High rates of unionization in the public sector have led to very high labor costs in the form of generous collective bargaining contracts. Now state and local governments are under increasing financial pressure, as a worsening national economy has led to decreased revenues for states and municipalities—many of which remain locked into the generous contracts negotiated in more flush times. Thus, as businesses retrench, governments find themselves in a financial straitjacket. In addition, as government unions grow stronger relative to private-sector unions, their prevalence erodes the moderating influence of the market on the demands that unions make of employers.

Now, as an economic downturn threatens state and local government revenues, officials who want to keep their fiscal situations under control would do well to look skeptically at public-sector bargaining—especially since the existing political checks on it have proven ineffective. Public officials should eschew public-sector bargaining when possible, or at the very least, seek to limit its scope.

As keepers of the public purse, legislators and local council members have an obligation to protect taxpayers' interests. By granting monopoly power to labor unions over the supply of government labor, elected officials undermine their duty to taxpayers, because this puts unions in a privileged position to extract political goods in the form of high pay and benefits that are much higher than anything comparable in the private sector.

This paper shows how the unionization of government employees creates a powerful, permanent constituency for bigger government— one that is motivated, well-funded, and organized. It also makes some recommendations as to how to check this constituency's growing power—an effort that promises to be an uphill struggle.

U.S. labor union leaders see themselves as champions of the American worker, but their movement has become largely irrelevant to most workers enjoying this Labor Day holiday. For the small and declining share of Americans who still work in unionized industries, the movement has proven to be a job killer.

From their zenith in the 1950s, labor unions have witnessed a relentless decline among non-governmental workers. Fifty years ago, about one in three Americans working in the private sector belonged to a labor union. Since then, "union density" in the private sector has declined steadily to less than 8 percent today.

Labor leaders blame the decline on union-busting corporations, years of hostile Republican rule in Washington, and a flood of imports from low-wage countries such as China, but the main reason behind the decline of private sector labor unions in recent decades is the anti-competitive nature of unions themselves. Like a virus, labor unions have been slowly sapping the lifeblood of the very industries and companies that employ their members.

Studies comparing unionized companies to those without unions find that unionized firms are less able to compete in the domestic or global marketplace. Unions can help raise productivity and reduce worker turnover, but at a steep cost to unionized employers. Through collective bargaining, unions extract higher above-market pay and benefits from employers, while more rigid union work rules reduce efficiency and blunt the ability of management to adapt to changing market conditions.

As a result, unions cripple the ability of the companies to compete in an open and dynamic economy. Research by Dr. Barry Hirsch at Georgia State University and others has found that unionized firms are less profitable, invest fewer resources in physical and intellectual capital, accumulate more debt, and grow more slowly than comparable firms that are not unionized.

The inevitable outcome of the "union tax" is that unionized firms inevitably yield market share to their non-unionized rivals, whether foreign or domestic. The union tax explains why almost all the job losses in manufacturing from 1973 through 2006 were among unionized workers.

An obvious example of this phenomenon is the Big Three U.S. automakers. Since the 1970s, General Motors, Ford, and Chrysler have been losing ground to foreign-owned rivals such as Toyota, Honda, and Nissan.

It is not imports that have cut into the sales of the Big Three but output from foreign-owned plants in right-to-work states in the South such as Texas, Mississippi, Tennessee, Kentucky, and South Carolina.

Those non-unionized foreign "transplants" offer solid middle-class wages and benefits to their workers. They have managed to remain financially viable during the downturn because they avoided the gold-plated pay and benefit packages and stultifying work rules that the United Auto Workers union extracted from the Big Three over the years — contracts that proved to be unsustainable in a competitive market suffering through a steep recession.

Unionization has exacted a toll on other sectors of our economy as well. Many big city newspapers that have been hemorrhaging red ink are also unionized. The unionized airline industry has collectively lost billions of dollars in recent years.

The U.S. Postal Service is on track to lose $7 billion in the current fiscal year even though it enjoys a government-conferred monopoly on first-class mail. Of course, technology and the business cycle have done the most damage in those sectors, but the union tax seems to be the common thread among the most critically ill employers.

The one sector where unions have managed to hold their ground is in government. Union density among government workers has held steady at between 33 and 36 percent of total public employment. Unions can survive and thrive in the government sector because, by definition, there is no real competition. The costs of unionization can be passed along to taxpayers without losing market share.

American workers do not need collective bargaining to enjoy the fruits of a free and open market. The Great Recession of 2007-09 has caused widespread pain, but it should not be allowed to obscure the long-term progress American workers and their families have made in recent decades.

