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Thomas Geoghegan and the Union Conception of “American Enterprise”

The Wall Street Journal on Monday published what I originally assumed was a comedy piece; as it turns out, it was a “serious” op-ed.  Written by one Thomas Geoghegan, it is called “Boeing’s Threat to American Enterprise.”  It is also among the most seriously flawed articles I have ever read.

This article is very definition of veneer.  It looks good on the surface to the ideologically bent, but it is so riddled with logical pockmarks that it cannot stand up to even the slightest scrutiny.  A light breeze would knock over most of the “arguments” put forward here.  But since I am never one to pass up free fish from a barrel, I will go ahead and take a shot.

Since I have already covered the gross injustice of retaliation laws in a previous post, I will skip the first few paragraphs.  In the fourth paragraph, we happen upon problems one and two:

Why is Boeing, one of our few real global champions in beefing up exports, moving work on the Dreamliner from a high-skill work force ($28 an hour on average) to a much lower-wage work force ($14 an hour starting wage)?

First, notice the distinction – it is not “high-skill” versus “low-skill” or “high-wage” versus “low-wage.”  That would be a fair fight.  Instead, it is “high-skill” to “lower-wage.”  The implication is that skills are always matched by wages.  The reality is that this is quite untrue.  For example, a professional in an equivalent entry-level job can often expect a higher salary in New York City than in Minneapolis, and in many cases, the entry-level professional in New York can outstrip even the income of the seasoned veteran in a place like, say, Iowa.  It is a function of labor markets and cost of living, and not of skill alone.  Perhaps a better comparison than New York versus Iowa would be Seattle versus South Carolina.  Either way, wages do not determine skills.

Also note the poor attempt at sleight of hand when talking about wage rates.  In Washington they are $28 an hour “on average.”  In South Carolina they are $14 an hour “starting.”  (Again, I assure you that this was intended as a serious op-ed.)

This is either intellectual laziness or a disingenuous attempt to cover up the fact that in non-union shops, wages are often no less than in unionized shops.  I will assume that it is the latter.  Neither is particularly charitable.  In any case, consider the following hypothetical.  There are two workplaces, A and B, each with 10 workers.  In A, workers start at $14 an hour, but after a six-month probationary period move up to $100 an hour.  At the moment, only 1 of 10 workers is on the probationary period.  In B, workers average $28 an hour.  At the moment, all 10 workers make $28 an hour.

You’ll note that in the above hypothetical, the average wage in A is actually $91.40 per hour.  In B, the average is given as $28.  It is blindingly obvious that comparing starting wages to average wages proves nothing, and yet it is being offered as (again, I am not making this up) “[the biggest] threat to the economic security of this country.”  Seriously.

Consider another hypothetical.  For simplicity we will use the same two workplaces and the same number of workers.  Again, in A, workers start at $14, and in B, workers average $28.  Now let us assume that, under this hypothetical, every worker in A earns between $14 and $25 an hour.  You will notice that this range comes in below the average of workplace B.  However, if you posit a scenario wherein 9 workers in workplace B earn $5 an hour and one earns $235 an hour, you still end up with an average of $28 an hour.  Given that this type of manipulation is clearly possible, how is it proper to assume that, because South Carolina workers start at $14 an hour, they must necessarily earn less than their counterparts in Washington?

This is worse than an apples-to-oranges comparison.  This is apples-to-unicorns.  And remember that Geoghegan assiduously avoided comparing “high-skill” to “low-skill,” instead focusing on the alleged difference between “high-skill” and “low-wage.”  Now we know why.  Geoghegan cannot prove that wages are lower at purchasing power parity, or would remain lower even in nominal dollars.  Nor can he prove that workers in South Carolina are less skilled than workers in Washington, which they are unlikely to be.  How terribly dishonest.

