“Economic Treason,” and other such nonsense.
From the AFL-CIO’s blog comes this missive from union boss Richard Trumka:
When U.S. corporations sit on more than $800 billion without creating jobs, when banks hoard more than $1 trillion in profits without lending to small businesses and consumers, and when health insurance companies with tens of billions in profits demand huge premium increases, there are only two words to describe such greed:
For further reference, I got this quote from a Forbes article by Rich Karlgaard, worth reading more for its statistics than its ominous anecdotes. But rather than take an explicitly political tack here, I’d like to examine the underlying economic and legal fallacies of Trumka’s statement. In a nutshell, he does not understand the nature of corporations, he fails to see clear cause and effect relationships, and his sense of entitlement is egregious.
First, it seems clear that Trumka misunderstands the nature of the corporate entity. When he implies that corporations have a duty to use their resources to further employment, he assumes that corporations are merely vehicles for paycheck delivery. In reality, a corporation is a legal fiction that serves only to limit liability for owners; in other words, corporations are associations of people who own resources, and in a free country, those people may freely decide what to do with those resources in order to maximize their return.
Just as I have no obligation to give a balancing portion of my salary to someone who doesn’t make as much as I do, the people who own corporations have no obligation to simply hand out their resources in ways that will not produce positive returns on investment. And while employees of the corporation derive very real benefits from the working relationship, the central issue is not whether everyone gets to feed at the trough, but whether the owners believe that a positive return on a given action is likely. In other words, Trumka assumes that corporations exist for the benefit of laborers. They do not. They never have.
Secondly, Trumka completely misunderstands the cause and effect relationship. He states the facts, but he gives no indication of why they are the way they are. For example, he decries the fact that businesses are sitting on $800 billion in cash (according to Forbes, it’s more like $1.8 trillion), but he gives no indication of why they choose to do so, preferring instead to imply that said businesses are doing so either out spite, out of ignorance, or simply because they can. Of course, it’s not that simple.
Among the reasons why businesses are hoarding cash at the moment include the “regime uncertainty” that is implicated whenever rule changes emanate from Washington, and as far as rule changes go, 2009-2010 has been cataclysmic. Why spend money now when you have no idea what’s around the corner? Saving money for a rainy day (or a hostile administration) is just good sense. Another reason businesses might be sitting on cash has to do with the cost-effects of the aforementioned rule changes. When Washington mandates that everyone acquire health insurance, perhaps it is not unreasonable to think that the entities which are the primary buyers of individual health insurance might want to have some reserve in case costs rise. And costs are rising.
And remember that health care is not the only cost. Tighter federal regulations of bank credit will tend to decrease said credit’s availability, which will tend to force businesses to seek alternate sources of funding for operations and expansion, which would lead to both businesses saving cash and banks experiencing reduced lending volume. These sorts of causal chains are not particularly difficult to analyze, but they seem quite out of the question for Trumka. Whether that indicates limited cognitive abilities or a peculiarly demagogic bent, or both, will be a question left for other members of the punditocracy.
Finally, the sense of entitlement implied in Trumka’s statement is stunning. By implying that it is economic treason to follow the rules of free exchange rather than pander the immediate conveniences of union members, Trumka has made it clear that he believes the world revolves around him, and that he will harbor no opposition to his union-centric view of the universe. He clearly needs a modern-day Copernicus to gently let him know that the earth, in fact, still revolves around the sun – not Richard Trumka.
Sadly, this kind of grossly uninformed bloviation is what we have come to expect from unions.