Why Reserve Requirements Fail and Union Economics

Just a quick post tonight, it has been a long day.  John Tamny explains why reserve requirements fail in a global economy in his RealClearMarkets column today:

As Margaret Thatcher's Chancellor of the Exchequer Nigel Lawson noted in his autobiography, The View From No. 11, despite reserve requirements in the late ‘70s meant to hold down lending, "If mandatory reserves exceeded the amount that banks wanted to hold voluntarily", they would simply "redirect the lending via offshore subsidiaries" beyond the purview of UK regulators. Much the same, if lending limits at London banks were troublesome, those same London banks would allow their Paris branches to bid on their reserves after which bank branches in Paris would lend pounds to UK residents.

Though England is an island, the market for British pounds isn't isolated to the island, so any attempt by UK authorities to "tighten" access to pounds was made up for in non-British markets for the same currency.

 Gary North explains The Economics of Trade Unions:

1. Members assert the moral authority and legal right to use violence against any person who offers to work for less than the union is demanding. Usually, this violence is hidden: the government's threat of fines against employers who hire non-union members, but not always: violence against "scabs."
2. Members assert that if they get a majority vote in favor of this legalized violence in one company election, they should continue to exercise it forever.
3. The union decides who gets membership. It reserves the right to exclude people. This restricts the labor market, thereby raising wages for members.
4. The members assert a legal right to "their" jobs in a strike. After the strike, they must be re-hired by law. All people hired in the interim must be fired.
5. The unions claim to represent "labor," but at all times the vast majority of laborers are not members.
6. Legislation favoring union members discriminates against the vast majority of Americans, who do not belong to unions.
7. The goal of all trade unionism is to raise costs of production.
8. The economic effect of higher costs is reduced output.
9. The economic effect of reduced output is the reduction of wealth for most customers.
10. Excluded workers must seek employment with firms that were their second-choice.
11. This subsidizes firms that are not unionized: a larger supply of labor at a reduced price.

Then there is the economics of trade unionism within civil government. All of the previous applications of the law of supply and demand apply. There are some new twists, as in twisted arms.

1. Inside a geographical area, a civil government exercises a monopoly or near-monopoly.
2. Citizens cannot seek alternative sources of supply.
3. The union exercises clout at election time: a concentrated focus.
4. The government comes to voters in the name of necessity.
5. The government union works under the umbrella of this government claim of necessity.

With this as background, consider the economics of government officials when dealing with trade unions.

1. Governments for 70 years have promised higher retirement benefits rather than offering immediate pay raises.
2. Elected officials run up the bills for future elected officials.
3. Union leaders go along with this, since they can claim easy victories.
4. Union members actually believe that they will receive these enormous retirement and health insurance benefits.
5. They vote for politicians who make these promises on behalf of future politicians.
6. Politicians seek these votes.
7. The general public until 2009 has ignored these promises, believing that future taxpayers would pay them.
8. The combination of focused beneficiaries (union members) and unfocused victims (present taxpayers who will live long enough to become future taxpayers) has led to enormous state and local public debts – debts that cannot be paid and so will not be paid.

 Did You Know that Rahm Emanuel is apparently for free trade?  After his decisive victory in being elected Mayor of Chicago, Mish lays out a few quotes of Emanuel's supposed free trade stance:

His White House role in helping President Bill Clinton win passage of the North American Free Trade Agreement and comments he made about unions as President Barack Obama’s chief of staff left lingering resentment.
‘Shared Sacrifice’

In his campaign, the former Chicago congressman had called for “shared sacrifice” by public workers as the city seeks to address deficits

While NAFTA isn't exactly free trade, it is nice to see a Chicago Democrat rejecting unions constant push for protections such as tariffs.  Here is Emanuel's best quote:

A book about the Obama White House by Steven Ratner, Overhaul, even quoted Emanuel as saying, "**** the UAW," when the president was discussion the autoworker's union in a cabinet meeting.

**** the UAW indeed.