Posts tagged ‘UAW’

Democratic Socialism

Not sure where this came from:

Thomas Sowell writes:

What President Obama has been pushing for, and moving toward, is more insidious: government control of the economy, while leaving ownership in private hands. That way, politicians get to call the shots but, when their bright ideas lead to disaster, they can always blame those who own businesses in the private sector.

What President Obama has been pushing for, and moving toward, is more insidious: government control of the economy, while leaving ownership in private hands. That way, politicians get to call the shots but, when their bright ideas lead to disaster, they can always blame those who own businesses in the private sector.Politically, it is heads-I-win when things go right, and tails-you-lose when things go wrong. This is far preferable, from Obama's point of view, since it gives him a variety of scapegoats for all his failed policies, without having to use President Bush as a scapegoat all the time.

Back in the 1920s, however, when fascism was a new political development, it was widely -- and correctly -- regarded as being on the political left. ....Mussolini, the originator of fascism, was lionized by the left, both in Europe and in America, during the 1920s. Even Hitler, who adopted fascist ideas in the 1920s, was seen by some, including W.E.B. Du Bois, as a man of the left.

People get blinded (probably for good reason, given the heinousness) by Hitler's rounding people up in camps and can't really get beyond that in thinking about fascism.  Which is why I sometimes find it helpful to use the term "Mussolini-style fascism".   And the US Left, led by FDR, was very much in thrall with portions of Mussolini-style fascism, so much so that the National Industrial Recovery Act was a modelled on Mussolini's economic management of command and control by corporatist boards.   Here is one description:

The image of a strong leader taking direct charge of an economy during hard times fascinated observers abroad. Italy was one of the places that Franklin Roosevelt looked to for ideas in 1933. Roosevelt's National Recovery Act (NRA) attempted to cartelize the American economy just as Mussolini had cartelized Italy's. Under the NRA Roosevelt established industry-wide boards with the power to set and enforce prices, wages, and other terms of employment, production, and distribution for all companies in an industry. Through the Agricultural Adjustment Act the government exercised similar control over farmers. Interestingly, Mussolini viewed Roosevelt's New Deal as "boldly... interventionist in the field of economics." Hitler's nazism also shared many features with Italian fascism, including the syndicalist front. Nazism, too, featured complete government control of industry, agriculture, finance, and investment.

The NRA has to be in the top 10 best overturn decisions by the Supreme Court.  Thought experiment -- do you think you could buy a Honda, Toyota, Tesla, Nissan or Kia in the US today if GM and the UAW were running the automotive board?

Abandoning Even the Pretense of Neutrality

The Obama administration has abandoned even the pretense of not being in the tank for its union supporters.

First, it handed took ownership of GM away from secured creditors and gave it to the UAW.

Second was the NLRB over-reach in veto-ing plant relocation decisions by Boeing

More recently came the rules changes for quick, midnight unionization elections to prevent target companies from being able to tell their side of their story

Finally, comes news that the Obama Administration worked to trash pensions of non-unionized auto workers while protecting pensions of union workers.

Unions are About Power, Not Principle

A couple of stories really drive the title of this post home to me.  First, flash back to any number of these type of stories

To Protest Hiring of Nonunion Help, Union Hires Nonunion Pickets

Billy Raye, a 51-year-old unemployed bike courier, is looking for work.  Fortunately for him, the Mid-Atlantic Regional Council of Carpenters is seeking paid demonstrators to march and chant in its current picket line outside the McPherson Building, an office complex here where the council says work is being done with nonunion labor.

"For a lot of our members, it's really difficult to have them come out, either because of parking or something else," explains Vincente Garcia, a union representative who is supervising the picketing.

So instead, the union hires unemployed people at the minimum wage"”$8.25 an hour"”to walk picket lines. Mr. Raye says he's grateful for the work, even though he's not sure why he's doing it. "I could care less," he says. "I am being paid to march around and sound off."

So we follow that up with this story of a union employee who was fired for... wait for it ... trying to unionize his fellow employees

In a move of stunning hypocrisy, the United Federation of Teachers axed one of its longtime employees -- for trying to unionize the powerful labor organization's own workers, it was charged yesterday.

