Understudied conflicts of interest in American government

by on January 11, 2017 at 12:08 am in Economics, Law, Political Science | Permalink

Roger Barris emails me:

I am not sure that this is a suitable subject for a blog post, probably more a project for an aspiring PhD student, but with all the discussion of conflicts of interest in the Trump cabinet, it strikes me that the most glaring conflict in the public sector is ignored: The CoI between state and local politicians elected with the support of public sector unions who then participate in compensation negotiations for the members of those unions.  Here the temptation of the politicians to buy the support of the unions with public money is overwhelming.  The impact of this is potentially trillions when public pension liabilities are included.

This is such an obvious conflict that I have looked to see if there are laws preventing this, but my initial research shows nothing.

It would be interesting to see if there is a statistical relationship between union support and subsequent pay rises.  I would expect this relationship to be especially strong with deferred compensation (such as pensions) since this is very difficult for voters to monitor and can be easily gamed with unrealistic assumptions about, for example, investment returns.

Are you aware of any work that has been done in this field?  I think that the looming disaster with underfunded public pension funds is one of the biggest financial risks in the economy, with ZIRP making it even worse.

Can any of you direct Roger to the appropriate secondary literature on this question?  A related question is whether this conflict of interest makes you more or less upset than the more corporate-connected conflicts of interest found in the incoming Trump administration.

1 Abe Froman January 11, 2017 at 12:13 am

David Skeel (Penn law) has written a great deal on how these issues turn out in municipal bankruptcy. His general conclusion (I think): In municipal bankruptcy, the pension funds take a haircut, but not nearly as much as the creditors. If true, the problem is worse than you think…

the n is small at this point… more to come.

2 derek January 11, 2017 at 12:33 am

British Columbia passed a law limiting third party advertising during election campaigns. It was aimed at preventing the Teacher and Nurses unions, both well funded by union dues, from advertising in their interests.

http://www.bclaws.ca/civix/document/LOC/complete/statreg/–%20E%20–/Election%20Act%20%5BRSBC%201996%5D%20c.%20106/00_Act/96106_11.xml#section235.1

3 derek January 11, 2017 at 12:38 am

The 2011 Wisconsin labor legislation made teacher’s union dues non compulsory which limits the ability of the unions to advertise and influence elections.

4 Mark Thorson January 11, 2017 at 12:48 am
5 Anon7 January 11, 2017 at 2:05 am

California is screwed because of (recalled) Governor Gray Davis, who was generously funded by public employee unions:

“With the stroke of a pen, California Gov. Gray Davis signed legislation that gave prison guards, park rangers, Cal State professors and other state employees the kind of retirement security normally reserved for the wealthy. More than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived…

State agencies don’t have a say in how much they contribute toward pensions.That’s determined by CalPERS, where unions have long had considerable influence. Six of the agency’s 13 board members are chosen by public employees; the others are elected officials and their appointees.”

http://www.latimes.com/projects/la-me-pension-crisis-davis-deal/

6 JWatts January 11, 2017 at 2:02 pm

Only an idiot would user their own money to buy a California state or municipal bond at this point. They’re paying in the 2.2-2.5% range. The risk premium would seem to warrant a higher rate.

7 chuck martel January 11, 2017 at 1:02 am

Realistically, there will always be conflicts of interest for elected officials. It’s impossible for them to develop the public recognition required to win an election without being involved with “interests”. How can anyone expect otherwise? If being involved in normal commerce disqualifies one from public office, it leaves only those who’ve been in government their whole career as potential officeholders. People move from dog catcher to city council to mayor to governor to representative to senator and so on. That’s the problem, not conflicts of interest.

8 gab January 11, 2017 at 1:06 am

One man’s conflict of interest is another man’s freedom of speech. Money is speech, right?

Is this “conflict of interest” any different than any other influence gained through political contribution? Union contributions may strike Roger as the “most glaring conflict” but it seems to me no different than any other political influence.

Perhaps “most glaring” is in the eye of the beholder.

And lastly, if this “most glaring conflict” is being ignored, how’d Roger find out about it?

