Wednesday, June 22, 2011

Worst of the Week (Geoghegan)

Two editorials this week are competing for my inaugural "worst of the week" award. I'll discuss one today and the second tomorrow.

First Nominee: Thomas Geoghegan

Boeing is in a spat with the National Labor Relations Board (NLRB) over a decision to open a $1 billion facility in South Carolina to manufacture its new 787 Dreamliner aircraft.

On Monday, the Wall Street Journal published an opinion piece by Thomas Geoghegan. Geoghegan, a lawyer in Chicago, believes that Boeing's case is a "teachable moment." Specifically, Goeghegan remonstrates against business migration from higher-cost urban areas (like Chicago and Seattle), to lower-cost U.S. states (like South Carolina or Louisiana).

Geoghegan relies on an anecdotal experience with Outboard Marine Corporation to conclude that "when major firms move South, it is usually a harbinger of quality decline." He suggests that Southern union-busting has resulted in inferior schools and, in turn, "poorly educated and low-skilled workers that are simply unable to compete."

After highlighting the mental deficiencies of Southern rednecks, Geoghegan loops back to Boeing. In a revelation that will surprise Boeing shareholders, Geoghegan asserts that:
Boeing is not a product of the free market—it's an extension of the U.S. government. Over the years, our taxpayers have paid to create a Boeing work force with exceptionally high skills. That work force is not just an asset for Boeing—it's an asset for the country. Why should the country let Boeing take it apart?
So let me sum up the argument. Business executives should no longer have the economic freedom to deploy investment capital based on an analysis of commercial risks and opportunities. Domestic business migration from higher-cost locations to lower-cost locations is economic suicide and will accelerate the collapse of our economy and standard of living. Super-smart labor lawyers (like Geoghegan) and regulators (like the NLRB) will prevent businesses and their shareholders from committing aforementioned economic suicide. Meanwhile, Southern rednecks can keep themselves busy wrangling alligators and trading food stamps for NASCAR tickets.

In all seriousness, Geoghegan's editorial is disturbing on several fronts. It is blatantly condescending towards men and women in the South. (I'm not sure how Geoghegan defines "South," but I'm guessing "South of the Mason-Dixon line.") It reflects an economic authoritarian philosophy that the rules of the game should be stacked in favor of "enlightened Northerners" (who, by the way, are more friendly towards unions) and against their "unevolved Southern cousins" (who, by the way, favor "right to work" policies). Moreover, it is painfully detached from economic reality.

Geoghegan apparently believes that the cost of an employee solely reflects the productivity and quality of that employee. Hence, an employee based in Chicago that earns $28 per hour, is more productive and performs higher-quality services than an employee based in Louisiana that earns $14 per hour. But most of us understand that labor costs are related to the underlying cost of living in a given area. To pay the bills, those of us living in higher-cost urban areas need to earn relatively higher incomes than those of us living in lower-cost rural areas. Hourly wage differentials tell us nothing about the educational background, motivation or performance of individual employees.

As Geoghegan is probably aware, a Harvard law grad working as a corporate attorney in New York City would charge higher rates than a Harvard law grad working as a corporate attorney in Miami. (Let's assume that both law grads are twin sisters, and that they had identical educational backgrounds before Harvard.) Is the Miami lawyer paid sub-par wages because she spends her day hunting raccoons and eating fried Twinkies? No, the pricing differential simply derives from market economics (including a lower cost to do business in Miami relative to New York City).

To use a more concrete example, compare the fates of domestic auto manufacturers and their foreign counterparts with U.S. manufacturing facilities. Under the weight of union contracts, Detroit automakers GM and Chrysler were forced into bankruptcy and bailed out by taxpayers. Their foreign counterparts, with non-unionized workforces in various Southern states, survived the Great Recession without taxpayer support (thanks to leaner cost-structures and more operational flexibility).

Although the Journal can be commended for publishing a diversity of views, I wonder if this was a bait and switch. Locate a labor lawyer who believes in a centrally-planned economy (run by super-smart labor lawyers and the NLRB), and give him a platform to embarrass himself and discredit the NLRB by association.

Up tomorrow: Everson ... Seriously?

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