Tim Fernholz observes that the Senate version of health reform has a big problem with Big Labor:

But there is a broader political problem: The single largest source of revenue to fund health care reform — $215 billion — is an excise tax on insurers for health-care plans that cost more than $8,000 for individuals or $21,000 for families, which is in turn linked to inflation. The average cost of an employer-provided family health care plan is $13,375; according to The Center for Budget and Policy Priorities, 90 percent of family plans in 2013 will have premiums below $21,000. But A significant bloc of Congressional Democrats — 156 representatives — and their allies in the labor movement are opposed to this provision, largely because unions have often forgone wage increases in favor of protecting their workers’ benefits, leaving them more vulnerable to any costs passed on to employers by insurance companies. Here is the letter [PDF] they sent to Speaker Nancy Pelosi. [...]

One thing is for certain: Labor is serious about stopping the excise tax — so much so that new AFL-CIO President Richard Trumka has made leaving it out a necessary condition for his coalition to support the bill.

I understand why some unions see this stance as serving the interests of their members. But the reality of the matter is that Trumka is just wrong on the policy merits here. There’s no good reason for the tax code to privilege compensation taken in the form of health insurance over compensation taken in the form of money. And Max Baucus structured the phase-out of that tax subsidy in a thoughtful way that will be progressive in the short- and medium-term and non-disruptive to the vast majority of people’s lives. The excise tax also makes the bill genuinely deficit neutral, as opposed to the kind of semi-fake deficit neutrality* of the House version of the bill.

One might say that the larger political problem for the Democratic leadership is that earlier this year they proved themselves pathetically unable to deliver on labor’s key priority—the Employee Free Choice Act. That was an issue where union leaders were right on the merits, and the objective significance of the issue to the interests of union members and union leaders alike was much larger. Had Democratic leaders delivered on Employee Free Choice they would be in a very strong position to ask the AFL-CIO to just eat something it finds mildly unpalatable in the broader interests of making progressive governance work. But they didn’t. And it looks to a lot of folks like they barely even tried.

The House bill is structured a bit like this:

In other words, surpluses in the early years make up for deficits in the later years. But since time doesn’t actually stop when the CBO ten-year scoring window expires, what you’re left with is legislation that worsens the long-run fiscal outlook. That’s not really so awful since it basically just means that you’ll need to change the law sometime in the next ten years, and the law will definitely be changed in the next ten years anyway. But I’d say it’s definitely worse than the more robust form of deficit neutrality given by a bill that includes a revenue source which grows over time in line with costs.

That’s what I would have thought a few years ago. But then I became familiar with the Poole-Rosenthal work on Congressional voting. They use a clever algorithm to jointly map bills and members of Congress in a hypothetical issues space. The number of dimensions in that space is arbitrary — but they found that historically just two dimensions accounted for the great bulk of voting. One dimension corresponded to left-right on economic issues; the other was basically race/segregation.

And since the 1960s, with the great Southern realignment, the race dimension has collapsed. So Congressional politics is left versus right — end of story. Oh, and polarization along that dimension has increased hugely: the center did not hold, and there really isn’t any middle ground.

To offer some qualitative examples, Susan Collins and Olympia Snowe are pro-choice Republican Senators. But they’re also the two senators who seem like they might possibly vote for a national health care bill. Rather than representing some kind of ideal type of upscale northeasterner who’s socially liberal but economically conservative, they’re less conservative across-the-board than their colleagues from the South and the Mountains. Conversely, when you stroll down to Arkansas’ Democratic Senators, you don’t see cultural conservatives with populist economics, they’re just more conservative across-the-board than their coastal colleagues.

Something to consider along these lines is the map of states with anti-union “right to work” laws that substantially prevent union organizing:

This is about as purely an economic issue as you can think of, but it’s the liberal coastal elites who have union-friendly laws. My guess is that this winds up creating a higher degree of unidimensionality among practical politicians than exists in the population. The presence of a meaningful labor movement on the ground has huge implications for how politicians will vote on economic issues. And unions tend to be strong in the same places where people have relatively left-wing views on cultural issues.

