Tag Archives: union

American Gulag

There is some scary stuff going on with law enforcement in America. Last week, we reported on civil asset forfeiture, and now the leading practitioner of this nefarious program has been nominated for Attorney General. We have been following the trend of police militarization and, today, we bring dispatches from America’s carceral state. Meanwhile, habeas corpus looks like it’s gone forever.

Now, in our outsourced, corporate gulag, you can be locked up and never see your family again – at least not live. The new thing is prison visits on low-def video, for which your loved ones will pay a premium. That means more revenue and lower costs for the prison industrial complex. If you have ever had the experience of a prison telephone visit, you know what a cruel scam it is. Video calls will certainly be worse and, no – they are not allowed to visit in person.

America has about 5% of the world’s population but almost 25% of its prisoners, with the world’s largest number of inmates and highest per capita rate of incarceration

Law and order types say that prison is intended to be punishment. We refer them to the Constitution’s prohibition of “cruel and unusual” punishment, and the Supreme Court’s ruling against California. Ironically, while California is generally a liberal state, it is also broke. The Supreme Court found that extreme overcrowding in Californian prisons amounted to something like torture. Prisoners are left to die from agonizing diseases. If you’re one of these law and order types, go ahead and read the judgment.

The answer to overcrowding is not simply to build more prisons. We incarcerate more people, per capita, than any other civilized country – by a wide margin. See chart below, and this wonderful infographic from Pew. There are 2.5 million Americans behind bars. If the “carceral state” were actually a state, it would be our 36th largest, just behind Nevada. In his book, Jonathon Simon makes the case that mass incarceration is fundamentally at odds with the Eighth Amendment.

Prison Chart

The answer, in terms of policy choices, is blindingly obvious. As judge Morris Hoffman writes, “there is a large body of criminological research that shows that just a handful of criminal law doctrines — including three-strikes laws and mandatory minima for simple drug possession — drive sentences substantially higher than the average citizen believes is just.” The ACLU should be campaigning hard against these doctrines.

Just a handful of criminal law doctrines — including three-strikes laws and mandatory minimums for simple drug possession — drive sentences substantially higher than the average citizen believes is just.

Behind the doctrines is a sinister convergence of interests between “law and order” politicians and commercial interests. Politicians can reduce crime by budgeting more money for law enforcement or, more cheaply, by passing tough sentencing laws. Like pension commitments, these laws create unfunded liabilities that come due after the politician is gone and the prisons are full. Yes, in America people really do serve life in prison for marijuana.

[Supreme Court Justice] Kennedy… called it “sick” that the state’s prison-guards union had sponsored a notorious ballot measure that … now keeps far too many Californians locked up.

The commercial interests include private prison operators, subcontractors, and – for public prisons – the prison guards’ union. These are groups who profit from a large prison population. They lobby very effectively for long sentences, and against rehabilitation. Corrections Corp. has annual revenue of $1.6 billion, and is currently rated a strong buy. See stock chart, below.

CXW Chart

This is not to say that private prisons are bad, operationally, but it does mean that we have a system of perverse incentives. Instead of rehabilitating people, we have incentives to warehouse them cheaply for as long as possible. As with much else in government, this boils down to cost accounting. We do not hold our leaders to account for the economic and social costs of their decisions.

It was nice to see the Supreme Court rule on this, but it took an extreme case. We, the voters, should be taking action. Otherwise, we can add the Eighth Amendment to the growing list of “rights we used to have.”

See also: End Mass Incarceration Now

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Take the Deal

Kevyn Orr has made a good deal for Detroit, and it’s surprising people are hostile to it.  Contrast The Economist with the local newspaper.  The latter is focused entirely on the workers’ demands, as if Detroit is hardwired for UAW negotiations.  The rules in bankruptcy are a little different, and this attitude could lead to negative outcomes for the city.

Even if the actual return to the pensioners is lower than the figures being thrown around, it is still vastly more than they would get …If the pensioners reject the grand bargain … I don’t think Judge Rhodes is going to be sympathetic.

Mr. Orr, the administrator, is asking for minimal reductions in city salaries and pension benefits – with no deadline pressure, as would be his prerogative – and meanwhile asking bondholders to take twenty cents on the dollar.  An 80% haircut!  That’s worse than Greece.  Orr is also trying to protect Detroit’s art collection by moving it off the books.

Rivera

Some people feel there is a moral obligation to pay back your debts – or at least a legal one.  Media pressure is not going to make a judge overlook these obligations.  GO bonds are supposed to be paid from ongoing tax proceeds – as they say, “full faith and credit.”  Some bonds even claim specific revenues, like the water works, and they have strong covenants.

Municipal bonds will be harder to sell after Detroit, making finances tighter for all the other struggling cities in America.  Politicians should never have been allowed to make these pie in the sky pension deals in the first place.

It’s a beautiful museum, by the way.  We note the irony that its main gallery was painted by Diego Rivera, a communist.