But he is not finished.  Prepare yourself for problems three, four, and five:

This country is in a debt crisis because we buy abroad much more than we sell. Alas, because of this trade deficit, foreign creditors have the country in their clutches. That’s not because of our labor costs—in that respect, we can undersell most of our high-wage, unionized rivals like Germany. It’s because we have too many poorly educated and low-skilled workers that are simply unable to compete.

Where to begin?  Clearly, Geoghegan has never cracked an economics textbook, which I suppose is unsurprising for a union lawyer.  “This country is in a debt crisis because we buy abroad much more than we sell”?  Where did he come up with that?  It is, in fact, a bald-faced, self-serving lie.

This country undoubtedly faces a debt crisis, but it is because the government spends much more than it takes in in revenue.  The country runs a trade deficit because it imports more than it exports.  To those who skipped 10th grade macroeconomics, the debt is not the same as the trade deficit.

But in the very next sentence, Geoghegan switches to a statement about the trade deficit.  Again, he obfuscates.  The national debt is enormous because people like Geoghegan insist that the government tax the productive to give ever more benefits to the unproductive, like Geoghegan and his clients.  It has nothing at all to do with where union shops and every other firm in the United States end up shipping their products and services.  It is a non-sequitur, probably again meant to disingenuously cover-up Geoghegan’s own total lack of useful knowledge of the subject.

And consider his statement about the trade deficit – “foreign creditors have the country in their clutches.”  This is conclusory, vaguely racist, certainly xenophobic, ignorant, unsupported, and ultimately false.  The leverage in creditor-debtor relationships always depends on the security involved.  Where creditors have something to foreclose or levy on, creditors have leverage.  Where debts are unsecured, debtors have leverage.

Anyone who claims that foreign creditors have us over a barrel conveniently ignores the fact that a default would most likely hurt “them” far more than it hurts “us.”  (I use the quotation marks because I do not believe in separating peaceful traders into antagonistic and protagonistic groups, regardless of political and ethnic borders.  There is no “us” and “them” in peaceful and productive trade.)

Finally, the assertion that the United States has “too many poorly educated and low-skilled workers” to compete globally is an absolute farce.  If this were indeed the case, how would Geoghegan explain the persistent underemployment of college-educated workers?  By many accounts, underemployment among the college-educated has expanded at a pace roughly equivalent to the increase in college education attainment.  If, by positing a lack of skilled labor as the root cause of our trade deficit, he means to suggest that the marketplace would magically provide a good job to every worker with a good education, he is living in fantasyland.  And in any case, persistent underemployment of the educated does nothing to explain trade deficits.

Neither does the conclusory proposition that the country lacks “skilled” workers give any indication of what skills might be needed.  Ironically, the Boeing factory workers Geoghegan took to the Journal pages to defend are overwhelmingly unskilled labor.  Experienced, perhaps, but not skilled.  In point of fact, the marketplace determines which skills are necessary, and which skills are best left to others.  The law of comparative advantage is another economics 101 principle overlooked here.

As if obfuscation, manipulation of average-versus-starting numbers, disingenuous conflation of debt and trade deficits, and blatant ignorance of fact were not enough, Geoghegan continues on with the use of anecdotal evidence to prove a broad conclusion.  Hence, problem number six:

We depend on Boeing to out-compete Airbus, its European rival. But when major firms move South, it is usually a harbinger of quality decline. Over and over as a labor lawyer in the 1980s and ’90s, I saw companies move away from Chicago, where the pay was $28 an hour, to some place in South Carolina or Louisiana where the pay was about half that. While these moves aggrieved me as a union lawyer, it might have consoled me as an American if those companies went on to thrive globally.

But too often, alas, it was the beginning of the end, as it was for Outboard Marine Corporation, where I once represented workers. In the 1990s the company went from the high wage union North to the low wage South and was bankrupt by 2000.

The implication here is that there was nothing else going on but labor issues.  Even if that were the case, Outboard Marine would be a single example in a sea of data and unable to support a conclusion.  However, even that is not the case.  A simple Wikipedia search indicates that there was far more to the Outboard Marine bankruptcy than met the eye.  In fact, sales of this pleasure boat and engine company were dipping since the oil shocks of the 1970s.

