Thursday, February 17, 2011

Free markets

The theory holds that within an ideal free market, property rights are voluntarily exchanged at a price arranged solely by the mutual consent of sellers and buyers. They engage in trade simply because they both consent and believe that what they are getting is worth as much or more than what they give up. Market price is the result of buying and selling decisions en masse as described by the theory of supply and demand.

So the prices the unions in the United States were able to negotiate with companies were either “free market” agreements or were the result of the union’s coercing the companies into unsupportable wage agreements.

If, and it’s a big if, the unions created unrealistic wage scales, how come the companies were able to make huge profits during the heydays of unionism in the 60s, 70, and 80s? According to Fortune Magazine, GM made 873 million dollars in profits for 1960. The same source reports GM profits for 1970 at $14,820 million, and for 1980 as $32,215 million. In 1990 $173,297, and in 2000 $273,921,000.

Why is this important? If the unions were really behind the demise of GM in 2009, we should have seen a downward trend in GM profits over the preceding 40 years and in fact the reverse is true as profits went up not down.

Don’t even try to make the case that the “legacy” cost of pension and retiree health care is the problem since those benefits are really deferred compensation. Earned during the workers productive years and banked for their retirement. Seen the article Where Does Your Pension Come From for full details of how pensions really cost GM nothing.

The next time someone who hasn’t bothered to do their home work tries to tell you that the unions are the problem, ask them why the companies that managed to make a lot of money from those union employees now want to blame them for management's failure to manage their deferred costs?

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