Jim Callaghan, a veteran writer for the teachers union, told The Post he was booted from his $100,000-a-year job just two months after he informed UFT President Michael Mulgrew that he was trying to unionize some of his co-workers.

"I was fired for trying to start a union at the UFT," said a dumbfounded Callaghan, who worked for the union's newsletter and as a speechwriter for union leaders for the past 13 years.

Callaghan said he personally told Mulgrew on June 9 about his intention to try to organize nonunionized workers at UFT headquarters.

"I told him I want to have the same rights that teachers have," said Callaghan, 63, of Staten Island. "He told me he didn't want that, that he wanted to be able to fire whoever he wanted to."

The UFT has long strenuously resisted city efforts to make it easier for school administrators to fire teachers.

"This is the exact antithesis of what they preach, and Michael Mulgrew is the biggest hypocrite out there," Callaghan fumed.

As it turns out, when unions like the UAW get an ownership position in a company, they tend to act exactly like management

You could also entitle it "meet the new boss, same as the old boss". What I'm talking about is a recent meeting between UAW bosses and GM workers. To say it didn't go well would be a vast understatement)(via Sweetness and Light):

Workers at a General Motors stamping plant in Indianapolis, Indiana chased United Auto Workers executives out of a union meeting Sunday, after the UAW demanded workers accept a contract that would cut their wages in half.As soon as three UAW International representatives took the podium, they were met with boos and shouts of opposition from many of the 631 workers currently employed at the plant. The officials, attempting to speak at the only informational meeting on the proposed contract changes, were forced out within minutes of taking the floor.

The incident once again exposes the immense class divide between workers and union officials, who are working actively with the auto companies to drive down wages and eliminate benefits.

Actively working with the auto companies? They are part owners now of the auto companies "“ they're "management" for heaven sake.

In each situation, when the tables are turned, union leaders suddenly discover the economic realities those of us who run businesses have always understood, ie

  • You don't pay more for labor than you have to.  That is what markets are about.  If good people are running around unemployed who are grateful to make $9 an hour, then hiring them is a win-win for both of you.  Setting an arbitrary price floor out of some notion of fairness merely leaves more people unemployed.  From the first story, this is a position the union never takes with any business but itself, but is certainly correct

The union's Mr. Garcia sees no conflict in a union that insists on union labor hiring nonunion people to protest the hiring of nonunion labor.

He says the pickets are not only about "union issues" but also about fair wages and benefits for American workers. By hiring the unemployed, "we are also giving back to the community a bit," he says.

  • Its nearly impossible to run a business if one can't hire and fire at will.  If, once hired, it becomes impossible (e.g. through a tangle of grievance processes) to fire people, then no business can operate well
  • Contrary to certain progressive notions, corporations do not have some sort of infinite treasury full of horded Nazi gold that can pay for any possible wage level.  Given product pricing in a particular industry as well as productivity levels, the labor budget is finite.  At GM, the reasonable labor budget is both finite and likely lower than its current level.  It is admirable at some level to see UAW officials dealing with this hard fact of fiscal responsibility (better, in fact, than are most government officials).  But one wonders how incentives could have been structured better in the past so that this epiphany could have been reached 30 years ago before the golden goose was already killed.

Outright Fraud

I was suspicious of GM's announcement that they were paying off government loans quickly, an action that was attached to a clear PR message that can be boiled down to "taxpayers did the right thing giving us billions."  I was suspicious because I had thought most of the money GM got was an equity infusion as well as certain guarantees, such as of the UAW mention and retirement medical plans.  As such, I suspected that a small debt repayment was trivial and just a token PR move.

I was wrong.  Well, actually, everything I wrote above is correct.  But I was wrong in that I underestimated how fraudulent this announcement was.

The issue came up yesterday at a hearing with the special watchdog on the Wall Street Bailout, Neil Barofsky, who was asked several times about the GM repayment by Sen. Tom Carper (D-DE), who was looking for answers on how much money the feds might make from the controversial Wall Street Bailout.

