Labor Market Superstitions

0:00The topic for today is labor market myths, which is another area that I've done some work in, so I thought I'd say a few things about this. And there are labor market myths and labor union myths that I'd like to talk about. And some of you may be more familiar than others to some of these theories, but I thought I'd run down maybe a half a dozen or so in the time that we have. And probably the biggest myth about labor markets is the myth of how capitalists inherently and always exploit the working class. It's a very old myth, been around certainly since Karl Marx and Frederick Engels wrote the Communist Manifesto, if not before that.

0:49But it's contradicted by basic economics, when you think about it, the idea that workers are exploited by employers, and the way to understand how this works is, let's say, it's all based on marginal productivity theory, the economic theory of marginal productivity, which has to do with the additional contribution to production an individual worker makes. And what economics has to say about this is that competition between employers tends to force them to pay close to the marginal productivity. It's actually the buzzword that's used is usually value marginal product, which is actually the physical contribution the worker makes to say weekly output, Whether it's a service industry or manufacturing, times the price of the product.

1:48So if you work in a golf ball factory, and because of you being there, they make an extra 500 golf balls a week, and they sell them at a dollar a golf ball, your value marginal product is $500. 500 golf balls times a dollar. And what marginal productivity theory has to say is that competition between employers forces them to pay workers close to that, close to the $500. And of course, if some kind of a law intervenes and forces them, like the minimum wage law, to pay more than $500, Then the options the employer has is to fire some people or to reduce other types of compensation, health insurance, whatever fringe benefits might be paid in the package also.

2:39But the way it works is say I hire one of you to work in my golf ball factory and you are worth $500 a week to me, that's your value marginal product. But I pay you a dollar a week, I offer you a dollar a week, that creates a profit opportunity for my competitors and my competitors are not only other golf ball manufacturers, it's all employers, all of anything, doing anything. So what kind of profit opportunity does that create for them? Think of my direct competitors first of all in the golf ball manufacturing business. They were located in South Carolina, the Gulf capital of America, or is it North Carolina, and there are dozens of golf ball makers there. What's that? Why are they going to do that?

3:39Okay, I'm paying you a dollar and so if they offer you two dollars a week, they're doubling your pay, And you're happy as can be. But they're still making $498 a week off of your labor. But the thing is that there's still a profit opportunity out there. Somebody could offer you $3 a week or $100 a week. And you know, up until they pay you close to $500 a week, there's a profit opportunity by hiring away the exploited workers. Because the difference between their value marginal product and what they're getting paid, they're being underpaid at, that's the profit margin for the competing The only way this could work, the exploitation, is if there's one grand cartel among all the employers who conspire to pay that low wage, that one dollar a week, and to not compete away for labor.

4:34And if those of you who have ever taken a microeconomics course, even the first one, the principles of economics, you know that there's a big problem with cartels and that cheating is always a problem. Even if you had ten competing employers like this, and they did agree we're all going to pay a dollar a week, well, any one of them could make a killing fast by hiring away all the best workers, expanding his production and still making $400, $450 a week on every worker to do that. And once one employer cheats, they'll all cheat. But the way this has been explained for generations is that the whole working class is exploited like this, which would require a cartel among all employers, not just those 10 in the golf ball industry in Charleston, South Carolina, in my example, but all the employers.

5:27And that is, that's a, seems like an absurdity to me to think that that would be possible on the millions and millions of employers coming to an agreement like that. OPEC only involved what, a dozen or so members and even they broke down after six or seven years and pretty much became much less effective in the 1970s. But there is one example in the world, so there are no examples I can think of in any Any capitalist economy where there was a grand conspiracy of employers like that, I don't think anyone has ever mentioned one, but there is one example in history, in fact, more than one example. There are examples in history of a cartel or a monopoly of employers who did in fact exploit the entire working class of the country, and can anybody guess where that might have been?

6:22Socialism. Socialism and the Soviet Union, for example, where the government is the only employer. Everyone works for the government, so they can pay you whatever they want. But in a capitalist system, competition between the employers prohibits this. It could never happen. So the only genuine exploitation that could ever take place is under socialism. And so, the statistics do bear this out. This theory, you know, a long time ago was tied to Karl Marx's immiseration theory that the working class would become immiserated, they would be paid bare subsistence and nothing more. Well, the whole world knows this didn't happen now, that they did very well over the decades.

7:12Okay, so that's myth number one, the exploitation of the working class myth. Myth number two is a historical myth that the capitalism during the Industrial Revolution was bad for the working class, the story of the sweatshops. Now, I always thought, even when I was an undergraduate, started reading about sweatshops, The people who wrote about this and created this theory must have never had a real job where they had to perform manual labor, because I have, and I've sweated a lot. It's called a job. It's called work. You sweat when you do manual labor. In fact, I would have loved to have been in a shop in a lot of the jobs that I had when I was a teenager.

8:00You know, probably the worst job I ever had was the roofing crew at the university during the summer, the guys who put the tar on the roofs, and I actually did that, and I would have been very happy to be in a shop with air conditioning, or even without air conditioning, other than on the hot sun, so I always thought it was people who had probably never performed manual labor, and that is true, I don't think Karl Marx ever claimed to have performed manual labor, never stepped foot into a factory, that's well known.

9:00They want the jobs and why do they want the job in the factory? It's the natural human proclivity to make yourself worse off, right, that's the theory. The theory is it's natural human proclivity that we all have to make ourselves worse off because after all, you just walk into town Auburn, you'll see people sticking forks in their eyes and purposely walking in front of cars all the time. That's just human nature, isn't it? Well, that's pretty much the same as what this theory has to say.