To agree with Harold Pollack the mere fact that John McCain’s health care plan during the campaign was bad is not a good reason to take curbing the tax exclusion of employer-provided health benefits off the table as a financing mechanism:

Well, no. The tax proposals Democrats are debating would be good politics and good policy. Most Americans, certainly most union members, would benefit from policies that impose modest taxes on generous employer-provided plans for affluent Americans. There are ways to do this that honor unions’ core concerns. One proposed option would cap the deduction at $6,780 for individuals and $17,280 for families beginning in 2013–but would only apply the cap on individuals with incomes exceeding $100,000 or families with incomes exceeding $200,000.

Such measures would hit a minority of union members–for example teachers married to high-earners in New Jersey. By and large, though, these are progressive tax increases on affluent professionals, and would impose very little additional tax on most rank-and-file union members. Even this highly constrained cap on the affluent would raise some serious cash, an estimated $162 billion over the next decade.

I would go a bit beyond this. Progressives should support labor unions. But progressives should also support progressive tax policy, not just the interests if members of labor unions as such. Most union members aren’t rich. But some are pretty well-off. For example, any family whose income exceeds $200,000 is earning much more money than the average American family. My father is in a union. So’s LeBron James. Just as high-earners who own small businesses are still high-earners who ought to be taxed like high-earners people, high-earners people who belong to unions are still high-earners who should ought to be taxed like high-earners.

It’s a good thing about labor unions that being in one is consistent with being an unusually prosperous American—the structural position of labor in a capitalist economy is such that people from all walks of life who don’t control the means of production can benefit from collective bargaining. But it doesn’t follow that tax policy should cater to the idiosyncratic interests of high-earning union members any more than it should cater to the idiosyncratic interests of high-earning people in general. Over the long-term, organizing health care around employment is a bad idea. And financing health care through giant hidden tax subsidies is also a bad idea. But eliminating the tax exclusion in one fell swoop would be unfair and politically infeasible. Curbing its applicability to high earners would, however, be a step in the right direction, raise some necessary funds for health reform, and help put us on the road to cost control.

Jamison Foser observes that General Electric, where they work, employs many union workers and seems to be quite successful. They also name UPS. It’s worth noting as well that all of Americans’ major professional sports teams are unionized, that the entertainment industry is very heavily unionized, much of the telecom sector is unionized, Safeway where I buy my groceries is unionized, etc.

But stepping back, the larger issue here is that you tended to see firms becoming unionized back when the legal climate was friendly to unionization. That was in the 1930s and 1940s. Since that time, it’s been exceedingly difficult to organize new union workplaces in the private sector. It’s been over fifty years since Taft-Hartley and the beginning of the anti-union backlash. Obviously, it should come as no surprise that many of the economic sectors that were huge in the 30s and 40s are smaller now. That’s because we have whole new economic sectors that didn’t exist back in the day. And when a sector has arisen—as the whole suite of things around computers and technology largely has—in the era in which the law tilts heavily against union organizing, you wind up with a sector with little in the way of unions. To take this history and read it as a story about unions causing sectors to fail is backwards. What’s happened is that unions have been locked out of huge swathes of the economy, denying workers their chance at securing a decent share of the value created in those areas.

In a country like, say, Finland where union density is in the seventies, there are obviously going to be tons of successful unionized firms. The difference is just that Finland made it easier to form unions. And it hasn’t crippled their economy—median living standard are pretty clearly higher over there than here.

This is why we need serious labor law reform.

Meanwhile, to state the obvious, whatever the merits of the Employee Free Choice Act may be, nobody can deny that increasing union membership would be beneficial to the Democratic Party from the standpoint of narrow partisan self-interest. It’s worth asking yourself if you can imagine a scenario in which Republicans would vote against a bill that enjoys majority support and would serve the GOP’s electoral interests. The answer is that you can’t.

But while it should surprise nobody to learn that some Democrats put their own self-interest ahead of the broader public interest, the really striking fact about certain elements of the Democratic Party is that they actually put the welfare of corporate executives ahead of their own self-interest and the public interest at the same time.

