Unions and America’s Ills

On February 9th, 2011, the Detroit News, as part of its “Labor Voices” series, published a guest editorial by the President of the International Brotherhood of Teamsters, James Hoffa, entitled “American ills not caused by unions.” In this editorial Hoffa made many statements that require a rebuttal, starting with this: “Across the country, new governors and new legislatures are demanding cuts to jobs, pensions and concessions from public employee unions. Their demands are nothing more than payback for the billions of dollars that the ultra-rich have poured into political campaigns.”

What Hoffa ignores is the political fundraising reality in America, which is that corporations are split relatively evenly between those who will back union reformers – usually Republicans, and union protectors – usually Democrats. Corporations hedge their bets. Very few large corporations openly challenge the union agenda, or even have reason to, since unionization drives off emerging competitors.

Similarly, wealthy individuals are split relatively evenly in their political affiliations in America. For every billionaire who backs Republicans, there is a billionaire who backs Democrats – for every Koch, there is a Soros.

At the grassroots, however, something very different occurs. Because labor unions, which still command over 16 million members in the United States (ref. U.S. Census, Bureau of Labor Statistics), nearly always give money to union-friendly Democratic candidates and issues. If you estimate the average annual dues of a union member at $500 per year, this means unions in America have over $8.0 billion per year that they can spend any way they please. There is simply no source of grassroots political fundraising that comes anywhere close to the financial power of unions, and unlike every other grassroots political fundraising entity in America, unions compel their members to pay union fees, which in effect means they compel their members to support their political activity. In the analysis, Public Sector Unions and Political Spending, it is estimated that public sector unions in California spend over $250 million per year on political activity. The idea that any competing interest comes even close to that is absurd.

Hoffa goes on to suggest that “government employees did not blow a hole in any state budget…” He points out as an example that “the typical public employee’s pension is only $19,000 per year.” This is all simply inaccurate. Using California as an example, here is the true figure for pensions as reported by Daniel Borenstein in his February 5th column in the Contra Costa Times entitled “Public employee pensions much higher than advertised:”

“In fact, CalPERS data shows the average career public employee, who put in at least 30 years of service and retired in the 2008-09 fiscal year, collected a starting pension of $67,000 a year, or 2.5 times the advertised figure. The higher number is buried deep in the retirement system’s financial statement and never makes it to the promotional material CalPERS hands out.”

As for compensation, as estimated in the post “How Much of California’s Budget is Personnel Costs?” the average total compensation for a worker employed by the state of California is $106,000 per year, before increasing their pension contribution to reflect the higher contributions necessary to keep those funds solvent under the current benefit formulas. At least two-thirds of California’s state budget is to cover personnel costs.

In his editorial, Hoffa apparently believes the real culprit in America’s current ills is Wall Street. Well there certainly is blame to go around, and Wall Street shouldn’t be spared. As Hoffa puts it:

“Public employees didn’t create a huge housing bubble. Wall Street did that. And public employees didn’t cause the Great Recession through reckless speculation. Wall Street did that, too. State governments didn’t get $3 trillion dollars in loans from the Federal Reserve and profit from those loans by relending them. Again, that was Wall Street.”

Taking Hoffa’s three points about Wall Street one at a time: (1) Failure to regulate mortgage lending was indeed the primary reason for the housing bubble – but public agencies, thirsting for the income tax and property tax revenue, had no incentive to pull the plug, and they didn’t. They did, however, use the unsustainable increase in tax revenues as their pretext for unprecedented, ridiculous increases in their public employee compensation packages. (2) As for “reckless speculation,” who does Mr. Hoffa think provides the backbone of funding to Wall Street for their gambling escapades? There is no source of new money pouring into Wall Street that begins to match the monies coming from public employee pension funds. These funds, which in aggregate manage trillions in assets, are under severe and unrelenting pressure to deliver higher returns than are possible over the long-term. “Reckless speculation” is largely driven by Wall Street’s incestuous, unhealthy partnership with public sector unions. (3) And as for those “trillions in loans from the federal reserve,” most of that borrowed money went to preserve public sector jobs at their inflated rates of compensation.

Here’s what’s really happening, Mr. Hoffa:  For over 20 years, with increasing influence and with worsening effect, public employee unions have used taxpayer’s money, confiscated from public worker paychecks, to buy our politicians and control our elections. They have used this power to “negotiate” grossly over-market rates of compensation and benefits to unionized government workers, especially at the entry and mid-level jobs, and because employee compensation is by far the largest category of government expenditures, it is breaking budgets, leading to tax increases and service cuts. Meanwhile, public employee unions, in their insatiable demand both for more revenues to pay their over-paid members, as well as to expand their memberships, are prevailing upon politicians to expand government and expand regulations – increasing the cost of living for everyone. This translates into cost-of-living increases for the unionized government workers, and a lower standard of living for the rest of us whose taxes support the entire corrupt mess. At the same time, Mr. Hoffa, your public sector union pension funds are the collection agent for the overbuilt Wall Street machine you claim to abhor.

American ills today may not be entirely attributable to unions, but to suggest that the drive to reform unions, public sector unions in particular, is nothing but “payback” to special interests who oppose unions is to ignore where the money is spent in politics, where the money is spent in the public sector, and how union control of public policy is distorting our financial markets and bankrupting our government.

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