A Pessimistic View

Here are some pessimistic thoughts about our economic future, slightly inspired by The Militant's article on collapsing pension plans. I'm not courageous enough to actually predict the future, but it could end up badly. This is one possible bad scenario.

I'm a fan of Ray Dalio's Debt Cycle Theory (excellent video here--31 minutes long). Mr. Dalio's describes three economic trends that have dominated capitalist economies since the 16th Century.

First is long-term economic growth, driven by technological progress along with the population increase that enables. This has been pretty much straight line up for centuries, and shows no signs of slowing down in the foreseeable future (though population growth seems to be going into reverse).

The second trend is the short-term debt cycle, also known as the business cycle. People like to buy things and capitalists like to sell things. As long as people have jobs they will buy as much as they can, and since they always want to buy more, they'll borrow money. Capitalists (specifically, banks) are happy to lend it to them. More and more buying takes place, production grows, employment grows, and everybody is happy.

Until, of course, the loans have to be paid back. That reduces consumers' purchasing power, forcing production to decline, and leading to higher unemployment. That exacerbates the problem. The result is a recession. Recessions occur every six to twelve years.

Eventually the loans are repaid and the cycle can repeat--at a higher level since underlying productivity has continued to increase.

But not all of the debt is repaid during a recession--some of it is long-term debt, such as home mortgages. This long-term debt continues to grow, even during recessions. But eventually it, too, becomes unsustainable. This leads to the long-term debt cycle, which repeats every 80 to 100 years.

The accumulated long-term debt is too big for consumers to ever pay back, so ultimately it results in a deleveraging, otherwise known as bankruptcy. A vast amount of debt is simply wiped off the books--debtors are spared the worst of their sins, while creditors end up taking big haircuts. After which the process can begin anew--again at a higher level because of underlying productivity growth.

The last great deleveraging was during the Great Depression, during which creditors famously jumped out of buildings. (Some debtors did too, since bankruptcy wipes you out.) That was about 90 years ago--we're due for another great deleveraging!

Some suggest that the financial crisis of 2008 was a deleveraging, and to some extent it was. After all, mortgage debt had become unsustainable and it was obvious it would never be paid back. Home "owners" were defaulting left and right.

And to some extent it really did deleverage--a lot of underwater people lost their houses, after which their debts were wiped clean and they received rather generous tax subsidies. The problem is the creditors never took a haircut--the debt was merely transferred from the banks to the government, i.e., taxpayers. In macroeconomic terms that solved nothing.

In a word, we got bailed out and the deleveraging never happened. Politically that was very convenient--Obama and Bernanke took credit for "saving" the economy. In practice, they didn't save anything--all they did was store up a bigger disaster for the future.

So where is all that mortgage debt hiding? Some of it is student loan debt--now over a trillion dollars, much of which was used to finance consumption. The government has now taken over the student loan program, and there is considerable political pressure to simply forgive those debts. That will likely happen--leaving taxpayers to take the haircut. Beyond this, both auto loan and credit card debt are both over a trillion dollars each. Indeed, total consumer debt (including home mortgages) stands at about $13 trillion, or about 60% of our $19 Trillion GDP.

The bulk of the debt is in entitlements and pensions. The current federal debt is $19 Trillion, to which one needs to add $3.5 Trillion owed by state & local governments, but those numbers surely understate the problem. This article claims the government really owes about $210 Trillion in entitlements. That figure is controversial--it depends on how long you extend the timeline into the future (I confess I don't understand the calculation).

By comparison, the total mortgage debt in 2007--that precipitated the Financial Crisis--was about $14 Trillion. But much of that was collateralized (the banks could repossess and sell the houses), while pension debt is not. So the numbers are not comparable.

In other words, all those pensions will never get paid. Some pensions will simply go bankrupt. Social security benefits will be cut, as will Medicaid and Medicare payments. (The latter may affect doctors and hospitals more than consumers.) The welfare state will shrink.

When does the house of cards collapse? Who knows--could be tomorrow; might not be for thirty years. It depends on when bondholders lose confidence. Bondholders have every reason not to acknowledge reality--it's tantamount to a bank run. They'll do it only when they're forced to. It's noteworthy that the bankruptcy of Puerto Rico has not had much effect. We'll see if the impending implosion of Illinois will be similarly received. If so, then what about Kentucky, New Jersey, Connecticut...?

At some point bondholders run for the hills. States will not be able to refinance their debt and they'll default. The government will not be able to bail them out without causing massive inflation. Bitcoin will be worth millions!

So will it be like the Great Depression all over again? I think not, and here's why.

• We are much richer today than in the 1930s. Food & clothing cost only a fraction of what it cost then. Housing is also cheaper. There will not be the mass destitution that occurred in the '30s.
• The population is shrinking, which means we increasingly have a labor shortage. During the Depression unemployment spiked to over 20%. During the Recession it went up to 12%. I think the labor shortage is with us for a long time, so I expect unemployment will remain relatively low--especially for skilled workers. But wages will decline and benefits will go to zero.
• There will be no bailout, which in the short term will make things much worse. But long run the economy will do much better. The reason the Great Depression lasted so long was because of misguided government meddling during the recovery, i.e., the New Deal.

The "creditors" in this case will be anybody owed a pension, welfare, or social security. They won't be wiped out, but they'll definitely feel the pain. The "borrowers" will be governments, who will no longer be on the hook for benefits they can't afford to pay. Over time taxes will go down and government services will improve. The welfare state will gradually be reinstated at a more modest level.

After deleveraging comes dawn. The economy will recover smartly! There will be zero debt, so everybody will start borrowing again, and consumption will grow like gangbusters. It will be similar to what happened just after World War II, except better.

And that brings me to the private pensions described in The Militant's article, mostly covering coal miners and teamsters. These plans were mostly Ponzi schemes, where today's workers pay benefits to today's retirees (like social security). That works as long as the active workforce keeps growing. But as The Militant points out, "[t]he UMW 1974 Pension Plan is expected to go bust by 2022, sooner if the capitalist economy goes south. It covers 87,000 retired and 20,000 working miners." Clearly the plan is in trouble when the ratio between workers and retirees becomes so lopsided.

So the unions had a demonstration in Columbus, Ohio. Not sure what good that does--they're marching against arithmetic. I feel sorry for them--they put their life savings into a fraud perpetrated by both their unions and the companies they worked for.

Further Reading:

• Trade Wars
• What Marxists Don't Understand About Economics
• Where Have All The Workers Gone?

Teachers' Strikes: The Difference a River Makes

Last month, in a post about the West Virginia teachers' strike, I had this to say.