9:46Of course, the opposite is true. They left whatever they were doing. They were leaving the back-breaking farm labor in the hot sun smelling cow manure all day long to the factory because as tough as the factory was, it was a lot better than what they were doing. So it wasn't as nice as a job today if you were to get a job as a computer programmer for for Microsoft, and have a nice air-conditioned office in California somewhere, but it was better than what they had, and what I have on the board here is a quote from Human Action von Mises, Murray said, the factory owners did not have the power to compel anybody to take a factory job, so they didn't have guns held to their head to force them to leave the countryside and the farms, and from being farm workers to the factories, they could You can only hire people who are ready to work for the wages offered to them.

10:45Low as these wages were, they were nonetheless much more than these paupers could earn in any other field open to them. It's a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchens and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation. Of course, we still hear about this today, the sweatshops that are in Indonesia and places like that, and especially by the labor unions. Some of you probably remember how poor Kathie Lee Gifford was beaten up over this. She had a clothing line with Kmart, and I don't know where the factory was that made to Close, Indonesia maybe, I don't know, and the AFL-CIO came out and said they don't pay very much over there and they sweat a lot.

11:43And Kathy Lee went on television crying and Frank Gifford quit cheating on her for a day or two and went and put his arm around her and they're all over the news for a while. And so think about what these unions are after. There are non-union labor, there's non-union labor in Indonesia, helping to manufacture inexpensive clothing and shoes and things, whatever, come here and sell it at lower prices than the clothing that is made in American unionized factories can be sold at. So they have the moral high ground, don't they, they have the moral high ground. They're the defenders of these poor people in Indonesia, and they're demanding that they be paid $10 an hour in Indonesia rather than the $1 a day, which is probably about what their value marginal product is in these places.

12:40And so what's likely to happen to a lot of these people, including maybe 12, 13-year-olds who might be working in these places in Indonesia, what's likely to happen to them if their value marginal product is, say, a dollar a day? And, you know, in some of these places, a dollar a day is a couple of weeks worth of groceries. A friend of mine who went on his honeymoon in Bali said three dollars would easily buy the locals a week or more of groceries for a family, three American dollars. So, you know, don't think of this money in terms of our purchasing power. It's different all around the world. But what is likely to happen to those workers? If the unions get their way, and these American companies that go over there are agreed to pay the workers, or if a law is passed, it says any American company that goes to Indonesia has to pay ten times the value marginal product.

13:35It's like, how many American companies do you think would go over there and hire these people? None. None. They'd be losing nine dollars an hour for every single worker they employ. And so these people, what would they do? Well, there would be a lot more prostitution, theft, begging and starvation in these countries. And that's the moral high ground that the labor unions in America take. They don't say that, of course. They say they're exploiting the workers and they leave it up to people to imagine in Indonesia. So, that's apparently what a lot of Americans think should be the case in Indonesia, just like here.

14:30A related myth about how wages are supposed to stagnate under capitalism that a lot of What people still believe in, you still hear it all the time, you hear various people in Congress, various think tanks that are usually associated with the Democratic Party, although the Republicans are not much better these days, and they'll complain about the stagnation of wages, the decline of the middle class, and so forth.

15:17They usually cook the data today when they say that, but read this sort of stuff carefully. There was a big article in the New York Times last year about the declining economic well-being of the middle class, and I read the whole thing very carefully, the big, long article, and the data they used were wage data, but fringe benefits comprise as much as 40% of the average compensation in America. That's an average in a lot of industries, and they totally ignored that and how it has changed over the years. Years. So it really was a useless article. But anyway, even if that wasn't true, what is misunderstood is the importance of capital investment. Capital investment is the main reason not only for higher wages, but also for fewer hours' work. It's why it is that people have more leisure time now than they did 50 years ago, 100 years ago, and so forth, in the capitalist countries, and the link is pretty straightforward.

16:22Capital investment by entrepreneurs improves the productivity of labor by giving them better tools, better machinery, better equipment to work with. Even if the labor itself is exactly the same, is no smarter, no more skilled, no more experienced, better tools, better capital makes them more valuable to the employers. It increases their value marginal product. And then this same competitive process kicks in. You have to compete for these same workers now by offering them higher wages. Because if you don't, somebody else will. And your competitors will have a competitive edge over you. And so that's what forces employers to pay higher wages after they make capital investment. And the higher productivity that comes as a result of this simply translates into a larger level of total output in the economy.

17:14And for you economics geniuses out there, what does that mean to prices if there's more stuff out there? Prices go down, prices go down. So the working class freerides on the investments of the capitalists two ways. It drives up their wages and it reduces the prices they pay for the stuff they buy at the same time. And they usually get a bigger variety of products too as a result of that because in addition The only way you can have a higher standard of living by working less is by being more and more productive while you work, and the main ingredient there is capital investment.

18:13Human capital investment is important too, that is investment in your own skills and education, but physical capital investment is important as well. That's why the public schools have done so much damage, they've squandered the human capital investment. I think it was Walter Williams, the syndicated columnist, I'm pretty sure it was Walter, This might have been Tom Sowell, because they're about the only ones I read as far as economic columnists anymore, but not so much Sowell anymore, since he's become a big warmonger, but I think it was one of them that calculated that the average public school teacher in America destroys the lives of 10,000 children during their tenure by miseducating them, so they probably don't get invited to teach at the NEA convention, or lecture at NEA conventions, National Education Association convention, That's the only way in which fewer hours' work are possible.

