Does Economics Create Wisdom?

Brad DeLong looks at all 'we' have to figure out, and is exasperated:

The Obama administration is going to be rebuilding and reconstructing five major sectors of the American economy. It has no choice--there is no other option. It has to remake:

* Autos
* Housing finance
* High finance
* Energy
* And the big one—health care

On what principles and through what procedures is this extraordinary exercise in structural economic reform policy going to be accomplished? I get how to do the macroeconomics of Obama administration economic policy. I don’t get how to do the structural side…

He might add that we have nettlesome questions about the amount of subordination needed for mezzanine debt in the CDO's for Alt-A mortgages, what price--or is it 'level of price growth'--to set for housing, and how much chromium should be the standard dosage in weight loss supplements.

For me, the key principle in economics is that it studies the unplanned effects of individuals acting in their self interest. Like evolution it appears to be a product of design. Yet, many esteemed economists think that if we do not come up with a 'plan', all the key decisions in the economy won't be made anywhere near optimally, just as a bridge can't be built without a designer. Thus, its hard to say that learning more formal economics is a good idea, because clearly, there are no 'first principles' in this field, it still is merely a field for organizing and articulating your prejudices.

Margaret Thatcher famously told President Gorbachev that capitalism was superior to socialism because unlike Gorbachev, she didn't have to decide how many refrigerators to make this year--the market does that. Faith in the relative superiority of decentralized decisionmaking, by individuals who are not elected, is just as non-intuitive as it ever has been.

Union Work Rules

The UAW magnanimously announced that they may get rid of the job bank, basically mandatory featherbedding. They also may back off on the demand that $10B go directly to the union's unfunded health care pension. UAW president promises that labor costs will be competitive...in 2010...for new workers. Thus, existing workers keep their comfy benefits, which are much higher than what they would get if Detroit did not have to deal with the union. Given their labor costs are about $72/hour versus $44/hour for the Japanese making cars in the US, I don't see why they shouldn't take a $25/hour pay cut today.

The recent UAW national agreement with Detroit automakers is an inch thick, meaning there are many specifics on who can do what on the shop floor. This makes productivity increases very difficult. The following anonymous commenter outlined how insidious unions are:

I work with the UAW daily. Don't give me any of this "They're protecting 40 hour work weeks and weekends." anymore. I don't even work in a factory (right now). I work in a test facility. All of the mechanics are union. If a bolt breaks or some wiring (CAN lines, 0 voltage) I need to put in a work order to get it done. A 30 second fix will take 6 hours. If you even look at their tool chest wanting to borrow something you'll get written up. Then you have a grievance on your permanent record AND the union guy gets paid double for that time because you went around him.

Oh and a bit about working with the union in factories. You can't touch anything. For example if you're a process improvement engineer and you need to figure out how to improve a process. You need to stand and watch some guy with only a high school diploma do it. You can't touch anything. See a piece of trash on the ground. Leave it (even if it's a safety hazard) if the floor sweeper sees you, you'll have another grievance because you're "Taking his job away".

We have a project going on "Why is this bolt failing" on a certain product of ours. Turns out that it is over torqued at the factory. So management and the powers that be put out an official decree: No air wrenches on X bolt. The union continues to use them. Legally we can't 'take them away' or go into their tool boxes after they leave. So our bolt continues to fail because Joe Blow is too damn lazy to use a proper torque wrench.

And how is it different in a non-union shop? (Coming from my experience in the same company at a different, non-union plant). It's absolutely farking wonderful. I can walk out on the production line. Grab a tool, use it to see how something is done and then go finish my report/project. One day I had to build a proto type. I was all scared because I had just left a union shop. I was out there all timid until one of the guys spoke up "Oh, we're not union." Then he rolls over a tool chest. Gives me a 10 second demo on how to use the overhead crane. And leaves me. At the end of the day he helps me sweep up my stuff. We BS about the project and it was an absolute joy.

And one of the biggest things I noticed is there's no such thing as "That's not my job." (My friends at Toyota point this out readily). If you have one production line down and one that is short of people. You go work on the one that needs people. In a union shop you get "that's not my job." So the workers from line X sit and play cards while the workers from line Y barely meet demand.

Wonder how Toyota and Honda and BMW do JIT (just in time) delivery? You can take someone off of a slow production line (Say an SUV line) and put them on a small car line in a day of training. Most factories are idiot proofed to the point of you don't even need to know english to put bolt X into nut Y and tighten with the wrench.

That's why union sucks and that's why I think they need to be abolished.

It seems more probable that the non-American auto plants will be unionized, given all the nostalgia for the New Deal.