Consider that in 1980, the Department of Energy proposed that boating be banned on weekends, and combined with gasoline price concerns, sales plummeted.  A rebound was only achieved by, among other things, reduction in the workforce by one-third, which would certainly not be applauded by Geoghegan.  Likewise, the company was embroiled in a 14-year-long litigation with the U.S. EPA and Illinois environmental bureaucracy regarding pollution from its Illinois plant that resulted in millions of dollars in fines and costs. I think, perhaps, the persistent problems with the Illinois plant would also be plausible cause for the location change.

Finally, the boat market peaked in 1988 and then went into a “tailspin.”  So it seems as though the company was already in serious decline in the late 1980s, despite Geoghegan’s suggestion that the problem had its genesis in the move south in the 1990s.  Assigning a particular cause to a company’s failure where many more plausible causes exist is self-serving and lacks credibility.

Geoghegan’s article also suffers from conclusory statements that lack any serious proof.  In my opinion, where Geoghegan offers a conclusion, he should back it with facts.  Take problem number seven for example:

There are reasons workers in the North get $28 an hour while down in the South they get $14 or even $10. Adam Smith could explain it: “productivity,” “skill level,” “quality.”

Prove to me that productivity, skill level, and quality are worse in the South.  Prove to me that they necessarily suffer with lower wages.  I have already explained that wages and skills do not have a clear cause-and-effect relationship that moves in a single direction, especially when dealing with multiple areas of the country where costs of living are disparate.  I defy Geoghegan to prove a cause-and-effect relationship with regard to wages and productivity, or wages and quality, or “Southern-ness” and productivity.

I would argue that there are a staggering number of counterexamples.  If it were true that quality suffers when production moves to the South, why are Hyundais (built in Alabama) now consistently ranked as among the most dependable cars while Chryslers (built in Michigan) languish at the bottom of consumer-advocacy lists and in repair shops all over the country?

If skill is absent in the South, why does the country build its Naval weaponry in places like Virginia?  If Newport News can handle an aircraft carrier, certainly there is more to the state’s workforce than drooling rubes in trailer parks?

And the insinuation that it is a North versus South issue, rather than a right-to-work versus forced-union issue is insulting to about half of the country.  Northerners, we are supposed to believe, are naturally superior in every way, and it could not be possible that productive and skillful workers could exist south of Mason-Dixon.

Putting aside the pathetic fact that the Geoghegan is apparently not yet over the Reconstruction, we may note that he makes no mention of the fact that workers are mobile, people can move to whatever state they want, and jobs tend to follow job-friendly climates.  It is as if, in Geoghegan’s mind, the economy is a fixed and zero-sum pie, and all we need concern ourselves with is who gets the biggest piece.

At this point, one may be fairly amazed at how many fallacies are packed into a few paragraphs.  I promise I am almost finished.  Of course, Geoghegan cannot help himself, and obfuscates again.  problem number eight:

Here is yet another American firm seeking to ruin its reputation for quality. Why? To save $14 an hour! Seriously: Is that going to help sell the Dreamliner? In terms of the finished product, the labor cost is minuscule: $14 in hourly wage, at most.

The obfuscation should be blindingly obvious.  Leaving aside my earlier hypotheticals on wages, consider that Geoghegan seems to want to suggest that the only labor input involved in building the Boeing 787 comes from those on the factory floor.  Wrong.  He also suggests that the difference is $14 an hour at most.  Wrong again (see above, re “starting” wages).  He also states that labor costs are miniscule for the 787.  Wrong a third time.

Geoghegan ignores a few facts, namely that production and development costs run into the billions; wages among workers of the same type can be highly variable; and both white-collar and blue-collar workers work on the 787.  This may be convenient for his “argument,” but it does not stand up to scrutiny.

