The Question We Should Ask About Wisconsin Teacher Unions

Under Governor Scott Walker’s Act 10, passed in 2010, unions in Wisconsin must be recertified every year. They do this by conducting a vote of the workers and at least 50% must vote in the affirmative for the union to receive recertification. Before Walker, Wisconsin was one of many states that required union membership for employees to work. They didn’t have a choice. If they wanted to work in an industry with a union, they had to join the union. Walker eliminated that law with Act 10 (known as a right-to-work law).

Requiring workers to join a union may seem ridiculous at first, but it solves a very difficult problem: free riding. Without such a law, many workers would choose not to join a union, but would still benefit from its representation. The union would negotiate for everyone, but not everyone would pay dues. This incentives workers to forego membership and reap the benefits. But as more and more people rationally choose to free ride, the union becomes weaker and weaker. Eventually it has no power and the workers all lose. That’s why big business is such a big proponent of right-to-work laws. They destroy unions.

So it’s not surprising to find out that in the aftermath of Act 10, teachers unions are falling apart in Wisconsin:

Today, teachers in Kenosha, Wis., voted to decertify their union, the Kenosha Education Association, by a margin of nearly two to one. Only 37 percent of the teachers opted to retain the union in an election made possible by the labor reforms enacted under Gov. Scott Walker (R). The result goes to show that when workers have a choice on whether to join a union instead of being forced into one by law, they often choose to vote down the union.

That’s from the Competitive Enterprise Institute (CEI), a conservative organization focused on limited government, but it misses the most important question: did workers vote to decertify because they didn’t want a union or because they wanted to free ride off others? It’s not a surprise at all that unions are falling part. That was guaranteed to happen. The question is whether it’s because of free riding or not. Town Hall’s Mary Katherine Ham runs through a bunch of stories celebrating the fall of Wisconsin unions, but none poses this important question either.

I’m more sympathetic to the right-to-work argument than most liberals I know. I cringe at the idea that in order to be a teacher in many states, you must join the union. But I also understand that such rules solve the practical problem of free riding. The evidence is pretty solid that right-to-work laws weaken unions, but if workers would rather that be the case, then I certainly respect their freedom to choose that. But if most workers value unions and are not joining just so that they can free ride, then laws requiring union membership make a lot of sense. That’s what we need to figure out in Wisconsin, but no one is asking the right question.

Don’t Crush the Fed’s Independence

Felix Salmon wrote a piece a little while ago arguing that President Obama’s nomination of Larry Summers to head the Federal Reserve would be the culmination of the politicization of the institution. He noted:

Make no mistake: Summers would be the most political Fed chair in living memory. Greenspan was pretty bad, especially when he testified — in clear support of the Bush administration’s tax cuts — that we had reason to be worried about budget surpluses. But Summers has been one of Obama’s closest economic advisers since the day that Obama took office: he’s much closer to Obama than Greenspan was to Bush.

Summers has spent most of the past five years doing everything in his power to shape and advance Obama’s agenda. Obama, of course, is very happy about this, and would love to reward Summers for his loyalty by handing him the Fed chairmanship.

That’s a move even Clinton would never have dared make: he kept Greenspan at the Fed for his whole presidency. And it sets a horrible precedent: the next Republican president will henceforth have no compunctions whatsoever about appointing a party hack to the post. From here on in, if Summers gets the job, we won’t just be voting for president in presidential elections. We’ll be voting for Fed chair, too. And the Fed will become just as politicized as the Supreme Court has become.

Salmon is being a bit overly dramatic here. While Obama’s nomination of Summers would be treated as a political appointment, it would also be the selection of a highly qualified economist who has extensive experience in and out of government. It wouldn’t be as good of a choice as Yellen. But it would still be pretty darn good. A Republican administration couldn’t nominate just anyone for the job. It would still have to be highly qualified candidate. And Mitt Romney’s rumored front-runners to take over for Ben Bernanke (Glenn Hubbard, John Taylor and Greg Mankiw) would have been equally as political Summers would be. Republicans are already working under the assumption that the Fed isn’t independent and we were already voting for a Fed Chair last November.

In a response to Salmon’s post, Slate’s Matt Yglesias commented that he doesn’t think this is a bad thing:

These are, however, both dysfunctions induced by the cult of central bank independence. A central bank chief who saw himself as a close political ally of the president, and recognized that poor macroeconomic performance would reflect poorly on the skills of his friends, colleagues, and protégés on the economic team, might be willing to put inflation paranoia aside. Even better, precisely as the Obama team apparently “worried” back in 2009, financial markets might believe he’d be willing to tolerate more inflation. That would be a de facto rate cut, and would boost the economy.

Of course, in the longer term, this strategy only works if the central bank chief really iswilling to overlook a bit of inflation in order to boost the economy. The belief that he’ll do it starts the cycle, but doesn’t end it. So the mere fact that people worry Larry Summers won’t be independent enough counts as a consideration in his favor. But to really seal the deal, he has to follow through and actually compromise the Fed’s inflation-fighting mission in order to help his friends in the White House.