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Do You Believe in Magic?

coldIt is bitter cold in New York this morning, 2 degrees, plus the wind chill.  Across the border into Canada, it’s minus 14 – a little warmer.  How is it possible that minus 14 is warmer than 2 degrees?  Obviously, the Canadians use a different thermometer.

You cannot make yourself warmer by switching thermometers, and the government cannot make you richer by printing more money – or by mandating a raise in the minimum wage.  Jeremiah believes that everything, including your labor, has a “real” price.  The government can raise your “nominal” wage with the stroke of a pen, but it will take concerted effort to raise your real wage.

Let’s say that you have to work all day at the grocery store in order to buy a bag of groceries.  Maybe that’s a six hour shift at nine dollars and you keep $40 after taxes.  You could be paid in pesos, and it wouldn’t make any difference.  Your day’s labor is worth one bag of groceries.

Now, along comes the government and hikes your wage to $15.  Cool, huh?  You will feel richer for about six months, while the dollar depreciates.  You see, everyone else got a wage hike, too.  So, the price of McDonalds went up, and the price of gas went up, and groceries went up.

You still have to work all day to buy a bag of groceries.  Your nominal wage went up, but your real wage is unchanged.

Raising your real wage will take real work.  It takes a growing economy, and a tight labor market.  You may have to join a union, or find a new job, or go back to school.  Government can help, with the right policies, but there is no magic.

If you believe that the government can change the real wage structure by fiat, then you believe in magic.  As Thomas Sowell said, if you can’t handle the truth, you’ll keep voting for liars.

See also:  Socialist Brain Drain

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No Minimum Wage for Robots

The Economist is here, calling for a rise in America’s national minimum wage.  This is pretty heroic for a newspaper aimed at economists.  The fact that minimum wage laws create unemployment is well established in theory and practice.  They also drive inflation, and not in that friendly Keynesian way.

The Economist’s argument is, since labor markets are not perfectly elastic, employers may be holding wages below their equilibrium.  They simultaneously argue that, where labor markets are flexible, a minimum wage might not hurt employment too badly.  All of the research is from Europe.

McRobot

Unions are the obvious free market solution.  If wages are indeed suppressed, then unions will be able to organize the workers.  If not, then we must admit this is the equilibrium wage – and turn policy attention toward our failed educational system.

JambaGo

Another point to consider is that labor competes with capital, and there is no minimum wage for capital.  Ordinarily, companies confront a nonzero hurdle rate for investment.  Ironically, as the Fed pursues ZIRP and QE in hopes of stimulating employment, they also make it cheaper for firms to replace workers with automation.

Aptito

Jeremiah has written sympathetically about humans working for the minimum wage.  If we really want to help these people, we must make the fiscal adjustments to provide them with direct cash assistance – not foist an unfunded mandate onto employers.  Such measures should be undertaken by the states, according to the situation in each state, not a distant and unaccountable central government.

See also:  On Public Spending

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It’s Kevyn Or Nothing

Kevyn OrrCNN has a misleading editorial on the Detroit bankruptcy.  Jeremiah’s bullshit alarm went off when Kevyn Orr, pictured here, was described as “unelected.”  That’s a cheap shot.  Bankruptcy managers are, of necessity, appointed.  So are federal judges.

The author, Ross Eisenberry, suggests that bankruptcy is Mr. Orr’s scheme to cheat Detroit’s pensioners and put Wall Street bankers at the head of the payments queue.  He forgets that Chapter 9 is called “protection” for a reason.

Bankruptcy allows the city to restructure its obligations in an orderly manner, rather than face lawsuits from multiple creditors.  As Natalie Cohen puts it, bankruptcy gives the city breathing room.

It was only a matter of time before one creditor filed a suit that would force the city to protect itself.

If you want a grownup analysis of who gets what in bankruptcy, read Ms. Cohen.  It’s a little more complicated than “screw pensioners, pay bankers.”  The city needs protection from all of its creditors, and all of them are going to take losses – even the bankers.

It is heartbreaking to see Detroit’s retirees deprived of their pensions.  They were robbed, and the authorities should track down the culprits.  Indeed, the FBI has already indicted a few of them.  That’s better justice than the easy answers proposed by Mr. Eisenberry.

Hundreds of millions of dollars of plan assets were [diverted] to the annuity savings accounts of active employees outside of the defined-benefit pension plan.

The thieves turn out to be city trustees who robbed the pension fund.  Note that many were elected officials, unlike the “unelected” Kevyn Orr.  They’re the ones who brought in the Wall Street sharks, took bribes, and went on junkets to Hawaii.

Still, stiffing the bankers sounds like a good idea.  Why not do that, and make the pensioners whole?  The practical answer is that Detroit will need continued borrowing to stay afloat, and that gets harder with each default.  Rates for municipal bonds are already on the rise.

