economics

Trump’s Bad Trade ‘Deal’ With China Takes Shape

April 16, 2019

by D.J. McGuire

One of the more maddening defenses of Trump’s protectionism is the insistence that his tariffs and trade wars are “temporary.” Give him the chance, his defenders say, and he’ll get “better deals” that remove tariffs all around.

This week’s Bloombergrevelation about trade talks with the Chinese Communist Party completely destroyed that argument.

China is considering a U.S. request to shift some tariffs on key agricultural goods to other products so the Trump administration can sell any eventual trade deal as a win for farmers ahead of the 2020 election, people familiar with the situation said.

The step would involve China moving retaliatory duties it imposed startinglast July on $50 billion worth of U.S. goods to non-agricultural imports, said the people, who asked not to be identified because the discussions were private. The shift is because the U.S. doesn’t intend to lift its own duties on $50 billion of Chinese imports even if an agreement to resolve the trade war between the two nations is reached, one the people said.

Let’s examine the full implications of this nonsense. First, it’s abundantly clear that Trump has no interest in ever removing the tariffs he has imposed. This should surprise no one. Donald Trump was President of the United States for less than an hourwhen, in his own inaugural, he insisted, “Protection will lead to great prosperity and strength.” Within fifteen months, he had cleared out the bureaucratic resistance to his dangerous impulse and the tariff spree began. The idea that he would ever get rid of them was foolhardy.

The repercussions of this are now beginning to be seen, in geopolitics as much as economics. The Administration that touted itself as being able and willing to “stand up” to Beijing has been reduced to begging the CCP to switch its tariffs to less visible products.

Meanwhile, the regime gets a free pass on threatening Taiwan, strong-arming its neighbors in the South China Sea, using Kim Jong-un as a foil, and persecuting hundreds of thousands of Uighur Muslims in occupied East Turkestan.

The president who as a candidate railed against the rest of the world “laughing at us” is only spared hearing side-splitting gales from Zhongnanhai due to the distance of the Pacific Ocean.

The rest of the world is taking notice and will act accordingly. Those hoping for removal of tariffs now must accept the fact that they’re not going anywhere. The world will be a poorer place, with higher prices and lower production across countries and sectors worldwide.

Economically, America has been shielded by timing: we’re in the late stages of a long economic recovery temporarily buttressed by a Keynesian sugar high disguised as a “supply-side” tax cut. That can’t last forever. The economic reckoning will be painful. The geopolitical effects will as well.

The one silver lining is this: no one can credibly claim Trump’s endgame is about reducing or eliminating tariffs. Anyone who still tries peddling that nonsense is gaslighting everyone in the conversation, themselves included.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015. He is also a contributor to Bearing Drift.

In Defense of Freer Trade

March 13, 2019

by D.J. McGuire

As we careen towards another presidential election, one of the issues that has been once again shunted to the side is international trade. This is a mistake, especially for Democrats looking to expand their coalition (or hold the expansions achieved in last year’s Congressional election). Before we get to that, however, we must revisit why protectionism is wrong, and freer trade is better for Americans and for everyone else.

America has had a conflicted history when it comes to trade. One would presume that protectionism had an advantage when tariffs were our primary source of revenue. In fact, protectionists in the nineteenth century preferred tariff rates so high that revenue would fallbecause imports would so low. Indeed, it was just such an economic platform that enabled the Republicans to win the election of 1888 (despite losing the popular vote) and enact the McKinley Tariff. It is the most common historical marker Donald Trump uses in his own speeches when he defends his protectionist outlook.

Here’s what he doesn’t mention: the tariff was so unpopular that the Republicans lost half their House seats in the election of 1890 (including McKinley’s) and the Democrats took back the White House in 1892. By the time McKinley returned to national politics (as the Republican nominee for President in 1896), he had remade himself as a defender of the gold standard.

A generation later, the Republicans once again forgot the economics of freer trade – and the rest of us suffered the consequences. The Smoot-Hawley tariff of 1929 is still mentioned in Economics classes today as an example of short-sighted policy. It either caused or exacerbated the Great Depression (depending upon which economist is talking). The political effects were also acute: the Republicans were denied a Congressional majority for the over a decade and a half, and after Hoover’s defeat in 1932 they would be out of the White House for twenty years. Congress became so mired in self-doubt that it handed the presidency de facto legislative authority to reduce tariffs (before taking it back under Trade Promotion Authority in the 1970s).