Precisely paralleling an argument I had yesterday with a colleague, Jagdash Bagwati makes the case for seeing a linkage between support for free trade and support for the Employee Free Choice Act.

Bagwati’s basic point is that among the competing visions for how you could have a more egalitarian economy is, on the one hand, the idea that we need to sharply restrict imports. On the other hand, though, there’s the idea that we could remain open to trade and let the economy undergo its structural shifts while bringing more widespread unionization to the service sector. It’s not a fact handed down from god that the unionized firms are mostly in the manufacturing sector, it’s just that manufacturing was big during the period of time when U.S. labor law was friendly to union organizing. EFCA could create a new era of organizing-friendly labor law, and an opportunity to shift to an economy that features more decent jobs in the sectors that aren’t import-competing.

Sam Stein reports that Citigroup, which only still exists as a firm thanks to taxpayer largess, was hosting a conference call to help mobilize opposition to the Employee Free Choice Act. This, it seems, is capitalism. First you manage your business so catastrophically badly that your company not only becomes worthless, but that it threatens to destroy the livelihoods of billions of people around the planet. Second, you get the taxpayer to keep you in business. And third, you turn around and warn that higher wages for workers might destroy the world economy! As I’ve said before I don’t think we want congress meddling with the details of business decisions at major companies, even companies that are receiving taxpayer support. But there’s a fairly clear case to be made that firms on the public dole shouldn’t be engaged in lobbying or political activities.

Meanwhile, there’s a broader point to be made about the prestige of business in general and financiers in particular. A tendency develops to think that businessmen not only have in practice a loud voice in economic policy decisions because they’re so rich and politicians and media organizations are so corrupt, but that they deserve a loud voice in economic policy decisions because they’re so knowledgeable. But, look, I could take a bank and render its stock worthless. And so could Andy Stern or my cousins in grade school. These guys haven’t shown themselves to be knowledgeable about anything other than enriching themselves and there’s no particular reason to take their opinions about Employee Free Choice or unions or taxes or anything else especially seriously.

Conservatives have two main arguments about the Employee Free Choice Act. One is that it would “eliminate the secret ballot,” which is false. It would put the decision about what election method to use in a unionization process in the hands of workers, rather than in the hands of corporate executives. Their other argument, which is true, is that it would lead to more union organizing. This, they think, is a terrible ill destined to wreck the economy. I would beg to differ, and the Economic Policy Institute has put together a group of economists who likewise beg to differ, including some blogosphere favorites, Nobel prize winners (but not Paul Krugman?), and even Jagdish Bhagwati who some people think is a conservative.

For my part, I’ll link back to my previous posts on unions and growth and how even the Heritage Foundation’s list of most economically awesome countries is full of high levels of unionization.

UPDATE: Apparently the Times doesn’t permit its writers to sign petitions, which would of course explain why Krugman didn’t sign. I can see why you would apply that rule to news reporters, but it’s a little odd for columnists.

Dave Weigel gets an intriguing quote from Linda Chavez in his article on Employee Free Choice Act opponents:

“This is basically about a 40-year struggle to bring the social democratic model to America,” said Linda Chavez, the president of the Center for Equal Opportunity and President George W. Bush’s first nominee for Secretary of Labor, on Thursday. “Unfortunately, I think it’s going to succeed. Having 58 or 59 Senate seats, instead of 55 seats-that makes a big difference.”

I wish I shared Chavez’s pessimism (or optimism, or whatever you want to call it) about the right’s odds of blocking a social democratization of the United States. Even if EFCA were to pass in its strong form, which I’m not at all certain it can, I think that would still leave us with a long way to go. I suppose the rhetorical function of this sort of right-wing rhetoric about “Europeanizing” America or a “social democratic” model is to get progressive to swiftly disavow any ambitions of changing the country in a serious way. But while of course it would be foolish to try to model U.S. social policy precisely on what exists in any foreign country, I actually think it’s quite important for progressives to sketch a view on the horizon of what sort of society progressive governance is supposed to create. And I think Chavez’s nightmare scenario of a country in which the middle and working classes earn a larger share of national income, in which educational attainment is rising rather than flat, in which people are healthier and live longer, in which crime is lower and fewer children grow up in poverty isn’t such a terrible place to start.

