Asymmetrical Information

Megan, your column combined a solid substantive point with a gratuitious, unsubstatiated dig at the motivation of someone you disagree with. Very Krugmanesque!!

I agree with RC. This is like that Microsoft column: not pro-Microsoft, but pro car dealer. This column was not anti-Dean but anti-CBS Marketwatch. I wonder if Fool.com is a corporate sponsor of TCS.

Jane, I also hate to say it, but that column is clear evidence that TCS doesn't edit much. While all very relevant and contributing to a cogent point, geez that was a long article. Although, with the length, you could have also thrown the the SoCal grocery workers who have been out for weeks over a health benefit that amounts to $250 in out of pocket expenses for them. Then the brilliant union organizers decided to not picket Ralphs in hopes of getting them to settle, and now it turns out the the stores were a step ahead of them by having a revenue sharing agreement in place before the strike! These are the same brilliant union organizers who convinced the memebership that if they had a $50K surgery, they would have a $25K copay, which BTW, was a lie.

-Brad

I am the last person who would disagree with you on the current evils of unions, although in a general sense they're a good idea and if I had know seven years ago what I know now...I would have unionize the talent agency I worked for in the mid-90s. But this statement, "...the little guy that most liberal politicians couldn't care less about when it's his union, rather than his employer, taking him for a ride..." is appalling. All politicians couldn't care less about the little guy period. Bush doesn't care, Dean doesn't care, Sharpton doesn't care. So to crap on "liberal" politicians is like me saying something like "Tall Girls are bitchy." Might be true, probably is, but it's a very limiting phrase since most medium and short girls are bitchy too.

Also, everyone needs a job and you have to have a job if you want to eat (unless you're a Hilton sister...but they don't eat anyway). But not everyone has to join a union. And if you don't like what the union is doing, you can always vote the leadership out. Kind of like if I don't like what my president is doing, I can always vote him out of office.

So if someone makes a choice and decides to follow the choice and has the ability to change things within the system to confront that choice, then how is that system abusing them. They can vote crappy union leaders out. They can vote NOT to go on strike. As a libertarian leaning person I would think that you would be much more willing to blame individual people for their action and would appreciate that an employeer taking an employee for a ride allows the employee many fewer options (two that I can see, go along or quit) than if the union takes the employee for a ride (options--vote not to go on ride, vote leadership out, vote new leadership in, vote new platform, scab, or get new job in other field)

It's just a lousy arguement and a crappy line. It's ignorant. And you know better.

Paying off displaced steelworkers isn't a pareto-optimal solution. It costs taxpayers money.

But less than it's costing us to have the steel tariffs, which makes it optimal.

Kate, the point wasn't to say that liberal politicians are bigger hypocrites than conservative politicians; the point was that the rhetoric about the little guy is hypocritical when you often set things up so that the little guy is screwed for the benefit of his union.

Also, in most states with strong union presence, you have no choice about joining the union, and while you have the theoretical possibility of voting the leadership out (just as shareholders have the theoretical possibility of voting their management out), the reality is that workers are generally stuck. Challenge the leadership and lose, and they can make your life a living hell.

A more to-the-point answer to Kate might be that Jane was writing about the principal-agent problem, and no one suggests that employers are agents of their employees, as unions are supposed to be. And if the ability to vote out union officials turns the principal-agent problem into a non-problem, that goes for the aggrieved shareholders of Enron as well. They had plenty of chances to vote for new management.

By the way, you missed an even more timely example of the principal-agent problem: If you're an evil corporate puppet master who sponsors a website devoted to to pushing your company line on an unsuspecting public, you may find that your paid shills are betraying you by writing about the things they want to write about. Oh, what to do?

You seem to have forgotten the systematic manipulation of energy markets that affected upwards of 50 million people on the west coast and cost taxpayers billions of dollars. These same people went on to decimate the livelihoods of thousands and thousands of employees and shareholders whose retirements evaporated because they listened to their executives and their fund managers saying "buy, buy" as the executives of the company took rich payoffs while the stock evaporated.

There is NOTHING on that caliber in the history of union corruption and for you to try to make that argument is irresponsible.

The highly regulated Northeast US suffered one brief highly civilized blackout this past summer.

Two years ago, the freshly deregulated west coast was systematically shaken down by a pack of wolves. This exceeds a simple Principal-Agent problem- -it was systemic. These corporations make plenty of political funding decisions that its members might disagree with. What sort of comparison of these two entities are you tring to make? 238 audits of unions versus 2,000 in the private sector? The disproportionate number of unions audited is staggering compared to privated companies and that number supports that.

