Everybody go read this!

It's really, really good stuff on economic misconceptions that plague voters.

(Hat tip to Greg Mankiw.)

They Signed

The UAW and GM have apparently come to agreement on a new contract, ending a day-and-a-half strike. Terms weren't disclosed, but are believed to contain some job security concessions in exchange for the formation of a VEBA.

I am not sure what will become of the VEBA, but it is hard to see that being a good deal for retirees. The only way that this saves GM any money is if it's underfunded -- so, by definition, if it's a savings for GM it's going to run out of money as happened at Caterpillar.

Then again, the VEBA could be funded more or less fully (70% is the figure that's been batted around, which is close to full funding as some of the obligations of the fund haven't actually been incurred yet), which makes it simply a means of removing uncertainty from GM's books, and making Wall Street happy with little effect on the actual size of the obligation.

Watch this space -- as the details come out it'll be interesting to see what happened, and if the contract is ratified.

No Guarantees

Sorry I was gone, I was busy celebrating the 2007 AMERICAN LEAGUE CENTRAL DIVISION CHAMPIONS!!!!!! See you at the Jake for the ALDS!!!!!!!

(Sorry about that, I let my emotions get away with me for a second.)

You may have noticed that the UAW went out yesterday. It seems that one of the more important issues is job security. I'm not sure they're thinking this through all the way. You can't get a guarantee of job security besides producing a product at a price people will pay for it. If you do that, you don't need a guarantee. If you don't, no guarantee will save you.

What's a Louis Vuitton dress worth?

Not as much as it costs, apparently. This is from a few weeks ago, but since I missed it then I hope you'll take a look at it now. It's this kind of thinking that leads people to rail against "excessive" corporate profits. I don't understand this personally; unless they're operating a government-enforced monopoly or are using slave labor, then the transactions by which they made that money were all adjudged by the people who made them to be in their best interests. Do we really want government to be in the business of telling people that, "no, darn it, you shouldn't buy that coat -- it's way overpriced?" Personally, I think advertising on Daily Kos costs too much; they should be forced to lower their rates.

However, that's exactly what some are trying to do with "living-wage" legislation. Now, I understand that the analogy doesn't apply perfectly because employers have much more market power than minimum-wage employees, but, give me a break. Do we really want to really want to open ourselves up to the market-distorting effects of a high minimum wage because we as a society would rather make the decision of what wage to seek on people's behalf?
Can't the argument also be made that sub-"living-wage" wages are what makes middle-class living possible? If the production expenses of the goods we want are increased, they'll cost more and we'll just inflation, not any increase in our standard of living.

Do Unions Add Value?

One of my favorite labor commentary sites is Working Life, where Jonathan Tasini writes on all sorts of topics. I can usually count on him to raise my blood pressure, and get me thinking. Anyway, he took on the auto negotiations yesterday:

You see, there are actually plenty of auto jobs, here and abroad. But, they increasingly are NON-UNION jobs. The auto industry is growing in the U.S.--but it's growing in the South, it's growing non-union and it's growing with wages and benefits far lower than the average wage of a current auto worker.

The ultimate goal, from the corporate end, in the auto negotiations is to survive--and, then, proceed on the merry road the companies have embarked on for some time now: rid themselves of the union and the cost structure that good unions jobs entail. It makes perfect logical, financial sense. That it is a disaster for working Americans is not their concern.

I am not sure that this development is a disaster for working Americans. It's working Americans that buy the cars that will be more affordable if they can be produced for less. If people who buy cars saw value in union-made automobiles, they would pay more for them. If that was the case, the Big 3 wouldn't be in the fix they're in.

In any event, as I posted over there, the UAW (and American workers in general) are like a grocery store owner selling a can of tuna for $2, that you can get down the street for $1. If you want to get paid more, you'd better be selling better tuna. I think it's clear that for a lot of products, producing in America (as opposed to, say, China) is worth the higher cost. Manufacturers in all kinds of industries have proved that over the past ten years. The standard of living enjoyed in America as opposed to other places isn't a birthright -- if we don't continue to add more value than the other guy, we can't expect to get paid more and live better than him.