19:12If you look at the American Industrial Revolution, what historians call the first Industrial Revolution was roughly 1820 to 1860. The average wage in America rose by 75 percent during that time. From 1860 to 1890, the next 30 years, in real dollars, it rose another 50 percent. That was primarily from capital investment leading to higher productivity, leading to higher wages. And at the same time, prices were lower than they otherwise would have been because of all this extra output. And another myth that I want to touch upon is that business owners can make money, they can profit by being sloppy about safety, by being negligent about safety, having an unsafe Workplace. Now, again, if you ever took an economics course and learned anything about labor economics, you'll probably run across the phrase compensated differences. And what this is, is in a competitive labor market, employers have to pay higher wages to attract People to work in jobs that are more dangerous, dirtier, more strenuous, whatever.

20:33The guys who stand in the back of the garbage trucks in the cold weather in January and pick up your garbage at 7 o'clock in the morning, if you hear people complaining that they get paid more by the city government than your average public school teacher, I always think Well, they deserve it. They're out there at 7 o'clock in the morning in 10 degree weather picking up heavy garbage. You have to pay people a premium to do that kind of a job. And if you got the gumption and the energy to do that, well, good for you. You could probably make more than you could make anywhere else doing some pumping gas or whatever your alternative might be. So you have to pay people a premium to do that sort of thing. And that's called a compensating difference. Or if you have a dangerous workplace, the reputation of a dangerous workplace, you'll have to pay people a compensating difference for taking on the additional risk of becoming injured.

21:28A personal anecdote that I sometimes use, I have an older brother who was an iron worker his whole life and he's retired now, but through his company he was offered, when he was a young man, he was offered to work on the Alaska pipeline. And as I recall, the pay was $150,000 a year, and this was in like 1973, something like that, for construction workers, $150,000 a year, and plus free housing, they'll put them up, you know, supply a place for them to stay, and that sort of thing, because it's very dangerous, there are polar bears up there, for one thing, very cold, and my brother, you know, he walked around on icy steel of Money, The Theory of Money and State, The Theory of Money and State, The Theory And so my question to you is, what does that imply, is the implication to a business person who does have a workplace that seems excessively dangerous, but it's not immutable, it's not the kind of thing where it has to always be this way, there are things I can do to make

23:02it safer here, you know, there are things I as the employer can do. What motivation might he have? What financial motivation might he have to make his workplace safer? How can he profit? I'm going to assert that he can profit by making it safer. Well, yeah, that's always true. That's one thing he can always do. What's that? Well, he's got a problem then. If it's a dangerous place to work and he lowers his wages, he might not get anyone to show up. Oh, if he makes the place safer. Oh yeah, right, exactly. So you're right after all. If he makes the place safer, he doesn't have to pay as much of a compensating difference or a premium to attract workers to work at his dangerous place.

23:52He just pays the competitive rate for his industry. So there literally is a financial incentive for a safer workplace. That doesn't mean workplaces in a competitive market will be fail-proof. Human error is what causes accidents on the job, and there's always going to be human error. If you come to work drunk to the automobile factory, you know, no amount of safety precautions by General Motors is going to make any difference. You're going to have accidents. So that's going to happen. But you're going to have far fewer accidents than OSHA would allow you to admit, OSHA being the Occupational Safety and Health Administration. And that's been around since, I think, 1970, by the way, the Occupational Safety and Health I always called it OSHA. I guess I'm mispronouncing it. OSHA might be the correct thing. That's what it is, O-S-H-A, something like that.

24:54There have been many books written about OSHA's antics and how they have actually made workplaces more dangerous. When I wrote my book on capitalism, I looked up some of these scholars who have studied OSHA pretty carefully and Murray Wiedenbaum, who was the president of Reagan's, the chairman of his Council of Economic Advisors, professor at Washington University in St. Louis for a long time, and one of his books that's fairly recent, he had a chart on accidents reported, workplace accidents reported by OSHA, or by the government in general, even before OSHA.

25:39The chart looks something like this. I can replicate. I don't have it in front of me. So, he would have time here. He might have started, say, in 1950, 16, I guess as long as my hand's there. It looks something like that, and this is accidents per 10,000 workforce or something like that, 10,000, for every 10,000 people in the workforce, some scale like that.

26:25and OSHA was created in 1970 and Murray Wiedenbaum's chart looks something like this, here's the accidents and it goes something like that and it's a really striking chart, it looked like the free market was doing a pretty good job in making the workplaces safer, safer, safer, OSHA comes around, progress stops, it might have flipped up since then, I don't know, What's happened since, I think he stopped in the late 90s or so in his book, but still there were several decades where the progress seemed to stop like that, according to Murray Wiedenbaum, and there's a good reason to believe, understand why, it's like every other government program, it displaces private efforts.

27:19If the government comes around and says, we are now in charge of safety, business people are going to make fewer efforts, they're going to leave it up to the experts, and the whole focus was on spending a lot of money on the things OSHA told you to do, and if these happen to be harebrained ideas, too bad, you have to spend money on these things and do these things, and OSHA tends to ignore the fact that human error is the most prominent cause because of workplace accidents and as a result they focus on having employers spend money on equipment and goggles and whistles and things like that and they have been very effective. But the free markets seem to have been pretty effective for decades in achieving this better safety and the reason I gave you I think is the main reason.

28:14Labor Unions Of course, there are a lot of myths about labor unions, and the biggest myth is that labor unions are responsible for prosperity. At best, labor unions can increase the prosperity of some of their members if they are able to use the strike threat or other weapons to use their language to push wages above that is above what workers could get in the free market, then whoever gets that higher pay does become more prosperous. But inevitably what happens with labor unions if you push the wage through unionization above the free market level, the law of demand applies to labor like it applies to everything else.