The union's lack of legal status is important. It can't enforce a closed shop, nor can it negotiate a real contract. All it can do is get a widely publicized agreement from the state. That is actually an appropriate role for a union. I support this kind of "union" activity.

Surprising even myself, I had something positive to say about unions. The West Virginians demanded only a 5% pay raise (which they got), along with lower medical premiums (I don't think they got that). All in all, reasonable requests.

But if you cross the Big Sandy River from West Virginia into Kentucky, the situation is very different, as described in this week's Militant by Susan Lamont. Turns out that Kentucky educators aren't primarily interested in higher wages, but rather in secure pensions.

Can't say as I blame them. The state tried to put one over on them by passing pension reform as part of a sewage bill. It was a very modest reform, not impacting any presently employed teachers. All it would do is put new teachers into a defined-contribution, 401K plan, instead of adding to the hugely underfunded state pension plan (defined benefits).

On its face the new law is unobjectionable. After all, the first rule of holes is, when you're in one, to stop digging. And that's all the state suggested. The fact is the new bill doesn't do anything to solve Kentucky's pension problem, but at least it stops it from getting worse.

The teachers went ballistic. Calling in sick, they skipped school in droves to show up at a huge rally in the state capitol, reminiscent of Wisconsin, 2011.

The reason for the response is obvious: the teachers are screwed, and they know it. They will never see even a fraction of their promised pensions. But they're still in denial, trying desperately hard to defeat the laws of both arithmetic and compound interest.

Turns out, according to Ms. Lamont, that neither the state nor teachers have been paying into Social Security, so they won't even get those benefits. That's gotta be one of the most shortsighted decisions ever! I recall when I was a grad student, for a few years I didn't have to pay social security taxes. I thought I was making out like a bandit. Fortunately it was only temporary, and thank God I've since put in enough that today the benefit covers my house payment. Kentucky teachers, meanwhile, have taken the short term savings and just spent it. Idiots!

Of course that's not the worst of it. According to Troy Vincent over at ZeroHedge, in an article entitled Kentucky Teachers Want a Bailout. 

The Kentucky state workers’ pension system is by some measures the worst funded pension in the entire country with an estimated $70 billion dollars of unfunded liabilities. A recent audit of the pension system found that the plan has had $6.9 billion in negative cash flows since 2005. 

At $40 billion, Kentucky teachers make up the largest portion of this unfunded liability. But even in the face of impending insolvency, many teachers in Kentucky are still protesting the slightest changes and cuts to their compensation that have been proposed in an effort to prevent catastrophe.

For example, Ms. Lamont interviews a certain Megan Berketis--a teacher with less understanding of economics than most high school students.

“They talk as if there is a giant pie, and if someone gets a bigger slice, then yours gets smaller,” Berketis said. “But there is no pie. We shouldn’t have to pay more taxes. Money for education should come from the companies that make a lot of profit.”

It surely is presumptuous for Ms. Berketis to allocate all corporate profits to teachers' pensions. Even a socialist won't agree with that--surely some money should be reserved for highways, health care, parks, and even prisons. Even if you accept the socialist premise that no profit should go to private individuals, by what right do Kentucky teachers get to claim everything?

To put it in scale, the richest man in Kentucky is not Colonel Sanders or Jack Daniels, but instead B. Wayne Hughes, worth $2.7 Billion. He's the founder of Public Storage, a nationwide storage locker provider. Sounds like he has a lot of money, but it's less than 4% of the state's pension hole. Of course the company operates in all states, not just Kentucky, so our teacher friends can only claim at most about $60 million of his fortune--or far less than 1% of the amount needed.

And that's only if the company is both bankrupted and liquidated, with all of its employees put out on the street and left unemployed, and with no pensions. All that just to bail out a bunch of clueless, very stupid teachers who couldn't even be bothered to pay into social security.

The fact is there simply aren't enough rich people in Kentucky to cover the hole that teachers have dug for themselves. So it will have to come from higher taxes.

Kentucky currently collects about $12 billion annually in tax revenue, or $2655 per person (not per household). If the pension deficit is to be filled over a decade, that means a tax hike of about $7 billion per year, which raises the bill per person to about $4200. Note that citizens wouldn't receive any additional services for all that money--all they'd be doing is reimbursing teachers for excess stupidity.

It will never happen. Kentucky's state pension system is as good as bankrupt, and it is only a matter of time before it fails completely. There is no way that teachers will ever collect what they've been promised. So the logical thing to do is to extricate oneself as gracefully as possible from the system--at least try to recover fifty cents on the dollar. If I were a Kentucky teacher I'd try to negotiate buyout. At least I'd get something before the whole thing goes down.

Of course Kentucky teachers aren't the only ones in this predicament. New Jersey is worst off--their plan is only 30.9% funded. Kentucky is second, with 31.4% in the bank. Illinois, Connecticut, and Colorado round out the bottom five.

But that's not the end of the bad news: percent funded in both New Jersey and Kentucky declined by more than 6% in one year. (For Kentucky, the ratio went from 37.8% in 2015 to 31.4% in 2016.) The reason for the decline is that nearly all state pension plans assume a very high rate of return on their investments--typically 7.5%. A more accurate number is about 5%, but putting that into the arithmetic throws all pension plans far into the red. So even states like New York or California, which nominally are at or near fully funded, arrive at that result only by making unreasonably optimistic assumptions.

The bottom line is that teachers who trusted their kleptocratic politicians and con-artist union officials to manage their retirement portfolios for them are screwed. In only a few states will they come out whole. In Kentucky the likely outcome is something close to zero.

Me, I put my money into a 401K from the very beginning. Can't say as I regret the choice. The state of New York doesn't owe me a dime.

Further Reading:

• Which Side Are You On, Boys?
• Robots of the World, Unite!
• What Are Unions Good For?

Abandoning the Working Class!

As of about three weeks ago I've been retired. True, I'm still on the College's payroll until September 1st, but that's because as a professor I get paid over the summer anyway. My work obligations are finished.

We moved into a new house--much more suitable for an older couple, and closer to the City where our daughter and her family live. I've spent my time settling in, tending our new (much smaller) garden, and assisting my wife in downsizing our possessions. My ambitions are to learn Python programming, to start baking bread, to take up gardening more seriously, and to write more (including this blog), perhaps even a book.

And to do more reading. So far I've read The Count of Monte Cristo, Tyler Cowen's The Complacent Class (which I reviewed here), and I'm halfway through Sebastian Mallaby's excellent biography of Alan Greenspan, The Man Who Knew. I guess this betrays my continued interest in economics.

But the key question--one of political import--is what happens to my class character? By abandoning the working class have I become declassed? Am I now a member of the lumpen proletariat, what not having to set an alarm clock anymore (one of the biggest unsung benefits of retirement)? Or do I retain my prior class affiliation, which is at least nominally working class?

