Streetwise Professor

February 20, 2011

Peas in a Pod

Filed under: Economics,Politics — The Professor @ 3:01 pm

An emerging response in the debate over public sector unions and Wisconsin’s attempt to constrain them is that “yes, it’s fair to ask public employees to contribute more to their health care and pensions to help address state fiscal woes, but it is not appropriate to restrict collective bargaining rights because they have nothing to do with the budget problems.”  Or, to quote University of Wisconsin economist Menzie Chinn: “collective bargaining rights do not in themselves have direct budgetary implications.”

You have to be either clueless or extremely disingenuous to make this argument.  (I’ll put Mara Liasson, who made the argument on Fox News Sunday this morning, into the former category, based on her extensive track record.)

Seriously, how did these extremely generous benefits come to be?  Did a stork bring them?  Did Moses bring them down on tablets after a conversation with a burning bush?  Hardly: they were the product of collective bargaining between public employee unions and politicians and bureaucrats subject to perverse incentives.

The incentives are perverse because (a) the public sector unions are a concentrated interest with a large stake, and their members can and do provide extensive support to those politicians who advance the union agenda, (b) those who pay the cost of this incestuous relationship–the taxpayers at large–are a diffuse, heterogeneous group, with each person having a small stake in the outcome, (c) by rewarding unions with benefits that extend far into the future, politicians can both obscure the costs of their actions and pass the costs onto many who have no voice in the process (e.g., those currently too young to vote, or those who may move into a jurisdiction at a future date), and (d) politicians have very short time horizons whereas the union employees have much longer ones.

In short, collective bargaining in the past is directly responsible for the fiscal disaster looming over just about every state and city in the country.  And no, you can’t weasel out of that reality by saying that collective bargaining rights “in themselves” don’t “have direct effects.”  Yeah, it takes two to tango–the unions and the politicians/bureaucrats.  The rights extended to the unions don’t “in themselves” uniquely determine the outcome: you need the connivance of the politicians too.  But it is clear that the existence of such rights is a necessary condition for the entirely unsatisfactory outcome we are all grappling with today.  And since it is a necessary condition, restricting these rights is an effective way of mitigating, and perhaps eliminating, the problem in the future.

You aren’t going to change politics or politicians fundamentally.  Controlling public employee compensation costs requires measures that impede corrupt bargains between politicians subject to the background condition of bad incentives and public sector employees.  Limiting the scope of collective bargaining is one way to do that.

Controlling costs requires a credible constraint on the bargaining process that permits captured politicians to extract money from diffuse taxpayers and giving it to those that have captured them.  Period.  Limiting the scope of what can be negotiated between the captors and the captive is the best way to do that.

This is exactly why the unions in Wisconsin and elsewhere are making such a big deal about legislation to limit the scope of collective bargaining: that’s where the real money is.  And that’s also why they, their mouthpieces, and the useful idiots that are sympathetic to them feel obliged to concoct such disingenuous arguments that attempt to disassociate collective bargaining from the fiscal issues that have such resonance among taxpayers.  But overly generous benefits and the right to bargain collectively over these benefits with interested politicians are peas from the same pod.

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  1. […] inadvertently validates my two previous posts.  First, he flogs the new meme (that I discussed yesterday)  that collective bargaining has nothing to do with the fiscal Armaggedon facing states: For […]

    Pingback by Streetwise Professor » Thanks, Krugman! — February 21, 2011 @ 10:42 am

  2. […] This post was mentioned on Twitter by R and R, R. R said: Professor Pirrong discusses collective bullying errr 'bargaining' for which clueless progs are so concerned #WIunion […]

    Pingback by Tweets that mention Streetwise Professor » Peas in a Pod -- — February 21, 2011 @ 4:57 pm

  3. Who do these Milwaukee teachers think they are?! Wall Street traders and executives? Big Auto executives? Do they really expect the taxpayers to pay for their petty little insignificant health?!

    USA is not a welfare state for the middle class. It is a welfare state for the very rich. If these teachers really wanted health coverage and huge bonuses paid from the taxpayers’ pockets, they would have joined Wall Street companies, wouldn’t they?

    Plus, the US government requires full accountability for the money it gives to people. For example, how much did we pay to our “best friend” Hosni Mubarak of Egypt in foreign aid over the last 30 years? Maybe $60 billion or so? Well, it is all accounted for to the penny: in his Swiss bank accounts and his real estate holdings, although the interest may be missing.

    With so many filthy rich people to support, how can the Milwaukee taxpayers find money to pay their teachers?

    Comment by Ostap Bender — February 22, 2011 @ 1:41 am

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