29:04When the price of labor goes up, fewer laborers will be employed. If you're still that golf ball factory worker and you can produce $500 a week and a union comes around and says everybody who works here has to make $700 a week, that's the union wage, well now the employer loses $200 a week for every week you're employed and so you're likely going to lose your job and so it's usually the people with the least seniority in the union sector that get laid off as a result of this because they're the for People with the Least Skill, Least Productivity. If you're older and more experienced and are more productive in your work, then you may benefit from that. You may well benefit from that.

29:51And so at the very best, unions can benefit some of their members, but it's at the expense of other of their members who get displaced. And what do you think happens to those other people? The people, the union members who lose their jobs because of unionization? They line them up against the wall and shoot them or what? They go in welfare, some of them, but what else might they do? What's that? Eat at McDonald's? Oh, work at McDonald's, yeah. Well, they'll look for other jobs. And what effect will that have on wages in those areas? Do you think? Well, there's a bigger supply of labor there, so wages will become lower there, or lower than they would otherwise be. They won't necessarily and so to counter the increase in the wages of the union members who keep their jobs you're going to have some parts of the non-union workforce that actually have lower wages, they're less prosperous over there.

30:56Unions do a lot more than just bargaining, and of course historically the strike has been the main tactic, the main source of power, although they don't strike very much anymore, they use other tactics today. But another thing labor unions have always done is what's called feather bedding and work rules. Anybody know what feather bedding is? aside from some of the old timers in the room, like Mark, I don't know if Mark knows about feather bedding. He's probably actually done feather bedding. What's that? Yeah, feather, traditionally feather bedding is sort of like, if there's a job that one person can do, the union, when it negotiates a contract, will demand that two people be hired to do that job, even though it only takes one person to do it, so I guess it makes it easier for both people, they can kind of lunge around a lot more, and that's one thing that really got the American car companies in big trouble, because the Japanese car companies weren't too keen on this, if it took one person to do the job, one person will do the job, in the General Motors factory you might have had three or four people doing that same job, because the unions demanded it, and what's

32:13in it for them, well, if they have three people doing one person's job, that's three people paying union dues, rather than one person paying union dues, and you don't have to be a mathematician to understand that from the perspective of a union president, it's better for you to have three people paying dues to you than one person paying dues to you, and so that's why they have feather bedding, and work rules are like, only carpenters can do this work only only roofers can do that work my brother the iron worker when I was in college since I was tired of working on the roofing crew in the summers he got me a good high-paying job gave me a fake union card and taught me enough that I could fake it being an iron worker building a a sheet metal building in West Virginia somewhere for a nursery as I recall and I remember And those guys work hard.

33:11I learned how to work hard doing that. It was like standing on the roof of a building in West Virginia in the summer with these gigantic King Kong-sized vice grips, walking backwards, pulling big hunks of sheet metal 20 feet long up to the apex of the roof and clamping them down on the apex so that somebody could come up behind me with a drill shooting sheet metal screws into the building and do that all day. you don't stop all you know nine hours ten hours but I was silly enough to think it was worth the money that they were paying me but but anyway we so you did work like that and then we had a three-day vacation because the building needed a rain spout put on it so here are these ironworkers who build bridges you know they build the biggest bridges in America the Golden Gate Bridge iron workers built that where we couldn't do couldn't do it couldn't put a rain The Union contracts had the roofers had to do that. It was a roofers job. So we had to wait three, I think, three days off and just go fishing and stuff until the roofers showed up and put the rain spout on.

34:20And that's work rules that unions, that way the work requires more labor than would otherwise do it. If you could get the iron workers to do everything, you wouldn't need to pay the roofers anything for that particular job. But again, the beneficiaries are mainly the unions. They get all that extra dues money from all these extra workers. But it makes industry less productive all the way around. And if industry is less productive, wages are lower all the way around. That's what determines wages, productivity. And so all these rules that make companies less productive, industry less productive, Ultimately, they're done in the name of workers, but by reducing marginal productivity, they harm the workers. But they do benefit the union as an organization.

35:07That's who benefits from all this. Okay. And so that's another aspect of how unions have an effect on the market. And one final thing about unions, I think I'll mention here, is that, keep in mind, one other myth is that the unions and the companies are always at loggerheads, that's where the antagonism is, the union versus the corporation, and that certainly is the image that everybody gets of unions versus big business, the unions are the saviors of of the Working Class, big business, but that's untrue. The main enemy in the eyes of unions is the non-union workers, who they usually call, what are the favorite words they use for the non-union work, scabs, rats.

36:00Down in Baltimore, Maryland is a big union place. The legislature is totally controlled by labor unions, like Missouri, we're talking about Missouri. And downtown, if you go downtown around lunchtime, Any given day, you'll see a big 30-foot high inflated rat, a rat, a big rat, it's like it's filled over there, a big rat, because there are a couple of construction companies that have offices down there, and the carpenters have been complaining that the $28 an hour that they make in Maryland is not enough, and so they're calling the employers, on some Some of the jobs are hiring non-union labor to do some of the simpler carpentry work in the housing building industry, things like that.

36:51So they're rats. They're hiring rats. So you go down there and there's this gigantic, I don't know how they got that rat that big and filled it up with air. I don't know who manufactured that rat, but you see it, I see it almost every day down there. But that's what they call them. They also have hired, the Carpenters Union hired homeless people to walk around in circles And I saw this for months. Every time I drive by, there's a bunch of ragged-looking homeless bums walking around in circles with signs screaming. And I naturally assumed it must be unions doing this. Who else walks around in circles and screams nonsense? That's what unions do.