What's less clear to me is the value that organized labor provides. If you want to get paid more for making cars than your non-union brethren down south, you need to be doing it better or your pay can't be sustained. The marketplace will quickly take care of disparities, and is doing so with a vengeance.

By the way, I think you can make a case that unions do add value to productive enterprises, at least sometimes. Considering how much they use in resources, they'd better be.

Economist 1, Jonathan Chait 0

A little more on the taxation topic, from Free Exchange at the Economist. It's always nice when the data backs you up.

Seriously, though -- I can't think of reasons why anyone would be surprised by this. Making money is hard -- you have to take risk, or do things like work which you would rather not do. Meanwhile, whatever you did to make money helps somebody else because you've produced something that they wanted (that is, unless you work in government.) If you get less reward for whatever you're doing because of higher taxes, then you're less likely to do it. Admittedly, I'm not an economist, but I don't see why this is complicated. You can argue about how much it happens, but I don't see much of an argument that it happens at least somewhat.

Supply-Side Follies

A lot of online ink has been spilled within the last few days regarding Jonathan Chait's new book "exposing" the supply-side thinking of Republicans. I hope he enjoyed burning down the straw man of supply-side because that's all he did.

There are a lot of serious reasons that tax cuts are good -- you don't have to believe that revenue will increase as a result of cutting taxes to believe that tax cuts are good in a given situation. Take a look at this story from the Economist economics blog.

If you want to say that Republicans are uninformed about economics and make stupid arguments, that's not exactly breaking news. I'm sure you can point to examples of Republicans saying any number of stupid things are any number of topics. So are a lot of Democrats -- economic literacy is not a requirement to be in politics. However, it's more useful to engage the legitimate arguments if you want to shed any light on a topic. It's bad argument to say that "This point that your side sometimes makes is wrong, therefore, you're not worth listening to at all."

You're throwing the baby out with the bath water if you ignore the fact that tax cuts can expand the economy, or, for that matter, the moral argument that the money belongs to the people and the government should use it efficiently.

A better way for health care

RIP, Paul Gillmor. A good man and a good Representative. This OH - 5ian will miss you.

For those who are trying to preserve the good of the U.S. health care system and bring more equality, take a look at this story from the Wall Street Journal. (It's on Page 1 today, I believe it's free. If not and you want to see it, let me know.). This seems like an interesting idea. While the U.S. health care system isn't perfect, there's a lot going on that's good, and it would be nice to preserve some it if we're going to monkey with it.

From the strange bedfellows department. . . .

It's not often that the politician I agree with most on a major political issue is John Dingell, but check this out. Now, I realize that it is entirely possible that Dingell is taking an extreme position in order to scotch any reform at all, but a carbon tax is a sound idea and perhaps Dingell's position will get it a wider hearing.

This brings up a larger point. The political blogosphere tends to divide into red and blue, and ne'er the twain shall meet. It's not enough to disagree with people, they must be proven to be inadequate human beings and destroyed. I submit that this has gotten worse on the internet, and hinders good government. Please, people, less calling names, more engaging ideas.

Happy Labor Day!

Respect to all those who provide something that people want to pay for today.

Check this article out -- if economics was better understood by the population at large we'd have a lot fewer Democrats. If the political discourse in the United States focused more on costs and benefits, we could get a lot further.

With that said, this article ignores the externalities caused by carbon usage. If all the costs of an action aren't borne by the people who take it, you'll get more of it than is societally optimal. A carbon tax is one way to restore those costs and make sure that the true costs of energy use are factored into every decision. Greg Mankiw wrote my intermediate macroeconomics textbook, so, I suppose it's only natural that I would follow him into the Pigou Club.