"It's good news in that they're reducing their debt," Barofsky said of the accelerated GM payments, "but they're doing it by taking other available TARP money."

In other words, GM is taking money from the Wall Street Bailout "“ the TARP money "“ and using that to pay off their loans ahead of schedule.

"It sounds like it's kind of like taking money out of one pocket and putting in the other," said Carper, who got a nod of agreement from Barofsky.

"The way that payment is going to be made is by drawing down on an equity facility of other TARP money."

Translated "“ they are using bailout funds from the feds to pay off their loans.

Un-freaking-believable.   And as an aside, I know that we traditionally have a 5-year waiting period, but can we go ahead and add TARP now to the hall of fame of worst legislation?

Update: It turns out it is even worse.  More Here.

Speech and Spending

I had a dinner conversation last night with my Massachusetts mother-in-law.  She is pretty interesting to talk to because she is a pretty good bellwether for Democratic talking points on most issues.  She was opposed to the recent Supreme Court speech decision removing limits on third party advertising near an election  (I think she misunderstood the scope of that decision but that is not surprising given the shoddy reporting on it, up to and including Obama getting it wrong in his State of the Union).   She advocated strict campaign spending restrictions (both in terms of amount of money and length of the campaign season) combined with term limits.

We could have gone a lot of places with the discussion, but we ended up (before we terminated the conversation in the name of civility) discussing whether restrictions on money were equivalent to restrictions on speech.  She of course said they were not, and said under strict monetary controls I still had freedom of speech - weren't we still talking in the car?

It is hard to reach common ground when one person is arguing from a strict rights-based point of view while the other is arguing from a utilitarian point-of-view.   Essentially she knows in her heart that she is restricting speech, but wishes to do so to reach a better outcome.  I made a couple of utilitarian arguments, including:

  • I pointed out that when the stakes of government are so high, money and influence never goes away.  Just as in any economy, when you ban money, a barter economy arises.  So if we ban large campaign spending, then the quid pro quo becomes grass roots efforts and voter mobilization.  Groups like the UAW become more powerful (we are seeing that already).  They are trading their member's votes for influence.  Connected companies like GE are doing the same thing, trading their support for legislation that is generally hostile to commerce for specific clauses in said legislation that exempts GE and/or makes the laws even more punishing on their competition.  The problem with all this activity is it is hard to see and totally unaccountable -- at least with advertisements we see people out in the open with their agendas.
  • I observed that it was smart to add term limits to her plan, as otherwise her recommendations would be the great incumbent protection act.  But by limiting money, immediate advantage is given to people who already have name recognition and celebrity.  Think we have too many actors and athletes running for office?   Well be prepared for a flood with stricter campaign finance restrictions

However, I tend to shy away form utilitarian arguments.  The best arguments I have against the notion that money can be restricted without restricting speech are:

  • Her comment that I still had freedom of speech (ie I am talking freely in the car) with strict campaign cash restrictions ignores the actual wording of the First Amendment, which reads "Congress shall make no law ... abridging the freedom of speech."  Her test, which is "Am I still able to speak in some forum even if I can't in others" is not a valid test for conformance to the First Amendment.  Otherwise, speech could be restricted at will as long as there was some narrow safe harbor where one could express his opinion.    The better test is whether the proposed law, ie a restriction on how much and when a person can spend money advertising his or her opinions, abridges or reduces freedom of speech.  And I think it is hard to deny that everyone has less freedom, in the form of fewer options and reduced scope, after such legislation.
  • One interesting test is to broaden the question -- Does restricting spending on something (in this case speech) constitute a restriction on one's underlying right to the activity (e.g. speaking freely).  I was tempted to ask her (she is a strong and vocal abortion rights supporter) whether she would therefore consider the right to abortion to be untouched by Congress if a law were passed to limit each person's spending on abortion to $5 a year.   Abortion would still be entirely legal  -- all government would be doing is putting on some spending restrictions.   Obviously one's scope and options to get an abortion would be limited -- only those who happened to have a doctor in the family could perhaps get an abortion -- just as under her speech plan only those who had a large newspaper in the family could speak fully and freely before an election.