9 Anonymous January 11, 2017 at 1:24 am

+1

If this is the same Roger Barris who ” previously had senior positions at Goldman Sachs, Deutsche Bank, Merrill Lynch and his own firm, initially in structured finance and latterly in principal and fiduciary investing, focussing on real estate.”, it is not surprising that he sees problems only with Unions.

Long live Citizens United .

10 Roger Barris January 11, 2017 at 12:42 pm

The very one.

However, as to the pro-business and anti-union bias you appear to be suggesting, I point you to a recent blog I posted. The first article is about this issue with unions. The second article is about Goldman Sachs. I think that you will agree that the GS article is not very flattering. It is also not unique on my blog: http://www.economicmanblog.com/2017/01/10/wheres-the-outrage/.

I am a libertarian. Which means that I am as opposed to crony capitalism as I am to crony unionism. Because, although you may find this hard to imagine, I am actually consistent in my political and economic views. I also strongly believe that the best way to fight cronyism of any type is by removing government from the economic sphere to the maximum extent position. In fact, I think that this is the ONLY way to fight cronyism.

11 Post-Truth Politics January 11, 2017 at 3:43 pm

Roger, you certainly are ideologically consistent. However, I would say that your position results in your consistently supporting crony capitalism in real world situations. Because the Crony Capitalist party AKA the GOP, is the one that claims (falsely) to be in favor of removing government from the economic sphere. But Libertarians always run as Republicans, and side with them. So you end up always fully in support of the crony capitalist party. This, of course, is not unique to you, but ends up being the case with all, or almost all, Libertarians.

12 Roger Barris January 11, 2017 at 3:53 pm

Not quite sure what to say to that, since there is a total absence of logic. So, let’s just agree to disagree, because neither of us has time for a pointless exchange.

13 Post-Truth Politics January 11, 2017 at 3:38 pm

+2 Gab and Anonymous.

14 Shane M January 11, 2017 at 1:24 am

Agree. Agriculture, Finance, Energy, Defense, Pharma, NRA, Construction – if they lobby to get things they want is it a conflict of interest, or is it the nature of representative government?

Pensions have been blowing up everywhere, not just in the public sector. My dad was a school teacher/principal, and told me one of the main reasons he was in the school system was because of the pension and benefits, because it sure wasn’t because of the pay. So he’s particularly sensitive when now the state wants to defund his retirement. With private companies there’s less resistance to abolishing pensions.

15 Roger Barris January 11, 2017 at 1:01 pm

You ask if it a conflict of interest or just the nature of representative government. This is actually a good question. Yet, we throw around the term “conflict of interest” as if it means something specific. For example, Trump is being asked to divest assets to avoid a conflict of interest. Yet, local politicians — who presumably derive tangible financial benefits from holding office and certainly psychological benefits — are allowed to reward their political sponsors with public money. Is this a conflict of interest or just representative government? What is the difference between Trump and the local politician? Is it just that one is potentially engaging direct enrichment versus indirect enrichment? Is this truly meaningful?

I wrote about this here: http://www.economicmanblog.com/2014/02/12/campaign-bribery/

As to your comment about your father, the days when generous pensions compensated for foregone earnings are long gone, certainly at the federal level. Here is a Cato Institute study: https://www.downsizinggovernment.org/federal-worker-pay

16 Post-Truth Politics January 11, 2017 at 3:52 pm

Just in case anyone here doesn’t already know this, the Cato institute was originally founded as the Charles Koch Foundation, and it has a reputation for always coming up with “results” of its studies that support the laissez faire capitalism supporting conclusions that it desires to come up with. Apparently studies that do not have the desired results are put into the shredder. It is not a serious objective research institute.

17 Roger Barris January 11, 2017 at 4:05 pm

Oh well, I worked in finance and the Cato Institute was originally founded by, and still receives financial support from, one of the Koch brothers, so there is really nothing more to say, right? At least I understand why you chose your name, Post-Truth Politics.

Here’s a little additional piece of information for you: You are on the website of Marginal Revolution, which is founded by Tyler Cowen and Alex Tabarrok, both of whom work for George Mason University and work a lot with the Mercatus Center. Both GMU and Mercatus also trace lineage to libertarian groups which received funding from the Koch brothers in their formative years. So the question is: why are you even on this website?