Thus was the “free trade” consensus established, a consensus that started fraying when the Democrats began flirting with protectionism in the late 20th century (before the Clinton era), and is now in serious trouble due to the populist takeover of the GOP. While I prefer to use the term “freer trade” (fully “free trade” is an impossible absolute), I am deeply concerned about the protectionist retaking control of the Republican Party, for reasons both economic and political.

Economically, freer trade means more options for Americans and more efficient markets for them. Please note, I did not limit those benefits to America “consumers” – and for good reason. The first tariffs Trump imposed in 2018 were on steel and aluminum, which hits firms across the country with higher production costs. Those costs led to jobs unfilled, products unmade, services not offered, and prices increased.

Those are the direct impacts of tariffs on inputs, but tariffs on goods and services also damage economies indirectly. Higher prices on these goods and services lowers both Americans’ standards of living and their savings balances. Less money saved means fewer funds available for business to invest in themselves. Once again, that leads to jobs unfilled, products unmade, and services not offered.

So why does protectionism still seem so popular among the populist right and the American left? Status quo bias is certainly a part of it. The opportunity cost of protectionism is the loss of jobs and growth not yet seen, compared to disruptions that are easily seen. Trump’s behavior on the “Carrier deal” before he took office is a class example. As I noted at the time, “saving” jobs in one area costs jobs in another (and worse), but those costs are less visible.

Or at least they wereless visible. In the social media era, with access to information much easier, we are seeing more discussion of the overall effects of tariffs. What once required the ability to follow several academic journals now requires little more than following Scott Lincicome. Meanwhile, Boeing’s recent problems have been another revelation on the advantages of freer trade: greater choice of products, services, and inputs – or, as Jane McManusput it: “Was never so relieved to see ‘Airbus’ on my upcoming booking.”

As for the politics of trade, that, too is changing. As Trump increasing rebrands the GOP as the protectionist party it once was in the 1880s and in the 1920s, supporters of freer trade are finding Democratic voters far more receptive to their ideas than certain Democratic elected officials (Pew Research). Even in 2016, a majority of Democratic voters approved of free trade agreements, despite neither of the two major contenders for their nomination openly supporting them. Indeed, the 45% of Americans who supported freer trade agreements only found one November candidate who agreed with them on that issue – and that was Gary Johnson. Democrats looking to be the nominee in 2020 should take note of what the party’s voters actually believe on trade – rather than what protectionists in the party are telling them.

First and foremost, though, those of us who know the damage protectionism can do must speak out against it and ensure the arguments for freer trade are heard – and that is why this post is here.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015. He is also a contributor to Bearing Drift.

Do Lower Interest Rates Actually Make Income Inequality Worse?

February 11, 2019

by D.J. McGuire

Ever since John Maynard Keynes revolutionized the field of macroeconomics, left-wing and center-left politicians have included “expansionary monetary policy” – quoted because it’s the actual term – as part of their platform. Higher money supply and lower interest rates have been loudly endorsed by Democrats (and quietly cheered by many Republicans) since the Second World War at least.

President Trump himself has railed against the Federal Reserve’s recent (and paused) attempt to normalize interest rates from the period of extremely low levels following the Great Recession. Meanwhile, the left is also complaining loudly about income inequality, while recommending a radically expansionary monetary policy – known as Modern Monetary Theory – to “pay for it.”

The usual critique to “loose money” has been the threat of inflation. However, the lack of inflationary pressures during the past decade has eroded the power of that argument. Indeed, the lack of strength in the post-Great-Recession recovery has led many to wonder if quantitative easing was not expansionary enough.

A new paper from Ernest Liu (Princeton), Atif Mian (also Princeton), and Amir Sufi (University of Chicago) casts doubt on that theory. In fact, they propose that extremely low interest rates might have causedthe problems of slow growth and income inequality.

Liu, Mian, and Sufitheorize that excessively low interest rates – designed to encourage business investment – actually skew said investment towards larger and more dominant firms. This makes them moredominant in the process, turning more markets from competitive to monopolistic.

Now, microeconomic market structure normally isn’t considered a major factor in macroeconomic policies. In this case, however, Liu et al show that monopolistic markets lead to lower productivity and to slower growth. Moreover, while Liu et al don’t address income inequality per se, increased market power has been known to lead to suppressed wage growth and thus greater income inequality.