Further Thoughts on Corporate Speech

The reaction by the left to the Supreme Court decision yesterday overturning speech limitations on corporations seems tremendously hypocritical.  No one seems to complain on the left when certain groups/corporations (call them "assembly of individuals") get special access to the government and policy making.  Jeffrey Immelt and GE, Goldman Sachs, the SEIU, and the UAW all get special direct access to shape legislation in ways that may give special privileges to their organization -- access I and my company will never have.

Deneen Borelli wrote, in response to Keith Olberman's fevered denunciations of free speech for corporations

"It also seems as if the pot is calling the kettle black. MSNBC is currently owned by General Electric. GE Capital was bailed out by the taxpayers. GE CEO Jeff Immelt is a close advisor to President Obama, and GE would profit from Obama policies such as cap-and-trade. Olbermann has served as a cheerleader for all of this. Are Immelt and Olbermann simply afraid to allow others to possibly gain the attention and influence GE has had all along?"

Here is an example -- has the health care bill considered my company's situation, where we have 400 seasonal workers, almost all of whom are over 70 and on Medicare already?  How, in these circumstances, do we offer health care plans?  Are we relieved of the penalty for not offering a plan if they are on Medicare or a retirement health plan already?  The legislation does not address these issues (see Hayek) and I am sure numerous others, but I will never be able to cut a special deal for my workers or my industry as GE or the UAW have.

Further, corporate paid speech is alive and well in this administration, you and I just can't see it.  Lobbyists are all having record, banner, unbelievable revenues, in large part because the government is putting such a large chunk of the economy in play for forced redistribution and everyone who can afford it is paying to influence the process.

But nothing in any of the good government reforms have (rightly) ever put any kind of restrictions on this kind of speech directly to legislators.  The only speech they limit is speech to the public at large.  In effect, McCain-Feingold said that it is just fine to spend gobs of money speaking directly to us government folks, but try to go over our heads and talk directly to the unwashed masses, well, we have to make that illegal.  Far from tilting the balance of power to a few rich elite firms, the recent Supreme Court decision gives new power to the rest of us who don't have privileged access.

Update: Speaking of hypocrisy, the NY Times Corporation is outraged other corporations have been given the same rights it has had all along.  In a sense, the Times is lamenting their loss of a monopoly.

Update #2: Ilya Somin:  Corporate speech is actually an equalizer for far worse inequalities of political influence and access that already exist.

But What Happens if People Actually Change Their Behavior?

The Senate health care bill relies for much of its funding on a tax on so-called "Cadillac" health care plans.  But what happens when employees and employers inevitably change their behavior in the face of different incentives?

History teaches us that tax policy has a huge effect on behavior.  Witness the fact in health care the non-nonsensical fact so many people rely on their employer for health care.  As we see today, this is a really bad idea, but it was hatched because tax law provided incentives for paying compensation in the form of health insurance premiums, since these are not subject to either income or payroll taxes.

Already, employers are offering employees what are effectively buy-outs of health care -- higher pay in return for reduced health care benefits.  For employers, the upside risk on health care costs now outweigh the tax advantages of health insurance as a compensation tool.  Given this trend, what do you think will happen when employees suddenly have the same incentive, to roll back health care coverage to get under whatever bar is set for an insurance package Congress thinks is too rich (hint:  wherever the bar is set, it will be below the health insurance Congress provides itself).  Employers and employees are now going to have a shared incentive to back off on health care benefits in exchange for more cash.  Think of the sharp minds on both sides of a UAW contract negotiation - does anyone really think that these guys won't figure out a win-win to avoid paying the surtax?

Three to five years from now, even before the system goes bankrupt from inevitably expanding costs  (you didn't really buy that stuff about the operator of Amtrak and the Post Office improving the industry's efficiency, did you?), we are going to be talking about the gross shortfall in tax revenues to support these programs, all because people change their behavior in the face of changing incentives.