The real compensation per hour earned by American workers — that is, wages and benefits adjusted for inflation — is still 20 percent higher on average than a decade ago. Median household income is $6,000 higher than it was in the early 1990s. And despite the recent drop in home values and stock prices, median family net worth was still 10 percent higher in real dollars at the end of 2008 than a decade ago, and 30 percent higher than 20 years ago.

It remains one of the big lies of the economic debate that we have traded away high-paying, unionized manufacturing jobs for low-paying non-union service jobs flipping burgers and cashiering at a big-box retailer. Since the early 1990s, two-thirds of the net new jobs added to our economy have been in service sectors — such as education, health care, and business, financial and professional services — where average wages are higher than manufacturing. The American middle class today earns its keep in the largely non-unionized service sector.

The Obama administration and Democratic congressional leaders owe a big political debt to the AFL-CIO, Teamsters and other labor organizations that expended so much money and manpower to get them elected. The so-far unsuccessful effort to pass "card check" legislation is just one example of the payback labor leaders expect to receive for their loyal backing.

Known officially as the Employee Free Choice Act, the card-check legislation would effectively abolish the secret ballot in workplace elections for union representation. It would also require employers to submit to binding government arbitration if they cannot reach an agreement with union representatives, forcing companies to submit to contracts that may imperil their very survival. And the bill would compress the time period for holding elections, denying workers the ability to fully inform themselves of the consequences of their decision.

Those are reasons enough to be wary of upsetting the current status quo in U.S. labor law. But the sobering experience of unionized companies offers a further warning against tipping the playing field further in favor of union organizers.

A resurgence of union representation in the private sector would threaten to plunge even more U.S. companies into financial distress and put more American workers in danger of losing their jobs.

Lobbyists appear, campaign contributions are made, op-eds are published and hearings are held. Both sides offer tragic anecdotes supporting their respective positions. Empirical research is ignored, quoted out of context, or dismissed because it dates to previous malpractice crises. The only thing physicians and lawyers agree on is that malpractice insurers are price-gouging.

Physicians insist caps on noneconomic damages will cure the malpractice crisis. Lawyers insist caps are unfair and discriminate against women and the elderly. Some states will adopt caps, and others will not. When premiums decline, physicians in the states that adopted caps will claim that caps are responsible. Lawyers in states that didn't adopt caps will claim the same thing. As premiums decline, the debate will die down and the combatants will demobilize — only to begin the process again at the next opportunity.

What do we have to show for all this effort? Thirty-one states have a cap on noneconomic damages or total damages, or both. The rest probably won't adopt a cap voluntarily, and there is no prospect of a federal cap as long as Democrats control Congress.

A more fundamental problem is that damages caps don't do much to improve the quality of care that is being delivered. There is plenty of evidence that the quality of American health care isn't what it should be — but providers receive the benefits of a damages cap whether they have made great effort or no effort to improve the quality of services they are providing.

If we want to actually improve the quality of American health care and help ensure that we obtain value for the roughly $2.5 trillion per year we are spending, we should take five concrete steps.

First, if caps are politically inevitable, we should use them to encourage providers to improve the quality of care they provide. One obvious strategy is to reward providers for error reporting and punish them for hiding mistakes.

When a provider reports an error within a specified time of its occurrence, they should receive the protection of a limit on noneconomic damages. When a provider fails to report an error in a timely manner, noneconomic damages should be enhanced. One could use a similar strategy to reward providers who improve their performance on certain defined quality benchmarks. A second (and lower) cap on noneconomic damages would help ensure that error reports are used to improve quality, instead of being filed away.

Second, we should do more to ensure that physicians who practice high-quality, cost-effective medicine are not subjected to the tender mercies of the tort system. Although there are obvious difficulties associated with the development of consensus evidence-based standards, physicians who adhere to those standards should be absolutely immune from suit. There is no reason to devote legal resources to cases where the treatment meets professional standards.

Third, we should use financial incentives to encourage providers to practice high-quality, error-free medicine. The highest priority should be given to arrangements that enhance providers' incentives by tying their compensation to measurable improvements in outcomes and that enable patients to effectively distinguish between superior and inferior providers.

Medicare and private payers have already taken steps in this direction, and those efforts should be encouraged and expanded. If we use the payment system to reward physicians who deliver high-quality, error-free care, we will lower the incidence of malpractice.

Fourth, a relatively small fraction of all physicians appear to account for a disproportionate share of malpractice claims, settlements and judgments. Targeting reform efforts against those who are most responsible for the problem is an efficient use of limited resources.