37:36do and so but but I never bothered to read the sign or anything but well one day I was on my way to T. Rowe Price is there's right there and I have a former student of mine as a stockbroker and I do business with him sometimes so I'm on my way to T. Rowe Price and I have to walk past this mob to get to get in the door where I'm going and in there and it's my nose it's all these homeless People, and they were shouting, low pay, hell no, low pay, hell no, because you could hardly stand it, you know, the stench of alcohol, it's overwhelming, but the carpenters, I looked it up, it says something about Carpentry Union, I looked it up on the web, I did a, you know, I didn't Google great, I looked up, I googled carpenter's pay in Maryland, and there were all kinds of articles about how much carpenters in Maryland get paid, it was 28 to 32 dollars

38:30And then, sure enough, someone from the Baltimore Sun did an article about this mob and found out that the Carpenter's Union was paying them minimum wage to walk around in circles for hours, shouting, you know, low pay, no way, or something like that, and they were getting low pay, minimum wage, but the protest was the $30 an hour guy on behalf of them. The Baltimore Sun reporter asked a spokesman for the Carpenters Union, well, why aren't there any real carpenters doing this? And he said, well, the housing market is booming. They've got a lot of work, and they're making a lot of money. They can't afford to take a day off to go and protest low pay. And so that's what they do, but it's the rats.

39:17You see, the real problem was there was some people who knew carpentry and are willing to work for, say, $17 an hour, and they were taking work away from the Carpenters Union and they were the rats, that's why they had the big rat also, across the street was the big rat so you couldn't avoid it, either you had to run into the big rat or the stinky homeless people in downtown Baltimore but what I want to talk about here more substantively is the fact that the enemy always is, the only way unions can push wages up above free market levels is to somehow keep the rats out, to keep the competing labor out to keep the competition up. It's not the companies, it's the competing workers. Anybody who's willing to work for less money, they're the enemy. They have to be kept out.

40:03Otherwise, unions don't work, period. That's why they don't strike that much anymore, because they realize that when you go on strike, employers can hire replacement workers, and the risk of going on strike is you can lose your job forever, and that's a big risk. It might work and it might not work, and so they don't strike that much anymore. They do other And so the question becomes, well, how do unions do this? How do they keep the non-union workers from offering their services at lower prices? And the answer is, it has always been through violence. It has always been through some kind of violence that the government has long sort of looked the other way toward. Not totally, but to a very large extent they have. A lot of union actions that are violence, involving violence and intimidation threats and so forth are excused away because part of the labor law gives great latitude to unions to do what they want to do as long as it is related to wages and working conditions.

41:09The legitimate union objectives are improving wages and working conditions, and that has been defined very broadly by the courts over the years to allow a lot of pretty nasty behavior to take place without punishment. And our friend Morgan Reynolds, who's a retired economist now, he used to teach at Texas A&M. He was once the chief economist at the U.S. Department of Labor, and he comes to the Mises Institute conferences quite a lot. He wrote a really excellent book called Power and Privilege, Labor Unions in America, and he says this just perfectly. He says, a union's problem is painfully obvious. Organized strikers must shut down the enterprise, close the market to everyone else, and that involves uncooperative workers, union members, disenchanted former strikers and employers in order to force wages and working conditions above free market rates.

42:03rates. If too many individuals defy the strikers, then unionists often resort to force. Unionists ultimately cannot impose non-competitive wage rates unless they can prevent employers from hiring consenting adults on terms that are mutually satisfactory. Unions must actively interfere with freedom of trade and labor markets in order to deliver on their promises." And now how do they do this? How do they interfere with freedom of trade? Well, there's a whole The big fat book published by the Wharton School at the University of Pennsylvania on this is called Union Violence, the Record and the Response by Courts, Legislatures and the NLRB, which is the National Labor Relations Board. This was created in the 1930s. It's a labor regulatory agency.

42:50And it's written by two professors at Wharton, Armand Theblot, T-H-I-E-B-L-O-T, and Thomas Haggard, not to be confused with Merle Haggard, the country singer, it's Thomas Haggard. And so what they did was they looked at several decades of newspaper accounts, judicial court records, and so forth, all the information that could be had on union violence. and here's what they say these records are like, they are full of examples of murder, assault with intent to kill, destruction of property, arson, sabotage, mayhem, shooting, stabbing, beating, stoning, dynamiting, intimidating, threatening, in short, physical, verbal and psychological abuse of every sort and this is a Wharton School, this is not the National Right to Work Committee or some anti-union gang saying this and the way I think of it is I wrote a short piece and sent to Jeff Tucker a while back from Mises.org on unions and I started out by saying well imagine that like me and some of my friends here in Auburn started up a coffee shop called at the Austrian Cafe and we had really good coffee and desserts

44:10and we got Jeff once a week to drag that big piano up Magnolia Avenue once a week and we at a concert. And it was tremendously successful. People love the piano concerts and the food and all that. But wouldn't you know it, competition comes in. We get competition. Somebody else opens a Starbucks, comes up and changes their format. They do the same thing. They have music and they have desserts just like ours. They get rid of those crappy muffins that Starbucks sells and they start imitating us. And so what do me and my business colleagues, Say, Lew Rockwell and I are in business doing this. What do we do? Well, we go out, we set fire to their place, we shoot the proprietor with a shotgun as they drive by down College Avenue, we empty our shotguns, we throw rocks at them, we stab their car tires with knives, we intimidate their children in school, we go into their neighborhood and call them criminals with big signs and blow horns, it's all union.

