The Mexican Pizza Riddle

Discussions on the Economics of Poverty
Part 3. Consequences (continuation)
Al VanZee
    Unions are not monopolies by definition any more than corporations are monopolies by definition. Anyone can start a corporation. Anyone can start a union. Your argument that independent unions should be illegal, is the same argument that communists and fascists have made that the government and the party are capable of looking after the interests of workers. They are not. The interests of the government, the party, and the corporation always run counter to the interests of workers. The only way to legitimately balance power between all of those parties is through the democratic process.
Donald J. Dale
    Um, no it's not the same argument, and please don't put words in my mouth.

    What would you call a group of individual actors who are the exclusive providers of a particular commodity, who gather together and meet to fix the price for this commodity far above the price that would exist on the free market?

    Obviously, the question is rhetorical.
Robert Vienneau
    Yes, since it depends on contrasting unions with an ideal that seems to be little related to existing practices in either the U.S. or Mexico. Most prices in the U.S. are set by private entities, usually on the basis of some sort of markup over cost. The exact pricing procedures used in administratively controlling prices vary among industries. There's a large empirical literature on this topic.
Don Dale
    And there's an equally large literature on the extent to which "institutional" pricing emulates true marginal cost pricing. And the consensus is, mostly it does.
Robert Vienneau
    The exceptions are some agricultural and primary commodities. These may be of proportionally greater importance in Mexico than the U.S. But even characterizing these as a "free market" is problematic. The institutions of a "free market" have to be carefully maintained and rely on some set of customs for matching buyers and sellers. See the Chicago commodities markets.

    Anyways, it is not clear that an administratively controlled pricing process will result in decisions warranted by their positive impacts on the provisioning process. One would expect such prices to reflect a large number of ceremonial and invidious distinctions. Thus, some sort of public intervention seems to be instrumentally warranted. Unions, and minimum wage laws too, have indeed been a good method of increasing democratic surveillance over administrative pricing decision. Further details of public intervention into pricing decisions also vary among industries.
William F. Hummel
    Rhetorical question or not, the answer is wrong. A labor union is seldom in the position of exclusive provider of a particular commodity, namely its own labor. There is almost always an excess of labor available and that is evident from the number of union actions that have ended in failure. The anticompetitive effects are not at all the same as those of a real cartel.
John B. O'Donnell
    One must remember that if a labor cartel is called a union that is not the same as saying to be called a union is to be called a labor cartel.
Donald J. Dale
    First point: In order for a cartel to be effective, it need not comprise all the suppliers; a substantial fraction will suffice. For example, in 1979-80, the United States was not a member of OPEC, but produced oil. Yet during this time, OPEC was effective in driving oil prices substantially upward.

    Second point: The fact that some union actions end in failure is not prima facie evidence that unions are not cartels. Cartels will often tend to collapse, due to the incentive to cheat and the difficulty of enforcing the agreements.

    The answer is, it depends on the commodity. For most commodities, the above group is a cartel. If the commodity is labor, however, the group is called a union. But the principle is the same, and the anticompetitive effects are the same.
Eyler Coates
    No they are not. The dynamics controlling the sale of goods and the sale of one's labor are entirely different. For example, What would you say if a shop keeper were required to sell all the goods in his shop every week or else he would not be paid for any of them and he would starve to death?
Don Dale
    I would call such an individual a "shopkeeper". He must sell his wares in order to provide for himself and his family, or find another career, or starve.
Eyler Coates
    Would a regulation protecting him from such an atrocity be "anticompetitive"? Of course not! The requirement itself would be an atrocity. In order to survive, the laborer is compelled to sell all (or the better part of) his "commodity" (his labor/time) every week. The fact that he is required to do this by nature instead of by regulation is irrelevant, as far as his necessity is concerned.
Don Dale
    I would argue that this distinction is incredibly relevant. Morality, rights, freedom and coercion are all terms relevant to the discussion of human interaction with other humans; when discussing human interaction with nature, these terms do not have the same meanings as they do when discussing human interaction.
Eyler Coates
    This is not a matter of the interaction with nature, but of the necessities of human nature. The interaction is still between persons.

    Employers like to pretend that both are the same so as to exploit the worker's absolute necessity to work (or its equivalent) in order to live. The right to life, therefore, demands that the two be treated separately in a free society.
John B. O'Donnell
    Yes, and lest we forget, the rules of ownership we have adopted give first claimants exclusive rights to land and other licenses with no consideration to the general populace who surrender their claim to whomever is to recieve the privilege granted. When enough such licenses are granted, the residual commons left for to be claimed by those who chose the wrong parents or otherwise missed out on the allocation of "rights" are not sufficient to permit even a modicum of civil existance. They are left to the whim and will of those fortunate enough to have been there first or have managed to select the best parents.
Don Dale
    OK, here's a multiple-choice question:

    The right to life is:

      A) The right to sustain one's own life by one's own means, free from physical compulsion, coercion or interference by other men.

