Sunday, July 22, 2012

Who’s To Say What’s Fair?

Annie:    These are the ground rules.  I hook up with one guy a season.  Usually takes me a couple of weeks to pick the guy—kind of my own “spring training.”  And, well, you two are the most promising prospects of the season so far.  So I just thought me should kind of get to know each other.
Crash:   Time out.  Why do you get to choose?
Annie:    What?
Crash:   Why do you get to choose?  I mean, why don’t I get to choose?  Why doesn’t he get to choose?
Annie:    Well, actually nobody on this planet ever really chooses each other.  I mean, it’s all a question of quantum physics, molecular attraction, and timing.  Why, there are laws we don’t understand that bring us together and tear us apart.

Last week I got to see the Service Employees International Union (the “SEIU” you often read about in the news) up close.  Apparently there’s been a long-brewing dispute between the SEIU and several local contractors that provide janitorial services to downtown office buildings over the collective bargaining agreement that expired back in May.  The SEIU has been staging periodic flash strikes and demonstrations at various buildings downtown.  Thursday was my turn, as some 15 were arrested for blocking an intersection with a “sit-in” while maybe as many as a hundred protesters cheered them on from the sidewalk, brandishing signs, banging drums, etc.

Interestingly, if you saw those who were arrested for the sit-in, they appeared to be made up of nothing but retired 60s retreads and bedraggled hippie wannabes.  And it turns out that not only were none of them actually janitors, but they weren’t even from around here.  In other words, these weren’t the aggrieved laborers exercising their right to civil disobedience in order to draw attention to their plight; they were professional malcontents imported as mercenaries by the union.

Kind of how the SEIU organizes voter drives.

The major sticking point in the negotiations is apparently the union wants wages boosted from $8.35/hour to $10, and objects to a clause that would allow the contractors to pay below union scale if they were negotiating for a job against a non-union contractor.  Houston Mayor Annise Parker weighed in Friday on the side of the union, and took the contractors to task for not backing down and negotiating in good faith—it was the union that walked away from talks in May.  According to Mayor Parker,  in Houston “We work hard, we work together, and we treat each other fairly.”

Aaaaahh, the old “fairness” card.

Indeed, the “fairness” of the wages and the flexibility to make competitive bids against non-union contractors is the crux of the issue.  And apparently Mayor Parker and the union, in their infinite wisdom, have concluded that $10/hour is fair, and $8.35/hour is not.  Once again, unions and the Left ignore market reality in their push to mandate “fairness” as they see it.  They don’t like $8.35, so it’s automatically “unfair.”

But is that really so?

The transaction at issue in the union negotiations is the sale of labor, and it is no different than any other transaction involving the sale of any other good.  There is a supply of the good—in this case, the union members’ time and effort—and there is a certain demand for that good—in this case, the contractors’ need for services that they then supply to their customers.  But we could just as easily be talking about the sale and purchase of widgets; the analysis is the same.

What is “fair”?  “Fair market value,” in the world of economics, is the price at which a good will change hands between a willing seller and a willing buyer.  Let’s say a widget maker is willing to part with his widget for $10.  Someone in the market to buy a widget may well be willing to pay that $10 to acquire the widget, and if so, the sale will happen.  But just because the seller wants $10 doesn’t make the widget worth $10, nor does it make $10 a fair price.  Let’s say the seller wanted $10,000,000 for that same widget.  The prospective buyer might very well conclude that that price was too high, and if so would decline to pay that much.  Would we say the buyer is being unfair simply by refusing to pay the seller’s asking price?

We can flip the analysis as well.  Let’s assume again that the seller wants $10, but the buyer is only willing to pay $8.  The seller may conclude that $8 is too little, and if so he will refuse to sell the widget, as is his right.  That refusal to sell at $8 is no different than the buyer’s refusal to buy at $10—each has made a rational decision in his own economic best interest.  The fact that the transaction does not take place does not make either party’s actions “unfair.”  There is no fairness or unfairness in the market—only market reality.  It is what it is.

Let’s add another variable.  Again we have widget-maker A willing to sell his widget for $10.  The widget buyer is looking to buy a widget, but he has more than one choice.  Widget-maker B is willing to sell him a widget for $8.  Is the buyer being unfair when he chooses to buy the widget for $8 from maker B instead of buying it for $10 from A?  Most of us would conclude that the buyer was not being unfair, but instead was making a rational decision in his own economic best interest.  If A wants to sell his widget, he must compete with B, which means he will either have to drop his price to $8 or less, or somehow convince the buyer that there is some advantage to his more expensive widget.

This is the situation facing the janitors’ union in Houston.  The contractors’ refusal to pay $10/hour is perfectly within their prerogative, and there is nothing unfair about it.  Ditto the union's refusal to work for $8.35.  But here’s the market reality the “fairness” cops ignore.  The contractors’ ability to refuse the union’s $10 offer is only as good as their ability either to do without the union’s labor, or—more likely—their ability to obtain that labor from cheaper sources of supply.  If there isn’t anyone willing to do the job for $8.35, sooner or later the contractors will have to accept the union’s demands.  But if there IS  someone willing to work for $8.35, what’s unfair about the contractors’ refusal to hire the union for $10?  It would be economically irrational—some might argue stupid—for them to do that.

This “unfairness” argument stands everything on its head.  By saying the contractors are being unfair, what we’re doing is denying non-union workers the ability to compete for jobs by offering to work for less than the union’s demand.  If Joe is willing to do the job for $8.35, what’s unfair about hiring him at that price?  Are we to deny Joe a job because you say the price he's willing to accept for his labor is unfair?  Moreover, by hiring Joe at $8.35, the contractor is able to offer its services to building owners for less than if he was paying the union’s $10 rate, which benefits the building owners, and allows the contractor to be more competitive in seeking additional contracts.  If the building owner can hire the contractor at a lower rate, in can charge less in rent, which lowers the overhead for the firms officing in the building, and so on.

What’s unfair about that?

No, what’s unfair is this insistence that in the interest of what the Left decides in its infinite subjective judgment is “fair,” we deny willing buyers and sellers the ability to enter into voluntary transactions at prices they decide between themselves are mutually beneficial.  That’s how the marketplace works. 

EDITOR'S NOTE:  My apologies for those who are still seeing formatting issues on this site.  I continue to try to resolve the issue, and you'll see a number of recent posts have been deleted in my effort to correct the problem.  The issue is compounded by the fact that not all browsers see the error--I can't see it on my home laptop from which I create and post my articles--and that Google Blogger has no help line or service function other than a user chatroom.  Please hang in there with me and keep checking in.  If I can't resolve the issue soon, I will have to rebuild this site on other host, and I will post the new location here if that happens.

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