Explain the Difference

Is there any difference between Hugo Chavez and Barack Obama in terms of how they approach the auto industry?  "Make the kind of cars I thing you should, or the government will take you over."

Mr. Chavez said his socialist government is going to apply strict quotas regarding the number and types of vehicles auto makers can produce. The president also ordered his trade minister, Eduardo Saman, to inspect the Toyota plant, saying it may not be making enough "rustic vehicles," a style of all-terrain vehicle that is much-needed in Venezuela's countryside, where they are often converted into minibuses.

"They'll have to fulfill [the quotas], and if not, they can get out," Mr. Chavez said during a televised address. "We'll bring in another company."

He said if the inspection shows Toyota isn't producing what he thinks it should and isn't transferring technology, the government may consider taking over its plant and have a Chinese company operate it. "We'll take it, we'll expropriate it, we'll pay them what it's worth and immediately call on the Chinese," Mr. Chavez said. Chinese companies, he said, are willing to make vehicles made for the countryside.

It seems like Venezuelan workers want the same deal Obama gave the UAW:

Venezuela's auto sector is in tatters amid recurring labor problems that have led to a lack of productivity. Analysts say many auto workers hope their company is nationalized so they can become de facto government workers and enjoy the extra job security that comes with that status.

By the way, this seems like a suckers play -- please put more valuable stuff in your store window so when we break in there is more to steal:

Mr. Chavez said late Wednesday the Japanese auto maker needs to transfer more new technologies and manufacturing methods from headquarters to its local unit in Venezuela.

While Mr. Chavez directed most of his criticism at Toyota, he said other auto assemblers, including Fiat SpA and General Motors, are also guilty of not sharing technology from abroad with their Venezuelan units.

The left often seems to imply that the US government is too eager to shed blood to protect American industry overseas, but in point of fact American industry has had to live with the reality for decades that foreign governments often steal billions of dollars in American-owned assets with barely a peep being heard from the US government.  For example, there is really no such thing as a Saudi or Libyan or Venezuelan or even Mexican oil industry - those are just assets paid for and built by private Western concerns and then stolen by local governments.

Changing Face of Patronage

I was listening to a lecture on the politics of reconstruction when I encountered something that seemed quite quaint.   By 1877, a lot of the country was tiring of reconstruction, and was ready to move on.  Southern Democrats were taking the opportunity to re-take control of their states (through voter intimidation and outright murder) and, unfortunately, institute a race-based social system that would be enforced by government officials for almost a hundred years.

In this background, enter the contested Presidential election between Republican Hayes and Democrat Tilden.  The electoral college vote turned on three close southern races that no one to this day probably knows who really won, particularly if one factors in the voter intimidation in those states.  Never-the-less, Republicans found themselves in control of the vote counting and later the special committee to investigate and certify the election, and predictably Republican Hayes was certified the winner.

Southern Democrats were ticked off, and threatened to throw every wrench they could into seating the new government.  So, in a back room compromise, Democrats exchanged agreement on accepting Hayes as President for agreement by Republicans to pull troops out of the South and effectively allow Southern Democrats leeway to do whatever they liked with blacks in the South.

This is all grossly simplified, but what caught my attention was one side-bargain of the deal.  The Southern Democrats wanted a cabinet position under Hayes.  What did they want?  State, maybe War?  No, they wanted the Postmaster position.  The reason was that the Postmaster had by far the most patronage positions to award of any of the Cabinet positions, because it employed so many civil service positions.

Doesn't handing out a few jobs as rewards to your political supporters seem such a quaint form of political corruption today?  Now, of course, with the power to tax or regulate whole industries out of business, or to step on one group of competitors in favor of another set in a high-stakes market, this seems so benign.  I wish that were all we had to worry about today.  Instead, we have a President who can, without any enabling legislation, take two of the largest corporations in American (GM and Chrysler), cancel the debts owed to their secured creditors, and then hand control of these companies to his strongest political supporters (the UAW) -- an act of political patronage that makes a joke of selling a few postmaster positions.

Update: Don Boudreaux discusses the rise of government-controlled fire fighting in the context of political patronage.

