Sunday, August 03, 2014

Something to think about


Labor Unions Are Anti-Labor

Many Americans, perhaps a substantial majority, still believe that, irrespective of any problems they may have caused, labor unions are fundamentally an institution that exists in the vital self-interest of wage earners. Indeed, many believe that it is labor unions that stand between the average wage earner and a life of subsistence wages, exhausting hours of work, and horrific working conditions.

Labor unions and the general public almost totally ignore the essential role played by falling prices in achieving rising real wages. They see only the rise in money wages as worthy of consideration. Indeed, in our environment of chronic inflation, prices that actually do fall are relatively rare.

Nevertheless, the only thing that can explain a rise in real wages throughout the economic system is a fall in prices relative to wages. And the only thing that achieves this is an increase in production per worker. More production per worker — a higher productivity of labor — serves to increase the supply of goods and services produced relative to the supply of labor that produces them. In this way, it reduces prices relative to wages and thereby raises real wages and the general standard of living.

What raises money wages throughout the economic system is not what is responsible for the rise in real wages. Increases in money wages are essentially the result just of the increase in the quantity of money and resulting increase in the overall volume of spending in the economic system. In the absence of a rising productivity of labor, the increase in money and spending would operate to raise prices by as much or more than it raised wages. This outcome is prevented only by the fact that at the same time that the quantity of money and volume of spending are increasing, the output per worker is also increasing, with the result that prices rise by less than wages. A fall in prices is still present in the form of prices being lower than they would have been had only an increase in the quantity of money and volume of spending been operative.

With relatively minor exceptions, real wages throughout the economic system simply do not rise from the side of higher money wages. Essentially, they rise only from the side of a greater supply of goods and services relative to the supply of labor and thus from prices being lower relative to wages. The truth is that the means by which the standard of living of the individual wage earner and the individual businessman and capitalist is increased, and the means by which that of the average wage earner in the economic system is increased, are very different. For the individual, it is the earning of more money. For the average wage earner in the economic system, it is the payment of lower prices.

What this discussion shows is that the increase in money wages that labor unions seek is not at all the source of rising real wages and that the source of rising real wages is in fact a rising productivity of labor, which always operates from the side of falling prices, not rising money wages.

Indeed, the efforts of labor unions to raise money wages are profoundly opposed to the goal of raising real wages and the standard of living. When the unions seek to raise the standard of living of their members by means of raising their money wages, their policy inevitably comes down to an attempt to make the labor of their members artificially scarce. That is their only means of raising the wages of their members. The unions do not have much actual power over the demand for labor. But they often achieve considerable power over the supply of labor. And their actual technique for raising wages is to make the supply of labor, at least in the particular industry or occupation that a given union is concerned with, as scarce as possible.

Thus, whenever they can, unions attempt to gain control over entry into the labor market. They seek to impose apprenticeship programs, or to have licensing requirements imposed by the government. Such measures are for the purpose of holding down the supply of labor in the field and thereby enabling those fortunate enough to be admitted to it, to earn higher incomes. Even when the unions do not succeed in directly reducing the supply of labor, the imposition of their above-market wage demands still has the effect of reducing the number of jobs offered in the field and thus the supply of labor in the field that is able to find work.

The artificial wage increases imposed by the labor unions result in unemployment when above-market wages are imposed throughout the economic system. This situation exists when it is possible for unions to be formed easily. If, as in the present-day United States, all that is required is for a majority of workers in an establishment to decide that they wish to be represented by a union, then the wages imposed by the unions will be effective even in the nonunion fields.

Employers in the nonunion fields will feel compelled to offer their workers wages comparable to what the union workers are receiving — indeed, possibly even still higher wages — in order to ensure that they do not unionize.

Widespread wage increases closing large numbers of workers out of numerous occupations put extreme pressure on the wage rates of whatever areas of the economic system may still remain open. These limited areas could absorb the overflow of workers from other lines at low enough wage rates. But minimum-wage laws prevent wage rates in these remaining lines from going low enough to absorb these workers.