45:17We hire homeless people to walk in circles around there, screaming that they're unfair, and so we engage in mass violence. That's exactly what these guys at Wharton have found out is typical, routine day at work in the American union movement. That's how they keep the competition up. If you put it to people that businesses would do this, well, of course they would realize it's criminal. These people should be in prison if not hung for doing these things. but that's it's everyday behavior and so and they and they they give chapter and verse in this book it's a big fat book like I said it's like there's one chapter on the mining industry then a chapter on the automobile industry industry after industry and they show you here's the evidence this is what has happened over the past 50 years in these places and they also explain why this sort of violence is is integral to unions unions can't exist without this, and they can't succeed anyway.

46:19They can exist. Japanese unions are not like this. Japanese unions realized a long time ago in the 1960s that the real competition is international business. It's not the employer in Japan. And so they've been much more cooperative, and they've worked with the employers to improve productivity in various ways. And so it's not inherent in all unions, by the American Union to like this, but I don't think they've been as successful so-called in raising their wages either, above free market levels. Here's what they say, Pee Blow and Haggard, and why do they do this? Well, the violence is an organizing tool that's used to engender fear and compliance with union demands.

47:09It's a bargaining device, give us what we want or there'll be a violence, an attention getter, that's for sure, that they hope will generate pressure for a settlement in their favor as an enforcement mechanism to keep strikers in line, as a warning to employers who might consider contracting with non-union companies, as a means of preventing non-union companies from working during strikes, and as a means of generating fear in general. And that last thing reminded me of the standard analysis of drug gangs, some of these violent Drug Gangsters. One of the reasons they're so violent as an economist, I think the explanation is economy is a scale. If you're a drug gangster in Los Angeles and you develop a reputation of a vicious murderer, then you open up a franchise in Chicago, people are going to be scared of you in Chicago too, in New York or wherever else your gang goes. So if your union has a reputation of being especially violent, wherever they go, they're going to have that

48:10and the benefit, if you will, of the reputation they created in one spot, that they were very violent, you better do what they say, and that's what they do. And so these guys, Peebleau and Haggard, also conclude this. Judging from the listings in court filings, violence seems to be an inherent part of labor relations and the collective bargaining process, or at least its use is widely distributed. The 2,598 incidents in the database involve 131 different unions. I think they did find a couple of unions in America that there was no record of violence. See, one of them was the Brotherhood of Maintenance of Way Employees.

48:55I'm not sure what that would be. Maintenance of Way Employees. I don't know. People who sweep litter out of the streets or something and maintain the way. and what else? I think a musician's union. Yeah, the musician's union was that they found a musician's union. They had no record of violence anyway, but of course they probably didn't follow these guys around after the concert when they got drunk and must not have been rock musicians anyway in that union. So that's what a lot of research and economics tells us. It certainly makes sense. How else could you prop wages up above free market level other and Keeping the Competition Out. And in a free market, you just can't do that. You need violence, and you need government-condoned violence.

49:43And the last tactic, I guess the last thing I'll mention, is I did say that strikes are infrequent nowadays. So for the past 20 years or so, maybe 15 years, unions have relied on what's called implant actions and also propaganda campaigns. And another short article I wrote on Mises.org was about the Walmart controversy. And if you're wondering why all of a sudden there's this big crusade against Walmart, but not against Target, or Kmart, or Sears, why Walmart? Why are they so bad? Well, the main reason, I'm convinced, is that unlike Target or Kmart, Walmart very successfully entered the grocery industry, and it charges 30% to 40% less for Groceries than the unionized grocery stores, and the leader of the charge of this anti-Walmart crusade in the union movement is the United Food and Commercial Workers Union, the Grocery Workers Union, and they're very clear about it in their own literature, which I have read, and they understand the economics of it. They understand that if they keep pushing up wages above competitive levels at the unionized grocery stores, the stores are going to pass this on in the form of higher prices, but then people can always go shop at Walmart.

51:01and the non-union stores, other non-union stores. That's not acceptable. We have to drive up Walmart's costs, they say, or drive them out of business, or create such bad publicity for them that we can force them to sign a union contract, unionizing all their employees, without involving the employees, to sign a contract with us, the union. And they can do that, they can do that. And that's their objective. And so this constant drumbeat of how evil Walmart is, a lot of my students, I taught intermediate microeconomics last year, which is our sophomore and junior economics majors that are all in there. And every one of them had came to class knowing with perfect certainty that Walmart was probably the most evil thing on the planet.

51:50They could probably hardly think of anything else more evil than Walmart. And because they have been told this over and over and over again for the last two or three years of their education, probably in high school as well as the first couple of years of college. It's just one of these things. But that's the reason why you're seeing this. They want, the whole purpose is to drive up the price of groceries. In my own state of Maryland, they had passed something called, that the unions wanted, called the Walmart Bill. and the formal name is not the Walmart bill, but it forces any employer in the state with more than 10,000 employees to pay more for health insurance, to pay at least 8% of their payroll in health insurance and Walmart of course is the only employer in the state with more than 10,000 employees so it only applied to Walmart and it's an attempt to ratchet up their costs to make them, so they'll have to raise prices

52:47and be more like the unions. And it's all motivated by the union. And right before they convened for the year, they usually quit robbing us in mid-April in Maryland. They begin in January and they rob us until the legislature is in session, until mid-April. They passed a new law saying, well, this is going to apply to all employers next year in this state, not just Walmart. So the foot in the door was the evil Walmart, and now they want to go after all employers and Mandate, a certain percentage of payroll for health insurance, but this is called corporate campaigning, the tactic is called corporate campaigning, it's sort of a propaganda campaign against non-union corporations, that's the idea, it's the new strike, they don't strike anymore, they realize that they can get what they want through these tactics without running I actually did some expert witness work for a law firm that represented some corporations that were sort of being victimized by this, and in my research for it, they gave me all the material from the Food Lion lawsuit, the Food Lion was targeted by the same union, the United Food and Commercial Workers Union, some years ago.