And since one's political opinion is supposedly a function of class character, will my political views now shift in some way? Will I, for example, break down and join that bastion of liberal stupidity, the AARP? (God I hope not!)

I don't think Marx, Engels or Lenin had much to say about retirement. It wasn't much of a thing prior to the 1930s--life expectancy wasn't that long, and productivity wasn't high enough to support a life of leisure. People worked until they dropped dead.

By the 1970s nobody questioned retirement, but instead mandatory retirement became the issue. Should people be forced to retire at age 65? As best as I can gather from bits of this book available on-line, former Congressman Claude Pepper led the effort to abolish any mandatory retirement age for tenured college faculty. So I have colleagues who have kept working long past their sell-by date, much to the detriment of the institution and to the disadvantage of students. As a former college administrator and as a citizen I do think colleges should be allowed to revoke tenure at age 65 or 70, retaining the option to keep employees on via annual contracts. (Actually, I'm not in favor of tenure at all, which renders the question moot.)

As for my Trotskyist friends, they are astonishingly silent on the retirement question. This is odd given that their median age is probably over sixty, and may even be approaching 70. In a word, they're mostly retired.

The most forthcoming is Louis Proyect, who retired back in 2012. Given that he was born in 1945 (three years older than Prince Charles), he is six years older than me. He reports that he enjoyed his job, relished his colleagues, and especially respected his boss--odd things for an unrepentant Marxist to own up to. Though he admits he'd rather be retired. Beyond a discussion of benefits packages (and the shortcomings of Medicare), he has nothing political to say about his new status.

Like me, Mr. Proyect was at least nominally working class--he worked for a paycheck. That said, many (including me, mostly just to tease) have accused him of being petty bourgeois. Certainly our former comrades in the Socialist Workers Party (SWP) would call him that, what with his interest in Syrian politics, philosophical disputation, and obscure histories.

Jeff Mackler, the leader of Socialist Action (SA), is (like me) a retired teacher. From this picture he looks to be about seventy years old. When I joined in 1969 (at age 18) I was among the youngest comrades. Mr. Mackler, already in the Movement, is certainly older than I am.

So California teachers can retire with a full (very generous) pension after 30 years of service. If he started teaching when he was 25, he retired at age 55, or fifteen years ago. No wonder he can spend full time proselytizing for SA.

Mr. Mackler almost certainly receives a state pension. I'm different in that I opted for a 401(K) instead, which puts us on different sides of an important issue--what I term the worker/parasite divide. Let's not make too big a deal out of this: Mr. Mackler and I were both public employees and lived off the taxpayers' nickel (though my institution also charged tuition). In that sense we were both parasites. But Jeff continues to receive a check from the State of California, drawing on their woefully underfunded pension system, which means he's depriving today's women and children of much needed social benefits.

I, on the other hand, have saved for my own retirement, albeit with considerable help from the state. But as of now the State of New York owes me not a penny. Were their pension plan to go broke (less likely than in California, but still possible) I will remain whole (or at least as whole as the economy). So unlike Mr. Mackler, I benefit from lower taxes and less money spent on public employees, whereas he's in the other camp. He's a parasite--I'm a "worker."

Mr. Mackler, as far as I know, has never commented on retirement--either his own or on the political status of retirees.

Dianne Feeley is an editor of Solidarity's paper Against the Current. I commented (favorably) on one of her articles here (the link to her article is dead). She describes herself as a retired auto worker, which I remarked was the best kind of auto worker to be. Ms. Feeley is definitely older than I am--she's a former partner of Barry Sheppard, who turns 80 this year.

If anybody is working class, it's Ms. Feeley. I don't know what the rules for retirement are through the UAW, but if it's longer than 30 years I'd be surprised. And that's deserved--auto workers have a physically demanding job. Ms. Feeley's pension is not publicly financed, but is instead a private plan. The problem is that very few private pensions are fully funded, which means her future benefits depend on the fortunes of today's workers, who will have to pony up money for her. So, as happened with mine workers' pensions, her plan could go belly-up. But most private pension plans are insured by the federal government, who promises to make good on any debt--we'll see if that happens. (I think, but am not sure, that my retirement savings are similarly insured.) In the event, Ms. Feeley and I are on the same side of the parasite/worker line--we both benefit from lower taxes and less spending on public employees.

That leaves Jack Barnes, National Secretary of the SWP, who hasn't retired yet, despite turning 77 this year. He became National Secretary in 45 years ago and has been living off his comrades' nickel ever since, sometimes quite luxuriously. (See here and here.) I guess that's fine as long as the comrades are willing to put up with that.

But this guy has never had a job (at least not since his twenties), and therefore has no real pension. Though who knows what he's saved up.

None of these people have said anything about the class nature of retirees.

Further Reading:

• Louis Proyect and the Pro-Poverty Girl
• Old White Man Runs for President
• Whither the SWP

Trotskyists on Economics

Here is a roundup of recent Trotskyist opinion on economics, broadly interpreted.

Consider first Socialist Action's article headlined Scientists Say: End Fossil Fuel Use Now. I guess that means I won't be able to heat my house this winter. And I should probably forget about going to work on Monday, as that entails driving a car. Oh, and I'm not allowed to use a thorium reactor, either.

So maybe I shouldn't take author Christine Frank so literally? Perhaps she'd be willing to give me thirty days to wean myself off of hydrocarbons? Maybe even a year, though who knows, all of Antarctica might melt before then.

As it turns out, Ms. Frank's solution ignores her imaginary deadline.

The only way to stop further environmental devastation by a greedy capitalist class that refuses to give up its fossil-fuel-based economy is to nationalize the entire energy industry and put it under democratic workers’ control. At the same time, we must ensure a just transition with retraining, union wages, and full benefits for all workers making the shift from the production of dirty fuels to clean, renewable energy.

Even if you could accomplish all of this before the End Of The World, it's not clear to me that democratically empowered workers are going to vote for collective suicide, e.g., freezing to death in the winter. But then Ms. Frank never had much of a brain for practicalities.

Socialist Action is obviously not serious about convincing anybody who doesn't already agree with them. Their website is principally dedicated to the psychological amusement of their own comrades.

Equally ridiculous is the article by Socialist Action's Marty Goodman entitled Syriza Wins, Greek Workers Lose, about Alexis Tsipras' reelection as Greek prime minister following his abrupt turnabout on the memorandum. The correct path for Greek workers, according to Mr. Goodman, is to support the Trotskyists in the ANTARSYA coalition--you know, the ones that got 0.85% of the vote. (Mr. Goodman hilariously mentions that this is an improvement over last time!)