Doomed to Repeat

Via Carpe Diem:

Pro-labor policies pushed by President Herbert Hoover after the stock market crash of 1929 accounted for close to two-thirds of the drop in the nation's gross domestic product over the two years that followed, causing what might otherwise have been a bad recession to slip into the Great Depression, a UCLA economist concludes in a new study.

"These findings suggest that the recession was three times worse "” at a minimum "” than it would otherwise have been, because of Hoover," said Lee E. Ohanian, a UCLA professor of economics.

The policies, which included both propping up wages and encouraging job-sharing, also accounted for more than two-thirds of the precipitous decline in hours worked in the manufacturing sector, which was much harder hit initially than the agricultural sector, according to Ohanian.

"By keeping industrial wages too high, Hoover sharply depressed employment beyond where it otherwise would have been, and that act drove down the overall gross national product," Ohanian said. "His policy was the single most important event in precipitating the Great Depression."

After the stock market crash, Hoover met with major leaders of industry and cut a deal with them to either maintain or raise wages and institute job-sharing to keep workers employed, at least to some degree, Ohanian found. In response, General Motors, Ford, U.S. Steel, Dupont, International Harvester and many other large firms fell in line, even publicly underscoring their compliance with Hoover's program. Reluctant to lower wages due to Hoover's entreaties, employers in the manufacturing sector responded by reducing the work week and laying off workers. By September 1931, the manufacturing sector was already hurting: Hours clocked by workers had fallen by 20% (see chart above) and employment by 35%.

Wow, its sure lucky we don't have a President today reacting to a recession with profoundly pro-labor policies. Otherwise we might be doing something stupid, like screwing secured creditors in favor of routing value to unions or protecting union health benefits at the cost of everyone else's health care.

Today's Quiz

In our new corporate state, does anyone think this decision was made purely on the business merits?  Note that the only people mentioned or commenting in the article (other than a GM and UAW PR flack) are politicians of the various states.

I Don't Think It Will Work This Way

From the Economist via TJIC:

the United Automobile Workers "¦ can own half of Chrysler's stock and a third of General Motors' stock if everything goes through"¦

anti-labour activists might also feel a bit of cheer. As Conor Clarke points out, today's events can only have one of two consequences:

It will change the incentives of the unions"”such that they realize their demands were bad for the company"”or it will run the company (further) into the ground and leave the union to pick up the pieces.

Worker ownership rarely works the way it's expected, so it's entirely possible that the UAW has sped up its own demise by cutting this deal.

I don't have any hope that it will work out this way.  The only incentive alignment that will exist is that union ownership of GM will align Congressional incentives to issue GM a near infinite stream of subsidies, bailouts, tax breaks, import restrictions, consumer incentives, etc.

We are switching ownership of GM from a politically fragmented and unorganized group (ie current GM shareholders) to a single organization that already has political clout and massive political lobbying infrastructure  (UAW).  Just look at the large corporate states of France and Germany.  Union involvement in corporate management doesn't change union practices, it changes government practices.

Update from Q&O:

There's some interesting stuff out there to read about the Chrysler bankruptcy, like people asking "why wasn't this done in the beginning"?

Simple answer - in the beginning there was no way to secure the UAW a majority stake in the company. Now, as Felix Salmon points out, that's been accomplished

Perhaps the Real Issue

I have mixed feelings about the Republican basing of automotive unions.  On the one hand, I see no reason why individuals in a free society shouldn't be able to organize and bargain as a group on wages.  However, this is not a free society, and the union organizing process is one of the most regulated in the country, with numerous state and federal laws that artificially tilt the bargaining and financial power towards unions.  Unions, for example, are the only private organization that I know of in this country that have taxation power, ie the ability to apply non-voluntary financial assessments on a population with the full force of government behind their collection.

But it may be that so much attention has been applied to wages and health care that this issue has been under-reported.  Below is apparently the Ford-UAW 2,215 page contract. Eeek.

rules

How can it be possible to run a company where even the smallest operational improvement idea has to be screened against this document?