Ben Smith writes that “the campaign against [EFCA] is also taking its toll on moderate Democrats in the House and Senate, as this Arkansas News column vividly illustrates.” What the column illustrates is that Blue Dogs like Rep. Marion Berry who supported EFCA in the last congress are now telling business leaders that they did so only because they knew the bill couldn’t pass, and now they’re going to the House leadership and whining that they can’t support the bill.

It’s extremely naive to see this dynamic as anything “taking its toll” on moderate Democrats. What’s happening is that even though the Republican Party lost the last election, the wealthy business interests who’d been financing the Republican Party can’t be defeated at the ballot box. And they hate the Employee Free Choice Act. EFCA would make it easier to form unions. And the evidence indicates that unions flatten the compensation structure at unionized firms—more money for folks at the low end, less for folks at the top. If I were a corporate manager, I wouldn’t want that to happen to me. And if, as a manager, I was able to use the company’s resources to advance my interests by fighting EFCA, I would want to do that. And that’s what they’re doing. And they have a lot of money to spend on that cause. Which means that if you can be the guy who blocks this legislation, you’ll be a hero to a lot of rich people prepared to spend a lot of money rewarding their hero. It’s a great opportunity for a moderate House Democrat. In the last congress, WalMart didn’t really need to care what Rep. Berry thought or did. The bill wasn’t going to pass anyway. Now it really might. Which means Berry might get to be a pivotal player in stopping it from happening. Which is great news for him.

Citigroup may be an insolvent zombie bank whose stock only has any value because investors are willing to bet on the possibility of a government bailout, but that’s not stopping them from buying a $50 million new corporate jet:

Even though the bank’s stock is as cheap as a gallon of gas and it’s burning through a $45 billion taxpayer-funded rescue, the airhead execs pushed through the purchase of a new Dassault Falcon 7X, according to a source familiar with the deal. [...]

“Why should I help you when what you write will be used to the detriment of our company?” replied Bill McNamee, head of CitiFlight Inc., the subsidiary that manages Citigroup’s corporate fleet, when asked to comment about the new 7X.

“What relevance does it have but to hurt my company?”

As an example of the difference between nationalizing a bank as part of a rescue package and simply getting its toxic assets “off the balance sheet,” in a nationalization scheme the taxpayers whose money is paying for the jet would also own the jet and be in a position to sell it off. Under a Classic TARP plan you pay for the jet, but Citigroup’s shareholders own the jet, and Citigroup’s managers get to use the jet.

Meanwhile, whenever you see these jets, keep in mind that (a) first class airfare is incredibly expensive, (b) first class air fare is cheaper than corporate jets, (c) first class airfare is very posh, (d) any company that needs a special subsidiary to operate its fleet of jets needs a union so as to redistribute some of the surplus away from managers and toward lower-level employees.

Seth Michaels notes that not only do countries with strong economies feature strong unions even according to the Heritage Foundation, but specifically they feature the kind of labor-friendly legal environment that progressives are trying to bring to the United States:

What’s more, most of the countries Heritage considers to have a high degree of “economic freedom” have far more worker-friendly labor laws than we do in this nation. In Australia, Ireland, New Zealand, Canada, Denmark, Switzerland and the United Kingdom, the process for forming a union and bargaining is controlled by workers, not by bosses. Indeed, of the top 20 countries on the Heritage list, 16 have labor laws similar to the Employee Free Choice Act, letting workers have the choice to form unions through majority sign-up. In giving corporations veto power over how workers form unions, the United States is a rare exception among industrialized democracies.

In review, of the ten countries Heritage deems to have the largest degree of economic freedom, seven feature majority sign up as an option for workers trying to form a union. Then there are two East Asian dictatorships. And then there’s the United States of America. The next ten spots on the list are composed of nine labor-friendly countries and Bahrain—a small Persian Gulf dictatorship.

