[ETH_start]

Reducing profits reduces investment, which reduces wage growth. [1]

Unions destroy industry. They are simply a rent-seeking mechanism to extract more wealth from the shareholders by restricting their contract rights.

Detroit was the wealthiest city in the US in 1950, with the highest per capita GDP in the country. Over the course of the 1950s, 60s and 70s, the UAW union took over, with membership eventually peaking in 1978.

What followed was industrial collapse, and eventually, Detroit becoming a ghost town.

Unions are not good for labor at large, just the labor that is on the winning side of the zero sum rent extraction scheme.

Beyond repealing labor laws instituted in the 1930s and 50s that put private enterprise at the mercy of unions, the real solution is to cut government spending. Even when the government keeps taxes low, government spending crowds out private sector spending. The mechanism through which it does this is, primarily, by offering investors government bonds, which investors invest their surplus income into, instead of investing it in private enterprise, and secondarily, by reducing the future after-tax income of the private sector, through the future tax obligations it creates, and in doing, reducing the credit worthiness of private economic actors.

Now there are productivity-boosting forms of government spending, like building bike lanes, transit lines, ports, etc, but most government spending is in the form of social welfare programs [2] and a large proportion of that is just graft for public sector unions [3] which totally control the government (87% of cities with a population over 100,000 are run by Democrats).

Social welfare spending - which is directed mostly to public sector unions - needs to decline as a share of GDP.

The free market works. Wages for unskilled labor doubled, in real (inflation-adjusted) terms, between 1870 and 1900, when unions were historically at their weakest. And over the course of this period, industry expanded and saw its financial footing become healthier. This was very much unlike the post-war period, where US industry was running on borrowed time, making increasingly burdensome concessions to unions.

[1] https://fee.org/media/12421/20130708_whywagesrise.pdf

[2] https://ourworldindata.org/grapher/social-spending-oecd-long...

[3] https://www.hoover.org/research/california-state-government-...

[ThisIsNowhere]

> Detroit was the wealthiest city in the US in 1950, with the highest per capita GDP in the country. Over the course of the 1950s, 60s and 70s, the UAW union took over, with membership eventually peaking in 1978.

> What followed was industrial collapse, and eventually, Detroit becoming a ghost town.

East Michigan was wealthy in the 1950s, and the unionized workers like Larry Page's grandfather sent their children off to college.

Textile mills in the Carolinas had virtually no unionization.

Yes, manufacturing employment is down from Michigan's heyday. What about the textile plants from North Carolina's heyday? They closed down too. They never unionized, so what caused that to happen?

The difference is the Michigan factory worker entered the middle class, and owned a home, two cars and sent his kids off to college. The North Carolina textile worker's children did not get this education, and when the textile mills closed had no such luck.

[ETH_start]

Firstly, it was not unionization that produced the high wages seen in Detroit circa 1950. Wages had rapidly grown over the preceding the decades, in an era that was mostly non-unionized.

Wages grew rapidly in the Carolinas since the 1960s, unlike in Detroit. The workers flocked to new rapidly growing industries like finance, technology and biotech.

North Carolina's population has grown by 60% since 1990, while Detroit's has shrunk.

[CrackerNews]

So unions are "rent-seeking" from the shareholders who want to profit from extracting surplus value from their labor. Should labor not be able to use their surplus value in the free market?

The collapse of American manufacturing and industry could also be traced to outsourcing abroad, which devastated American labor and unions and resulted in profits for the shareholders from the reduced labor costs.

There is also the financialization of industry as represented by a shift of management techniques away from industry to finance in order to boost share values. Eventually industry runs into reduced returns in growth, but finance provides new schemes to create profit based off of speculation on the future.

[ETH_start]

>shareholders who want to profit from extracting surplus value from their labor.

Profit is not surplus value from workers' labor. It is compensation for the value contributed by investment. Without profit, there is no investment, and without investment, there is no wage growth:

https://fee.org/media/12421/20130708_whywagesrise.pdf

[Avshalom]

>>Reducing profits reduces investment, which reduces wage growth... The free market works

Well that sucks because the free market is supposed to drive profits to zero.

[ETH_start]

That's only for economic profit. Normal profit remains even when economic profit is driven to zero:

https://www.investopedia.com/terms/n/normal_profit.asp

"Economic profit is the profit an entity achieves after accounting for both explicit and implicit costs.

Economic Profit = Revenues - Explicit costs – Implicit costs

Normal profit occurs when economic profit is zero or alternatively when revenues equal explicit and implicit costs.

Total Revenue - Explicit Cost - Implicit Cost = 0

or

Total Revenue = Explicit + Implicit Costs"

[Clent]

In a perfect system, I wouldn't pay a penny more than your total cost. Capitalist extraction can only occur because we pretend it's not an exploitation of unequal knowledge.

[ETH_start]

No, profit is just and economically rational compensation to the investor. Without it, the opportunity cost and risk of saving and investing, respectively, is not compensated for.

[Vt71fcAqt7]

I think you are thinking of competition. Free makrets and competition are not the same, although they are related. In highly competitive markets, there is no profit; this has happened many times in history. Usually the result is that many sellers leave that market. In modern industrial policy, policy makers will seek to prevent "excecive competition" because it inhibits growth. This idea is related to what GP was saying.

[imtringued]

The problem with your policy proposals is that you are assuming an economy in a vacuum. Neoclassical economic models represent a frictionless economy where everything is perfect. The are the equivalent of an upper bound for a converging series. When people tell themselves that the real economy is already hitting the upper bound automatically (this is an unfounded assumption, if you go this far then almost all conclusions are in your assumption to begin with), then absolutely nothing can be done to improve it so we should get rid of all that pointless nonsense.

If the real world does not live up to this idealized image, then some policies may have surprisingly positive effects and getting rid of them actually ends up making everything worse.

[JohnFen]

Without unions, and without governmental "interference", how in the world will employees avoid being abused by companies?

[l3mure]

Their post is dripping with that peculiar tone of abuser melodramatics, really sick stuff.

[wing-_-nuts]

I'm always amazed at how well the rich are able to co-opt the working class with such propaganda. If you want to see true 'free market' capitalism in action that benefits everyone, look at the nordic nations.

[ETH_start]

The Nordic countries went from being the fastest growing economies in the world pre-1960s, to laggard economies with stagnant growth rates, post 1960 after they adopted social democracy.

[wing-_-nuts]

Gdp isn't everything. Folks there seem to live an insanely high quality of life even adjusted for lower income

[ETH_start]

Quality of life is extremely strongly correlated with per capita GDP. They already led the world in standard of living in 1967, at the end of their free-market/high-growth era.

[wing-_-nuts]

Bud, that was over 50 years ago and they still have the reputation as one of the best places on the planet to live and raise a family. They're clearly doing something right, and if you zoom out and look at the big picture, we're clearly doing something wrong.