We're All Technocrats

The auto bailout is dead, at least for now:

A bailout-weary Congress killed a $14 billion package to aid struggling U.S. automakers Thursday night after a partisan dispute over union wage cuts derailed a last-ditch effort to revive the emergency
aid before year's end.

Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit's beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with U.S. plants of Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.

Good.  Chapter 11 was made for this kind of situation, and folks will quickly come to understand that productive assets don't go *poof* in a bankruptcy  (though equity values can).

By the way, you will note that Senate Republicans did not suddenly become economic libertarians.  Their objection seems to be that the bill does not micro-manage the auto industry they same way they would want to micro-manage the auto industry.  You can see in these political battles that Congress brings its usual identity politics to these decisions:  Republicans want to hammer the unions, Democrats want to hammer executive pay.  Which is why these restructuring discussions don't belong in Congress.

A Bit More Hope Than I Thought

GM, as reported by Reason's Hit and Run, has actually already had something of a breakthrough in labor costs, at least for new employees:

The current veteran UAW member at GM today has an average base wage of $28.12 an hour, but the cost of benefits, including pension and future retiree health care costs, nearly triples the cost to GM to $78.21, according to the Center for Automotive Research.

By comparison, new hires will be paid between $14 and $16.23 an hour. And even as they start to accumulate raises tied to seniority, the far less lucrative benefit package will limit GM's cost for those employees to $25.65 an hour.

So this puts GM in the position of shoving experienced employees out the door as fast as they can, to make way for lower cost employees hired under this new deal.  Apparently GM also has more flexibility to manage costs in a downturn.  Good news, assuming they can accelerate a 20 year demographic transition to about 6 months, avoid giving away too much to these newer workers when times are good again, and arrest market share declines with better cars. Oh, and I presume the UAW has not abandoned seniority, which means that in recession-driven layoffs over the next year, GM must being by laying off these much cheaper younger workers.  Layoffs will actually mix their labor cost upwards.

I still don't want to bail them out.  Like numerous other industries, from steel to airlines, there is no reason GM shouldn't have to pass through Chapter 11 on the road to recovery.  However, the argument that GM is turning a corner if we just give them a little help seems to be persuasive with many folks around me, so much so I am tempted to buy some GM stock as a way to go long on my prediction of the creeping corporate state.

Update: On the other hand, this is a sign that GM may be scraping the bottom of the barrel for cash:

Cash-strapped General Motors Corp. said Monday it will delay reimbursing its dealers for rebates and other sales incentives, an indication that the company is starting to have cash-flow problems....Erich Merkle, lead auto analyst at the consulting firm Crowe Horwath LLP, said GM wouldn't delay payments if it had enough cash.

In the third quarter of this year, GM's operations burned through $7.5 billion in cash, offset somewhat by asset sales and financing activities.  But this is really a pre-recession burn rate.  What will the burn rate be over the next 6 months?  There is an argument to be made that $25 billion is not going to last even a year, particularly given the dynamic that layoffs will hit mostly the lower-cost workers, and a Democratic Congress and Administration that is handing over the money may well restrict GM's freedom of movement on layoffs anyway.  I can see the Obama administration now -- don't lay them off, lets put them all in a factory making green energy, uh, stuff.

"I don't even think they've got 60 days," Merkle said. "Their cash position is probably getting pretty weak right now, and it's cutting into those minimum reserves that they need on hand."

More on the Stagnating Wage Myth

A while back, when I discussed the stagnating wage myth, I observed that folks spreading this meme were careful to show figures only for cash wages, and not for total compensation.  In the period from 2000-2006, which is the typical period critics focus on (in part because it implies blame on the Bush administration, and in part because it lets them measure economic peak to trough) there has been a substantial shift in compensation mix from cash to non-cash benefits, including health care and paid time off.  Ignoring these components is particularly disingenuous given that many of these same critics have been long-time supporters of more paid time off and better company-funded health care.