18 ttt January 12, 2017 at 3:44 pm

to divert Roger Barris from doing his work

19 Roger Barris January 11, 2017 at 12:35 pm

Roger found it by thinking about it and talking to friends who have worked in local government and seen the conflict up close.

The conflict is the “most glaring” because of the magnitudes involved. As a libertarian, I am a vigorous opponent of crony capitalism, but there is absolutely no example of crony capitalism that comes close to the cost of this conflict of interest, which is probably literally trillions. If you can show me another conflict of interest of this magnitude, then the eye of this beholder may be changed.

Yes, there is a huge amount of political influence peddling, which is actually one of the strongest arguments against government involvement in the economy — “if the government controls what can be bought and sold, then the first thing to be bought will be the government.” The solution to this is not to have even-handed influence peddling. The solution is to reduce the sphere of activity where influence is relevant.

20 gab January 11, 2017 at 1:14 pm

You say in your first post, “This is such an obvious conflict that I have looked to see if there are laws preventing this, but my initial research shows nothing.” IOW, public sector union organizing or influence in your opinion should be illegal. You’re basically stating that first amendment rights (freedom of speech, freedom of association) should be denied individuals merely because they’re employed in the public sector.

You go on to say that you oppose governmental involvement in the economy. Aren’t laws opposing constitutional rights governmental involvement?

Just because there are “trillions” of dollars involved doesn’t lead to denial of basic constitutional rights.

21 Roger Barris January 11, 2017 at 1:40 pm

I think that we should just cut to the chase. Why don’t we allow unions to bribe local government officials in return for the local officials granting high compensation and benefits for the union employees? If you don’t like this idea, maybe you can explain how it materially differs from the situation where local union officials can provide money and votes to local politicians in return for favorable treatment in contract negotiations? As background, see this blog: http://www.economicmanblog.com/2014/02/12/campaign-bribery/

22 gab January 11, 2017 at 2:07 pm

And this is quantitatively different than developers contributing to local politicians for consideration on zoning issues? Or corporations donating to politicians in hopes of getting their tax rates lowered? Or my favorite in California, car dealers donating to city councilmen to incentivize the city to kick back a portion of the sales tax they collect?

Explain to me if you would how unions are a special case? And then how that special case warrants eliminating constitutional protections?

23 Roger Barris January 11, 2017 at 3:56 pm

Not sure if my last response came through, but let’s try this:

If a businessman made a very large donation to politician (very large since unions deliver campaign money, foot soldiers and voters, the total value of which is very large) and then obtained a very large and lucrative contract from that same politician on a purely negotiated basis with no competitive bids (since we can’t allow non-union workers) and with a significant amount of the value of that contract being in the form of deferred payments which are difficult for voters to understand and the cost of which will hit the government entity long after the politician has left office, would you say that this is purely a matter of the businessman’s constitutional rights? Because this is exactly analogous to the union situation I describe

24 gab January 11, 2017 at 8:12 pm

Yes. Are you saying we should deny basic constitutional rights to individuals merely because of who employs them?

25 Roger Barris January 12, 2017 at 4:10 am

Are you saying that we should deny basic constitutional rights to business owners just because they happen to do business with the government, which constitutes roughly 1/5 of the US economy and is therefore difficult to avoid?

I note that you didn’t answer my question about whether you would be happy with the situation I described about the business owner making large campaign contributions then signing, largely out of public eyesight and competition, contracts with the same politicians. Would you care to answer this? Or point out how my analogy is flawed?

Finally, since it is pointless to flight back and forth comments about “basic constitutional rights” let’s see if we can agree on a reform. (This was actually in one of my comments, but I think it got lost.) The problem we have here is an “agency problem,” where the politicians act as, in my opinion, the highly imperfect agents of the voters, who are themselves badly informed. So let’s take the agents out of the equation and try to inform the public better. Why don’t we have government employee contracts negotiated by third parties, specialized lawyers for example, and then submitted directly for approval to the voters, along with precise information on the tax implications of the pay agreement? In addition, why don’t we require that any form of deferred compensation be 100% pre-funded on a completely arm’s-length basis — no fudging allowed — so that there is no inter-temporal wealth transfers between current employees and taxpayers and future employees and taxpayers. The unions would then be free to make their case and local taxpayer advocacy groups would also be free to make their case; most importantly of all, citizens would also be free to “vote with their feet” and leave any resulting high-tax areas (which is what they are doing with California, New York and Illinois). Not constitutional rights would be violated. What do you think?

