Tuesday, November 18, 2008

How Unions Screw You and Everyone Else

Union members are part of the elite, not the masses, as they make far more than the average citizen.  This is because they get to collude, whereas it is illegal for you to do so.

Therefore, to eliminate this double-standard, we need to legalize collusion for you and everyone else, or ban unions.  However, you can rest assure that the former will never happen.

To understand collusion, we need to understand the different types of markets.

Monopolies are markets where there is only one supplier.  This means that there is no competition and therefore the supplier is able to unfairly increase price and gouge the buyer.  Monopolies are extremely profitable to the supplier and expensive to the buyer.  Monopolies are only allowed, rightfully so, if the government regulates it.  Price increases are subject to government approvals.

Oligopolies are markets where there are only a few suppliers, such as the phone carrier industry and to a certain extent, the oil industry.  That is why Bell, Rogers and Telus are regulated by the CRTC.

Most industries have sufficient competition.  Some industries have abundant and stiff competition, such as the Retail industry.  Consequently, the Retail industry suffers one of the highest bankruptcy rates and lowest profit margins.

Competition is what brings down price for the buyers and fosters innovation and product/service improvements amongst the suppliers.  Without competition, we have low quality products and services at high prices.  This has proven to happen over and over again with countries that experiment with Communism.

The reason competition brings down price, provides better service and/or fosters innovation which results in better products, is because the supplier (company or individual) wants to beat his/her competitors to get the business.  After the supplier gets the business, the reason the supplier keeps the price low, continues to foster good service and innovation is because the supplier wants to avoid being replaced by a competitor.

Therefore, it's important to foster competition and to avoid monopolies.

Collusion happens when suppliers in an Oligopoly try to form a virtual Monopoly.  To do this, they may agree amongst themselves to stop competing against each other, such as stop undercutting each other's price.  When they form a virtual Monopoly, they are able to gouge the buyers.  Essentially, the buyers are no longer able to find alternative suppliers.  All of the suppliers have become one virtual supplier and the buyers must buy from that one virtual supplier.

Collusions are illegal, and rightfully so.  According to the U.S. anti-trust law:
"When competitors collude, prices are inflated and the customer is cheated.  Price fixing, bid rigging, and other forms of collusion are illegal and are subject to criminal prosecution..."
The U.S. steel manufacturing industry was an oligopoly in the 1970's.  They colluded and their executives were sent to jail.  If Bell, Rogers and Telus tried to collude, their executives would be sent to jail.  Sometimes gas stations will collude to fix their price, resulting in fury with the public.

Unions are essentially collusions that form virtual monopolies to fix price.  Collective bargaining is spin or euphemism for collusion.  Analogies include:
  • "secretaries" preferring the title of "administrative assistants"
  • "waiters" preferring the title of "servers"
  • "stewards" and "stewardesses" preferring the title of "flight attendants"
Unions prefer "collective bargaining" instead of "collusion" or "price fixing".  The titles are different, but the underlying functionality has not changed.

The suppliers in the union are in the business of selling a service (labour).  The employer is the buyer of their service.  By colluding to form a union, the suppliers form a virtual monopoly that forces their buyer to buy from one virtual supplier.  The buyer is no longer able to find alternative suppliers.  Thus, the union (monopoly) is able to unfairly drive up price and gouge the buyer.

This is why you will see transit workers behind toll booths making more money than white-collar workers, even though their job is far easier than a bank teller's or flipping burgers at McDonald's.

Because competition is greatly eliminated, union workers do not need to work as hard to maintain good service or to innovate.  The fear of getting replaced by a competitor, is greatly reduced.

Union members try to make you think that they are part of the hard-working, middle-class through spin.  They are not part of the masses.  They part of the ELITE.  According to Wikipedia, if you make $60,000 per year, you make more than 80% of the working population.  The vast majority of people are self-employed or work for small to medium size businesses and the median income is approximately $40,000 with no pension.  Union members make much more plus pension.  This is not because union members work harder or are more intelligent or educated.  (In fact, they are usually less.)  It is purely because they have eliminated competition with collusion.  In fact, many union workers have no post-secondary education and they make more than university educated professionals.

According to this article:
"...labor unions were subject to U.S. antitrust laws in... 1890... However, organized labor managed to obtain exemption ... in ... 1914"
In other words, it is legal for unions to collude, but illegal for everybody else.

Is this good or bad for the economy?  It is definitely good for the union workers in the short run.  However, in any win-lose relationship, it usually ends up in a lose-lose relationship in the long run.  The only sustainable relationship for the long run is a win-win relationship.

The landlords and tenants act is another example of how a win-lose relationship ends up as a lose-lose relationship.

Now GM is the latest company asking the government for more taxpayers' money.  This is ironic because the average worker in our country makes $20 per hour.  If we bail out GM, we will be taking money from $20 per hour workers to give to $73 per hour workers.  This is stealing from the poor to give to the rich.  This is worse than communism, which advocates equal distribution of wealth.