When people screw millions of other people out of billions of dollars, we don't give them another chance. How about we let them earn back a de-regulated market because they have proven they cannot be trusted.

Onlooker, the dockworkers were costing the economy $1 billion a day during the slowdown/lockout. The price tag on the steel tariffs is over $4 billion.

I have no kind words for the Enron executives, except to say that I genuinely think they probably didn't set out intending to committ fraud -- I think they were just trying to "smooth" their earnings a little, and it got out of hand. Which doesn't, of course, excuse committing fraud, and I hope they spend a lot of time in the pokey meditating on the road to hell. But it's simply not true that unions don't cost the economy big money.

And the deregulation is complicated. Energy companies seem to have gamed the system. (Except in a few instances, unfortunately, we can't prove it -- it's all statistical evidence that wouldn't make "beyond a reasonable doubt".) But they gamed a system that was apparently set up in that incredibly stupid way at the behest of idiot consumer groups who wanted Californians to get the very best price on the market each and every day, and, distrusting the market, wouldn't believe that there might actually be a reason, other than stupidity and greed, that power companies used long-term contracts. And the problem wasn't limited to private companies -- the state-owned LA utility was among the first to profit from the spot market anomalies. Regulation doesn't seem to have been any magic bullet.

Go find Jimmy Hoffa, Onlooker. Then we'll talk.

Onlooker, to the extent that anyone is forced to buy stock (as happened in some respect at Enron) in a company, the way people in some states are forced to join unions, if they wish to work, the situations are similar. The principal-agent problem is made much,much, worse when the principle has the agent forced upon him. Unions are perfectly good and legitimate tools, as long as the worker can opt out; this ability to opt out is what forces the union to more closely track the worker's interest.

Just as the prospect of voting out a board of director's is not a sufficient check on the agent's discretion, the prospect of voting out leadership of a union does not suffice. If stockholders are forced to buy stock, or workers are forced to join a union, and the stockholders cannot sell, or the workers cannot quit the union, without suffering much pain, the agent has a greatly increased ability to abuse the principal. When potential stockholders or potential union members must be enticed to purchase or join, and must be continually satisfied to maintain ownership or membership, the agent's mind is somewhat more concentrated on those tasks. Does this make it hard for unions to prevent free riders? Yup, it sure does, which is a great disincentive to union leaders using dues to rent swank offices, or to take trips to Vegas, or to pay themselves six figure salaries; all the better to keep the cost of joining the union (dues) as low as possible, and thus minimize the incentive to free-ride.

Unfortunately, a extended bull market, like was experienced from 1982 to 2000, tends to make shareholders too tolerant of bad behavior by corporate managers. When one's investment portfolio is compounding at 15% per year, one tends to be less concerned about how the managers are behaving. It's a terrific problem, compounded by the fact that selling at a loss, when management's poor practices are exposed, often ain't exactly wealth-enhancing behavior. These issues really are two sides of the same coin, however, and they aren't made better when people are forced into relationships that they would prefer not to have.

"Two years ago, the freshly deregulated west coast was systematically shaken down by a pack of wolves."

Would that be the 'deregulated' market which wouldn't allow the classic market device known as long term contracts?

Are you seriously suggesting that the reason Bush imposed those stupid steel tariffs rather than just giving each unemployed steelworker $300,000 is that the union leadership would have objected?

Bernard, I think union objections are part of the problem, but only part. Lump-sum payments to laid-off workers reduce the size and power of the union, but the other problem is that such payoffs are visible transfers from taxpayers to a specific set of individuals. Such payments are politically problematic, so politicians (and the unions) want to be able to bury and disperse the costs of the subsidy.

This brings up another point about Pareto-optimality. Kyle, lump-sum transfers are consistent with Pareto-optimality, subject to the condition that taxpayers as a whole are better off without the steel tariff, net of a transfer amount that makes the laid-off steelworkers whole.

If you work in a unionized industry, you have a choice of employers but you have no choice of unions. Chrysler, Ford, GM, and most of the Japanese-owned plants in the US are all UAW. Construction workers may choose to work for a non-union employer, but in most cities the major projects are all union (due to some combination of law, union influence on the building inspectors office, and fear of sabotage), there's only one construction union, and hiring is done through the union hall. A TV cameraman may have a choice of two unions - if he's willing to move from one coast to the other...

