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Monday, December 10, 2012

Charles Dickens & a Possible Motor City Revival

In speaking of Paris and London in his book, A Tale of Two Cities, the famous English novelist, Charles Dickens (1812-1870) wrote…

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

In many ways the United States of America of 2012 (soon to be 2013) could be described likewise.  There is much wisdom in the ideas of the Tea Party movement in returning the United States to the principles of America's Founders.  At the same time, foolish ideas seem to be gaining ground as their failure rate accelerates.  Socialism works, really?  With nary a successful example, and multitudes of examples to the contrary, America plunges forward into the darkness of a Socialist abyss. 

Even as faith in the Founders principles and in God expands, skeptics abound.  Renowned pundits skillfully ponder why the leading problems in high school in the 1950s were bubblegum chewing and talking in class, while today the challenges are drugs and violence.  Duh!  These experts can't understand why the violent crime and murder rates of 50 or 60 years ago were so low compared to the skyrocketing rates of today.  They are puzzled.  They worry about the huge homeless population of today and wonder why there were few homeless in 1960.  Really?

We have systematically driven God out of the public square and we wonder why people have become more corrupt and more violent?  We have destroyed the institutions that showed compassion to those who could not fend for themselves and we wonder why the rolls of the homeless continue to grow?  We trap the poor in government welfare programs and wonder why poverty only gets worse.  Wisdom is in short supply, but foolishness is in abundance.

Some honestly believe that, through ever more powerful government, we have made progress over the past 50 to 60 years.  Maybe so, but where are the results?  There aren't any.  Yet there is hope, there really is.

In today's newspaper I read about something I was sure would never happen.  The State of Michigan passed a law giving individual workers the right to decide if they would join a union.  If I had to pick the last state in the nation that would pass a right to work bill, Michigan would have been my first guess, or pretty close to it.

In one of those, "can't see the forest for the trees" moments, supposedly smart men have agonized over the deterioration of manufacturing in the United States, especially the north central states of Wisconsin and Michigan.  They can't identify a reason, but they did come up with a clever description.  They call these states (and a couple of others nearby) "the Rust Belt."

Rust Belt my eye!  There is no mystery about what happened in Detroit, Cleveland and Milwaukee.  It is very simple.  Government granted a labor monopoly to the unions.  That's all that happened.

All monopolies—labor or business—originate with government.  Working with politicians and bureaucrats, monopolies that only benefit the privileged few are created to prop up and sustain enterprises that should go out of business.  When government legalizes a labor monopoly, every worker in a union shop is forced to join a union, and to pay union dues whether he wants to or not.  Government even mandates that companies deduct union dues for the union.  Or, when government grants special privileges and advantages to certain business enterprises (or provides them with subsidies) it guarantees that the consumer will pay more than the free market rate for those products and services.  Such business monopolies diminish the economic well-being of all Americans, by lowering their standard of living.

Similarly, when government subsidizes any economic activity, it punishes all Americans.  If it has to be subsidized, it should not exist.  If it has to be subsidized, that economic burden falls on the back of every American.  For example, consider mass transit that is not only constructed with tax dollars, but which cannot sustain itself and thus must be subsidized forever.  It becomes a permanent financial burden on us, our children and grandchildren because it is not a marketplace solution to transportation.  If it was, it would have been built by private enterprise.

There is a simple and easy way to know that something is not a market sustainable service, i.e. one that should not be built.  If an enterprise cannot cover its operating costs, like mass transit, it should not be built.  The capital cost of construction is the least of the burdens on the taxpayer.  The greatest burden, one that extends for many generations, is the operating cost shortfall.  If tolls by the user do not cover the cost of operation and provide a profit, operation of the enterprise becomes a permanent financial burden on all taxpayers.

It is always a mistake for government, at any level, to second guess the free market, or worse yet, enter into the marketplace itself.  For example, consider the glaring inefficiency and high cost of mass transit or medical services.  In each and every case, without one exception, the capital and operating cost will be far greater, the inefficiency larger, and the quality less than any free market built and operated enterprise.  There are no exceptions.