54:08And the type of thing they did was they gave people fake IDs and fake resumes so they could get jobs at a food line, which is a non-union grocery store. And then in one case in particular, they got some woman that had big hair. Big hair used to be real big in the South. It's not quite as big as it used to be in the South, I don't think, big hair. And she had big hair, big high hair, so she could put one of these little tiny cameras in there. We stuck a camera in there, and I guess there was a wire somewhere in there, and another one had a camera in her bra, and so they were going around trying to get the managers to say something that they could construe as incriminating, and so they succeeded. They got this camera, and they took pictures, and it ended up on 60 Minutes, on the television show, 60 Minutes, and what was on the television show was one of the women with the big hair

55:05The woman carrying a tray of nasty-looking chicken, it looked like it had been sitting out in the hot sun for a while, to the manager of the food line saying, we're not going to sell this stuff, are we? And then they went on to something else. If you were watching the show, you got a close-up of this really nasty-looking chicken, and this woman saying, we're not going to sell this, and the clear implication is they were going to sell it. The lawyers I worked for, they subpoenaed the whole, all the video, not just parts of it, everything, and I watched the whole thing, and what was said next was the manager saying, of course not, that's why it's back here, it's on its way to the dumpster, but that didn't go in 60 minutes, and so, but Food Lion had to close down, I think it was 85 stores, and they laid off thousands of employees as a result of bad publicity, University.

56:02But that's the new tactic that's being used as opposed to strikes, because you can get people inside like that to take all the risk without having the whole unionized workforce losing their jobs. So that's another part of my myths of unions. I think I'll stop there. It's been 50 minutes or so, and any questions or comments? I've got all these Union songs that I brought. We're going to sing them at the end. Union Solidarity song. Yes, sir.

56:59The problem is that, they were starting to privatize the land in the 17th century and this was some sort of horrible thing. They went out of business and they didn't compete with the big farmers who were buying out all the land when it was being privatized. has, and I looked into it and I think that basically that's what's responsible for the whole industrial revolution because people started gravitating towards the city and because of the cost of living in the city they were able to make their living in the city relatively cheaply compared to like being workers on the big farmers' land so they were able to get married when they were younger and then they were able to have more children, the burglary that went off and basically It enhanced the economy, because the privatization of the public land was able to increase the productivity exponentially of the English agriculture, and this gave the English government more money, and so they were able to purchase instruments to build factories, and they were able to disperse...

58:10The government built the factories? No, no, it's the English revenue per business. Oh, profits. Profits. Yeah. So, I mean, it's basically responsible for the entire, like, growth of the Industrial Revolution. And it's supposed to be the privatization of these, you know. Well, it's a novel theory. You'll have to write that up. Okay. Well, in the first part of what you had to say, it sounded like, you know, they're always, they're usually a lot of people in farming who don't really, shouldn't be in farming. And so if the land was being bought up by big landowners who were already in farming, the only way to become big as a farmer or any other business is to be successful in selling to consumers.

58:59And so that's how you get big. And so usually what happens in those situations is it's a good thing that the big guys are now running the farms because they're the ones who know how to run them, whereas the And the other people, if they're being pushed out, they probably should be pushed out because they don't know what they're doing. Like in the United States today, we have thousands and thousands of people who have been subsidized farmers for decades, generations, who really have no business being farmers. It's almost any other industry. If you're horrible at what you do, you can't make a profit, you go do something else. You go out of business. But we've had government policy here for many decades that absolutely refuses to let any farmer go out of business, for the most part.

59:44And the whole of the farm industry would be much more efficient if the market were allowed to work and let these people go out of business. And it sounds like that's what was happening there, which would be a good thing for efficiency. I used to have a sign on my office door. It was a Gary Larson cartoon that had a caveman in like a lemonade stand. He had like the Fred Flintstone attire and he had a little lemonade stand and the sign said, Porcupine on a Stick, Ten Cents And there was some guy, a customer, walking away picking quills out of his head like this And the caption said, early business failures And on my office door I crossed out early business failures And I wrote early proof that the market works Because you no longer see porcupine on a stick That's a good thing that people use that property and those resources there for something people do like And I think that's what people do like, like, shark on the stick, a bought up book on the stick.

1:00:49I think the same thing is probably going on there from what it sounds like. You're the expert on, what is it, 15th century England or 17th century? Not me. Any other questions? __________ Oh yeah, workers' compensation.

1:01:27My friend Jim Bennett edits the Journal of Labor Research. There have been a lot of articles in there and other labor journals. What in particular are you interested in? There's a lot you can say about... Well, I mean, the whole area of work is complicated. You compare it with a third of the injured workers. Yet, the process is so complex and complicated. The average employee has no ability to monitor, control, or manage the process. And, you know, it's... Well, it socializes the cost of accidents, doesn't it? You have to pay into a fund, and a lot of that money is used for your competitors who are not as careful as you are in keeping a safe workplace.

1:02:14So it socializes the cost. And of course, whenever you socialize the cost of anything, you make it more likely that it's going to happen. Because it's another word of saying you're making it less costly to them. to them. So I would think the effect would be the less careful employers are going to be less careful because somebody else is paying for their carelessness. So if you subsidize carelessness you're going to get more carelessness and that's bound to be what the effect of that is in addition to the burden on businesses, especially small businesses. A friend of mine runs a small print shop in Baltimore and she has about 15 employees and she says she spends Well, all the kind of folks that actually learn biggest things were, I mean, back then, if you had to be able to spend time with them after school. Yeah.