The Left breakaway from Syriza that supported Grexit did much better, getting somewhat less than the 3% necessary to enter parliament. Such a smashing success, per Mr. Goodman, is attributable to their supposedly bourgeois insistence on continued capitalist rule.

The fact is that the overwhelming majority of Greeks want to stay in the Euro. And no wonder, as the alternative is instant poverty. When Tsipras' negotiation failed to produce the expected free unicorns, Greek voters--sadly but predictably--settled for the only remaining option. Mr. Goodman's thesis that the election was somehow unrepresentative is delusional.

I try to take my Trotskyist friends seriously, but these Socialist Action articles are just stupid--there's no other word for it.

The folks over at Solidarity hold the same opinion as Ms. Frank, but they are better informed and more honest about what it entails. Reprinting a piece from the Bureau of the Fourth International (whatever that is), they lay out the unvarnished truth.

To save the climate: 1) 4/5ths of known reserves of fossil fuels must remain underground; 2) the energy system based on these fossil sources (and on nuclear power) must be destroyed as quickly as possible, without compensation; 3) production which is harmful, unnecessary, or based on planned obsolescence must be abandoned, in order to reduce the consumption of energy and other resources; 4) the despotic and unequal productivist/consumerist system must be replaced by a renewable system, one that is efficient, decentralized, social and democratic.

This requires nothing less than the disemployment and mass impoverishment of the majority of the world's population. Of course if that's what's necessary to Save the Planet, then certainly we should all go along--even democratically elected workers must agree.

The Militant's masthead includes the slogan "published in the interests of working people." Socialist Action and Solidarity will both claim similar sentiments. But their relentless insistence on mass poverty will never win the support from anybody who actually has to work for a living.

More serious is an article in Solidarity by Kevin Lin, entitled Chinese Strikes in Manufacturing: From Offensive to Defensive? Mr. Lin obviously knows something, and that right there makes the piece worth reading. He describes strikes at manufacturing companies in China, including at a footwear factory and a clothing & leather company. Some were successful and others not so much.

His thesis (and I simplify it here) is that in the previous decade strikes have been for higher wages and better working conditions--demands that Mr. Lin terms "offensive." More recently, however, unrest has been caused by company closures, severance packages, and demands for workers to relocate. These are "defensive" because while they protect workers, they don't improve standards of living.

Mr. Lin claims that because of the weakness in the Chinese economy, defensive struggles will now prevail. I think he's right.

The Militant also reports on labor unrest, this time in the US. As usual, they're the best reporters on my Beat. Alyson Kennedy files from East Chicago about the contract negotiations between the United Steelworkers and ArcelorMittal. After describing the weakness in the global steel market, she writes,

“We are in for a long fight,” Darrell Reed, a member of Local 1010’s grievance committee, told the Militant. “I’m not optimistic that the latest negotiations will get us something we can live with. Both active and retired members have to stand together. Health care is a major issue, especially for retirees. For some of them the company’s offer means not having enough money for food after paying for health care.”

Mr. Reed has it right. Margins in the steel industry are razor-thin, and companies have no ability to raise prices. Further, even as the workforce shrinks, the number of retirees continues to grow. And contrary to Marxist opinion, benefits for retirees do not come from the capitalists' margins, but instead are paid out of the salaries of the employees. That's why it's going to be so hard to keep active and retired members on the same page--they're both competing for the same pot of money.

Actually, it's all of a piece--the unrest in China, the dispute in the steel industry, and even the demand for $15/hour. For higher wages for Walmart employees means that savings have to come from elsewhere--either by hiring fewer workers in America, or by pinching suppliers. But the suppliers are Chinese workers, who end up footing the bill. That's why their strikes are increasingly defensive, and also increasingly unwinnable.

The only winners are American consumers, who will get cheaper prices. All the workers--whether in the US or China--are really on strike against the consumer. And it's a battle the unions will never win.

The Militant, at least, does not always demand Instant Poverty Now.

Further Reading:

• Book Review: Walmart
• Jeff Mackler's Greek Post-Mortem
• Capitalism Just Won't Sit Still

Labor's Final Step

It's not often that one witnesses the end of a social movement--usually they just gradually fade away. But perhaps we have just seen the end of the trade union movement. The AFL-CIO convention held September 8th through 11th may represent the swan song.

Trotskyists are all atwitter about the event, with lead articles appearing in The Militant, Socialist Action, and Solidarity. Missing from the list are Socialist Viewpoint, which has too slow a publication cycle, and Mr. Proyect, who (to his credit) has been busy covering Syria, and is not interested in economics in any case.

The best-written, most informed, and funniest article appears in Solidarity, by Steve Early. A former leader of the Communications Workers of America, he is now involved in a reform effort known as Labor Notes. Socialist Action's contribution is also good, authored by Bill Onasch. Mr. Onasch is the proprietor and (as far as I can tell) the sole member of the Kansas City Labor Party. Finally, The Militant chimes in with a piece by the venerable Susan Lamont.

The signal event is succinctly summarized by Ms. Lamont in her lede:

Marking a further retreat by the current labor officialdom from any perspective of actively organizing workers into unions and bringing union power to bear, delegates to the Sept. 8-11 AFL-CIO convention overwhelmingly approved a resolution to begin incorporating nonlabor political organizations into the federation and shoring up its dues base with “workers centers.” 

The labor movement can’t be “limited to workplaces where a majority of employees votes 'Yes,” said the resolution.

                    ...

Liberal political organizations that share the labor federation’s orientation to the Democratic Party, including the NAACP, National Organization for Women, National Council of La Raza and the Sierra Club, are invited to join the labor federation as well.

Or, put another way, the AFL-CIO is dissolving itself into the larger progressive Left. Right now the outside organizations are called Solidarity Partners. Mr. Early dubs them alt-Labor. All three authors argue that this dilutes both the purpose and the effectiveness of unions as organizations charged with fighting for workers' rights.

And indeed, contradictions abound. The unions are terrified of Obamacare (aka ACA). Mr. Early writes

With the AFL-CIO’s active support, the Obama Administration came up with an Affordable Care Act that now threatens to put labor-backed Taft-Hartley trust funds, covering 20 million people, at a fatal disadvantage and possibly out of business altogether.

On a similar note, Mr. Onasch notes that the Labor Campaign for Single Payer Healthcare received a tepid welcome at the convention--if anything can put union benefit packages out of business faster than Obamacare, it would be something like single payer. So unlike their Solidarity Partners, the AFL-CIO finds itself allied with Republicans (very ironic since they originally supported the ACA).

Unmentioned in any of the articles is the growing gap between the public employee unions (PEU) and those in the private sector. Just yesterday the Wall Street Journal posted an article saying how Governor Chris Christie has divided New Jersey's PEUs from the construction trade unions. The former can't stand the governor, while the latter are rallying to his cause.