So the dockworks union is costing us money, but they don't represent us, they represent the dockworkers and from what your article said, those guys are doing pretty well with their union leadership. I mean $177,000 per year for a foreman sounds pretty good to me. Lifetime employment. Keep it coming, a job for my son when he graduates from high-school. Groovy.

So what you are really complaining about is that the unions don't work for us, they work for their constituancy. And if they get good stuff for their constituancy then those people don't complain when the leadership abuses their role by getting good things for themselves.

"the point was that the rhetoric about the little guy is hypocritical when you often set things up so that the little guy is screwed for the benefit of his union."

So then the little guy in this case is all taxpayers? 'Cause I don't see any longshoreman complaining.

"Also, in most states with strong union presence, you have no choice about joining the union"

Not true. You don't have a choice if you want the REALLY great jobs (jobs which generally pay double and tripple non-union work) or if you REALLY want to work in an auto-plant. But I know lots of non-union workers in heavily unionized professions. Actors, electricians, carpenters...heck, I'm married to a non-unionized film-editor. It's somewhat different with unskilled labor, but the fact is that all of these people get paid more through a union. They get better benefits and vacation too. If Chris ever gets into the film-editors union he'll join in a heart-beat. He'd work half as long and make twice as much. When non-unionized jobs start compeating with the ones the unions provide, then the unions will desolve.

I would also like to point out that the people who work in autoplants and the like make a heck of a lot more than the non-unionized cashier at the local Walmart.

Until then keep in mind that the union can't order a strike without the majority of their members agreeing to it. I agree, the unions aren't behaving ideally, they never do. Either fix the problem constructively or stop complaining about how it's "not fair" and blaming "liberal politicians." It's very fair, it's just not palitable.

Dave,

I'm not convinced the lump-sum payments reduce the power and influence of the union. While the recipients may quit, the ability to get these payments would surely make union membership more attractive to non-union workers.

In any case, it is inconceivable that the membership would tolerate leaders who refused such an offer.

As for Pareto, may I insert a semi-quibble? You and Jane are confusing Pareto-optimality with the notion of Pareto-preferred. Policy A (paying off the unemployed steelworkers) may be Pareto-preferred with respect to Policy B (tariffs) because changing from B to A makes some people better off and no one worse off. But a policy is Pareto-optimal only if there is NO policy that is Pareto-preferred to it.

I do tire of this canard that energy markets in California were "deregulated," when in fact they were merely differently (and disastrously) regulated. Could it be possible that some continue to use such false phraseology simply in the interest of trying to give a bad name to true deregulation?

As for TCS not editing articles, that's certainly not my experience.

kate, you seem to be wilfully blind

the union members could have gotten a better deal, but the leaders were concerned about their long term membership numbers, so they had current members sacrifice so that the leaderrs would have a good long term position

the issue was that they wanted no drop in employment numbers, rather than getting more money and guaranteed jobs for current members

so the union was working against the interests of current members

also, how was this anti marketwatch?? no clue

Okay Hey, I'll grant you that.

But was it still a better deal than they would have gotten with no union at all? Probably. Are the kick-backs (or whatever they are) fair or right? No. Does it hurt the union in the grand scheme of things? Yup. Greed will always rule. But the longshoreman can walk. It's been done before. You can get rid of corrupt union leadership, just like you can get rid of a corrupt president or a currupt board of directors. It's not easy...but it's been done.

I'm not willfully blind. I think most unions have outlasted their usefulness. But I refuse to say..."company good. union bad. liberal who suport union bad and EVIL and BAD INTENTIONS and HYPOCRITICAL. conservative who support company good and sweet and kind and loving." Because we all know things are just not that black and white and given too much power everything gets twisted.

My original complaint was not that I disagreed with Megan's basic point, which was that union leaders have a duty to the membership of the union and in many cases, they are not living up to the duty. I'll buy that.

But Megan then takes the opportunity to slam "liberal politicians" because they don't speak out against it. And what she's not getting is that people have a CHOICE whether to be in most unions and they have a choice of leadership. You don't have to join, you can move to a part of the contry where there is no union for what you do, you can choose a profession where their are no unions. If you end up joining a union (because you can't work in your choosen profession otherwise) it may be very hard to change the leadership, but the choice is there and if the membership wants to, they can do something about it. It may be next to impossible, but you never know.