Subsidies and monopolies always artificially drive up the prices of goods and services to the universal detriment of all citizens.  For instance, if any manufacturer is forced by law to accept a closed union shop (i.e. labor monopoly), it is forced to collect mandatory union dues, higher cost and less productivity.  If all workers are forced to participate in a labor monopoly, i.e. union, everyone who buys goods or services will pay a higher than market price for those goods and services.  Similarly, if government creates rules and regulations that bar entry into the marketplace in the form of licenses and certifications, it is artificially driving up the price of those goods and services.

Such actions may be well intentioned, but the inevitable result is higher, and possibly inferior, goods and services.  Only in a free market, where free men and women freely exchange goods and services in the form of dollars (representing labor and goods), will the best quality and the best possible prices prevail.

A monopoly cannot exist in a free market.  A truly free market destroys attempts by individuals or even cabals of individuals to create monopolies.  They exist for the short term, and then they are decimated by the forces of the free market.  Monopolies can never survive competition in the free market.  It is only when government intervenes that monopolies can exist.  And when monopolies exist in either labor or in business, the consumer is punished.

What happened to Detroit is simple.  When Detroit had to compete on the world market, they could not do it because the union labor monopoly had artificially raised the cost of automobiles above the market level.  Who lost, by the way?  The answer is every single American who was forced to pay a higher-than-market price for his car prior to allowing competition from foreign automobile companies whose labor costs were not inflated because they were not compelled to obtain their labor from a monopoly.  As long as American automobile manufacturers remain in states that force workers to join a union, they will not be able to compete with foreign manufacturers.

The reality is that when the US opened the markets in the 1970s, Americans benefitted from the high quality and the lower prices of Japanese manufacturers that had access to non-monopoly labor.  There's absolutely nothing wrong with Detroit or the workers or engineers or designers that a free market can't fix.  But you can't pay 30% to 50% more for wages and benefits and still compete in a free market. 

That's why I was so excited about the news that was published and broadcast on Thursday, December 7th.  Over the protests of big labor bosses and their paid protestors, the Michigan state legislature passed, and the governor signed, a bill that empowers the worker to decide whether or not he will join a union.

What a tremendous irony.  The union bosses and the union workers were protesting a bill that can rejuvenate and strengthen the automobile industry and save their jobs.  In truth, the only way Detroit can make a comeback is by eliminating the labor monopoly.  Detroit is quite possibly in the worst economic shape of any big city in America.  Hundreds of thousands of people have fled Detroit, tens of thousands of houses sit empty, many simply abandoned.  Detroit is teetering on the verge of bankruptcy, begging for a bail out.  General Motors is on track to ask Uncle Sam for more billions to run their bloated, non-market operation.

Only Michigan Governor Rick Snyder and the Republican majority seem to have sufficient sense to know that Detroit either competes in the marketplace without a government sanctioned labor monopoly, or it continues down the path to extinction.  Radical filmmaker Michael Moore is not surprisingly outraged, but then again, Michael Moore thinks Fidel Castro is a great leader.  Sadly, neither Michael Moore, nor President Barack Obama have any idea whatsoever how the free market works. 

Hooray for Governor Snyder and the courageous legislators of Michigan.  They are throwing a lifeline to employees and businesses in Michigan.  These employees may not grasp the lifeline and may succeed in repealing this inspired piece of legislation, but they do so to their own personal detriment.  This is an opportunity for Detroit revival.  It's good news for the citizens of Michigan and a harbinger of all the good things that the Republican governors of 30 states will be bringing to America over the next few years.

While our president sees government as the answer, Ronald Reagan knew the truth.  Reagan said wisely, "Government is not a solution to our problem, government is the problem."  You can almost hear the Founders applauding.  The wisdom of the Republican governors stands in stark contrast to the foolishness coming from the White House.  It is the best of times, it is the worst of times.  Which will prevail?

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