As an example, this data (courtesy of Mark Perry) on the Big 3 automakers contracts is telling.  In 2000 (table page 3) it shows cash wages per hour worked at $22.71 and total comp at $43.57.  In 2006, the most recent year of data, it shows cash wages per hour worked at $29.15 and total comp at $75.86.  So, while cash wages per hour have increased about 4.25% compounded each year, total compensation has increased more than twice as fast, at 9.7% a year.  That latter increase is due both to a rapid rise in health care expenditures for employees as well as an increase in paid day off to 34.5 a year.  (by the way, if you are wondering why the UAW is fighting so hard for a government bailout, look no further than jobs with $75.86 an hour total comp. and seven weeks a year of paid days off.)

Trade Imbalance

Don Boudreaux responds to UAW President Ron Gettelfinger's complaint that the US has a trade imbalance in autos with South Korea:

Well, duh - that's an
inevitable consequence of specialization...

General Motors, Ford, and Chrysler each have huge trade imbalances --
to be precise, huge and growing trade deficits -- with their workers:
these companies buy far more from their workers than their workers buy
from them.  Perhaps auto makers should hire workers only on the
condition that the trade in each case is "balanced": each and every
worker must agree to spend his or her entire salary on products made by
the auto maker.  For example, a G.M. worker whose total compensation in
2007 is $60,000 must spend $60,000 on G.M. products in 2007.  Any
worker who fails to do so will be fired because of the resulting
imbalance.

Update:  Sorry, forgot the link.  Added it.

Latest NEA School Report is Absurd

Today, on NPR, I heard my state of Arizona getting bashed by some young reporter at the local affiliate based on Arizona's rankings in the latest NEA state rankings.  So, I thought I would check the report out myself.  The cover of the report tells us what we should expect to find:

This report is an update of data from NEA Research's report, Rankings & Estimates: Rankings of the States 2003 and Estimates of School Statistics 2004, based on the latest information provided from state departments of education. NEA Research collects, analyzes, and maintains data on issues and trends affecting the nation's public education systems and their employees.

OK, so lets open the report and see what statistics the NEA thinks are the best measures of public education.  Here are all the stats in the report, in the order they are reported (presumably their importance):

  1. How much, on average, did teachers in each state earn per year?
  2. How many students were enrolled in each state?
  3. How many teachers were working in each state?
  4. What was the student"“teacher ratio in each state?
  5. How much money, on average, did each state spend per student?
  6. How much money did each state spend for operating schools, including salaries, books, heating buildings, and so on?
  7. How much money did each state spend in total for schools, including operating expenses, capital outlay, and interest on school debt?
  8. How much revenue did school districts receive from state governments?
  9. How much revenue did school districts receive from local governments?
  10. What were school districts' total revenues?

Thats it.  That is the entire sum total of performance metrics they have for states and their schools.  So, what's missing?  How about any dang measure of student learning or performance!  I know that the NEA wants to criticize every test out there, and in fact resists standardized testing at every turn, but is it too much to think that we might measure the quality of education by the, um, quality of education, and not by how much the employees make? 

To be fair, the NEA does talk about NAEP test data on their web site, to the extent that they point out that some test scores are improving (they don't mention that this is improving off a disastrously low base).  This NEA web site section on student performance reminds me a lot of the environmental protection section on the Dow Chemical web site -- it's there because it's important to public relations but its not really a topic that dominates their priorities. I have a related post here that fisks the ideas for improvement on this NEA page, but if you don't want to read that post suffice it to say that they boil down to 1) spending more money; 2) hiring more teachers; 3) paying teachers more money ; 4) testing less or putting less emphasis on tests and measurable performance; and 5) more certification and protecting the guild.

Look, I don't begrudge the NEA's role as the union and collective-bargaining agent of the teachers, and as such, they should be very concerned with salary levels (more on that in a minute).  However, the NEA and their supporters constantly try to piously position the NEA as not a union - oh no - but as a group primarily interested in the quality of education.  I hope this report and its contents effectively dispels that myth once and for all.  The NEA today as an institution cares no more about the quality of education than the UAW cared about the quality of GM cars in the 70's (by the way, I am careful to say the NEA as an institution-- many individual teachers care a lot).

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