1:02:59Compt and all these requirements. That's her day. She gets almost half of every day just because she can't afford to hire too many experts to do it for her. She does it all. I think you had your hand up, Nick. So, there's a lot of fraud, you're saying?

1:03:44I had a student of mine, a long time ago, he was an undergraduate student of mine, around 1985, at George Mason, Tom Resticci. You guys know Tom Resticci? I think he still teaches part time there. He entered the graduate program and then quit school that run his family grocery business in Kansas City. in the city. And he came back, and I was on his dissertation committee last year. He finished his dissertation, I think, one day before the seven-year limit at George Mason. I was on his committee. But anyway, 20 years earlier, he was in my class as a senior in college, and he wrote a term paper on the minimum wage.

1:04:33And what I got him to do is to read through the congressional record of what the arguments and debates were of why we needed a minimum wage at the time, in the 1930s. And he dug up a whole bunch of quotes from members of Congress saying just what you said, what was happening was there were a lot of really bad off, economically bad off black people in the South especially who were migrating to wherever they could find a job. It was Detroit or looking for jobs and they were willing to work for less than what was being the prevailing wage. And so these guys came right on the floor of Congress and said that these black people

1:05:40Clothing and Textile, the Amalgamated Women's Clothing and Textile Workers' Union, it was supposedly a women's clothing and textile workers who belonged to this union. The president of the union was a man, and they got the U.S. Department of Labor to ban for several years what they called homework. The reason was there were married women with children in Vermont and states like that who would stay at home and they had invested $5,000 to $10,000 in sort of a factory caliber sewing machine and they were making ski hats and ski sweaters and selling them to Kmart. And this was the early 80s and these women were making, according to their own testimony, $10 an hour, didn't have to go anywhere, didn't have to hire a babysitter, didn't have to buy gas, they could stay in their underwear all day if they wanted to, they didn't have to get dressed in $10, and they were happy, $10 an hour, good money, and of course they were being exploited, the union claimed they were being exploited, and they did get the

1:06:47U.S. Department of Labor to prohibit this, to prohibit Kmart from buying their clothing, and then when Reagan came in they ended it, they did end it after a few years. One other example before I point at you is, like I said, my brother, the iron worker, it was almost an impossibility for a black man to get a good-paying construction job where I grew up, in Pennsylvania, until about the mid-1970s, because the unions kept him out. And so they did change, the unions had to change, but they were. They were the main reason why the construction trades were totally racist for years and years. And this is the north. This is not the racist south, you know, like Condoleezza Rice says, where she grew up.

1:07:36This is, I'm sure, other northern states were very similar. I've done some research on early 19th century women, the women's rights movement in England, and I thought it very interesting that before they were influenced by socialism, the very first female feminists, the first feminists in England were all libertarians, and they were fighting for their right to work, and their main opposition were the youths in England, who wanted to do what they did best. I also had a different comment made on the subject of sweatshops and Cathy Gifford's story. I believe it was an IHS conference, but the way that story ended was a reporter went to her sweatshop after, you know, she disbanded her, after crying on TV and they had all been disbanded and this reporter found that the town where the company had been, everyone in this little town gave it their best because in closing the wet shop they had lost all their jobs and it was because she felt bad and she closed them down, they were now without jobs.

1:08:58The absurd thing is that the unions walk around with halos on their head, and of course, they're very clever about it. They wage this campaign on college campuses everywhere, and they always get a couple of naïve and uneducated preachers or ministers on board, too, to send out the message that God is on our side. And so they take the moral high ground by doing this to these people in these places. But the libertarian women in England example, it's straightforward public choice analysis. Whether it's women or blacks in the 1930s or child labor, as they call it, they all compete with unionized labor.

1:09:44In this case, it was entirely male unionized labor. And it doesn't really matter whether it's women or Martians. They don't want competition, so of course they're the opposition to women in the workplace. Unless they're unionized, you know, they want to join the union, that's different. But if they're competing as non-union workers, they don't want that. And child labor is the same thing. When you get this image of a baby with a rattler crawling around the dirty factory floor with child labor, like Mises said, in Europe it was a matter of starvation versus non-starvation in a lot of cases. But teenage labor, I'm not sure that's such a bad idea, if the alternative is hanging out at the mall, as far as what's good for teenagers, but again, they're non-union, if teenagers are competing as non-union, that's why unions are all in favor of child labor laws.

1:10:39The reduction in child labor though took place long before the unions started complaining about it or there was legislation. The market did this. Productivity improved and families naturally wanted to put their kids in school rather than drag them off to the factories. But as long as they could feed everybody and have a roof over their head, okay, now we don't have to bring the kids to work anymore. And that happened and then later on the unions got involved and the government started passing laws about it. about it. But it was capitalism that created the reduction in child labor in the first place. And then the Union just tried to codify it, if you will, in the government, by passing laws prohibiting what had already been going on.

1:11:32Oh, yeah. Miracles occur every once in a while in New York Times.

1:12:07way. Any other questions comments? Every once in a while the New York Times says something intelligent they have about 20 years ago they came out against the minimum wage the New York Times and in my forthcoming book that's going to be published in October I cite as support a book on the history of taxation written by an editorial writer at the New York Times so I'm using him as one of my one So that's one of my prestigious supporters of my argument, so that's three examples anyway of people who will probably get fired at the New York Times for saying the things they said. Any other questions, comments? Okay, maybe we'll go outside to sing these union songs that I have, these solidarity songs. Solidarity Forever is the first one.

1:12:58Okay, thanks for coming.