My crude default view: If we have robust economic growth, we don’t need greater unionization to boost low-end wages. If we don’t have economic growth, then greater unionization isn’t going to do much to boost low-end wages by itself. And greater unionization will actually make economic growth less likely.

You can offer some crude empiricism to the contrary. American growth was faster, and more broadly shared, in the post-war decades when we had stronger unions. Or observe that other economically dynamic societies all have higher rates of unionization and more equality than the United States.

But there’s an issue of theory here, too. In a basic model of perfect competition and perfect information, things would work as Kaus suggests—labor would earn its marginal product irrespective of the presence or absence of things like unions, and so unions could, at best, make no difference and at worst get in the way and ruin things. But in that same model, capital would earn its marginal product and there would be no profits. The model, in other words, doesn’t describe the real world. Which isn’t to say that it’s not useful. On the contrary, it’s very useful just as Galileo’s work about what happens to freely-moving bodies on frictionless planes is important even though the real world doesn’t contain any such planes. The world approximates how these models work, so they’re important to shaping our understanding. But the actual world features various sources of imperfect competition and firms can take advantage of those imperfections to earn real profits. Don’t take my word for it—read Tyler Cowen who observes that “the standard monopoly model explains much more of the economy than most market-oriented economists like to admit” since little barriers to competition are nearly ubiquitous. This generates a certain amount of economic surplus for well-situated firms. And that, in turn, creates space for conflict over how the surplus is distributed. One thing unions can do is effect the distribution of the surplus—somewhat less going to shareholders, the Board of Directors, and the top management and somewhat more going to unionized workers and to union officials. And that, in turn, has an important impact on the distribution of wealth and income in society at large.

Now, clearly, more growth is going to mean that on the one hand there are higher baseline earnings for everyone and also on the other hand that there’s more surplus to fight over. There’s no substitute for growth as a precondition to increased prosperity. But labor market conditions—unionization rates—are also very important to making that prosperity broadly shared.

Long story short, they think we should become a dictatorial East Asian city state.

But it’s interesting to look at how the non-U.S. countries fare on some controversial policy ideas. Singapore, for example, has an interesting health care system that combines some elements of the consumer-driven model beloved by the right-wing with a universal guarantee of access and affordability and a healthy dose of direct state provision of services. Hong Kong has a British-derived system of public provision. And of course the rest of the top ten are Western countries among which, as is well-known, the US is alone in not providing for universal health coverage.

Or think about the Employee Free Choice Act. Conservative claim that making it easier for workers to form unions will cripple the economy. But consider these union density stats:

1. Hong Kong — 22.1 percent
2. Singapore — 18.5
3. Australia — 20.0
4. Ireland — 35.0
5. New Zealand — 21.1
6. United States — 12.0
7. Canada — 29.7
8. Denmark — 80.0
9. Switzerland — 25.0
10. United Kingdom — 28.4

Long story short, by conservatives’ own lights these major elements of progressive social policy are completely compatible with sound overall economic policy. But health care reform and a stronger voice for labor would help ensure that the gains of economic growth are shared broadly rather than leaving us stuck in the Bushonomics trap of debt-financed middle class consumption growth. And I would argue that egalitarian measures like a stronger health care system and the better wages that come from higher union density help forestall political demand for the kind of labor market regulations that you see in the southern European countries that this Heritage/WSJ study frowns upon.

I think the answer is clearly good. In a specific context of a jurisdiction where you have high levels of funding and relatively strong unions, the main valence of union power is going to be to shift education policies at the margin in the interests of the teachers rather than in the public interest. You can see this in good school systems (Massachusetts) and you can see it in bad school systems (DC). But that’s not to say that if you ditched the unions you’d be in a paradise. Instead, you’d wind up with poorly funded school systems that make entering the teaching profession unattractive with bad results following. We actually have plenty of states in the U.S. without powerful teacher unions, generally in the South, and it doesn’t lead to good schools.