State licensing boards and the hospitals at which repeat defendants have privileges should be required to conduct prospective quality audits, publicize the results of those audits and report them to the National Practitioner Data Bank. Even if the audits do not result in any disciplinary action or limitation of privileges, the act of publicizing the quality audits should create considerable incentives for repeat defendant physicians to correct their deficiencies or find another line of work.

Finally, we should allow malpractice premiums to rise when the next malpractice crisis hits. Providers are rational. When injuring patients becomes more expensive than not injuring them, providers will stop injuring patients. Lowering malpractice premiums through tort reform eliminates this incentive without substituting anything. Litigation rates and premiums will fall on their own when providers improve the quality of care.

As Dr. Donald J. Palmisano, the past president of the American Medical Association, aptly observed, fewer errors "will reduce the number of lawsuits against physicians," since an uninjured patient is far less likely to become a plaintiff.

George W. Bush's last term was a golden age of the moralizing polemic decrying a widening income gap. Since then, this once paramount concern has completely evaporated. Yet if the question of income inequality was ever interesting or urgent, you'd think a transformative shock to the American economy would make it more urgent still. A wealth-obliterating disaster has put our economy in the dump along with the livelihoods of millions of lower-income Americans. So why have we stopped talking about income inequality?

First, it's useful to analyze what income inequality does and does not tell us. As I argue in a paper recently released by the Cato Institute, in a wealthy nation like the U.S. income is a poor measure of economic well-being and income inequality is an even worse measure of social justice. To capture the real gap in standards of living, we would need to look at the shifting patterns of consumption throughout entire lives, not at context-free snapshots of income at particular moments.

If we take a snapshot right now, for instance, in the thick of the downturn, we'll see the shortcomings of income inequality as a social gauge. The official data covering the financial crisis and the current recession won't roll in for some time, so the true story's not yet ripe to be told. But a glance at historical trends allows us to predict the general effect of the downturn with a fair degree of certainty.

In a widely-lauded 2003 paper that looked at trends in the income and wealth of high-income households from 1913-1998, economists Thomas Piketty and Emmanuel Saez showed that the earnings and accumulated wealth of the happy few at the top have dived with each recession, reducing their share of national wealth and income with each dip of the business cycle.

Salaries, bonuses, and hourly wages now make up a much larger part of the total income of those near the top of the earnings ladder than they did even twenty or thirty years ago, when high-income households depended much more heavily on gains from investments of capital. The ladies and gentlemen of leisure who live off inheritances have ceased to dominate the upper ranks of income. These days, the people who really rake it in invest long hours striving for high pay. "The working rich have replaced the rentiers at the top of the income distribution," as Piketty and Saez put it.

The way in which the working rich get paid has changed, too. The annual compensation of hedge fund jocks, Wall Street rainmakers, and corporate honchos is increasingly determined by performance-based bonuses, which have made the incomes of America's biggest earners increasingly sensitive to the vicissitudes of the market.

"High-income households are highly exposed to aggregate booms and busts," report Northwestern University economists Jonathan A. Parker and Annette Vissing-Jorgenson in a recent National Bureau of Economic Research working paper. They estimate that our current bust is hitting the income and consumption of households in the top 20 percent of income earners significantly harder than the households in the 80 percent below. And the higher up the distribution you go, the harder the hit is likely to be.

Let's assume then that the financial collapse and recession really have hit high-income households the hardest, resulting in a dramatic decline in income inequality. Is that a good thing? A disaster that leaves almost everyone worse off is no improvement — especially for low-income workers who have lost their jobs. Likewise, a stretch of economic progress that leaves almost everyone better off is hardly a disaster — even if income inequality rises in the process.

Income inequality can rise and fall for all sorts of reasons. Twenty-somethings just starting out and retired seventy-somethings both earn a lot less on average than peak-earning fifty-somethings. As the age profile of the population shifts, income inequality figures shift, too. So what? Consider another example. A generous immigration policy can widen the income gap in this country while at the same time reducing world poverty. That's good, if you ask me.

Income inequality can also rise as a side-effect of injustice in our socio-economic system. But injustice should be rooted out because it is wrong, not because it widens the income gap as a side effect. If, just to take a wildly hypothetical example, the government has unjustly dumped loads of taxpayer money on Goldman Sachs, such a narrow allocation of public funds for private use should concern us for its own sake — not because Goldman's bountiful bonuses are likely to exacerbate income inequality.

A good hard jog and an oncoming heart attack may produce the same racing heartbeat. But the distinction matters. A mathematical abstraction like national income inequality is a similarly ambiguous symptom. We can slash the level of income inequality in an instant by slapping even higher taxes on big earners. Or we can slash the level of income inequality by falling into recession. But neither remedy addresses the real problem, which is persisting poverty, not income inequality.