From the perspective of most of those lucky enough to keep their jobs, the most serious consequence of the unions is the holding down or outright reduction of the productivity of labor. With few exceptions, the labor unions openly combat the rise in the productivity of labor. They do so virtually as a matter of principle. They oppose the introduction of labor-saving machinery on the grounds that it causes unemployment. They oppose competition among workers. As Henry Hazlitt pointed out, they force employers to tolerate featherbedding practices, such as the classic requirement that firemen, whose function was to shovel coal on steam locomotives, be retained on diesel locomotives. They impose make-work schemes, such as requiring that pipe delivered to construction sites with screw thread already on it, have its ends cut off and new screw thread cut on the site. They impose narrow work classifications, and require that specialists be employed at a day’s pay to perform work that others could easily do — for example, requiring the employment of a plasterer to repair the incidental damage done to a wall by an electrician, which the electrician himself could easily repair.

To anyone who understands the role of the productivity of labor in raising real wages, it should be obvious that the unions’ policy of combating the rise in the productivity of labor renders them in fact a leading enemy of the rise in real wages. However radical this conclusion may seem, however much at odds it is with the prevailing view of the unions as the leading source of the rise in real wages over the last hundred and fifty years or more, the fact is that in combating the rise in the productivity of labor, the unions actively combat the rise in real wages!

Far from being responsible for improvements in the standard of living of the average worker, labor unions operate in more or less total ignorance of what actually raises the average worker’s standard of living. In consequence of their ignorance, they are responsible for artificial inequalities in wage rates, for unemployment, and for holding down real wages and the average worker’s standard of living.

All of these destructive, antisocial consequences derive from the fact that while individuals increase the money they earn through increasing production and the overall supply of goods and services, thereby reducing prices and raising real wages throughout the economic system, labor unions increase the money paid to their members by exactly the opposite means. They reduce the supply and productivity of labor and so reduce the supply and raise the prices of the goods and services their members help to produce, thereby reducing real wages throughout the economic system.



More US Firms Will Flee America's 'Anti-Business' Corporate Tax Regime

Unless the US slashes its corporate tax rates, more firms will quit to countries such as the UK and Luxembourg to sniff out lower bills from the government, according to the boss of deVere Group.

Nigel Green, the founder and chief executive of global financial advisory firm deVere, made the claim days after US pharmaceutical firm AbbVie merged with its Dublin-based counterpart Shire in a move that will reportedly slash its tax bill.

And two failed mergers between US firms Omnicom and Pfizer and British companies were allegedly motivated by a desire to lower tax bills by rebasing in the UK. Such mergers are known as "inversions".

In the US, the standard corporate tax rate on profits is 40%. In the UK, it has been steadily slashed to 21% in 2014 – and another 1% will come off next year. In 2010, when Chancellor George Osborne took his Treasury seat, it was 28%.

"Unless the current corporation tax is slashed, it is highly likely that an increasing number of America's multinationals will relocate to overseas jurisdictions with lower tax rates," said Green, whose deVere Group operates across 100 countries and advises 80,000 clients on $10bn (£5.88bn €7.4bn) worth of investments.

"The current US rates are widely perceived in the corporate world as uncompetitive and therefore comparatively anti-business. This is evidenced by the fact that a growing number of American firms are considering such a move out of the US.

"It is our experience that the vast majority of American companies do want to remain headquartered in America but with the tax code as it stands, and with obligations to shareholders, there is mounting pressure to consider overseas, lower tax destinations."



Centralisation is a bad idea

Centralisation is a bad idea. Its disadvantages include a reduction in choices, quality, and opportunity, an increase in arbitrary order, and a concentration of power. Given its various disadvantages, why has it been so frequently adopted? Centralisation generates benefits to those at the centre of power.