      B) The obligation of other men to provide a man with whatever he needs to sustain his life.
John B. O'Donnell
    Or, C) The same right of access to the gifts of God/nature as those who came before so one can sustain one's life by one's own means, free from paying the extortion demanded by those who did get "legal" claim of the very substance needed to sustain one's life.
Eyler Coates
    The right to life is not defined by simple-minded alternatives. The right to life in a free society is certainly not B, and not exactly A. It is a right to live and participate in a society with other men who work together to promote their own happiness and general welfare. That form of individualism that would make every person separate and independent from every other, and that would relieve them of any duties or responsibilities to others, is not the society envisioned by the Founding Fathers.
      "Every man cannot have his way in all things. If his opinion prevails at some times, he should acquiesce on seeing that of others preponderate at other times. Without this mutual disposition we are disjointed individuals, but not a society." --Thomas Jefferson to John Dickinson, 1801.
Al VanZee
    Don's argument that the government must act to interfere with the workers right to organize independently and bargain collectively is another example of how elite economies interfere with productive enterprise.
John B. O'Donnell
    I doubt that it is because others ignore this consequence; it is just that the actors in this play are driven by the inevitable consequences of domestic economic policies that raise government revenue in ways that drive up variable costs of production rather than, in the words of Don Dale and I suspect other economists, by "non-distortionary" taxes.
Jim in Boulder
    First of all, many people are thinking about this. I have heard this very same concern raised by various magazines and news shows many times. Second, you are employing what I call the "if-things-continue-at-this-rate" fallacy. This is where you take a worrisome trend, extend it far into the future, and show what a nightmare is going to result. However, in my experience, things that bad rarely continue for very long.
Eyler Coates
    This is true. Few social trends continue in a straight line. Gross dislocations tend to right themselves and create responses that prevent the dislocations from going to extremes. Nevertheless, it is useful to point out the extremes, if only to suggest that something must occur to halt the trend. In most instances, something will occur; the hope is that it will be positive and constructive.
Jim in Boulder
    For examples of bad things that rarely continue for very long.:
    • had countries continued to go communist at the rate they were in the thirty years following WW2, we'd all be communists by now. Yet communism has shifted into reverse in a BIG way in the last decade.

    • had the savings and loans continued to go belly up at the rate that they were in the mid 80s, there wouldn't be any today. Nevertheless, the S&L industry, insofar as I can tell, seems to have returned to be more or less stable.

    • had energy demand continued to grow at the rate it was growing in the late 60's, we'd be doubling our demand every 10 years. As it turns out, we now double it about every 20 years (these figures are a little old).
Eyler Coates
    Therefore, the attempt to move jobs to lower wage areas can only be profitable because it takes advantage of a temporary displacement. As long as manufacturers can make the products with low wages and sell them to consumers still making high wages, there are profits to be made. But the shift is depleting the supply of consumers with high wages. When all jobs are shifted to low wages, there will be no one to buy the products. This is not a matter of regulating the price of labor. It is a matter of regulating the RELATIONSHIP between the price of labor and the price of goods. Ours is the most powerful economy IN THE HISTORY OF THE WORLD. AND IT HAS GOTTEN THAT WAY AND STAYED THAT WAY BECAUSE OF THE MINIMUM WAGE, among other reasons. For years now, some people have been warning us that America is just about to go broke because of the very policies that have brought it prosperity: union wages and the minimum wage. If we listen to these people, we will actually undo the forces that have resulted in our great prosperity.
Don Dale
    This is empty assertion without logical argument or presentation of evidence.
Eyler Coates
    Normally, a self-evident assertion requires no evidence. It is understandable to a person of ordinary intelligence simply by stating it. If you feel that the above is empty assertion, then please explain how a nation's economy will flourish if the people that make up that nation and that are expected to buy the products which that nation's industry produces, have only sufficient income for a bare subsistence. Will the rich industry owners sell only to other rich industry owners?
Don Dale
    Prices are not fixed. If there is insufficient demand for the goods that are produced, prices will tend to fall, thus raising the real wage. You are (implicitly) describing a general equilibrium model with sustained disequilibria in either the labor market or all goods markets.
Eyler Coates
    Are their numbers sufficient to create a thriving economy? Actually, they CAN do that to a certain extent, but the nation's GNP will be just about where Mexico's is.

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