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Being for free markets is not the same as being for business. That hard truth is frequently ignored by politicians, most recently in a bill that would override existing labor contracts in the newspaper business. As a businessman before entering politics, Minnesota Rep. Erik Paulsen, a Republican, should know that government intervention in business dealings, especially contractual ones after the fact, often harms fairness and wastes resources.
The Save the Community Newspaper Act of 2018 would let some newspapers postpone making contractual pension fund contributions over coming years. The bill would not cancel the papers’ obligations, but delay them. And Paulsen correctly says that “the bill does not authorize any public funds to subsidize these pensions.”
However, the practical effect is that pension funds for the 30 or so newspapers that stand to benefit from the act will have less money than otherwise. When any go bankrupt, as certainly will happen to some, the federal Pension Benefit Guaranty Corp. that takes over pensions owed by busted companies will absorb a bigger loss.
Moreover, the withholding of money owed creates a fait accompli for subsequent negotiations between newspaper ownership and employees. The old adage that “possession is nine-tenths of the law” will apply and employee unions will have a weaker hand.
Justifications for the act center on giving community newspapers breathing room to re-order their affairs and thus be in better shape to continue in business. At some future point they supposedly will make good all their pension promises. I am skeptical — and much history over recent decades supports my skepticism.
That really is irrelevant, however. If you believe that government should stay out of private business dealings, then you must be willing to let the chips fall where they may. If politicians preach faith in markets, but then intervene willy-nilly, particularly to benefit key supporters or campaign donors, then we are back in the mercantilism days of the 17th and 18th centuries that legendary British economists Adam Smith and David Ricardo were so correct in condemning. You have crony capitalism. You not only are back in an undrained swamp, but you have helped plug the drain.
Newspapers — and other businesses operating under collective bargaining agreements — made contracts with their employee unions based on their respective expectations of the future. For newspapers, those did not pan out. The industry is in the middle of a years-long adjustment to new technology, largely resulting from content and advertising money moving to the internet. Dozens of papers, many with long and honored histories, have already closed. Hundr of thousands of employees have already lost their jobs. More papers will fold and more workers will get axed.
That is too bad, but it doesn’t mean that congressional representatives, whether Republican or Democratic, from Minnesota or elsewhere, have some particular knowledge of how resources should be allocated in the news business. It may well be that more people will have jobs or will receive pensions if this act passed, but that will be the result of a crap shoot. Centuries of economic theory argue that Paulson and co-sponsors are wrong. There is no evidence of market failure and no evidence, rather than rhetoric, that the bill will work as touted.
Employers and unions often reach deals that turn out bad for both. Over decades, big steel companies and big auto companies signed what turned out to be mutual suicide pacts with the United Steel Workers and United Auto Workers unions. That was too bad, not only for the stockholders of these companies and the union members, but for the U.S. economy as a whole. Yet even with the benefit of hindsight, it is not clear that the federal government should have stepped in at any point to change things. As Republicans repeatedly assert, no government official necessarily has better information or insight than the parties to private business agreements themselves.
Academic condemnation of the ideas in Paulsen’s bill can be traced back to 1776, when Smith’s Wealth of Nations was published, but a more detailed exposition of its faults can be found in the work of 1986 Nobelist James Buchanan, who along with Gordon Tullock and other conservative economists, detailed how private parties seek to use political power to capture money they would not get in a free and fair market. In 1974, then University of Minnesota econ professor Anne Krueger coined the phrase “rent-seeking” to describe such hijacking of politics for private gain. That concept is now part of the bedrock of accepted economic theory. (Krueger, who went on to be the chief economist at the World Bank and hold other high posts, will be honored by the University’s Heller-Hurwicz Institute in November.)
To be fair, politicians of all stripes are equally apt to use political power to benefit their constituencies. The Obama administration’s auto industry bailout centered on an ex post facto overrule of existing bankruptcy law to give union pension benefits a greater edge over bondholders. The difference is that Republican are more likely than Democrats to tout a personal devotion to market economics. Indeed, some of the more left-leaning Democrats openly scorn them.
Other examples of deviation from market principles exist as well, such as President Donald Trump’s call for a public boycott of a private corporation because of a market-driven decision it made as to where to best build motorcycles, or his set of tariffs that offer exemptions to specific petitioning companies without any criteria set by Congress.
(By way of disclosure, I am a self-employed economist and writer. I have never been an employee of any newspaper and have never been a member of any union, although the “fair share” contribution to faculty unions was taken out of my pay when I taught at MNSCU institutions.)Related Articles
St. Paul economist and writer Edward Lotterman can be reached at firstname.lastname@example.org.