In short, Liu et al present an entirely different set of expected consequences for extremely low interest rates. Instead of faster growth, they lead to slower growth. Instead of higher productivity growth, the lead to lower productivity growth. While in theory enabling government to address income inequality, they actually exacerbate it by encouraging market concentration and monopolization.

More time and research is needed, of course, to see how much impact the market concentration effect truly has. More than a few economists will have questions about the paper, as it should be.

However, at the very least, advocates for looser money in general – and MMT in particular – might want to take into account the strong possibility that their methods are running contrary to their avowed policy goals.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015. He is also a contributor to Bearing Drift.

The Trans-Pacific Partnership Begins … Without the United States

January 1, 2019

by D.J. McGuire

Remember the Trans-Pacific Partnership? That was the major trade agreement between 12 nations, including the United States, that most Americans thought had died when Donald Trump pulled America out of it in early 2017.

Well, Trump may have pulled us out of TPP, but he didn’t kill it (Telegraph, emphasis added).

The world’s most radical trade pact has come into force across the Pacific as the US sulks on the sidelines, marking a stunning erosion in American strategic leadership.

…

The White House assumed that the TPP would wither on the vine without US impetus.Instead, long-standing US allies across the Pacific have brushed off pressure from Washington and forged ahead regardless with what is now known as the “anti-Trump pact”.

“America is the biggest loser,” says the Peterson Institute in Washington. The fall in food tariffs under the CPTPP means that US farmers will be undercut by exporters from Australia, Canada, and New Zealand in the lucrative Japanese market. Wheat from Canada will be $70 cheaper per metric tonne by 2020.

Australia, Canada, Japan, Mexico, New Zealand, and Singapore have ratified the agreement (Quartz). They will all soon benefit from the tariff reductions that will take place (Reuters). Those of us old enough to remember when Japan was considered the corporatist and protectionist bete noire of the free world can only marvel as Japan moves into agreement while the United States does not (Japan News and Nikkei Asian Review).

Much of the coverage regarding America’s exclusion is focused on the man who pulled us out – Donald Trump. My opposition to the president – politicallyand personally– are well known to readers here. In this case, however, Trump is far from the only culprit. His opponent – yes, the one for whom I eventually voted – walked away from her support for TPP during the campaign. Indeed, she walked away from freer trade in general – a policy and political mistake that I firmly believe led directly to her defeat in several states where Gary Johnson (the one pro-TPP candidate) won more votes than Trump’s margin of victory (Michigan, Pennsylvania, Wisconsin, Florida, and Arizona).

The two nominees, sadly, reflected political parties that were, at the time, far more interested in emotional tribalism than well-thought-out economics. The Republicans’ weakness was exposed in 2015 when some of them started calling Trade Promotion Authority and TPP “Obamatrade” – paving the policy road for Trump. Democratic politicians long held protectionist views as a sort of tribal signaling to organized labor (although, as the Pew Research Centerrevealed, Democratic votersdidn’t share that view).

That it led to the wife of the man who managed to get NAFTA through Congress in 1993 became a political casualty of all this was painfully ironic (to some – or maybe just to me).

There is, however, cause for optimism. The Democrats are, if anything, even moresupportive of freer trade agreements (see Pew’s link above), while Trump’s tariffs are losing popularity (Pew again).

Republicans, sadly, are following their leader into protectionism – yet another reason to presume Trump will easily be renominated in 2020. However, if Democrats can choose a nominee that can appeal to supporters of freer trade and opponents of tariffs (or, as I’ve started to call us, “trade doves”), not only can the party hold the swing voters who crossed over in 2018 (and win more of them), but they can also ensure that the country moves away from its current protectionist cul-de-sac.

We might even be able to re-enter the TPP.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015. He is also a contributor to Bearing Drift.

Why Jay Powell Should Stay Right Where He Is

December 23, 2018

by D.J. McGuire

Having shaken the foreign policy establishment to its core (which, by itself, is not automatically a mistake) by choosing to cut and run from Syria (which, given the situation on the ground, definitely isa mistake), President Trump is now taking aim at the Federal Reserve’s independence in setting monetary policy.

President Donald Trump has begun polling advisers about whether he has the legal authority to fire Federal Reserve Chairman Jerome Powell, according to two people familiar with the matter, who described the President as newly furious at the Fed chief as markets tumble.

Earlier this year, Trump’s advisers told the President that it was doubtful he would have the law behind him if he fired Powell. But Trump has renewed the issue after the Fed again raised its benchmark interest rate this week.