According to CBC, CNN, Globe and Mail, U of Michigan (source) and U of Pepperdine, union workers at GM cost $73 per hour ($39 per hour for wages and $34 per hour for benefits and pension).  This is $146,000 per year.  According to Wikipedia, if you make $100,000 per year, you make more than 93% of the working population.  Despite this, they went on strike in 2007.  $146,000 is great for the worker ($146,000 is great even for highly skilled and educated professionals), but is it fair to the buyer of their service?

Some argue that GM union workers make $39 per hour and not $73 per hour.  However, $39 per hour is not a valid apple to apple comparison.  Most Americans and Canadians do not get an additional $34 per hour for benefits and pension.  Therefore, if an American/Canadian made $39 per hour, he/she would have to save a portion of that for benefits and retirement/pension.  The GM worker can spend every cent of that $39 because there is another $34 to take care of benefits and retirement.

Because of the power of the union, GM workers have extremely lucrative pensions and benefits.  For every car sold, GM pays $1,600 to employee health benefits.  Toyota (non-union) pays $200.  This article elaborates on how the union has gouged GM.  GM, and possibly Ford and Chrysler, are on the verge of bankruptcy because of their payments to the union workers.  When this happens, no union worker at GM will make $10, let alone $33 or more per hour.

Therefore, if anybody should bail out auto companies, it should be their own employees and managers by taking pay cuts, not other Americans and Canadians who make far less.

Do As I Say, Not As I Do  (I want you to have competition, but not for me)

Collusion is illegal for everybody except unions. It should be illegal for unions as well, or it should be legal for everybody, otherwise it is another huge double-standard.

Many union workers argue for the virtues of unions, claiming that unions help workers earn more money, etc.  If this is the case, then they should argue for the legalization of collusion for everyone.  These union workers buy products and services from gas stations, barbers, nannies, landscapers, dry cleaners, grocery stores, etc.  They should lobby for the legalization of collusion for these businesses so that they can gouge from the union workers to make more money.  However, few union workers will want that.

Leading Indicator of Failure

Yes, unions elevate compensation (wages and pensions) for workers.  This may last for many years.  However, it is debatable if this is sustainable.  In the long run, their compensation can go to zero.  Unions are a good leading indicator for industries that will fail, as many industries with unions tend to lose money and go bankrupt, as in the case of the auto makers.  Unions are predicting governments to fail, as the extra expense from unions are exacerbating the debt crises.  The difference between the government and a business is that the government can continue to lose money for a much longer period of time, by stealing from children and you through deficits and debts.

Another reason that unions have survived so long, is possibly because a politician can get more votes from unions than from employers.  Union members outnumber their employers.  It also gives the perception that the politican is fighting for the underdog, or the "working-class family" against the big evil corporation (even though union workers make more than the average American and Canadian).  Therefore, politicians traditionally catered to unions and never banned them.  This is another problem with democracy because the masses are not necessarily right.

If politicians truly understand economics, they would disband unions to save GM, and NOT steal even more money from children and taxpayers for another bailout.  Besides, it was the union and management that gouged GM, not our children and taxpayers.  If the politicians don't, then they don't understand economics and/or they are corrupted by lobbyists.

Government's Rampant Unions

The government is rampant with unionized employees, such as the post office, city transit, etc.  When the union does not get what they want, they go on strike.  The government also uses thousands of outside contractors, such as web developers and graphic designers.  These workers make a fraction of what government union members make.  If they can collude and form a virtual monopoly, they would be able to say to the government: "pay us what we want or else you will not get any graphic design work from us or any other graphic designer".  This would enable the graphic designers to gouge the government and make much more money.  Not only is this illegal, most buyers, especially the government, try to prevent the vendors or contractors from finding out who their competitors are.

Graphic designers are no less hard-working than Transit workers.  They are not less intelligent than Post Office workers.  They are not less educated than auto workers.  In fact, it can be easily shown that web developers require much more knowledge and skills, as many of them have university degrees in Computer Science or Engineering. Web development is extremely complex work, requiring skills in five languages (HTML, CSS, Javascript, SQL and PHP or ASP.NET) minimally plus graphic design, creative and problem solving skills, just to develop a mediocre site.  If they want to develop an excellent site, they need to have more skills, such as using frameworks, SCM, AngularJS, JQuery, NodeJS, NPM, Bower, Grunt, etc.  On top of that, they have to constantly learn and re-tool because of ever-changing technologies.  However, they make far less money because they have tremendous competition.  The only skill that some unionized transit workers need is to sit there and watch people drop tokens into a box, but they make so much more because they have eliminated competition through collusion.

If we allow the unions to collude, we should also allow the graphic designers, barbers, gas station owners, auto mechanics, dry cleaners, nannies, landscapers, self-employed contractors and the millions of businesses to collude.  They make up the majority of the population.  If we don't allow them to collude and gouge, then we should not allow unions to collude and gouge.  They are all hard working citizens as well and should have equal rights.

Government employees work for the taxpayers.  They work for you.  You pay them.  They are your employees.  However, these union workers have gouged from you for decades, even though most of you do not get to gouge.  They do not work harder than you.  They are not smarter than you.  They are not more educated than you, but they make more than you at your expense because they get to collude and you do not.