After all of this, you may assume that Geoghegan has made as many errors as could be expected of anybody.  You would be correct, but Geoghegan goes for the extra credit by bringing in partisanship, or problem number nine:

It’s incredible that conservatives claim such small differences in labor cost would be life or death to Boeing. It’s not labor cost but labor skill that is life or death to the survival of Boeing, never mind pilots and passengers.

Ah, the dread specter of conservatism!  Partisanship is the last resort of the feeble-minded.  I feel no need for elaboration on this point.

Alas, Geoghegan cannot help himself, and he continues with problem number 10:

At this moment especially, deep in debt, we cannot afford to let another company like Boeing self-destruct. Boeing is not a product of the free market—it’s an extension of the U.S. government. Over the years, our taxpayers have paid to create a Boeing work force with exceptionally high skills. That work force is not just an asset for Boeing—it’s an asset for the country.

Again, Geoghegan brings up the issue of national debt, which he has previously proven that he does not understand, and again he attempts to tie it into something completely unrelated.  I feel no need to elaborate further on this either, but suffice it to say that movement of a private company within the borders of a single country has no impact on that country’s national debt.

And the idea that Boeing is “an extension of the U.S. government” because taxpayers “have paid to create” the workforce is scary in its implications.  I presume that the idea that taxpayers have been paying for its workforce is an extension of two concepts – first, the fact that Boeing sells some equipment to the government, and second, because the government imposes itself on the school system and thus has educated some of Boeing’s workers.

If it is true that, by serving the government as a contractor, a company becomes “an extension” of the government, then we are all extensions of the government.  There really is nothing anymore that it truly private, and this is because the government has imposed itself on a truly mind-boggling array of issues over which it should rightly have no authority.

This, of course, leads to circular reasoning.  If we may justify federal intervention into Boeing because Boeing has a nexus with the federal government, then all the government must do to justify its intervention is intervene.

But that is not the scary part.  If we “owe” the government for its “service” to us (which, by the way, it has imposed on many of us whether we wanted it or not), then we are nothing but vassals of the government.  The state owns us, our bodies, our production.  We are slaves.  In fact, the entire system envisioned by this assumption very closely tracks the social and political organization of the Soviet Union.

I was tempted to leave it at a round 10, but I am not quite finished.  There is more ridiculous obfuscation.  So here is a bonus – problem 11:

Most depressing of all, Boeing’s move would send a market signal to those considering a career in engineering or high-skilled manufacturing. It is a message that corporate America has delivered over and over: Don’t [sic] go to engineering school, don’t bother with fancy apprenticeships, don’t invest in skills. No rational person wants to take on college or even community college debt to come out and work on the Dreamliner—which should be the country’s finest product—for a miserable $14 an hour.

A union lawyer should know better.  Skilled professionals like engineers are considered managers and do not tend to be unionized.  The idea that people are being discouraged from engineering because they face the prospect of white-collar employment in a free state is patently ridiculous.

In fact, people would be discouraged from engineering because the unskilled union factory workers have been allowed to become an immovable obstacle to the engineers’ putting their designs into practice.  Why design the Dreamliner, after all, if the person who screws the overhead bins together can prevent it from ever being built?

And the idea that engineers are being discouraged because some workers start at $14 an hour is also clearly ridiculous, and all but the most blindly partisan (Geoghegan) can see through the transparent ploy.  Why would someone decide not to pursue a degree in aeronautical engineering because the guy who glues the carpet down starts at $14 an hour?  If Geoghegan means to suggest that engineers are being discouraged because of factory line workers’ wages, then perhaps he has forgotten that people are not fungible.

In retrospect, tearing apart this absolutely ridiculous op-ed has been a bit fun as well as a bit exhausting.  It pains me to think that people actually conceive of arguments this way, especially people who find themselves near the corridors of power.

However, I also see exactly why the Wall Street Journal chose to publish it.  Of course they want their editorial page to have some balance.  By publishing this dreck, which would be D-minus work for a fifth grade essay, they are showing what they think of the union argument.  Balanced indeed.  Balanced like a fox.

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