Never one to miss an opportunity to grand-stand, our Vice-President took advantage of the Labor Day weekend to shovel some bullroar on the good people of Detroit. He took to the stump in the Motor City to rattle some cages and rally the rapidly-diminishing troop as only he can. It’s quite fitting that the Vice-President chose Detroit as the backdrop for his performance, given that it’s the poverty-stricken love-child of Organized Labor and Democratic politician.
On a side note, have we ever had a less-professional Presidential administration? If you watch the speech, you’ll see the 2nd most powerful man in the world leaning on the podium like he’s drunk and calling union officials “man”. Clearly it’s too much to ask that Joe maintains a rudimentary grasp of the underlying dynamics involved with major political issues, but couldn’t he borrow a shred of dignity and glue it to his forehead? It’s strangely poetic that President Choom-Gang picked Delaware’s Jeff Spicoli for his running mate…
The Vice-President’s speech was boilerplate material for the union rank-and-file. He extolled the virtues and benefits of organized labor, mentioning at one point that unions built the middle class in this country which in turn has been the key to America’s prosperity.
Really, Joe? Unions built the middle class? I suppose unicorns built the railroads then? If Big Labor was responsible for so much prosperity, then it must follow that more unions mean more prosperity. No need to go any further than the ground he spoke from; Detroit was once the poster child for the success of labor unions and today an estimated 60% of children in the city live in poverty. If unions produce prosperity, why is Detroit the opposite of prosperous?
Sorry Mr. Vice-President, logic and history do not affirm your fabrication of reality. The truth of the matter is that poverty follows organized labor the way moochers follow success. Taking a look at the states which have the highest percentage of unionized workers, we see New York at 24%, Alaska at 23%, and Hawaii at 22.1%. If this data is cross-referenced with the Composite Cost of Living for the first quarter of 2014, culled from information provided to the Council for Community & Economic Research, the states with the highest cost-of-living are Hawaii (#1), New York (#3), and Alaska (#4), thereby confirming the fact that organized labor engenders poverty, not prosperity.
And why is that? Wouldn’t an organization which requires higher pay for manual labor be good for the local economy and American industry? In short, no. The reason why is because organized labor is a form of price control which creates a fissure between market forces. Anytime market forces are fractured, they will not work as they should. When market forces don’t work the way they were designed to work, the relationship between value and cost becomes unstable and this instability leads to economic uncertainty, which in turn leads to economic shrinkage and ultimately, poverty.
Take for example the “Fight for $15” protests going on across the country, where fast food workers are trying to force their employers to pay them $15/hour. If they succeed in their efforts and fast food companies agree to pay all of their employees $15/hour, what’s the big deal? Many of those workers are currently making around $8/hour, so this would mean double the paycheck for doing exactly the same job they did for $8. No additional value has been added, the price of labor has been arbitrarily set, causing a disconnect. The company’s overhead has now effectively doubled, while the revenue hasn’t.
Market forces dictate that when a company’s revenue rises, a company can safely increase its overhead. But if the overhead increases without a commensurate increase in revenue, there is a problem. Now companies can deal with this problem, but it isn’t pretty. They have to come up with the extra funds for the increased overhead. To do this, they can a) take this money from company profit, b) increase revenue by raising the price they charge for their goods, or c) reduce the overhead by cutting headcount.
Option A is the choice which most union protests are focused on, but it is the least likely to happen. The reason why is that many companies which seem highly profitable are running on a razor-thin profit margin. Take hospitals for example. They have cutting edge technology and surgeons who make ridiculous amounts of money, but the average net profit across the hospital industry is 3.7%. That kind of profit margin could not absorb a 100% increase in labor costs. “Specialty” eateries like Papa John’s, Panera Bread, and Potbelly Sandwiches run an average of 1.2% net profit across the industry sector.
So Option A is almost always off the table. Option B is the route most companies seem to choose these days. They pass the cost of increased labor onto their customers, which usually results in loss of business as consumers find other, more reasonable options. This means even less revenue than before and that leads to a company with an unhealthy economic outlook. It also means that the customers which remain are less prosperous since they have to fork over more moolah than before.
Finally, we have Option C. Companies can decide to do more with less. If your overhead doubles, then you can absorb that increase by cutting your labor force in half. This leads to unemployed Americans, over-worked laborers, and crappy service/products. If fast food workers don’t get back to work, they might find themselves faced with Option C pretty soon. A company named Momentum Machines has built a burger-making robot which can produce one burger every ten seconds! Word is that the robot is guaranteed to arrive with a microchip which prevents it from being recruited by SEIU.
If you talk about making more money, everyone will stop to listen. But if you advocate doing so in a manner completely divorced from economic forces, the only guaranteed result is financial hardship for yourself and/or the company for which you work. Mr. Vice-President, perhaps it’s time you examined the real reason for America’s once-robust middle class: the wealth-creation machine which
is was American free-market capitalism and the market forces harnessed for that creation.