26 egl January 11, 2017 at 1:16 am

There is another explanation that might be more common. After watching many local governments where elections are not particularly expensive and where the unions might not support any candidate — I concluded that the issue is really long vs short planning horizons. The unions are playing a long game since their employees will be incumbents for decades, but the elected officials will only hold their positions for a few years (especially under term limits). Through the magic of compounding, the unions only have to gain a small edge in each negotiation. The threat of a public-safety strike is especially potent, and the public-safety negotiation sets the terms for the other unions.

There is an interesting variant when a city manager conducts the negotiations on behalf of the city council. MR readers can work out the agency problem.

27 Clc January 11, 2017 at 1:25 am

How is this distinct from other forms of regulatory capture? Isn’t the main difference that working people benefit from it rather than elites?

28 Roger Barris January 11, 2017 at 1:10 pm

It is certainly a form of cronyism. As a libertarian, I am vigorously opposed to both crony capitalism and crony unionism. To me, they are both the same.

However, I do have to object to your comment that “working people benefit from it rather than the elites.” The reality is, like all forms of unionism, SOME working people benefit, but much of that benefit comes at the detriment of other working people. In this case, in the form of the higher taxes and/or lower public services that OTHER working people will experience.

29 ttt January 12, 2017 at 3:46 pm

As a libertarian, I am vigorously opposed to reality

30 John gershman January 11, 2017 at 1:28 am

Postdoctoral Carolyn Abbott has done some work on pensions issues in general, and funds that the dynamics between elected officials and public sector unions with respect to pensions is not consistent with the classic rent seeking model suggested above http://www.carolynabott.com/research/

31 Roger Barris January 11, 2017 at 1:12 pm

Thanks. I will take a look. At first glance, not sure that it is on point — it seems mostly to address the question of good investment management of pension funds, which I am not surprised that unions try to foster, since they are the direct beneficiaries — rather than the issue of the size of pension benefits, but I need to read it more carefully.

Thanks again.

32 Carolyn Abott January 11, 2017 at 7:07 pm

Found my work mentioned here and just wanted to point out to Roger that I actually don’t discuss investment strategies at all in my research (I find portfolio management to be very apolitical and to not vary systematically across states). What I do find is that, similar to some of the findings in the corporatist bargaining literature, the best case scenario for mitigating increases in unfunded pension benefits (via statute) is when public sector unions are either very weak (regardless of partisan control) and when public sector unions are very strong and Democratic control of government is very strong. The “weird” finding is that Democrats don’t just increase benefits up the wazoo for their well organized constituencies – both unions and Democrats show restraint. Of course, this isn’t really weird at all – both groups have long, institutional time horizons and by looking down the game tree, they know that increasing unfunded benefits will not serve either of them well in the long run. Both groups 1) trust that they aren’t going to screw the other one over, and 2) recognize that there are no free lunches and one day soon the government will have to increase taxes or decrease social services to pay for pensions (or suffer the fate of Detroit pensioners). Unions don’t want 2) to happen when Democrats are in control because it means that they suffer at the ballot box and are more likely to get stuck with Republicans next electoral cycle. Given the absolutely existential threat that Republicans pose to public sector unions (and their reluctance to throw other sorts of rents towards union leaders), well organized public employees are going to want to cooperate with Democrats for the sake of their electoral safety.

33 Roger Barris January 12, 2017 at 3:44 am

Dear Carolyn:

Thank you for your response. I will certainly read your paper and will probably contact you, if you will allow, if I have any questions. I will be doing the same with the work of Anzia and Moe, which on first glance appears to come to a very different conclusion.