"My guys haven't gotten a raise in two years because their entire raise went to their health and pension costs," Mr. Sweeney said. "New Jersey has a government that we can't afford any longer."

Mr. Sweeney, a former Ironworkers official, is now a Democratic state legislator. So the rank and file rubes are finally catching on--that it's them who are paying for the gold-plated benefits packages awarded to the parasite class. The AFL-CIO is going to have a hard time patching up this divide.

A similar chasm exists between the Laborers International Union of North America (LIUNA) and those solidarity partners in the environmentalist movement. The latter oppose the Keystone pipeline, whereas LIUNA strongly favors it. Likewise, alt-Labor is against anything that might produce income: fracking, mining, off-shore drilling, power generation, and on and on and on. The progressive Left (including Trotskyism) is ultimately pro-poverty, while unionists are actually interested in earning an honest living.

Then there is the effort to "organize" the unorganized--fast food workers, New York taxi drivers, Walmart, etc. Ms. Lamont describes it nicely:

The AFL-CIO will encourage “worker centers” like “OUR Walmart” and “Fight for 15” to affiliate. These union-initiated groups, which also involve students, social service organization staffers and others, have organized protests around the country calling for higher pay and better working conditions for retail, fast-food and other workers, but without organizing the ranks themselves to establish actual unions.

She implicitly admits that the so-called "fast-food strike" was a bit of a fraud--most of the strikers didn't work in fast food. And similarly for the putative drive to organize Walmart.

All three authors take the unions to task for not organizing more workers. They attribute this failure to class collaboration. Quoting again from Ms. Lamont:

By promoting class collaboration with the bosses and election of “friendly” capitalist politicians as the unions’ main purpose, the officialdom’s decades-long class-collaborationist course has hamstrung the union movement. It has been key to the union’s continued bleeding of membership and inability to recruit new forces, at a time of capitalist crisis when workers are starting to look for a way to fight back.

Mr. Onasch says the same thing, and then offers a solution:

The problem created by those in charge of the House of Labor is not their emphasis on politics but their refusal to recognize the need for class-based politics. Our side should be directly fighting for political power, not begging or bribing politicians beholden to our class enemy. There is no more important question for the American working class today than launching a party of our own. Despite their present weakness and disorientation, our unions, and the allies they now solicit, are the foundation upon which such a party can be built.

These views don't pass the reality test. They are based on the Scrooge McDuck Model of Capitalism, which claims that there's some huge stash of cash hidden somewhere that, if the workers just throw a big enough temper tantrum, can be liberated to solve all problems. But there is no such stash, and the union tops know that. They're doing the best they can with the resources available.

The truth is that there is no longer any economic space for unions. Fast food workers can't earn enough to pay union dues, and it is certainly not in their interest to have that expense foisted on them. And likewise for Walmart employees, or, for that matter, auto workers in the South. Unions depended on inefficiencies during the rapidly growing economy of the 1950s and 1960s, from which they collected rents. Those inefficiencies don't exist anymore.

Computerization, globalization, and automation have made the economy much more efficient--there are no more wasted nickels left to pick up off the floor. But the money doesn't go to capitalists. No, instead it goes to the consumer. There is no stash of cash, and there is nothing for the unions to win, even with biggest temper tantrum in the world.

The AFL-CIO has apparently recognized reality and thrown in the towel on organizing workers. They're looking for a new niche.

The union movement is over.

Further Reading:

• What Are Unions Good For?
• Are Rich People Rich?
• Labor's Giant Step Backwards

What Are Unions Good For?

This post is in response to an article in The Militant by Alyson Kennedy, entitled Mine Workers ratify contract with Patriot Coal. This is likely last in a series of articles by Kennedy about the UMWA and Patriot Coal. I've covered previous installments here, here, and here. Ms. Kennedy is consistently a good reporter, and her work is worth reading.

To briefly summarize, Patriot Coal was founded in 2007 by acquiring the unionized mines from Peabody Coal and Archer Coal (those companies are now non-union). Patriot thus inherited the responsibility to pay pensions for 20,000 retired miners and dependents, an obligation that has forced them into bankruptcy. By comparison, Patriot only employs about 1600 unionized miners--they're the people who ultimately have to support all these pensioners.

Despite the noisy demonstrations and empty threats of strike, I expected the miner's union to cave (pun intended). The money to make everybody happy does not exist. The retirees have been promised a bill of goods that can't be paid, and the remaining workforce is too small to make much of a dent in the obligation. But I didn't expect them to cave so quickly or so comprehensively. The new "concession contract" was ratified by 85% of the members.

Losers I thought to myself as I scanned the headline. And they did lose, but on reading the article I see it is not quite so simple. For the truth is that unions do play a useful social role. It's just not what they think it is. Here, in bullet points, is what they agreed to (per Ms. Kennedy's article):

• A $1 per hour pay cut, with $0.50 per hour annual raises beginning in 2015.
• Concessions in paid holidays, overtime, and medical expenses.
• No pensions for new hires.
• Existing pension obligations will be funded by a union-run VEBA (Voluntary Employee Benefit Association Fund) toward which the company will contribute $15 million, plus 20 cents per ton of coal mined.
• The union receives a 35% equity stake in the company--now worthless given the bankruptcy--but if the company emerges from Chapter 11 the union can sell that to fund the pension plan.
  
  

It's not very generous: $15 million spread among 20,000 retirees comes to about $800 per person--not much of a nest egg. I can't estimate the value of the 20 cents per ton or the equity stake, but both of those depend on Patriot remaining a viable company. The CEO claims they are now on track to come out of bankruptcy. I sure hope so.

But that's not all. The union won a court case which imposes a responsibility on Peabody to cover pensions for 3,100 miners. Presumably these are miners who retired before the company was sold. Funding that smaller number from among Peabody's somewhat larger workforce seems practical. And finally, the union is lobbying for federal assistance in the form of Coal Act funds.

So everybody is taking a haircut. Patriot was already pretty bald, so they're mostly on a pay later plan. Peabody is still on the hook. The union workers get screwed, while the retirees (if they're lucky) get something. As Ms. Kennedy reports,

“We took concessions to help our retired brothers and sisters,” said Darryl Hedgepath, a member of UMWA Local 1793 and scoop operator at the Patriot’s Highland No. 9 Mine in Uniontown, Ky. “On any one day they could still close down the mines.”

None of this solves the pension problem. All it does is kick the can down the road. In the short term the old folks get a pay-out from the VEBA. Medium-term, funds siphoned from Patriot's future revenue string it along a little further. But long term? Long term we're all dead, and that, by the way, is a pretty good solution to the pension problem.

