both sides have equal bargaining power. But in reality, they don't. Business, unless we are talking about skills in huge demand, has an inherent advantage, because they don't bargain for wages. They SET wages and the employee either has to accept or find another employer, where more often than not he is offered another take it or leave it situation.

Now of course that doesn't mean there is not still competition. Businesses can and do set wages higher to gain a competitive advantage in luring workers. And obviously this whole thing falls apart at higher skill levels, because highly skilled workers know that if businesses won't bargain with them they can walk out and another business will. However, businesses do have an advantage when it comes to low and mid-skilled labor, and they further cement that advantage, by as I noted in my previous post, taking away the ability to bargain from their managers and putting pay rates in a distant HR office or much higher up in management. So that even if a manager wants to get a certain job seeker, he's constrained by company policy from offering a wage that both he and the prospective employee could agree on.

What a union does is make things more equal. The union forces management to directly bargain. And here's where Sowell goes really wrong. He compares union bargaining to government setting higher wages. They are apples and oranges. A company is not forced to give a union higher wages, any more than a worker is forced to accept a low wage from an employer. It's still a free market, just with the parties being on a more equal footing in terms of bargaining power.

There are good reasons to not like unions, and even better ones to oppose Obama's specific plans for unionizing more workers(card check). But the idea that they distort the market is not one of them.

I'd be remiss if I didn't comment on the rest of Sowell's column, which has even more stuff I don't fully agree with:

Senator Obama is for making college “affordable,” as if he has never considered that government subsidies push up tuition, just as government subsidies push up agricultural prices, the price of medical care and other prices.

He is also for “alternative fuels,” without the slightest thought about the prices of those fuels or the implications of those prices. All this is the old liberal agenda from years past, old wine in new bottles, a new face with old ideas that have been tried and failed repeatedly over the past generation.

Senator Obama is not unique among politicians who want to control prices, as if that is controlling the underlying reality behind the prices.

I do love it that Sowell mentions that you can't control prices. You can't. It's like trying to alter the laws of physics. But Obama is not suggesting price controls, he's suggesting using tax revenues to help less well off Americans afford certain goods and services. Once again, you can disagree with that agenda, but it's not price controls and it is not impossible to accomplish. If I give money to my neighbor's kid to go to college, he goes to college. It doesn't push prices up or ignore reality. That only happens if I go and force the university President at gunpoint to set tuition at 75% less than it is now. Then, bad things would happen as all sorts of students attended and found that they had to sit out in the grass and sleep on park benches because there was no money for dormitories or classrooms.

And what's with dissing alternative fuels? Gasoline was once an alternative fuel. He could be referring to something else in Obama's plans, but he doesn't elaborate. He just gives the impression that weaning off gasoline would mean higher prices. It would in the short term, but as new alternatives become viable it could mean cheaper gasoline as demand slackens.