I have to say that, a priori, it certainly strikes me that your results are “weird.” The idea that both politicians and union leaders “show restraint” due to “long, institutional time horizons” does not exactly comport with the incentives that apply to the individuals running these groups. After all, it is individuals who make decisions, not institutions, and certainly the politicians and almost certainly the union leaders have many more short-term incentives than long-term ones since neither “owns” the institution for which they work.

Moreover, your argument appears to rely on a fairly efficient monitoring of pay agreements by the voting public, which is assumed to retaliate against egregious behavior. This is very hard to believe as a general matter, given the well-known inefficiencies of democratic processes particularly in the case of obscure matters where concentrated interests are at play. It is also very hard to believe when the impact of the deferred promises made by politicians are easily obscured (through false assumptions about things like investment returns, which are rampant) and have no immediate impact on the voters in the form of short-term tax increases. Finally, there is the fact that the employees involved — teachers, police and firemen — are typically viewed with a great deal of sympathy by the public. Under these conditions, I would be very surprised to see evidence of efficient monitoring EXCEPT in cases where the problem has become so manifest that it is unavoidable. In other words, when it is too late.

You also seem to focus a great deal on pension deficits. This is not really my point. I am talking about the size of benefits, not necessarily whether they have been adequately funded or not. There is also the enormous data problem with the use of deficits. As you know, these are routinely understated by both the politicians and the public sector unions. I am not sure if this has affected your results, but it is certainly something that I will be scrutinizing carefully.

Finally, I have a very hard time squaring your results with some high-level facts. In fact, how does your model explain the obvious fact that we DO have enormous public sector deficits — these appear to arise even though no one appears to have an incentive to create them. Curious. Moreover, how do we explain cases like Illinois and California, two of the cases which seem to meet your criteria of strong Democratic parties with strong public sector unions, but where there are still enormous deficits?

As I said, I will read your results, but frankly I am highly skeptical.

34 Carolyn Abott January 12, 2017 at 3:52 pm

Roger,

It’s hard for me to address these concerns if you haven’t read the paper, but I will try to respond to them succinctly here.

1) Individuals do make decisions, of course, but their membership in an organization can very much change their behavior to the degree that incentives, costs, or information changes. Belonging to a union does all of these things, particularly for rank and file members who rely on their leaders for partisan and policy cues. The corporatist bargaining literature (which has more application to Europe) is very important here. And remember, this is a repeated game.

2) My theory does not rely on efficient monitoring by voters. My theory relies on simple retrospective voting – voters get pissed off when taxes go up and punish their elected officials. Unions are trying to prevent that from happening when Democrats are in office. The key here is that Democratic lawmakers are more responsible when it comes to actuarially funding pensions – Republicans don’t really care if the pension goes bankrupt. So they are more likely to expand unfunded benefits via the legislature but less likely to fund them from taxpayer dollars. My data backs this up.

3) I have recalculated all state pension obligations using standardized actuarial assumptions and methods because of the political incentives to underreport liabilities. Other parts of my research looks are what these incentives are to “lie” about the size of liabilities, and who is most likely to engage in distortionary financial reporting. Unions do not fare well here. The work cited above looks only at statutory changes to pension policy, not reported funding ratios.

4) Of course there are huge incentives to underfund pensions – least of all because pensions can act as piggy banks for state budgets that are otherwise subjected to balanced budget requirements (pensions are always off-budget). There are tons of reasons to underfund pensions, just as there are tons of reasons to rack up public debt.

5) California is one of the better funded pension systems in the country. Their liabilities are huge, but they are relatively well funded. They get a very unfair rap. Illinois, on the other hand is a mess, and my best guess is simply because the unions are incompetent, and playing some off-path equilibrium strategies. The situation in 2014 was an astonishing example: Pat Quinn told the unions that they were either going to have to agree to a contribution hike (a DECREASE in unfunded pension benefits) or else he was going to have raise a telecommunications tax on the voters at large. The unions threw a hissy fit, insisted on playing hardball, and did zero campaigning or endorsing of Quinn when he went up for re-election. Though Quinn didn’t have the opportunity to raise the tax, voters got scared enough by it that they elected Bruce Rauner instead. Rauner’s first act as governor? Try to strip the public sector unions of their collective bargaining power. The unions realized their mistake immediately – we’ll see if they remember next time there is an election.