In that context it's important to point out that new hires won't receive a pension. That means nothing now--the coal industry isn't hiring very many people. But it obeys the first rule of holes--when you're in one, stop digging. The UMWA (along with 85% of its members) has finally learned that empty promises of golden pensions are not worth the paper they're printed on. So they've stopped making promises.

And that brings us back to the good things unions do. Of course the unions are going to lose. They were always uneconomic. Ever richer contracts with ever more generous pension benefits built on an imaginary view of the future--those days are over for good. No--the job of today's unions is to lose gracefully--that is, to negotiate a fair distribution of haircuts.

My faculty union has not learned that. I'm sitting in the catbird seat. I have tenure, great benefits, and I'm the highest paid member of my department. I got here by playing by the rules as they were when I was hired--rules that sort of made sense at the time. And then I took some risks (not all of which paid off) that increased my salary. The union protects me--the college can neither fire me nor (significantly) cut my pay, nor even force me to retire. By the time I (voluntarily) retire three years from now my house will be paid for and I'll have zero debt. I will have a decent nest egg from my defined contribution retirement plan, so even if the state goes bankrupt it won't affect me. There are no (large) haircuts in my future (unless the economy collapses).

So I'm grandfathered in, and that's fair. I played by existing rules, and changing them now at the last minute is as unfair as completely screwing over the miners' pensions. The problem is that the union hasn't learned the first rule of holes--they're still digging.

The problem is that the rules under which I was hired no longer make any sense. The business model and operating procedures for higher education look to be radically different in the not distant future. So rather than fighting like mad to retain the status quo--a totally lost cause--the faculty union should be working hard to lose gracefully. The watchword is lose gracefully--and then go out of business.

Colleagues ten years younger than I need to make some adjustments to their retirement planning. Those twenty years younger need to move to defined contribution benefit plans that they can take to a new career if college teaching becomes untenable. And people thirty years younger need to be thinking about their profession in a whole new light. A life-long, tenured professorship such as what I have is simply not in the cards for them.

And that's what I find so sad. My college, just this August, awarded tenure to a dozen faculty. This is a promise for a thirty year career as a college professor. I don't think the promise will be kept--the world is changing too fast and too dramatically. These colleagues are being sold a bill of goods--the campus, with union connivance--is lying to them. This is worse than what the UMWA and UAW did in the 1960s and 1970s--then, at least, the promises seemed credible (even though they weren't). But today, if it's not obvious that higher ed is untenable, then I don't know what obvious means. It is a scandal than anybody is awarded tenure today.

So unions are good for something. But they need to stop lying. And lose gracefully. Kudos to the United Mine Workers.

Canaries In The Coal Mine

This post is partly inspired by an article in The Militant by Kennedy and Farley. They report on another demonstration by the United Mine Workers (UMWA) in St. Louis. The targets are Patriot Coal Co., and also Judge Kathy Surratt-States, who is supposed to rule on the Patriot's bankruptcy petition today (May 29th). I haven't found any news of a decision on the web as of now.

The union claims that Patriot was spun off from Peabody Coal and Arch Coal precisely for the purpose of destroying the union. All the UMWA mines are now owned by Patriot; they employ 2000 miners and are responsible for the pensions of 20,000 retirees. The union is probably correct, but it makes no difference. If the union mines are unprofitable, they are unprofitable regardless of who owns them. I've posted on this issue before here and here.

I have recently finished reading The Box, by Marc Levinson, a history of the shipping container and the revolution in world shipping. It is an excellent book--well worth reading. The analogy to the coal industry is surprisingly exact.

As a person who joined the Socialist Workers Party (SWP) on the West Coast, I soon encountered the name of Harry Bridges. He was the long-time head of the International Longshoreman's and Warehouseman's Union (ILWU), which had a lock on the West Coast ports. We Trotskyists hated him--he was a Stalinist, reformist, labor-skate, sell-out, and probably a few other things besides. By the same token, the employer's association also hated him--he was a Stalinist, Commie Pinko, union thug who hated America. That Mr. Bridges hailed from Australia resulted in that last expletive, and also in numerous government attempts to deport him, despite his naturalized citizenship.

With enemies like that, what could go wrong? Not much, really. His fearlessness inspired awe among the rank and file, and his credibility among ILWU members allowed him bargaining flexibility that few other union leaders had. As a result, in 1960 ILWU signed the Modernization and Mechanization Agreement (MMA), substantially changing the work life for longshoremen.

Up through the 1950s, most freight was shipped as breakbulk cargo. Longshoremen would load freight one piece at a time, stowing it carefully in the hold. At the other end the freight was similarly unloaded. This was backbreaking work, and worse, it took a week or more to unload and then load a single ship. The entrepreneurial genius in Levinson's story is Malcom McLean, the man who "invented" the container, i.e., a box that could be packed by the shipper, loaded whole onto a truck, and than packed easily on a ship. The big advantage is that ships could be turned around in port in about 12 hours.

Of course containerization meant that most longshoremen would be unemployed. And prior to the MMA, the unions came up with very imaginative make-work schemes, such as the "strip and stuff" requirement. Under this rule any container arriving on the pier had to be emptied and then repacked by longshoremen--a process that effectively made the container uneconomical. The result was that shipping traffic was falling dramatically at West Coast Ports, and both the shippers and Mr. Bridges realized that something had to change.

What the MMA gave to the employers was "...the contract, working and dispatching rules shall not be construed so as to require the hiring of unnecessary men." In compensation the union got money--quite a lot of it. There were generous retirement benefits, and the A-listers (the top of the two-tier workforce) got guaranteed hours. The labor force was reduced solely through natural attrition--no layoffs were planned.

Indeed, no layoffs were necessary. Because of the MMA there was a huge spike in port traffic, and every longshoreman was busy. For the first time in many years many B-listers were promoted to the A-list. In the long run, of course, many fewer longshoremen are employed today, and freight transport costs have come down by about 90%. We are all vastly richer as a result.

The MMA was a success, but Harry Bridges was condemned as a sell-out. His East Coast counterpart, International Longshoreman's Association (ILA) head Teddy Gleason didn't sell out, but was much less successful. His circumstances were more difficult and he didn't have Mr. Bridges' credibility, so there was no MMA equivalent until the late 60s. By this time the bargaining power of the union was greatly reduced, and a lot of longshoremen were left with nothing.

President Kennedy put it well in 1962:

I regard it as the major domestic challenge, really, of the 60s, to maintain full employment, at a time when automation, of course, is replacing men."

Substitute "60s" with "2010s" and you have a pretty good summary of today's circumstance. We are beginning a huge new round of automation--millions of people will be thrown out of work. In the long term new jobs will be invented to replace the ones that are lost (how many unemployed longshoremen are still around today?), but that won't help in the meantime.