The corruption of a political system in which crises are used to pay off the governing party's allies is also a real problem. The current silence about inequality — from news editors, pundits and politicians alike — would be golden if only it were based on a grasp of the limited utility of income statistics in guiding us toward more effective and humane public policy. But that is not the case. Instead, it appears that the commentators who fretted over income inequality so publicly for so long have simply stopped worrying about it. Inequality, it seems, only matters when a Republican is in the White House.

The bill would require all but the very smallest businesses to provide health insurance to their workers. Employers would have to pay 72.5 percent of the premium for individual coverage and 65 percent for family coverage. Those businesses that don't comply would be assessed a penalty or tax equal to 8 percent of their payroll.

Such a mandate is simply a disguised tax on employment. And while it might be politically appealing to claim that business will bear the new tax burden, nearly all economists see it quite differently.

Business owners care about the total cost of hiring a worker, not how that cost is apportioned between wages, taxes, health insurance or retirement benefits (or for that matter, a free parking space). Mandating insurance or assessing a new tax penalty simply increases the cost of hiring that worker.

Employers will therefore seek ways to offset the added cost by raising prices (the most unlikely solution in a competitive market), lowering wages, reducing future wage increases, reducing other benefits (such as pensions), cutting back on hiring, laying off current workers, shifting workers from full-time to part-time or outsourcing.

Most economists believe that the largest portion of those offset costs would come in the form of job loss, since workers are likely to resist wage reductions.

In addition, minimum-wage laws provide a floor for how far employers could reduce wages. As Larry Summers, now head of the White House's National Economic Council, once wrote, the minimum-wage means that "wages cannot fall to offset employers' cost of providing a mandated benefit, so it is likely to create unemployment."

In a study for the National Federation of Independent Business, Michael Chow and Bruce Phillips estimate that as many as 1.6 million jobs could be lost in the first five years after an employer mandate was imposed, of which two-thirds would be from small businesses with fewer than 500 employees, 55 percent from companies with fewer than 100 employees, and 28.9 percent from companies with just 20 employees or fewer.

Low-skilled and low-wage workers would be particularly at risk. Roughly 43 percent of uninsured workers are working within three dollars of the minimum wage. The mandated-insurance costs will represent a proportionately significant increase in the cost of employing those workers. The most likely outcome will be greater unemployment for workers whose lack of skills does not justify the increased cost.

If that wasn't enough, the House plan funds health-care reform with a huge income-tax surcharge, starting at 1 percent for individual filers with income above $280,000 and increasing to 5.4 percent for those with incomes of $1 million.

Combined with President Obama's plan to allow President Bush's tax cuts to expire, and high New York state and city taxes, the new surtax would mean New Yorkers would face a top marginal tax rate of 58.6 percent. That would have a devastating impact on investment and job creation.

Many of those forced to pay the new surtax would not be wealthy individuals but small businesses that file as sole proprietorships and subchapter S corporations whose owners pay the individual rate. In fact, nearly 60 percent of those affected by the surtax have at least some small-business income.

Whatever one thinks of the dubious merits of this health-care bill overall, basic economics, not to mention common sense, suggests that it shouldn't be financed at the expense of jobs.

I suggest that state licensing of providers of services, such as contractors, barbers and land surveyors, could be eliminated. There are already many ways for consumers to judge quality on their own. With the state out of the picture, additional information would come from a variety of sources.

State licensing is used to restrict entry unnecessarily. Licensed professionals lobby legislators to increase education and training requirements for new entrants so that their own earnings will rise.

As long as tax revenues grow, it is politically expedient to accommodate the demands of professionals to restrict entry. But faced with a tight budget and pressing needs in critical areas such as health care, I would shift funds from licensing no matter how much the existing boards and professionals protest.

In many cases the primary licensing function is checking a candidate's education and criminal record. Without state licensing of contractors, private companies would offer similar services. Check out the Web page of the Piping Industry Progress Education and Trust Fund (www.pipe.org). It already has a link to lists of plumbers and heating or air conditioning contractors in your ZIP code.

Without the state's involvement, it would not be long before existing or new companies would step up to offer protection, putting their reputation behind the contractors they endorse, much like the private 1-800-Dentist dentist referral service.

Home builders might put their reputation behind swimming pool contractors, for example. Given these firms' deep pockets and ability to purchase insurance to protect consumers in the case of contractor negligence, many consumers would find themselves better protected than in the past.

Already, the non-profit National Council of Examiners for Engineering and Surveying develops and administers the tests used for state licensing. If the state of California were to drop licensing, I would expect the NCEES to find a way to make this information available to consumers directly.

