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Combs: Despite government efforts, the free market will assert itself

Efforts to delay the correction just make it worse

By Britt Combs | The McDowell News

Published: July 21, 2009

It would be better for everyone if workers and professionals viewed their labor as a commodity they are marketing, rather than some sort of wage slavery.

A worker is not that much different from a manufacturer or construction company. We workers sell our widget-making skills on the open market, in units of one hour or 40 hours at a time. Seen through this lens, it becomes clear why government efforts to restrict salaries, impose minimum wages or shorten the work week hurt everyone.

On the open market, when the consumers are actively buying widgets, the hourly work units of workers are a hot item; they will command a high price, that is, wages or salary. When the market is saturated with widgets, or when savings have plummeted to such an extent that the consumers cannot afford widgets, or when the pool of widget workers is too large, the wages and salaries of the widget makers will tend to fall.

If widget makers form a union, bargain collectively for contracts to protect themselves from falling wages, two detrimental effects result: one, they impose an artificial stability on the price of their labor, meaning they can't claim the "windfall profits" in the form of raises and bonuses when they are in growing demand. The market may have such a need of skilled labor that they are now worth twice what their contract establishes. Second, they impose artificial constraints on the market's ability to expand or contract in response to consumer demands.

That is precisely what happened to the American auto industry; they were contractually obligated to keep workers busy building trucks and SUVs the consumers no longer wanted. The workers were thrilled to pieces with their illusory "job security," but it was the ruin of the company. The builders found themselves with a glut of products they could not sell, and a glut of liabilities to the workers for wages and benefits they could not meet.

I have been accused of being "anti-worker" (that old saw) for stating in this space that the auto union workers (AUW) have caused their own problems. But I am just as anti-employer as I am anti-worker. I'm anti-nincompoop and pro-reality.

The auto companies and the union have both committed the same sin, they have both failed to react to the free market by seeking government bailouts and bureaucratic intervention; by attempting to restrict the market from making its needs and wants felt, they delayed the inevitable correction to the point that it became a crisis.

Here's how it works in the real world: The auto makers entered into untenable contracts, failed to recognize the actual trends and wishes of the market and ruined themselves; they deserve to be out of business.

And by the same token, the workers failed to recognize the market trend (the pending inability of their customer – the car company -- to continue to buy their services), did not diversify in time and, thus, deserve to be out of business.

In a free market, they would be. But, instead, they pulled undue political strings to convince the federal government they were "too big to fail." Thus we have to bail them out.

That has been and will continue to be an insurmountable drag on economic recovery. The government's intervention has saddled us with the financial responsibility to prop up businesses that have no right to exist any longer. They have given us the responsibility to keep workers working making products the market simply does not want.

The same rules apply, whether it's propping up failed manufacturers, failed labor unions, failed banks, or desperately trying to keep the market from correcting the prices of over-valued real estate, or trying to keep interest rates low when market forces say they must go up.

The money the government borrows to prop up failed businesses is money that could have been used to launch new, healthy businesses to provide goods and services the market actually wants. The stimulus is literally draining the blood out of the recovery.

Just as gravity eventually forces airplanes to return to the surface of the earth once the fuel runs out, so the free market will eventually force a correction to unnatural conditions imposed by the government and the Fed.

The Obama policy of borrowing more and more money for its stimulus projects now is like climbing the plane to higher and higher altitude before the crash. It may add a few extra minutes of free fall, but the fuel is still gonna run out.

Britt Combs writes a weekly column for The McDowell News. He welcomes your comment.