So, why centralise? Did the Scottish clans benefit from centralisation after 1707? Judging by their attitude in fighting for further independence as late as 1744, presumably not. Certainly their being cleared off the Highland territories by British soldiers did not indicate a benefit to them. Certain land owners definitely gained a benefit in grabbing lands that were "vacant" after having been "cleared" though these euphemisms make as little sense in Scotland as similar sayings like "manifest destiny" make in the United States. When people are forced off their land, killed, beaten, robbed, sentenced to "transportation" for alleged crimes on scant evidence, and end up in North America against their will, where they are sometimes conscripted into an army to force Native Americans off their lands, to be killed, beaten, robbed, and sentenced to a Trail of Tears, one does begin to wonder where the imaginary benefits of centralisation are to be found. Those who gained by these exercises in racism and brutality should probably raise their hands and step forward to be identified.

Do you imagine, then, that the centralisation of economic power in, say, an electric power utility that has a monopoly to distribute power into a metropolitan area makes any sense for the consumer of electric power? Are you better off with one electric company, or would you be better off with ten to choose from? Wouldn't you be even better off still if you were to buy solar panels and harvest your own electricity?

Yes, there are definitely economies of scale from making a big power plant, burning a large amount of coal, oil, natural gas, or diesel fuel, or generating electricity from nuclear materials. But who profits from these economies? Do the consumers of residential electricity benefit? Do the companies operating malls, office buildings, and factories benefit? One can be sure that the agencies which regulate power consumption and power distribution come into existence and benefit from the monopoly since that monopoly cannot exist without government sanction. The company which holds the monopoly power gets monopoly pricing advantages, subject to approval from the regulators, and they probably buy off those regulators in various ways in a well-known process called "regulatory capture." It is very doubtful that the people in general benefit in any way. Given the lack of disaster preparedness at sites like Fukushima, we can also wonder whether the long term consequences might be even more negative for the people living around these power plants.

For some time, the idea that we are all better off with more centralisation, more single points of failure, and more agglomeration of power, has been questioned. In the period of empire building, roughly the 15th to early 20th Centuries, the number of "countries" in the world was reduced again and again as more territory was grabbed by imperial powers. Since World War Two, the number of countries has been on the rise, roughly tripling in about 70 years. That trend seems destined to continue, with South Sudan being a recent example of a new country being formed out of one of the giant swaths of territory claimed by a former imperial power.

About 1969, the United States military recognised that a devastating nuclear attack by Russia might wipe out a large amount of computing power, but the remaining computer systems might want to communicate through some sort of inter-networking protocol. So they had some very intelligent people develop the Internet. As a result, the protocol developed for that communications system is extremely decentralised. There are reasons to think that the future of computer communications is going to involve continuing decentralisation, the elimination of more and more single points of failure, and the ability for "routers" to automatically route around damaged nodes.

You now find information very widely distributed, stored on an enormous number of computers, and available for download to your own computer any time you need it. So you can access nearly every book ever published, a great many news sources, images, videos, music, art, and other information wherever you are, about as close to instantly as your communications nodes can manage.

Since the 1970s, a trend has emerged to change the way that software is developed. Software is the code used to operate your computer and make applications available to you. The code that operates the hardware of your computer and tells it, for example, what parts of the screen to illuminate with different colours, or how to send a signal to the printer, is called the operating system or OS. You may have heard of "Windows," and "Apple OS" which are fairly common, and Linux, which is an open source operating system. It turns out that having a software company in control over the development, upgrading, and release of an operating system has inherent disadvantages to the users. Since a great many computer users are also skilled software developers, they collaborated on open source development of Linux. There are now a great number of open source operating systems.

Similarly, the software which runs under a given operating system that makes it possible to, say, process words into a text file, or format them into a document, is an application. There are thousands of applications for all kinds of purposes. And, again, people have begun developing them as open source projects. Open source simply means that the source code, or actual logical operations that are performed by the application, is available for scrutiny. That turns out to have advantages in cost, in distribution, in development speed, in error identification, in error correction, and in other ways.

Very recently, the giant central government of the United States decided to crap all over the open source movement. In particular, its Internal Revenue "Service" has decided to attack applications for tax-exempt status from groups developing open source software. So, equality for everyone, but some are more equal than others (to paraphrase Orwell).



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