And this brings us back to the coal miners. Coal mining has been automated--yes--but the big change is fracking. Natural gas replaces coal with only a fraction of the labor investment, and is cleaner and cheaper for the end user. Accordingly, domestic demand for coal is down about 10% since 2008. So union coal miners are gradually being put out of business. The question is--is the UMWA more like ILWU under Harry Bridges, or like the ILA under Teddy Gleason?

I think the answer is more like the ILA. They do not have a leader with the credibility of Mr. Bridges, and their bargaining position is muchU, much weaker. Patriot Coal is good example--you can't strike against a bankrupt company, and you can't go on strike if you're retired. So the UMWA is doing the only thing it can do--sending bus loads of miners to St. Louis to throw a temper tantrum or two. It won't help.

So here's the good thing unions do: they put some friction in the works. In the long run the world needs fewer coal miners. But we can't just turn them out on the street. Harry Bridges' great genius was to find a way to enable mechanization, while still being fair to people already in the profession. By the same token, the UAW got bailed out by the government and they've been made (mostly) whole. I don't think the UMWA has been that wise. There just aren't enough of them and their bargaining power is too small. With luck they'll get some kind of government bailout. I rather hope so.

Automation here we come. You can hear it already. Just listen to the canaries in the coal mines.

Further Reading:

• Luddites Against Fracking
• Union Man
• Collapsing Pensions

Labor's Giant Step Backwards

This post is about the precipitous decline of the union movement, and is based on three articles--two in this week's Militant (by Alyson Kennedy and Frank Forrestal), and the third by Harold Meyerson in the American Prospect.

Kennedy continues to report on the mineworker's pension problems, about which I blogged last week. Patriot Coal Company has declared bankruptcy and is asking to be excused from paying pensions to 10,000 retired miners (along with 13,000 dependents), when only 1600 Patriot employees are members of the United Mineworkers (UMWA). Most of the retirees never worked for Patriot--instead they were employed by Peabody Coal or Arch Coal. In that post I incorrectly implied that Peabody Coal had gone out of business. That's not true--it is alive and well, presumably as a non-union company. It has completely divested itself of Appalachian mines, operating only in the Midwest and the Rockies. The UMWA's claim is that the Patriot Coal spin-off was set up to fail from the git-go.

I don't know if that last claim is true, and in any event it doesn't matter. The Marxist (and union) conceit is that capitalists keep some large stash of cash that they could pass out to the workers if they just wanted to. It's the Scrooge McDuck image of capitalism, and it's totally false. In reality, a commodity business like coal operates on very tight margins--likely only pennies on the dollar--and that's all the money they've got to play with.

So the union tacitly acknowledges that Patriot doesn't have the resources to make good on the pension promises--that's why they're also picketing Peabody's headquarters in St. Louis. That's the primary topic of Kennedy's current article. Peabody is a somewhat larger company, with 8300 employees in both the US and Australia. Without the illusory stash of cash, the only place Peabody could get the money to pay off the union pensions is from either its customers or current employees. The customers won't bite--the coal market is shrinking. And the current employees--non-union and not from Appalachia--won't be inclined to contribute to pensions more generous than anything they themselves have been promised. From Ms. Kennedy's report, it appears that none of Peabody's current workforce is participating in these protests--why should they?

The union will lose this fight. They can't strike against a bankrupt company in a weak market--then everybody is unemployed. And they can't strike against Peabody because they don't work for Peabody. Neither unions nor companies can produce cash out of thin air--the union contracts are a fraud. The workers have been consistently lied to for decades.

Frank Forrestal's article is about the lockout of sugar workers in North Dakota. The lockout by American Crystal Sugar Company lasted 20 months, and Forrestal now reports that the workers ratified a contract  just like what they'd been offered at the beginning. In the meantime they're numbers have dwindled, and it looks as though the returning unionists will be a minority in the workforce. The union has been comprehensively defeated.

A second union conceit is that unions increase the wages of the entire working class. During the 1950s and 1960s this appeared to be true. Wages were increasing across the board, and unions just took a little bit more than their share of the extra gravy. Their wealth grew slightly faster than everybody else's, making it look like they were leading the way. But by the mid 70s productivity increases slowed down, and with it also the increase in per capita GDP. Hence there wasn't enough extra gravy to go around, and as a result the union bennies came out of everybody else's hide. People don't really mind if extra gravy gets spread out unfairly, but we hate to lose ground when the gravy runs out.

So just as the non-union miners aren't going to subsidize their colleague's pensions, neither will sugar workers or consumers subsidize union work rules. Unlike Peabody Coal of yore, American Sugar told their employees the truth--you work at market rates or you don't work at all. No false promises, and in the end everybody will be better off.

Marxists will claim that union workers are not in competition with other workers, but rather with capitalists. This simply isn't true. Capitalists cannot set wages--those are subject to the market. There is a separate market for capital, which also is determined by supply and demand (or at least should be, though the government is now artificially lowering the cost of capital). A capitalist needs to make a market return on investment in order to justify taking the money out of the bank. Capital and labor are mostly separate markets and not in competition with each other--rather like cars and avocados. Few people say "I'm not going to buy a car today because I'd rather buy an avocado."

So that brings us to Harold Meyerson's piece, entitled How Unions Are Getting Their Groove Back. In other words, Mr. Meyerson wouldn't buy a word of what I've just told you. In his view unions have turned the corner and are on the rebound. His lede paragraph:

Yesterday—April 24th--a red-letter day in the annals of worker mobilization in post-collective-bargaining America. In Chicago, hundreds of fast-food and retail employees who work in the Loop and along the Magnificent Mile called a one-day strike and demonstrated for a raise to $15-an-hour and the right to form a union. At more than 150 Wal-Mart stores across the nation, workers and community activists called on the chain to regularize employees’ work schedules. And under pressure from an AFL-CIO-backed campaign of working-class voters who primarily aren’t union members, the county supervisors of New Mexico’s Bernalillo County voted to raise the local minimum wage.

So Walmart workers are at the opposite end of the economic food chain from coal miners. Miners are in a basic resource industry, and if the world really were Wobbly-friendly, then in principle  they could shut the whole thing down. Retail workers--one step away from the consumer--have no such power. The best they can do is shut the store down. If the miners can't pull off a successful strike, then surely Walmart employees won't be able to, either.

Walmart is impossible to organize. The retail trade is so disperse and varied that shutting down one store just won't make any difference. Indeed, Walmart has clearly indicated that it will simply shut down if forced to unionize. Walmart is a labor-intensive business, unlike mining, which is capital-intensive. That means that Walmart can just walk away from the business at relatively little cost. Walmart employees know this--that's why they've never voted to unionize.