I’m still not sold on the idea that he’s the best person for the job. But at the end of the day, Summers’ ties to the White House are a feature, not a bug. If Obama goes with him, as it looks like he will, let’s hope Summers doesn’t forget that he owes his position to a relatively narrow circle of friends that just so happens to include all the key economic decision-makers in the administration, and he owes them some favors.

This is a pretty scary post from Yglesias. Why not just make the Federal Reserve a cabinet in the government? There’s a very specific reason that the Fed is an independent institution: the best monetary and regulatory policies are not always in the best interest of the President and his administration. In the aftermath of the Great Recession, this has not been the case. Yglesias is right that the best thing Bernanke could have done was to allow for more inflation to spur on greater economic growth, which would’ve helped Obama stay in office. But that is just the case right now. It’s easy to think of counterexamples when a Federal Reserve chair too close to the President could lead to bad macroeconomic outcomes.

For instance, at times the Fed may have to raise interest rates to quash inflation, but this can induce a recession, which is certainly not in the President’s interest. This is what Fed Chair Paul Volcker accomplished in the late 1970s. Starting in 1977, the Fed started to raise interest rates, causing the economy to enter into a nasty recession. In 1980, President Jimmy Carter was defeated by Ronald Reagan, thanks in large part to the poor economy. The Volcker-induced recession may have cost Carter a second term (there were plenty of factors), but it tackled inflation. A less independent Fed may have been slower to raise rates to cut down on inflation. Is that something we want?

Or take regulation. New regulations impose compliance costs on companies. Many rules are created to prevent future crises. They hinder economic growth in the meantime, but are vital to the economy in the long-run. Yet, a less independent Fed Chair could feel pressure from the White House to implement looser financial regulations to spur on greater growth in the near-term and let a future president deal with the long-run costs. That sounds like a recipe for disaster as well. Thus, it’s incredibly important that we have an independent Federal Reserve.

If Obama nominates Summers, he won’t be selecting the best candidate for the job, but it will still be a very good one. It won’t be the culmination of the politicization of the Fed and that’s a good thing. It will be a strong choice and Summers will likely do a good job in the position. Let’s not blow this out of proportions.

Dumb D.C. Rules: Tattoo and Body Piercing Edition

Looking to get a tattoo or body piercing in the near future? Live in the District of Columbia? Well soon you may have to wait a full 24 hours after you request it before you can get inked. That’s just one of many new rules that D.C. officials have proposed for tattoo parlors and piercing shops. Sound absurd? That’s because it is.

What exactly is a regulation like this trying to accomplish? Stop drunken twenty-somethings that get a tramp stamp after losing a bet or preventing minors from getting a tongue ring without their parents’ knowledge? Sure, the Department of Health is looking out for these people, but the entire measure is paternalistic. If someone wants to get a tattoo, they shouldn’t have to wait a full day to do so.

Licensing requirements are a government-created barrier to entry for new tattoo parlors.

Licensing requirements are a government-created barrier for new tattoo parlors.

At the same time, many of the proposed rules are important for safety reasons. They require tattoo parlors to inform their customers about the risks involved or if they have certain conditions that could adversely impact receiving a tattoo. Those are necessary. But a 24-hour waiting period? That’s nonsense.

This brings me to one of my biggest qualms here: licensing requirements. Licensing requirements for D.C. tattoo parlors isn’t new, but was implemented last year and is a large barrier to entry for new shops. The question is, do tattoo parlors really need to be licensed? The answer here is probably yes. Getting inked has potential dangers and ensuring that tattoo parlors follow proper safety procedures and are registered and monitored by the city’s Department of Health is smart public policy.

But it’s not clear-cut.

Consider the alternative. In a world without tattoo licensing requirements, would unsafe or bad tattoo parlors exist? Would we have an epidemic of crappy tattoos or people infected by unsterilized needles? Probably not. Those tattoo parlors would go out of business as people stayed away from them. Yelp would be particularly helpful in weeding them out. That’s how the free market works. Licensing requirements eliminate those unsafe shops, but they do so through government regulation. The reason that those requirements are good here is because an unsanitary tattoo parlor could stay in business for a while and infect a number of people. That’s enough of a public health concern to make the rule necessary.

But the rule does more than just ensure that tattoo parlors are safe. It also is a barrier to new entrants into the industry. After all, going through the process of receiving a license takes time and resources. The city also requires tattoo artists to take classes before earning their license. That costs money and takes time as well. It gives current tattoo parlors a built-in advantage over new entrants. No wonder that D.C. council member Yevette Alexander said that tattoo parlors came to her to ask for the licensing requirement.

Maybe we should require council members to wait 24 hours before suggesting new regulations that the industry itself proposed. That’s just as arbitrary.