Tag Archives: unions

NLRB – Graft Enforcer

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Earlier this month, the National Labor Relations Board (NLRB) and Pres. Obama showed their hand as union enforcers. The NLRB barred Boeing from expanding its existing operations in South Carolina because it would take union jobs away from Washington State. Pundits have already exposed Obama’s hypocrisy and violations of the law, along with the clear evidence that workers in states like SC do better than in forced unionization states like Washington. These policy arguments are true and fine, but another revelation of NLRB v. Boeing is that the US is a country that runs on graft.

As businessmen who transact around the world know, most countries run on graft. A salesman is required to donate to the ‘employee holiday fund,’ or a general is concerned for the welfare of some small village that happens to be run by his relative. To do business, palms require grease. The US will not tolerate such overt bribery; indeed US businesses are often punished for paying foreign graft. Still, the NLRB affair proves that the US, in its own sanitized way, is a land of graft.

The cycle of graft at Boeing and other union shops works with unions acting as politicians’ bag men. Boeing is forced to overpay union employees with inflexible work rules. Union employees are forced to pay dues, much of which is then returned to the politicians that enforce the cycle of graft. The only winners are the politicians. While this cycle seems sanitized compared to outright bribery, the result is the same – in order to do business, Boeing must divert money to politicians they do not necessarily support. That is graft.

With SC, Boeing made the obvious choice – expand their manufacturing to a state that has stopped the cycle of graft through right to work laws. SC would allow Boeing to operate more efficiently and become more competitive against Airbus and AVIC, the Chinese newcomer. However, Boeing underestimated Obama’s will to maintain union power, and it may have an empty factory as a result. As a national leader, Obama might have hailed new jobs in any location, but instead he put his union ties forefront, and it does not help that Obama will almost certainly lose SC in 2012. The message is clear – graft first, economic recovery second.

Unions and their politician puppets know that investment, jobs, and families are moving from forced union states to right to work states. Private sector unionization continues to collapse as manufacturing moves to the South. These trends are direct threats to the long term viability of the union graft cycle. Obama’s NLRB action against Boeing is a full force defense of corruption’s status quo. Even if Boeing wins an expected victory over this decision, look for unions to smear the SC factory as unsafe and other federal regulators to scrutinize its products. The Federal Government does not generally lose, and it especially does not like to lose when its politicians’ graft is at stake.

Viva Reggie Bush, Muerta a la NCAA

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Apart from helping New Orleans win the Super Bowl last year and dating Kim Kardashian, Reggie Bush is most famous in that he is about to lose his Heisman Trophy. The Heisman Trophy is awarded to the best college football player each year, and Bush won his back in 2005 when working for USC’s football program. Most crimes, short of murder, are not punishable five years after the alleged transgression, so Bush must have done something horrible to now lose his Heisman. His crime was to accept unapproved compensation during his time as a USC football player – horrible.

The NCAA rules the standards by which its member colleges treat their student athletes. Among the NCAA’s rules is the stricture that student athletes must not be paid beyond a free education. Since nearly every college subjects itself to the NCAA’s rule, the ‘no student pay’ rule is ubiquitous. The NCAA’s rule is so strict that athletes are restricted in the type of side-work they may take, and they do not even own their own names or images.

Since the value of free tuition varies from college to college, one would logically expect Harvard or MIT to consistently win the BCS title, as their tuition is clearly of greater value than that of Alabama, last year’s winner. Of course not, since the very best football players like Bush do not attend college to master women’s studies. Top college athletes like Bush are interested in earning millions as professional athletes. For certain top athletes the NCAA’s claim that a free education is a just reward for working long hours on the field is a big sham.

Top football players like Bush go from earning zero dollars as seniors to being multi-millionaires immediately thereafter. Of course their value to society does not change so radically simply because they leave college. These top athletes are hugely valuable to their colleges and the NCAA, so paying them the same as a second string place kicker with no athletic future is economically absurd. The practice of paying top athletes under the table is rampant, as a free market is impossible to fully suppress. From the SMU football scandal of the 1980′s to Bush’s lost Heisman, colleges are constantly being investigated and punished for paying their top players.

So rabid is the NCAA’s quest to stop athlete compensation, it even harshly punishes people who do no actual wrong. OSU’s Dez Bryant was barred from playing his senior year, not because he broke a rule, but because he lied about an incident wherein he did not break a rule. Bryant was within the NCAA’s rules when he met with retired NFL athlete Deion Sanders, but he falsely denied the meeting. For this misstep, the NCAA terminated his college career. No harm, though, as Bryant played his first NFL game for Dallas last night. What would the average offensive line look like if the NCAA enforced its steroids rule with the same vigor as it does its ‘no fibbing about non-offenses’ rule?

Now, Shout Bits is not a sports blog. What is the broader point to the NCAA’s ‘no paying athletes’ crusade? The NCAA is a cartel; it hoards the compensation justly due to its employees – the athletes. In the more free market of professional sports a much higher portion of revenues go to the athletes that sell tickets. In the free market, those athletes also own their names and images for marketing purposes. The NCAA knows that once athletes are allowed to be paid what they are worth, a huge profit stream would be redirected by the free market. The NCAA aggressively suppresses these basic freedoms because a cartel always collapses when even a small leak is allowed to persist.