Feel free to email me if you’d like to talk further.

35 aMichael January 11, 2017 at 1:49 am

http://www.journals.uchicago.edu/doi/full/10.1086/678311
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2107862

Public Sector Unions and the Costs of Government

The Journal of Politics 2015 77:1, 114-127

Sarah F. Anzia, and
University of California, Berkeley
Terry M. Moe
Stanford University

Abstract

Public sector unions are major interest groups in American politics, but they are rarely studied. New research would not only shed much-needed light on how these unions shape government and politics, but also broaden the way scholars think about interest groups generally: by highlighting interests that arise inside governments, drawing attention to long-ignored types of policies and decision arenas, and underlining the importance of groups in subnational politics. Here we explore the effects of public sector unions on the costs of government. We present two separate studies, using different datasets from different historical periods, and we examine several outcomes: salaries, health benefits, and employment. We find that unions and collective bargaining increase the costs of government and that the effects are especially large for benefits. We view this analysis as an opening wedge that we hope will encourage a more extensive line of new research—and new thinking about American interest groups.

36 aMichael January 11, 2017 at 1:53 am

See Sarah Anzia’s work in general. Here’s one on pension funds:

https://gspp.berkeley.edu/research/working-paper-series/interest-groups-on-the-inside-the-governance-of-public-pension-funds

Working Paper Series
Interest Groups on the Inside: The Governance of Public Pension Funds

Authors
Sarah F. Anzia, Goldman School of Public Policy, University of California, Berkeley
Terry M. Moe, Stanford University
History
Goldman School of Public Policy Working Paper (August 2016)
Abstract
A subversive line of new scholarship in American politics argues that interest groups need to be brought to the analytic center of the field once again. This paper attempts to further that agenda. We reconnect with an older literature of great importance—on capture, subgovernments, and interest group liberalism—to study interest groups as insiders that play routine, officially recognized roles as part of government itself. Our empirical focus is on state-run public pension boards: which control trillions of dollars, have vast fiscal and social consequences, and are commonly designed to give public employees and their unions official roles in governing their own pension systems. We develop a theory arguing—contrary to existing scholarly work—that these groups can actually be expected to favor policies that undermine the fiscal integrity of these plans. Through an analysis of key decisions by 99 pension boards over the period 2001-2014, we show that this is in fact the case—and that, for public-sector pensions, these “interest groups on the inside” wield genuine influence that weakens effective government.

37 Roger Barris January 11, 2017 at 1:30 pm

This looks perfect. Thank you!

Roger

38 prior_test2 January 11, 2017 at 6:03 am

‘Can any of you direct Roger to the appropriate secondary literature on this question? ‘

Such becoming modesty – I’m sure there is something even better than secondary literature at a page like https://www.mercatus.org/tags/public-sector-pensions

39 rayward January 11, 2017 at 7:47 am

The rules regarding government service and conflicts of interest ignore human behavior by assuming that if the public servant (Mr. Tillerson, for example) disposes of his direct ownership interests in the company (Exxon) and industry (oil and gas) to which he has devoted his life he will no longer be partial to that company or industry once he has disposed of his interests. Did Mr. Tillerson devote his life to a company and industry because he randomly selected both or because he actually believes the company and industry are important and deserved his lifetime of devotion? The same observation applies to someone who devotes his life to public employment and then is elected to public office. I would suggest that reaction to Mr. Tillerson’s conflict of interest or the public employee’s conflict of interest is mostly a function of prejudice for or against Mr. Tillerson’s company and industry or for or against public employment. We deceive only ourselves when we adopt bright line rules for such things as conflicts of interest, as though Mr. Tillerson will consider only the what’s in the public interest once he has freed himself of formal ties to Exxon and oil and gas. More broadly, will a snake oil salesman cease selling snake oil if he disposes of his inventory of snake oil? I’m reminded of George Wallace, who, when he ran for president, produced a certificate from a psychiatrist that vouched for the man’s sanity. Why not require a certificate of honesty and a certificate of sanity for political candidates and high ranking officials. That way Mr. Tillerson can keep his shares in Exxon and won’t have to engage in creative tax planning that would otherwise confirm his dishonesty. As for the certificate of sanity, well, I suppose not a few politicians would have to engage in serious dishonesty in order to obtain a certificate of sanity.