So far, the White House hasn’t come to a final legal determination on Trump’s authority to fire his Fed chairman, whom he nominated a year ago. The law states the President can fire a Fed governor for cause, but it hasn’t been tested on the firing of a chairman.

CNN

This is what Trump said to his Treasury Secretary.

I totally disagree with Fed policy. I think the increasing of interest rates and the shrinking of the Fed portfolio is an absolute terrible thing to do at this time

Mnuchin via Twitter

For those of us in the economic field, this is the equivalent of using a nuclear weapon. As noted above, a Fed Chair has never been fired.

This will be a serious test for both political parties. For my old party (the Republicans), it will be about how much they are willing to let Trump abuse his power and shatter stability. Just about every opponent of Keynesian economics prefers sound money and stable economic policy. A president who fired a Fed Chair because he (Trump) prefers looser money would be the exact opposite of both.

That said, it is just as challenging for my new party (the Democrats). They’ll be willing to call out Trump on abuse of power and stability, but I wonder if they’ll be willing to defend Jay Powell for what he is doing.

This matters because Powell needs defending – not just on a constitutional level, but on a policy one as well. An expansion in its tenth year, a Keynesian sugar high tax cut that is over $150 billion annually, and price hiking tariffs on finished goods and inputs alike are a bonfire worth of inflationary kindling. Any Fed Chair worth his or her salt would respond exactly as Powell did – raising interest rates and reducing the balance sheet from quantitative easing. All that goes double or morefor a Fed Chair in Powell’s situation – with interest rates still well below normal and a balance sheet vastly swelled by quantitative easing.

Federal Reserve Chairman Jay Powell is doing exactly what he should be. As such, he should remain exactly where he is. I fear no Republican will be willing to say either. Many Democrats will say the latter, but I fear I may be the one of the very few willing to say both.

That doesn’t make me wrong, though.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015. He is also a contributor to Bearing Drift.

Is Raising the Minimum Wage Really Progressive? Why I Say No.

October 5, 2018

by D.J. McGuire

Amazon’s announcement that it will pay all its employee no less than $15 per hour (with a call for the rest of American businesses to do the same) has added fuel to the flames of the minimum wage debate. As usual, I find myself at odds with nearly every other Democrat on the matter. The main thrust behind this is the assertion that the low-paid are being cheated by their employers, and thus the employers must bear the brunt of fixing the problem by paying higher wages. There is also a Keynesian macroeconomic argument that endorses transferring income to the lower paid as a way to stimulate aggregate demand. The former argument is simply wrong, while the latter is merely misguided. In fact, I would argue that income supports (like the Earned Income Tax Credit) are more efficient and equitable than a minimum wage hike.

For starters we have to remember how wages are set in a competitive marketplace. Labor demand is what economists call “derived demand” – in that it is derived from the expected revenue the firm can expect from its workers. Higher prices and higher production mean higher wages. In other words, what truly drives wage rates in competitive markets are the customers (i.e., us). So, first and foremost, this is our fault. Secondly, while the emphasis of the minimum wage debate has been on large firms like Amazon and Walmart, a very large portion of firms affected are small businesses (including franchisees, which are small businesses in corporate garb).

Meanwhile, the economic impacts of a minimum wage hike are both damaging and avoidable. Firms will respond by either cutting production (and laying off staff), increasing automation (also laying off staff), or raising prices; the most likely outcome across the economy is a combination of the three. So employment will fall and prices will rise. In effect, for consumers, a minimum wage is a hidden sales tax – and a sales tax is one of the more regressive types of tax out there (i.e., it hits the poor the most). Remember this the next time some wealthy pundit (yes, Bill Maher, I am looking at you) complains about “paying for welfare” of low-paid workers; their solution is that poorer Americans pay for it instead. This goes double for folks in the IT industry, which sees demand for their products rise as more firms switch to automation. In that context, the actions of Amazon – whose largest profit center, by far, is Amazon Web Services (cloud services) – take a much more self-interested hue. Moreover, a higher minimum wage benefits not just the working poor but also the working young (many of whom are not poor at all) and is thus inefficient.