It’s just important to think of these things on two levels. If you’re a well-meaning person put in charge of some public agency then of course your efforts to improve agency performance will in some respects clash with what representatives of your workforce want to do. That’s a first-order perspective that makes them look bad. Then there’s a more meta level where you need to ask whether or not systematically things would work better were the workforce disempowered. And I think here the answer is no—it would be harder for your agency to recruit staff, it would be harder to secure funding for it, it would be harder to raise the salience of the issues your agency works on, etc.

But credibility aside these concerns are hard to square with the data. Consider this page where you’ll learn that union density is 80 percent in Denmark, 74 percent in Finland, 46 percent in Luxembourg, 35 percent in Ireland, and 25 percent in Switzerland compared to just 12 percent in the United States. These are all very small countries that depend much more highly on foreign trade than does the United States. And yet despite their much larger proportion of union members, none of these countries have seen their employment all drift overseas.

Countries don’t become prosperous by having extremely low wages. Countries have low wages because they’re poor. Countries prosper by having reasonable quality infrastructure and a reasonably healthy and well-educated population. Unions can neither magically create wealth out of thin air, but neither can they magically destroy wealth. What they can do is influence at the margin the way wealth is distributed — a bit more to the workforce and somewhat less to the managers and the shareholders. That’s why people who represent the interests of managers and shareholders don’t like them. It’s a perfectly understandable sentiment, but not one that the broader public should find persuasive.

If I wanted to be taken seriously as a researcher, I wouldn’t pretend to believe that the BLS-defined “Education and Health Services supersector of the labor market was identical to unionized primary and secondary school teachers. Indeed, I might have clicked the top Google result for “education and health services” and found that just ten percent of this supersector is listed as represented by unions.

But I’m not Cato’s Neal McCluskey and maybe his methods have some merit (”it’s what the funders want to hear,” I dunno) I’m not seeing.

Market reengineering is also in order. The government should stop distorting markets by subsidizing housing finance through Fannie Mae and Freddie Mac, clinging to trade barriers, or offering tax deductions that encourage overspending on homes and health care. The tort system, an outrageously wasteful way to compensate victims and discipline firms, should be reformed. And, given the object lesson from the collapse of the Big Three carmakers, government should think carefully before empowering labor unions further.

The growth of U.S. government need not be an economic disaster. Sweden and Denmark combine large public sectors with fast growth in GDP per capita. But to get away with big government, you must have smart government. Once the financial crisis is behind us, this should be the guiding principle of the Obama years.

Now look over here and you’ll see that the United States, allegedly threatened by our unions, has a union density rate of 12 percent. Sweden, on which Mallaby says we ought to model ourselves, has a union density rate of 78 percent. In Denmark, it’s 80 percent. And of course it’s not just Sweden and Denmark. You see much the same thing across northern Europe — large public sectors, fast GDP growth, and high levels of unionization. In Finland, union density is 74.1 percent. In Norway, it’s 53 percent. And even in the relatively un-unionized Netherlands it’s 24.4 percent — more than double what we’ve got in the United States.

What I would say about car companies and unions is this. We had a period of time in the United States when prevailing labor law made it viable to organize private sector unions in the teeth of management opposition. So a bunch of firms were unionized at that time. Then we more-or-less closed the door on such unionization. And then after the door shut, new car plants were opened in anti-union jurisdictions. That obviously put the unionized firms at a disadvantage. But that’s different from saying that unionization is killing the car industry — cars are made and sold in Europe just fine. Meanwhile, in a capitalist system over the course of decades and decades it’s just inevitable that some sectors of the economy will rise and others will decline. Since we’ve made it so difficult to organize new unions, and since things change over time, we have disproportionate concentration of our private sector unions in the declining manufacturing sector. But that’s not unions causing the decline, it’s just things changing over time. The union-dominated movie and television production industries have become more central to the economy over the same time period. These things just happen. In a decent economy, though, we need to make sure that as new industries rise the workforce in those industries has a realistic shot at forming unions and bargaining collectively.