40 Bill January 11, 2017 at 7:53 am

Is the government official a member of the union, and is he a direct recipient of the benefits of the negotiation.

This is a pretty silly post. Of course interest groups support politicians support those who support them.

Ask the NRA.

41 Bill January 11, 2017 at 7:55 am

Missin a who in there someplace in the second sentence.

42 Dan January 11, 2017 at 8:39 am

Agree, this is plainly not a conflict of interest and plainly a problem or not a problem depending on your personal views of whichever interest group supporting whichever politician in question.

43 Turkey Vulture January 11, 2017 at 10:22 am

Well the distinct issue would be the pretense of a “negotiation” between the two sides, rather than the union-supported candidate winning and then supporting a bill that raises the union’s salary.

44 Roger Barris January 11, 2017 at 3:48 pm

Dan, let me ask you this: If a businessman made a very large donation to politician (very large since unions deliver campaign money, foot soldiers and voters, the total value of which is very large) and then obtained a very large and lucrative contract from that same politician (since employee salaries are the largest expense of a local government) on a purely negotiated basis with no competitive bids (since we can’t allow non-union workers) and with a significant amount of the value of that contract being in the form of deferred payments which are difficult for voters to understand and the cost of which will hit the government entity long after the politician has left office, would you say that this is “plainly not a conflict of interest”? Because this is exactly analogous to the union situation I describe.

45 Jack January 11, 2017 at 9:54 am

Yeah this is topical in Connecticut these days. The new House Majority Leader is on a union payroll:

http://ctmirror.org/2016/05/19/aresimowicz-challenging-path-as-house-leader-and-union-man/

46 Ward Robles January 11, 2017 at 10:05 am

The problem is that government legislatures are bound by contracts made by unelected officials, i.e., previous legislatures from decades before. Switch from defined benefit to defined contribution plans, as the private sector has done, and the problem goes away. Insurance companies should be selling annuities, not local governments.

47 Roger Barris January 11, 2017 at 1:19 pm

See comment in footnote here: http://www.economicmanblog.com/2017/01/10/wheres-the-outrage/. As you point out, one of the basic problems is that voters are even less likely to effective police agreements which do not immediately affect their taxes. Forcing full funding of the obligations, either through DC plans or through purchases of third-party annuities, would be an improvement.

48 GoneWithTheWind January 11, 2017 at 10:17 am

The problem is about 100 years of unions buying politicians to get them to pass legislation favorable to unions. What we need is a reversal and a leveling of the playing field between unions and employers. I also think that better investigation and reporting by the free press is essential. Most unions have close associations with communist groups in the U.S. and probably 98% of the American public are ignorant of this. The media knows where the dirt is but chooses to ignore it. Shine some light on this and level the playing field.

49 gab January 11, 2017 at 11:37 am

Communist groups? Like the government of Russia?

50 Post-Truth Politics January 11, 2017 at 3:59 pm

LOL, the reason that the American public is ignorant about “Most unions having close associations with communist groups in the U.S.” is because it isn’t true. We’re also very ignorant about the Flying Spaghetti Monster.

51 msgkings January 11, 2017 at 11:58 am

To be fair, Russia hasn’t been communist for many years.

52 msgkings January 11, 2017 at 11:58 am

Reply to gab

53 JWatts January 11, 2017 at 2:16 pm

It seems likely that we’ll get a downward correction to civil service pensions in the next 10-20 years. At least it seems implausible that the citizens of Illinois and other states with significant funding issues will be willing to raise taxes enough to cover these massive pension debts while still maintaining basic services.

Does anyone know of a plausible scenario for some of these local and state governments to actually be able to make these payments over the next 20 years?

Rhetoric aside, good intentions don’t overcome basic budgetary math.

54 Thomas Merrill January 11, 2017 at 3:19 pm
55 Roger Barris January 11, 2017 at 3:40 pm

I will take a look. Thanks.