By contrast, a negative income tax (of which the Earned Income Tax Credit is a kind) avoids all of the negative effects of a minimum wage increase, while being more equitably funded (via governments, whose reliance on income taxes ensures a less regressive impact).  Moreover, to call it “welfare” is to deny the fact that income taxes (as labelled) are not the only taxes out there. The low-paid also pay taxes on gasoline, food, shelter (via property taxes either paid directly if they own property or via higher rents from taxed landlords), and nearly everything else with a sales tax. They also still pay taxes on income (don’t forget the payroll tax). Additionally, a larger EITC would have the same macroeconomic effect on aggregate demand without the inflationary effect of higher prices.

To be fair, there are some who argue that a minimum wage hike won’t reduce employment. They focus upon markets that are less competitive – and thus, where firms have enough market power to separate wage rates from derived demand. However, I think those markets, while more likely to get our attention, are fewer than most realize. More to the point, they can be more efficiently addressed by reforming antitrust law to take into account the effects of monopolies and oligopolies on resource markets (such as labor) rather than just product markets.

Most progressive (perhaps all of them) consider minimum wage hikes to be in line with their values. Policies, however, are about methods, too. I would humbly submit that expanding the EITC and addressing gaps in antitrust law would be a more efficient and more equitable set policies to help the American working poor.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015

No, my fellow conservatives, the regulation rollbacks aren’t worth supporting Trump either

September 20, 2018

by D.J. McGuire

The standard defense a Trump supporter uses – well, the ones not wholly subsumed by racism or by authoritarian cultism – involves three political issues: the federal judiciary, the 2017 tax “reform”, and regulation rollbacks. I’ve already discussed why the 2017 tax law should bring no smile to a conservative’s face; I’ve also explained how fleeting “control” of the judicial branch really is. That leaves the regulation issue.

Theory versus Practice

In theory, fewer regulations is a standard supply-side economic policy: regulations increase costs on businesses and make it harder to smaller firms to compete with larger ones. In practice, it’s a bit less clear. None other than Charles Koch himself funded a study by Mercatus economist Alex Tabarrok that revealed the effect of regulation on American entrepreneurship to practically nil (Washington Post). Mercatus itself is of two views on the subject (others at the institute came to a different conclusion), but my point is that we’re not talking about something as cut and dried as most Republicans believe.

A Lack of Political (or any) Precision

Of course, most Republicans themselves are not fond of throwing every federal regulation ever written on a massive bonfire. The reason for the regulation also has an impact. Just as those of us who prefer limiting government’s size, scope, and cost take issue with “across the board spending cuts” – which make no accounting to necessary versus unwise expenditures – any trimming of regulations should have some form of precision or priorities. This is not the case with President Trump’s attacks on red tape. There appears to be no rhyme or reason to it whatsoever – save that Trump will go after any regulation brought to his attention. Not only is that poorly thought out, it also exacerbates the influence problem that many Republicans have with excess regulation in the first place: the politically connected game the system. Thus does an exercise in apparent government scope reduction turn into the figurative “swamp.”

The Lack of Staying Power

This fuels the same problem that the “courts” argument has – a lack of longevity. In this case, regulation rollbacks will be even more fleeting than judicial appointments. The next Democratic Administration could reinstitute much of the rollback (as there is little to no change in actual law involved). Even during this Administration, a Democratic House could insist on regulation resurrections in their budgets.

In short, Trump’s moves against regulation are too unpopular and unplanned to survive a change in the political winds (including perhaps one of gale force coming within the next two months). It is yet another false benefit to be weighed against the ever increasing cost to American political and economic health inflicted by this president.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015

My Fellow Democrats, We’re Becoming the Party of Freer Markets (Try Not to Faint)

September 5, 2018

by D.J. McGuire

When I chose to become a Democrat (a few hours after Trump was declared the victor of the presidential election), I expected a difficult period of adjustment. I’d left the GOP six months earlier, but leaving one major party and switching to the other one are two very different things.

Of course, Trump had ensured the two parties had flipped their supposed positions on national security. Those who have listened to the More Perfect Union Podcast since November 2016 are well aware that my opposition to Bashar Assad’s Syrian regime was what led me to vote for Hillary Clinton in the first place. Trump’s behavior towards Vladimir Putin in particular has made it far easier to be a conservative Democrat than I thought possible – not that it makes up for the damage to the free world. What I assumed would cause the largest headache was watching my old party on economic policies (where at least in theory they preferred freer markets) while my new one clung to its instincts for greater government intervention.

Nearly two years later, much to my surprise, that isn’t what I’m seeing. Sure, the Democrats are clearly moving leftward on health insurance, but they’ve moved in the opposite direction on freer trade (the voters far more dramatically than the elected officials).

Meanwhile, the Republicans…oh, dear. The party has largely swallowed whole Trump’s rampant protectionism, either lapping up tariffs as the great panacea or naively telling themselves it’s all about getting “better deals” – never mind that the only two agreements Trump has reached are either worse than the status quo (Mexico) or no longer operative according to Trump (the EU handshake).

Meanwhile, Trump has also spent time whacking the Federal Reserve for raising interest rates, even complaining to Bloomberg about how he couldn’t depreciate the dollar for his trade wars because the Fed wouldn’t play ball.

Then came the social media wars. At first, I figured Laura Ingraham insisting on turning Facebook and Twitter into public utilities was just an extreme one-off. I was wrong (CNBC).

U.S. Attorney General Jeff Sessions will meet with state attorneys general later this month to discuss concerns that tech companies “may be hurting competition and intentionally stifling the free exchange of ideas on their platforms,” the Department of Justice said in a statement Wednesday.

The proposed meeting between the country’s top prosecutor and state officials is the first major signal of potential antitrust action against Silicon Valley and follows recent claims by President Donald Trump of political bias and censorship by major social media firms.

Here’s what Sessions’ Justice Department had to say:

“We listened to today’s Senate Select Committee on Intelligence hearing on Foreign Influence Operations’ Use of Social Media Platforms closely. The Attorney General has convened a meeting with a number of state attorneys general this month to discuss a growing concern that these companies may be hurting competition and intentionally stifling the free exchange of ideas on their platforms.”

Keep in mind, the hearing was supposed to be about how foreign intelligence uses social media to influence the American people. Instead, the DOJ is all about government mandates (or worse) about “political bias”.

If the Republican Party continues on this course (and given that Trump is pushing the matter, this is very likely), then it will become the party of nationalizing Silicon Valley, the party of putting America’s most dynamic and fastest growing sector under government control.

Michael Lind once pondered, in Politico, that “The Democrats of 2030 may be more pro-market than the Republicans.” At the rate the GOP is going, despite the desire of many Democrats for government-monopoly health insurance, the switch will come much sooner than 2030. Indeed, one could argue it’s happening right now.

So be prepared, my fellow Democrats, and try not to faint.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015

Supreme Court Bans Union Fees on Non-Members (Except Where It Doesn’t)

June 27, 2018

by D.J. McGuire

The more one reads primary source material, the less trustworthy one becomes of media – any media.

Today’s example came in Janus v AFSCME – the Supreme Court cases regarding mandated union fees paid by non-union members in government workplaces in over 20 states (including Illinois, whose disgruntled public servant was Mark Janus). As the media reported it, public sectors unions are now barred from charging any non-union members for services rendered. As the labor movement itself reported it, the Court turned off a revenue stream that will make organized labor itself unsustainable. As the right celebrated it, the Court turned off a revenue stream, thus making organized labor a more muted voice in the political realm.

I’ve had discussions with fellow MPU-er Kevin Kelton on how unions can recoup costs from non-union members they represent, so this decision intrigued me as an economist. Moreover, I’ve seen journalists foul up the actual story more than enough times to decided it was best to peruse the decision myself. What I found was eye-opening (all cited quotations below come from the link above).

First thing to remember: the decision applies to public sector unions only. Private sector unions were not directly involved in the suit. Secondly, the particular fee in question is “an ‘agency fee,’ which amounts to a percentage of the union dues.” Moreover, Illinois law…

 …does not specify in detail which expenditures are chargeable and which are not. The IPLRA provides that an agency fee may compensate a union for the costs incurred in “the collective bargaining process, contract administration[,] and pursuing matters affecting wages, hours[,] and conditions of employment.” 

In other words, there is no real rhyme or reason to the fee amount set. Mr. Janus, thinking the fee arbitrary and an effective compulsion of his financial support for the union, sued to have it dropped. The majority of the Court agreed.

From there, media and pundits go off the rails in a rather ironic fashion -namely, by standing still. Upon seeing that the percentage fee was banned, everyone now assumes that all fees for non-members were banned. That concerned me, because union services provided to non-members at a mandated price of zero runs afoul of my visceral disgust for price controls of any kind. So I read further into the decision to see if the Court majority addressed the issue – known as the “free-rider” problem, which is not the term I would have used, but…

The court began in the legal realm, flatly noting that “As we have noted, ‘free-rider arguments . . . are generally insufficient to overcome First Amendment objections.’ Knox 567 U. S., at 311.” Then they get into the economic landscape, and here’s where it gets interesting.

First, with collective bargaining power and duties, the Court notes that numerous benefits come with the designation as the sole negotiating entity. Moreover, discussion on cost of expanding that responsibility to include non-members was…lacking.

It is noteworthy that neither respondents nor any of the 39 amicus briefs supporting them—nor the dissent—has explained why the duty of fair representation causes public-sector unions to incur significantly greater expenses than they would otherwise bear in negotiating collective-bargaining agreements.

That’s either a terrible omission by all listed, or an admission that collective bargaining is a fixed cost that isn’t dependent upon the number of workers – member and non-member – being represented. That said, collective bargaining isn’t all a union does for its members – or non-members. The Court majority had something to say about that, too (emphasis added).

In any event, whatever unwanted burden is imposed by the representation of nonmembers in disciplinary matter scan be eliminated “through means significantly less restrictive of associational freedoms’ than the imposition of agency fees.” Harris, 573 U. S., at ___ (slip op., at 30)(internal quotation marks omitted). Individual nonmembers could be required to pay for that service or could be denied union representation altogether.

That led to a footnote with an example (emphasis added).

There is precedent for such arrangements. Some States have lawsproviding that, if an employee with a religious objection to paying an agency fee “requests the [union] to use the grievance procedure or arbitration procedure on the employee’s behalf, the [union] is authorized to charge the employee for the reasonable cost of using such procedure.” E.g., Cal. Govt. Code Ann. §3546.3 (West 2010); cf. Ill.Comp. Stat., ch. 5, §315/6(g) (2016). This more tailored alternative, if applied to other objectors, would prevent free ridership while imposing a lesser burden on First Amendment rights.

In other words, the Court ruled the public sector unions cannot charge an undefined fee, but can charge a defined fee for services rendered – except for collective bargaining, where the services to nonmembers appear to be at no cost.

Thus the decision is far narrower than many believe. It never touched private sector unions, and contrary to what you may hear or read, it does not completely eliminate public sector unions’ ability to recoup costs.

D.J. McGuire – a self-described “progressive conservative” – has been part of the More Perfect Union Podcast since 2015.

Defining Progressive Conservatism

March 11, 2018

by D.J. McGuire

I have often said that in the past three years, the political spectrum has thrown me around “like a Martian Congressional Republic Navy vessel dropping into combat maneuvers from a 3g burn with no crash couch.” For those who are not fans of The Expanse, let’s just say I’ve been shaken up – and shaken – since 2015. That said, I do think I can finally place a label (of sorts) on my current political leanings and philosophy: Progressive Conservative.

To most American voters, activists, and politicians, my phrase is an oxymoron, but it was the standard term for the Canadian center-right for decades (and still is used in about half their provinces). More to the point, I simply found it the best way to describe a set of views that simply don’t fall neatly into any political party (major or minor) at present. What I mean by that follows below.

Economic Policies: For the most part, I tend to be somewhere between “classical liberal” and “supply-sider” on economics, which explains much (but not all) of the “conservative” in the label. That said, I’m more willing to accept incremental progress on matters than small-l libertarians are (to say nothing of Capital-L Libertarians). Meanwhile, so many conservatives forgot most of supply-side theory in embracing the dog’s breakfast of last year’s tax cut that I’m afraid a qualifier to my conservatism has become a requirement. This holds even more true in international economics, where my support for freer-trade and for freer-trade areas – but not for customs unions – fails to appeal to any type of libertarians and many conservatives – most of whom conflate FTAs and customs unions. Quite a few conservatives are now reverting to pre-1930 protectionism as well, which I find odious.

Domestic Policies: For the most part, I used to be on “the right” in nearly every cultural issue out there. I will freely acknowledge I’ve shifted “leftward” over the years on more than a few of these: especially on what could be summed up as identity issues (race, gender, sexual identity, etc.) – including my growing concern about white supremacism. I’m also far more skeptical of regulating the poor than I used to be (including changing my mind on work requirements for anti-poverty programs, which I now consider to be a perverse incentive in the labor-devaluing era of automation). This is where the “progressive” part comes in.