Most people are clued out about the value of Pensions

There are two types of employer pensions:  1)  Defined Benefit Pension Plan (DBPP)  2)  Defined Contribution Pension Plan (DCPP).  For the employee, DBPP is far more desirable because the employer's contributions are bigger and payments/benefits during retirement are guaranteed at a certain level.  DCPP does not have this guarantee and most DCPPs do not provide enough during retirement.  DBPP is worth far more and much more expensive to fund.

The majority of government employees get DBPPs.  The majority of taxpayers do not get a DCPP or DBPP.  Yet, the government forces taxpayers to pay for the government employee DBPPs.

These government DBPPs are worth a LOT of money.  This is exacerbated by the young age that government workers can retire, which can be 55.  This means that the worker has worked for 30-35 years only.  If this retiree lives until 85, that is 30 years of payments.  If the payments are $35,000 per year, then that equates to $1,050,000.  Most households cannot save $1,000,000 over their lifetime.  Individuals save far less.  This fact alone makes union workers to be part of the elite, richest 1% of society.  They are far richer than most people realize.

There is a good reason that most private sector workers do not get a DCPP or especially a DBPP.  Companies cannot afford them.  For those companies that try, many of them have not allocated enough money.  Warren Buffett has pointed this out many times.  Many of these companies know this but they "kick the can down the road", since it will be several years later before they will face reality with the shortfall.  When companies eventually need to face this, they go bankrupt.  One example is GM.  It was their employees' DBPPs (extremely lucrative for the retired employees but extremely expensive for GM) that caused them to go bankrupt.

In 2005, Warren Buffett talked about GM's unaffordable and unsustainable DBPPs:
"The UAW says, “We have a contract and we have a deal.”  GM has set aside $90 billion for pensions and another $20 billion or so for healthcare, yet has a market cap of only $14 billion.  That’s not sustainable.... Something will have to give."
GM was worth only $14 billion, but they owed $90 billion in DBPPs.  This ratio is not that different than for the government and their DBPPs.  This is what happens when any employer tries to provide DBPPs.  They simply are not affordable.  This is why most employers, if they want to stay alive, do not provide DBPPs.  The only way to pay for them is to force others to pay or to steal, which is what the government does.

Charlie Munger said:
"Just because the full consequences haven’t yet hit, doesn’t mean there isn’t a huge problem.  It’s as if someone jumped out of a window on the 42nd floor.  As you go by the 20th floor, you’re still OK, but that doesn’t mean you don’t have a real problem."
Warren Buffett said:
"If I was the President of the U.S., Governor of Michigan or the CEO of GM, I wouldn’t wait.  I’d address the problem right now because no one’s coming to save you."
Buffett was wrong here.  GM's DBPP liability should have been wiped out completely in bankruptcy.  This is the RIGHT and FAIR thing to do.  This should have and would have happened with any non-unionized company.  Because the unions complain incessantly, the government forced you (who do not have DBPPs or DCPPs) to fork over $11.2 billion to GM, so that GM's retired employees can continue to collect these lucrative DBPPs.

The majority of government workers get DBPPs, not because they are smarter or work harder than you, but because they are unionized.  They get to collude and gouge their employer (taxpayers), whereas it is illegal for you to collude.

Many public sector workers retire from the government in their mid 50's.  This enables them to collect two incomes:  one from their DBPP and a second from another job or contract work.  During this time, they are taking home more than they ever did when they were employed by the government and definitely much more than the average taxpayer.

Many of the expats in tropical places are retired public sector workers.  They are in their mid 50's, traveling and enjoying the world while you work until your 60's and beyond to pay for their pensions.  The whole time, you are stressed out about your own retirement.

Governments can pay DBPPs, not because governments are rich, but because:
  • Governments can force taxpayers to pay...and they do.  Companies cannot force customers to pay.
  • Governments can steal from children...and they do.  Companies cannot.
  • Governments cannot go bankrupt.  They can lose money for decades, by running deficits and accumulating debt...and they do.  Companies cannot as they would go bankrupt within a few years.
  • Governments can print money (which is stealing from you)...and they do.  Companies cannot.
Warren Buffett wrote:
"Whatever pension-cost surprises are in store for shareholders [companies] down the road, these jolts will be surpassed many times over by those experienced by taxpayers.  Public pension promises are huge and, in many case, funding is woefully inadequate.  Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed.  Promises involving very early retirement – sometimes to those in their low 40s – and generous cost-of-living adjustments are easy for these officials to make.  In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep."
What will likely happen with the government's huge, lucrative and unsustainable DBPPs is this:  They will try to squeeze as much blood out of you as they can via taxes.  After the last drop is squeezed out, it still won't be enough.  Then they will print money in high gear, to steal the last bit of wealth from you.  If taxes and printing isn't enough, which it likely won't be, then they will steal the remainder from children via even bigger debts than what we have now.  This will surely happen, unless you complain now to the politicians and media.


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