February 2011
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The Morality of Unions

So I tried to watch the Oscars last night. After the third acceptance speech were somebody said something complementary about their union workers I decided I had had enough.

In terms of economics, what exactly is the function of the union? In order to understand that, let’s consider the following scenario. You own a bar. Tony Soprano comes up to you and says, “If you don’t use our service for collecting your trash we will put you out of business. And if you don’t use my cousin to buy your booze we will put you out of business.” Now, most people will rightly recognize this as extortion pure and simple. Basically, Tony wants you to pay more than market prices for commodity goods.

When a single person or company holds a monopoly on a good or service they can charge a higher price than would exist in a competitive marketplace. By restricting access to market choices they force their customers to pay more than they would otherwise pay.

Now let’s look what happens when union thugs are involved. The thugs come up to you and tell you that if you don’t use them as your sole source of labor, they will put you out of business. In my view, there is no moral distinction between the union thug and the Mafia. In each case, you are forced to pay more for a good or service that it would be worth in a free market, and it is backed up with the threat that failure to do so will result in bankruptcy.

When companies are forced to pay more for labor than it is actually worth, the difference between the value of the labor and the cost of the labor is passed onto the consumer in higher prices. The only difference between the Mafia scenario and the union scenario is that the latter is sanctioned by the government.

So every time some Hollywood actor makes a fuss over the unions, he or she is basically telling you that they want you to get screwed every time you buy something.

Just something to think about next time you go to the movies.

fiat lux!

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