The moral answer is that there are pensioners on the other side, too – not some Wall Street bogeyman.  Municipal bonds are “widow and orphan” investments, because they’re tax exempt and (were) considered safe.  It’s a tough situation with no easy answers, and Kevyn Orr deserves a lot of credit.

The Eisenberry editorial is misleading and inflammatory.  He has even got racial and class war stuff in there.  We were so dismayed that we looked into this Economic Policy Institute that employs him.  Turns out, it’s an advocacy group for the unions.  See here.

The unions have a right to their opinion, and we would expect them to be advocating this line.  Dressing it up as an “editorial,” though, is dishonest.  At least one union, the AFL-CIO, is a party to the bankruptcy.  Eisenberry isn’t even a real economist.  He’s a lawyer.

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C+ for Cloward Piven

The seminal paper on organizing the poor is Cloward and Piven’s The Weight of the Poor: A Strategy to End Poverty, first printed by The Nation in 1966.  It is not a strategy to end poverty in the sense of increased earnings or social mobility.  It is a strategy to gain political power and demand more income redistribution.  The authors specifically reject social mobility as a solution.

GovernmentWork

As tactics, the paper is quite ingenious.  As strategy, it is either confused or – you decide – dishonest.  That’s why the C+.  We’ll discuss the tactics first.

The key observation behind the strategy is that welfare programs, in 1966, were underfunded, underutilized, and poorly administered at the state and local level.  The authors propose to precipitate a crisis through massive welfare enrollment.  Specific programs and statistics are given.

Community organizers would lead enrollment efforts, act as advocates, and develop welfare recipients as a bloc for voting and activism.  Legal training is a plus, but not required.

To generate an expressly political movement, cadres of aggressive organizers would have to come from the civil rights movement and the churches, from militant low-income organizations like those formed by … Saul Alinsky, and from other groups on the Left.

You can see how powerful this is.  The organizer knows how to work the system, and helps you to collect your full allotment of welfare benefits.  He also teaches you a little bit about politics.  The money comes from the state, but the message comes from the left.  A “climate of militancy” is recommended.

The authors make some interesting observations in this connection.  Unlike rent protests, which had been transitory, the welfare claims become a permanent drain on public finances.  Also, people are more readily motivated by self interest than by ideology.

So far, so good.  It may have been cynical for the left to insinuate themselves into welfare administration, but – the right wasn’t going to do it.  If nothing else, at least more people collected the benefits to which they were entitled.  This part of the strategy was a success, at least by its own standards.

By crisis, we mean a publicly visible disruption in some institutional sphere.  Crisis can occur spontaneously (e.g., riots) or as the intended result of tactics of demonstration and protest, which either generate institutional disruption or bring unrecognizable eruption to public attention.

The stated goal was to organize the welfare people, overload the welfare system, create a political crisis, and then press for “guaranteed annual income” at the federal level.  If the system could be overwhelmed, though, by ostensibly stingy welfare claims – how could this same system support massive redistribution?

This is a plan for national socialism that is either not openly stated, or not thought out.  If you can agitate, bankrupt, and break the cities, and then your next demand is to break the national treasury – what are you really aiming at?

The authors insist that the new welfare regime must not perpetuate the evils of the old one, wherein “submission to arbitrary governmental power is regularly made the price of sustenance.”  They blindly assume that once their side is in charge, the system will be more humane.  History shows that it won’t.  It will be worse.

Forty years later, maybe social mobility would have worked – if leftists in the schools had not advanced ideology over algebra.  We share the authors’ sympathy with industrial unions, but unionized schools have been a barrier to social mobility.  Creating an unemployable urban underclass helped the movement, but it didn’t help the people.

In 1966, the authors may have had idealistic intentions.  Looking back, it reads like a cynical ploy to gain political power by exploiting the poor – and then what?  At the end of this process, you would be the supreme leader of a bankrupt wasteland.  Congratulations.

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Look For the Union Label

ilgwu3Jeremiah grieves for the Bangladeshi garment workers.  They had that fire back in November, and now more people killed.  The Triangle Fire Coalition held an event for that tragedy only last month.

Activism is led by Triangle, FLA, and the Fair Wear Foundation.  They are a good place to start, if you want to get involved.  We recommend a “fair wear” label, like the famous campaign of old.

Government agencies have incentives to preserve the status quo.  Here, Bangladesh urges the EU not to react.  We would really like to see leadership from international unions.  Unions and factory owners will always achieve a balance, as long as there is no government interference.

The government has set up a 2,990-strong Industrial Police force to collect intelligence and prevent unrest in factory zones.

Workers in the developing world are living through the same struggle we did, one hundred years ago.  Ironically, the ILGWU was undone by competition from cheap labor overseas.  Bangladeshi workers will have to reinvent it – and this is a lesson for union organizers.  When the work moves overseas, the union should follow it.

Update:  For those who do not remember it, the “union label” song is here.  Wait for the second verse, with the female vocalist.

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