And one really has to laugh at the economic ignorance of the Bernalillo county supervisors. They think they're all powerful--by the flick of a pen they can raise the standard of living of everybody in the county. I'd like to know why they are so chintzy--why didn't they raise the minimum to $100/hour, or even $10,000/hour? I mean if it's that easy to make everybody rich, then by all means, let's go for it.

Of course it's all a fraud. The minimum wage no more increases wealth than do the fraudulent pension benefits promised union workers. Employees with defined benefit pensions--be they in the public or private sector--are victims of a huge Ponzi scheme. They will never see more than pennies on what they expect. I think that's very sad.

Anyway, kudos to The Militant for honest and informative reporting.

Further Reading:

• Collapsing Pensions
• Trouble In The Faculty Lounge
• Union Man

Collapsing Pensions

What a difference forty years makes.

When I was a Trotskyist I found articles about pensions and benefits boring. Who cares about all that stuff? I thought to my twenty-year-old self. Now I care, though I'm still afraid the topic will put my younger readers to sleep.

This post is based on three recent articles. The first, from The Militant by Alyson Kennedy, is an account of a demonstration in Charleston, WV, by United Mine Workers (UMWA) retirees surviving on a pension from the bankrupt Patriot Coal Co. The second, from Socialist Viewpoint, is by the irrepressible Gregg Shotwell and concerns Michigan's new Right To Work For Less law. And finally, is an article in today's Wall Street Journal by Andy Kessler on the Pension Rate-Of-Return Fantasy.

Frankly, the retired mine workers are mostly screwed--either them or the taxpayers. Kennedy does a pretty good job in laying out the problems:

In 2007 Peabody Energy spun off most of its union mines to form Patriot Coal Corp. A year later Patriot bought Magnum Coal Co., an Arch Coal spinoff. More than 90 percent of “Patriot” retirees today never actually worked for Patriot.

Of course Patriot's first obligation is to shareholders, and not to retirees. So naturally the miners get the short end of the stick. But it gets worse:

Both the number of coal miners and the proportion who are members of the UMWA has declined dramatically over recent decades. Only about one-quarter of working miners are members of the UMWA today, down from 43 percent in 1994. Today there are about 82,000 active miners in the U.S., down from some 89,000 in January of last year and from 175,000 30 years ago.

Kennedy says that Patriot is responsible for 10,000 UMWA retirees with 13,000 dependents, many of whom suffer from black lung-related illnesses. She doesn't say that Patriot Coal Co. today employs a grand total of 4,100 people, only 1,600 of whom are in the UMWA. So Patriot is responsible for six times as many retirees as current employees--there is no way in Hades that this is going to end well.

The only bright note in Kennedy's article is

Sen. Jay Rockefeller, in a videotaped message, promised to press for the Coalfield Accountability and Retired Employee Act, which would transfer money from the Abandoned Mine Lands fund, a government fund for restoration of mined land based on taxing coal production, to the UMWA 1974 Pension Plan.

The CARE Act is supposed to prop up the union’s pension plan — which faces insolvency as a result of declining unionization and funds lost through speculative investments — as well as cover retirees who lose benefits when coal bosses file for bankruptcy and reduce taxes on employer payments to benefit plans.

Ah yes--those funds lost through "speculative investments," as if Patriot had taken the pension funds to Las Vegas for vacation. And that brings us to Kessler's article:

In June of 2012, Calpers lowered the expected rate of return on its portfolio to 7.5% from 7.75%. Mr. Milligan suggested 7.25%. Calpers had last dropped the rate in 2004, from 8.25%. But even the 7.5% return is fiction. Wall Street would laugh if the matter weren't so serious.

... 

The right number is probably 3%.

For the past 30 years the rate of return on investments has averaged about 8% annually. Pension plans have invested with that number in mind--at that rate your money doubles in about eight years. But since 2008 the rate of return is only about 3%, and doubling your money takes more than 20 years. Naturally all kinds of pension plans are now underfunded.

The common solution for this touted by the "bourgeois media" (Trotsky-talk for non-Communist newspapers) is a defined contribution plan rather than a defined benefit plan. This puts pension fund risk on the backs of the employee rather than the company, and unions tend to oppose it accordingly. After all, if the rate of return declines to 3%, that's going to affect the defined contribution plan just as much.

But I will argue that on average, employees will be better off with a defined contribution plan. There are three reasons:

1. Employees will pay more attention to their investments than some hired pension manager will. They are less likely to follow the herd. In some cases they'll make big mistakes and lose a lot of money, but in most cases they'll come out ahead. Professional managers can lose their jobs by not following the herd, even if the know the herd is wrong. They won't buck the trend.
2. My defined contribution pension plan is mostly invested in TIAA-CREF (a fund for teachers). TIAA-CREF's fiduciary responsibility is to its investors. This is different from Patriot Coal, who a) has a primary fiduciary responsibility to shareholders, and b) doesn't really know how to manage a pension plan to begin with. They're going to screw it up.
3. Defined benefit plans give everybody an incentive to lie. This is most evident for the public employee unions. The union bigwigs want to brag about their bargaining chops and will negotiate the biggest pension deal they can, even if the math makes it totally impossible. And elected politicians are always generous with taxpayers money, especially since the taxpayers won't get the bill until twenty years later. Thus both the unions and the politicians have every reason to make promises that can't possibly be kept. To a lesser extent, that's true in negotiations between the UMWA and Peabody Coal. Whoever did the negotiation for the company is long since retired (or deceased) and completely out of the loop. The workers are left out to dry. Indeed, Peabody Coal doesn't even exist anymore.

The promises in defined benefit plans are not worth the paper they're printed on. Especially in the public sector, a large number of plans are simply going to default. It looks to me like the UMWA pensions are headed in the same direction. Think Cyprus, folks.

In a slightly different vein, Mr. Shotwell writes a totally depressing article about what he calls the Right To Work For Less law in Michigan. Its real moniker is the Right To Work law, but Mr. Shotwell's addendum is accurate. Wages will go down. But wages will go down anyway. The union scale is just unaffordable, and those jobs will be either out-sourced or automated or both. 

I think Mr. Shotwell pretty much throws in the towel in this article. His purpose is to justify paying union dues in a Right-to-Work state. He can't really give a good reason. The best he comes up with is this:

A union is forged in trust and camaraderie. If a union stands for anything other than fellowship between workers, it’s probably a front for a commercial enterprise.

That's just it. All a union can provide these days is trust and camaraderie. That's something, but it won't pay the bills.

Further Reading

• Trouble in the Faculty Lounge
• Where the Customer Always Comes Last
• Union Man