56 James Sherk January 11, 2017 at 4:12 pm

I co-authored an empirical review of how collective bargaining laws affect state finances (short answer: stronger unions means more spending). We start that paper out with a literature review that may be helpful. Some of the papers we reference directly examine his question. Here is the full paper: http://www.heritage.org/research/reports/2016/04/how-government-unions-affect-state-and-local-finances-an-empirical-50-state-review

57 Roger Barris January 12, 2017 at 4:20 am

Thanks, James. I will read it with interest and look for the references that relate to the specific issue of collusion between public sector unions and the politicians they support.

Roger

58 Brian Donohue January 12, 2017 at 7:34 am

Summary of rebuttals: “How is this different from [insert some other form of corruption]?”

Good post.

59 mkt42 January 14, 2017 at 8:24 pm

He may’ve already read this book, but if not then there’s Glaeser and Goldin’s _Corruption and Reform: Lessons from America’s Economic History_.
http://www.press.uchicago.edu/ucp/books/book/chicago/C/bo3750587.html

I haven’t read the book, but it fits in with the American economic historiography theme and the corruption theme that Tyler has recently been emphasizing. I taught intro econ to one of the authors of one of the chapters.

60 Roger Barris January 11, 2017 at 2:19 pm

I don’t think that it is different. Everything you cite is an example of cronyism that I, as a libertarian, would happily eliminate. So, can we agree that we should have a night watchman state where all of these forms of cronyism are impossible?

As for union contracts, since even a night watchman state would have some government employees, I would recommend that their compensation package is negotiated by an independent party, not a politician. It is then submitted to a popular vote, with the implications for taxes spelled out clearly. The union would be free to make their case directly to the voters — not the massively conflicted agents of the voters. Very importantly, all deferred compensation must be 100% pre-funded via a third-party annuity contract or other arm’s-length transaction so that its real cost cannot be obscured. Would you agree to this?

61 Post-Truth Politics January 11, 2017 at 4:09 pm

I believe that you believe what you say you believe. But I also see that it’s super comfortable to be a Libertarian, because you are always supporting the political candidates of crony capitalism, i.e. Republicans, and getting all the benefits to your career of supporting the Powers That Be, while being a purist who apparently doesn’t believe in crony capitalism. The Republican party will, of course, never pick up and use any Libertarian ideas to eliminate any kind of crony capitalism, except the kinds that empower unions and workers The laws and rules that help big fat cat crony capitalist welfare queen mega-corporations will always be left in place, and will actually keep being strengthened. Look at Trump’s cabinet if you have any doubt that that is happening.

Private sector unions have already been decimated. Now the GOP is ready to decimate public sector unions. And then to decimate ObamaCare, Social Security, Medicare, minimum wage laws, and every part of the social safety net. So probably we can look forward to hordes of homeless sick unemployed old and young people roaming the cities and the countryside. And also employed homeless sick people working for 10 cents an hour, once minimum wage laws are killed.

Oh the joy.

62 Roger Barris January 12, 2017 at 3:14 am

Although I think that this conversation has gone as far as it can, I will make one last point.

Why do you believe that it is uniquely the Republicans that are the party of crony capitalism? Let’s take one obvious example: the Exim Bank. Which party has been trying to kill it for years and which party has been fighting to save it? The fundamental way that crony capitalism works is through the regulatory state, particularly through “command and control” regulation. Which is the party that is more in favor of the regulatory state, and particularly command and control regulations? When Solyndra received $500 million on crony capitalist loans, which party was responsible for this? Many would argue that Elon Musk’s various enterprises are the premier examples of crony capitalism of our time, having garnered over $4 billion of various crony capitalist subsidies. Which party is responsible for these? One of the major sources of crony capitalism today is intellectual property rights and trademarks, both of which have run wild to the benefit of Hollywood and Silicon Valley. Which is the manifestly preferred party of these two areas? The legal profession has become a industry of crony capitalist legalized extortion. Which party refuses to engage in meaningful tort reform to limit this? This list could go on.

It seems to me that your argument is based on two equivalences — “libertarian” equals “Republican,” and “Republican” equals “crony capitalist” — both of which are far from proven. It really makes me wonder if you even understand the terms you are using.

Comments on this entry are closed.

Previous post:

Next post: