Re: Unions


"Harold and Susan Vordos" <vordos@xxxxxxx> wrote in message
news:YsAYi.39989$G23.7237@xxxxxxxxxxxxxxxxxxxxxxxxxxxxx

"Ed Huntress" <huntres23@xxxxxxxxxxxxx> wrote in message
news:RxoYi.65$dP.63@xxxxxxxxxxxxxxx

"Harold and Susan Vordos" <vordos@xxxxxxx> wrote in message
news:booYi.39968$G23.35565@xxxxxxxxxxxxxxxxxxxxxxxxxxxxx

snip---


Perhaps, but that's something none of us can know. I've long
maintained that had workers here kept their cool and received pay in
keeping with its value, it's possible the advantage in moving to other
locations wouldn't have been great enough to warrant the move.

Yeah, we know you've maintained that. <g> The interesting questions in
economics start showing up when you assume that this and other obvious
answers are wrong. Just assume it to begin with. And then ask what would
happen if...

Of course, what you get from that exercise is mostly hypotheses. But
sometimes you also get a fresh angle, complete with a new window into actual
experience. When it comes to trade and competition, and the consequences of
changing one factor or another (like an individual company's wage scale),
the conventional wisdom starts falling apart. If I had life enough for
another career it would be labor and trade economics.

For example, take Whirlpool's move to Mexico that was just being discussed.
Here's an obvious fact that seldom is questioned: Whirlpool could have moved
their plant 40 years ago, and the relative labor costs would have been of
the same order as they are now. Why didn't they move then? The quick and
obvious answer is that they didn't have the kind of foreign competition 40
years ago that would have forced the move. So what caused the "value" of
high-priced American labor to fall below what was being paid, and to knock
the profit out of the business for Whirlpool? Nothing much happened,
actually, except for...foreign competition itself. It makes you wonder what
the proper "value" of labor is, and how it is set. In this case, it was
low-wage foreign competition. In that sense, Tonelson is right. Whirlpool
moved because they got caught in a race to the bottom.

But it's also curious that most of the moves to Mexico by US companies
happened all of a sudden, just after NAFTA was passed. What was the big deal
about NAFTA? We could have accomplished the same thing just by knocking off
our tariffs. Some of them really weren't that high to begin with. But NAFTA
was about much more than tariffs. And here's the sleeper issue, which you
come to realize after spending years of reading about trade in the era of
globalization: the big deal that's discussed in the economics literature,
and which gets only passing mention in the popular press, is not
direct-labor rates. It's capital flow. That, and having a clean and easy way
to take your profits out. NAFTA gives them that, too.

Labor doesn't care directly about capital flow but capital itself cares a
great deal. Free flow of capital across borders is what makes it possible
for Whirlpool to take its manufacturing plant to Mexico for a reasonable
price. It's what made it possible for GM to crate up an engine plant and
move it to Shanghai, where they make engines that get shipped back here and
stuffed into Chevies.

Free movement of capital across borders is what has given US companies a
huge coercive threat and lever against labor in the US. Not that the
companies really care about battling with labor, per se. They care about
total production costs and their real savings come not from cutting costs of
direct labor (it's only 7% in the car assembly business, anyway; labor +
load is only around 14%). It's from gaining all of the supply- and
operating-cost advantages that come from low *embedded* labor costs of
plant, equipment, and material; and from the lower overhead that comes from
operating in a country where you can dump all of your pollution into the air
and water. That's called "externalizing" some of your operating costs to the
host country at large. Etcetera.

So, would cutting wage rates have kept those plants from moving to Mexico? I
doubt it, at least, not without cutting *everybody's* rates, in practically
all manufacturing businesses, because they all add up to embedded costs. And
then we'd have to start externalizing other costs to the whole society -- in
other words, dumping toxic crap back into the air and water. Sometimes it
looks like we can compete directly with third-world countries only by
becoming a third-world country ourselves. Another race to the bottom. And so
on.

If I were writing about it for publication I'd find a way to get my hands on
some balance sheets for those companies, and pick them apart. I think the
important facts there would not be what they seem to be, to those of us who
look at it through a labor/cost telescope.

I still think greed (at all levels) is the greatest contributor to our
current dilemma. Rarely do you find people working for their real worth
these days, and we're all paying the price for their actions through
ever increasing costs of goods and services. Could be we're in for
one hell of a lumpy ride now that it's running rampant and the dollar
has been reduced in value to, what, 10 cents?

Compared to what? The "value" of a dollar is based on what it will buy. The
dollar has fallen (thank God, says US manufacturing) relative to most other
currencies. That makes imports more expensive. But it doesn't make
US-manufactured goods any more expensive, at least directly.

<snip>


Yes, Ed, I realize that I have never provided an answer, in part because I
surely am not qualified to provide one-----but one thing is
sure------there are workers that can lose their jobs to just about anyone
off the street----and they're making wages far beyond those of people with
years of experience in pursuing a skilled trade. I'm smart enough to
know there's something wrong with that scene. How do you suppose that
came about?

For sake of conversation---I'll use a UPS driver. I'm sure they screen
humanity for the "cream of the crop", and have decent people in their
employ. I've talked with the local delivery people on occasion and have
found each of them to be very polite, friendly, and you could probably add
hard working to the list. They have no real skills-----and can be
replaced by just about anyone. I dare say I could learn their job in a
week, tops.

Having said that, do you really think a truck driver, one that can be
replaced by almost anyone that is capable of driving, is worth more pay
than someone that has dedicated years to mastering a trade? Do you feel
that a guy off the street can take the place of an experienced tool maker?
Is it possible that one of these people has greater "resale value" than
the other?

Now you're introducing a non-economic element into an economic analysis.
What you're adding is your sense of fairness. Fairness is an issue that's
involved in most of these discussions, but there's a big problem with it: we
don't remember to draw the line between fairness and economics itself, and
to treat them separately.

Here's the big fairness issue in the US economy: If your sense of fairness
isn't offended by CEOs making 300 times the wages of a skilled worker, then
you've either cauterized your nerve endings or you've been so beaten up by
laissez-faire ideology that you're as numb as a fence post.

That's the trouble with ideology itself, but I won't go there for now. d8-)
We're caught in a dilemma between our sense of right and wrong, and what
works economically. The unhappy fact is that CEOs earning 300 times the
wages of workers seems to work just fine, economically. It's happened in
parallel with the growth of our GDP, in fact.


It's not for me to assign values, but I'm sure as hell able to see when
the price of some things is beyond worth. Minimum wage will top $8/hr in
Washington first of next year. Do you really feel a kid filling drinks
at a fast food restaurant is worth that kind of pay? As the wages keep
getting driven ever higher by the bleeding heart democrats in this state,
what they're managing to accomplish is to eliminate a certain portion of
society from buying the products. How does industry, or society in
general, benefit by that? Worst of all, it's helping questionable people
think they can make a living without preparing themselves for the real
world.

There's your sense of fairness again. Thought-teaser for the day: What would
happen if we raised the wage for filling drinks at a fast-food restaurant to
$12/hour? Would the economy suffer? We added 150,000 jobs last month. Did
high wages hurt? And what would the consequences be if we stopped buying as
much fast food, cooked more at home, and the kids got jobs in some other
part of the service sector, where they can really support $12/hour? Maybe
they could be bicycle couriers for hedge-fund managers. They could afford
$100/hour and never feel a pinch.

That's what makes economics fun. d8-)

--
Ed Huntress


.