As with other cartels, the NCAA is not content to simply rake in the profits it earns at the expense of those it handcuffs; it also flexes its political muscle. The NCAA forced the University of Illinois to purge Chief Illiniwek from its campus even though his opponents were massively outnumbered by his fans. The NCAA has crudely imposed its PC ethos on any college that dared have an Indian mascot. Very few Indians are concerned about dancing war chiefs, but the power-drunk NCAA could not help itself but to impose its will on this triviality.

The lesson is that cartels are never content to simply prosper; they usually act out to demonstrate their power to their subjects. OPEC capriciously cut off oil to the US in the 1970′s. Unions force their members to donate to politicians they might not support. Trade associations like lawyers and florists impose impractical membership requirements to keep their numbers uneconomically small. Be it the UAW or the NCAA, cartels force consumers and employees to suffer so the well-connected can profit.

Mr. Bush committed no crime and only did what free adults would rightfully do in the real world. Still, the NCAA is likely to make an example of him. The tale of the NCAA’s corruption, abuse of athletes, and bizarre PC crusades is a warning to anyone facing the power of a cartel. Battling entrenched collusive institutions may be quixotic, but the result can be more prosperity and justice for everyone.

Terminate All Pensions

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Last week Ron Lieber wrote an article for the New York Times outlining the chasm between the retirements of public employees and regular people. Lieber warns of a “class war” because public and union employees generally enjoy defined benefit pensions, while most everyone else is responsible for his own retirement savings through such vehicles as 401(k)s and IRAs. The difference between these worlds is exposed by Speaker Pelosi’s recess House session this week to approve a $25bln bailout of the public employees, while nothing was ever done to ease the pain of the private sector. Pensions have always been invitations to shady manipulation outside the view of the public, and Pelosi’s recess session only proves that defined benefit pensions must be terminated.

A pension, unlike an IRA, is not a pile of money set aside for employee retirement. Rather a pension is a promise to provide for a retiree for his entire life with an inflation adjusted annuity. Pension actuaries must make assumptions about how long the pensioner will live, what inflation might look like for the rest of his assumed life, and how various investment markets will perform as well. Needless to say, such predictions are only estimates. The difference between the assumed future obligation to a pensioner and the present value of the pension fund’s assumed future earnings is the amount by which a pension is underfunded (or occasionally overfunded).

Because interest rates and stock markets fluctuate, pensions’ funding statuses also fluctuate. When times are good, pensions seem well funded. Their sponsors often stop making contributions to them, and public employees demand pension benefit increases to spend the funds surpluses. Since the money for pension benefit increases does not hit a State’s budget until many years later, politicians are happy to pay off campaign donors with lavish retirement benefits. In Pelosi’s California, retirees in their 50′s often receive low six figure annuities for life. Indeed, when times are good, the money previously used to fund pensions can also go to public employee salary increases. Of course when times are bad, pension underfunding crushes a State’s budget.

Enter Pelosi. Her public employee political base is rightly nervous that mostly blue States’ woefully underfunded pensions will jeopardize their lush retirements. With such widespread State budget troubles, layoffs and pension cuts are inevitable. Without an ever growing public employee base that overwhelmingly gives to Democrat campaigns, Pelosi is in serious trouble. Fearful of voting on a bailout just before an already difficult election, Pelosi has cut the House’s summer vacation short to shore up her political base. Since angry town hall meetings are no fun, many left leaning Congressmen probably prefer the DC swamp in summer to livid voters at home.

Thus completes the cycle of wasteful pension planning in boom times and Federal bailouts when things inevitably go bust. The pension cycle of mismanagement is a sneaky version of tax and spend. If politicians cannot control the budget process which is at least somewhat exposed to public scrutiny, they will never control runaway public pensions which are mostly off the balance sheet. Further Lieber reports that Pelosi’s $25bln bailout is only a Band-Aid on a $1 trillion pension shortfall. The only solution is to end Pensions entirely.

Most non-public, non-union employees have been weaned off of pensions already. The latest wave of pension collapses has killed off most remaining private sector pensions. The 401(k), which shifts the responsibility of retirement savings and investment to the individual, is now the dominant retirement tool. As with the private sector, State governments must stop offering old-style pensions to new employees and freeze the level of pension benefits to existing ones. Existing pensioners can continue to draw their monthly checks, but the pensions system would slowly fade away as new employees enter the work force and elderly pensioners pass on. Nobody needs to be denied what was promised, but the unsustainable pension system needs to be eliminated.

Politicians cannot be trusted to prudently manage pensions, which are promises that come due long after the politicians have themselves retired. The very nature of a pension encourages lavish promises that are later left at the feet of taxpayers. Rather than bailout a corrupt and doomed system, Pelosi should use the $25bln to fund the termination of public employee pensions so that States can balance their budgets with a little less political gamesmanship.