On the other hand, Megan also seems to argue that because a company has no "agency" duty to it's employees, it can mess with them as much as they want. There's a nice idea.

Morality doesn't just have to do with rules.

The corporate scandals in recent years will be with us as long as we tolerate the topdown, military culture that we have inherited for management philosophy from the earliest days of the Industrial Revolution. The concept is great, entrepreneurial freedom for the executive with the oversight of a responsible group of directors.

Just the other day, Mark Haynes interviewed an "expert" on Squawk Box and asked him why these scandals are not reported via the internal control mechanisms that public entities must maintain. The "expert" replied in a grave tone that no one in the bowels of the corporate beast wants to endanger their own career by reporting violations of fiduciary conduct (I almost choked on my Cheerios, at that point).

It may pass as "expert" analysis, but at least the point is beginning to make the mainstream. If you know a Finance VP or controller in your personal network, ask him whether his principal ethical dilemma results from enforcing GAAP or other codes of accounting conduct. There may be a few who have had little trouble being the cop for his boss, but there won't be many.

To me, it's is a fundamental problem that investors will fix when they have had enough of the shenanigans that the old model tolerates as the price of executive discretion.

"Onlooker, to the extent that anyone is forced to buy stock (as happened in some respect at Enron) in a company, the way people in some states are forced to join unions, if they wish to work, the situations are similar. "

Ohhh come on, even if the most unionized state in the US only a minority of jobs are union. Is this another case where the right is creatively redefines 'forced'? Even for totally unskilled labor, there are more non-union jobs (think Wal-Mart, Quickcheck, etc.) than union ones.

The reason the steelworkers didn't get payoffs has little to do with the union. There steel situation has several dynamics the reveal why protectionism was choosen over payoffs:

1. The steel companies themselves were also lobbying for protectionism. Payoffs for the workers wouldn't have helped them.

2. How exactly do you enact a policy of 'Every laid off steelworker gets a check for $300K' without soon having a policy of every laid off worker (or worker laid off due to trade) getting such a check? Once such a policy is in place how do you keep the number of laid off people demanding their $300K from becoming nearly every unemployed person in the US? Ironically, when you factor in political dynamics the tariffs may have been more efficient than a payoff after all.

Boonton,

Chicago teachers don't have to be union members, they just have to pay union dues.

"A number of states have passed laws which either require, or authorize public employers and labor unions to negotiate agreements which require, all educators to either join the union or pay the equivalent of union dues as a condition of employment."

I would equate "as a condition of employment" with being forced. How would you describe it?

http://www.nrtw.org/a/a_1_t.htm

http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=US&vol=475&invol=292

Jim English
Chicago

That's nice Jim, now where is the law that says you have to be a public school English teacher? This is like saying people who work on Wall Street are FORCED! to wear suits and ties. No, if those dues are not worth it then take another job. We both know that making membership voluntary would simply open up the 'free rider' problem where non-members will take the wage increases that the union gains but will not contribute towards the union eventually making it unworkable.

Well, Boonton, none of us has to buy stock either. Why should we worry about corporations abusing their shareholders?

Boonton,

That's right you don't have to be a public school teacher. However, I don't consider the choice between the garnishment of your wages and being barred from practicing your profession to be the equivalent of a dress code. Perhaps you do. As for the "free rider" garbage, a highly skilled math or physics teacher (or any highly skilled and effective worker in a union shop) pays a penalty. In a market based system they would be paid more for their relativley rare skills. Instead they must be paid the same as the relatively unskilled PE teacher. Who is really the "free rider"?

Jim English
Chicago

"Onlooker, the dockworkers were costing the economy $1 billion a day during the slowdown/lockout."

It's 100% the dockworker's fault now?

The solution to the Principal-Agent problem is Accountability. Thus, the question is which "principal-agent" axis do you trust more--Shareholder/Board of Directors or Union Members/Leadership?

The two axes do not exactly parallel, because they serve to benefit different constituencies; however, they point to the central issue of how best to maintain accountability between the Principal and the Agent.

Jane's article points out that there are imperfect forms of accountability. I believe that Dean's "re-regulation" theme could have been more aptly described as "restoring accountability."

One problem I have in general with Jane's writing is that it proceeds from valid premise to insightful anecdote to interesting statistic to wildly-unsupported, politically-biased conclusion, namely that Jane doesn't trust Unions but she does trust Corporate Managers.

Comments are Closed.