Foreign Policy: I suppose this is now my greatest source of departure from… well, from damn near everyone. With each passing day, my fear from 2003 is being realized – I will be one of the last six people on Earth who still considers the liberation of Iraq from Saddam Hussein to be the right thing to do. I am firmly in the camp that was (and in many places, still is) called “neoconservative” – and I have claimed that label for myself more than once; I just don’t think it helps explain my mixture on domestic issues these days. I am still a firm believer in the Democratic Peace theory – and as such, I consider helping the world’s democracies and opposing its tyrannies to be in America’s best interests. That includes the Assad tyranny in Syria, which was what led me to vote for Hillary Clinton – the first Democratic nominee for President for whom I have ever voted, and which puts me in another small minority of Americans – those who do not think the military defeat of ISIS/Daesh is enough to abandon the Syrian people to the bloodthirsty tyrant from Damascus.

With that mixture of views – neoconservative (mostly) abroad, economically conservative (mostly) but culturally progressive (mostly) at home – I just thought it best to take the “progressive” and “conservative” labels and, well, combine them. It seemed the simplest thing to do.

So there you have it.

D.J. McGuire can be heard on the More Perfect Union Podcast. 

Regulating the Poor is a Bad Idea

February 13, 2018

by D.J. McGuire

There was a time – dare I say, it might have been as late as two years ago – when I would have applauded the recent wave of states adding work requirements to Medicaid. I’m not sure where I would have exactly landed on the Food-boxes-for-Food-Stamps idea now ensconced in the president’s budget back then. Today, however, I think both are mistaken.

My reasoning stems from the current drive to automation in the economy. That may seem disconnected, but bear with me. Contrary to the assertions of most, I do not see an oncoming automation apocalypse as inevitable. ​Many have expressed concern about the tremendous drop in demand for labor that could come with automation – in other words, far fewer jobs for actual persons. Not nearly as many have discussed the ramifications on the other side of the coin, prices. Without a central bank insisting on inflation ad nauseam, prices would also fall as a result of automation, in many cases dramatically. The result could be a dramatic drop in the cost of living, ameliorating if not drowning out entirely the effect of automation on jobs. Keynesians of all stripes would revert to their last line of argumentative defense: the concept of “sticky prices”. However, the assumption behind this defense – that prices cannot be driven down without tremendous unemployment or wage cuts – is undone by the effects of automation, which switches the order of the process. Thus, prices need no longer be sticky – and in fact probably would not be sticky – because the wage effect on stickiness has already been taken out of the equation. In other words, automation would remove the greatest barrier to productivity-driven deflation, the one thing that can ensure greater prosperity for all Americans.

However, in order for this to be as successful as it can be, we have to shift our mentality away from working for other people in favor of working for ourselves. The generations that follow us in the automated era are far more likely to be self-employed than employed by someone else – which means creating incentives that drive people to work for someone else instead of working for themselves go in the wrong direction. Americans will need to be less risk-averse – which means the consequences of risk itself need to be reduced.

The work requirement for Medicaid is thus exactly the kind of perverse distortion of incentives we need to avoid. If anything, we need less regulation of the behavior of poor Americans – as they are more likely to engage in the entrepreneurship we need to advance the economy in the automated era if they are not forced to work for someone else for their health insurance. Likewise, the dynamism and flexibility that come with successfully launching a small business can’t mix with a one-size-fits-all food-delivery system (and this doesn’t even consider the vastly different diets required by different human beings).

For much of the 20th century, “welfare” was viewed – when it was perceived as effective – as a temporary system designed to push people back into the industrial workforce. In a post-industrial, automated economy, we need more self-employment, in which case the current welfare system – and the proposed changes by the Republicans – become the exact opposite of what is required.

As a conservative, I would lament the damage over-regulation would do the economic innovation and dynamism. I call myself a progressive conservative now, in part because I understand that over-regulation is just as dangerous when the regulated are poor Americans. The poor need fewer restrictions on the aid they receive (indeed, I would consider a Negative Income Tax or Universal Basic Income a dramatic improvement over the Rube-Goldberg-like welfare system we have now), not more.

I Guess I’m the Last Supply-Sider

December 5, 2017

by D.J. McGuire

There was a time when supply-side economics was a serious challenger to the Keynesian failures of the 1970s, and a necessary corrective to the assertion that Aggregate Demand was all that governments could change through policy. One of the supply-siders I admired as a graduate student was Stephen Moore.

Today, Moore revealed that the current GOP tax deform has nothing to do with supply-side economics – or any economic theory, for that matter – but rather for political retribution (Bloomberg).

Read More

More Perfect Union Podcast Blog Talk Radio