This would not be free or perfect, but the cost is likely to be significantly below that associated with government licensing. Also, the costs would be borne by those who use the services, not by taxpayers who may or may not use the services in question.

Currently, the California Contractors State License Board licenses many individual specialties, including landscaping, swimming pool contractors, earthwork and paving contractors, cabinet, and millwork and finish carpentry contractors. If the state were to eliminate its licensing boards, consumers would turn to other forms of information, including Angie's List, referrals from friends and brand names (Sears, OSH, Lowe's or Home Depot) to assure quality.

The Structural Pest Control Board protects the public from false advertising. There is no reason false advertising couldn't be managed by a state agency that does not also license. The state also licenses barbering and cosmetology, auto repair, and guide dog trainers. California is the only state in the nation to require licensing of guide dog instructors and schools.

With a barber or hairdresser, consumers can observe quality directly. Auto repair is an obvious case for using brand name. Many people already go to a dealer or to Sears. Independent repair shops could join together and develop a brand name (and reputation). This would significantly improve the level of information available to consumers.

Many individuals already use unlicensed contractors for small jobs, but it is illegal. Not everyone can afford or needs the level of education and training state licensing boards (under the influence of the profession) mandate. Eliminating state licensing would allow a broader range of service providers to advertise and develop a reputation over time. There is some evidence this would reduce injuries from do-it-yourself attempts on the part of consumers who can't afford a highly skilled licensed contractor.

The silver lining of a budget crisis is that it forces you to think about what you are doing and what you really need to do. In the case of licensing, getting the state out of the business of setting standards would actually benefit consumers.

Organizers want Congress to help them intimidate their way to victory, because, as it is, too many workers are saying no to unions. Today just 7.6 percent of private-sector workers belong to unions. Only in government employment has unions' representation been growing. Most Americans recognize that they will have more opportunity in a vibrant, growing economy than in the sort of calcified system favored by labor-union executives. This has long been the case: Even in organized labor's glory years, it never played the leading political role in the U.S. that it achieved in Europe. The American economy always was more open and entrepreneurial.

But union activists don't get it. In organized labor's view, if employees vote no — unions lose 40 percent of organizing elections — it must be a result of corporate perfidy. If you listen to the rhetoric of big-labor executives, you would think that American unions were battling Adolf Hitler's Germany or Joseph Stalin's Soviet Union on behalf of human rights and individual liberty. For instance, the AFL-CIO declared that in America "workers still lack the freedom to form unions." Apparently labor organizers are being hauled off in handcuffs, and workers are being tossed into the Gulag.

To stop employees from saying no so often, unions have proposed to rig the system: Under the Employee Free Choice Act, whenever a union gets more than half of a company's workers to sign unionization cards — in a process known as "card check" — the National Labor Relations Board [NLRB] can certify the union right then and there, without an election. Such a process would have two unfortunate effects.

The first would be to reward unions' misrepresentation and intimidation. Workers across America testify that union organizers use all manner of techniques in pressuring workers to sign, and that they regularly deceive employees about the impact of signing a card (as the law stands today, the NLRB can certify a union based on card check, but only if the employer agrees). Also, card check makes employees' views on unionization public. Relying on signed cards in lieu of a secret-ballot election is akin to a poll in the Soviet Union, where you showed your ballot to the local political commissar before dropping it into the box.

Second, card check would simplify the unpleasant — for organized labor — process of persuading workers that they would get a better deal by joining a union. An organizing campaign allows the company as well as the union to make its case. One reason we don't choose the president of the United States by collecting signed cards is that we believe that an election campaign, however flawed, helps develop issues and answer questions. If the union's argument is a good one, organizers shouldn't fear a vote in which the company can politick as well.

Unions support the Employee Free Choice Act not out of principle, but out of concern for their own success. In fact, labor officials like elections — when workers are seeking to toss out a union. Citing a U.S. Supreme Court case, the AFL-CIO shamelessly contended: The "representation election system provides the surest means of avoiding decisions which are 'the result of group pressures and not individual decision.'" No card check here: If you want to decertify a union, you have to defeat it in a secret ballot.

Still, many efforts to defeat unions succeed. Although the number of organizing elections has been falling in recent years, the number of decertification elections has remained relatively constant over the last decade, at more than 300 annually. While unions have pushed up their win ratio from 50 to 60 percent in certification votes (though participating in fewer elections), they have been consistently losing 60 to 70 percent of decertification ballots.

The NLRB's records show the extent and breadth of worker dissatisfaction with unions. In its six-month report filed last September, the NLRB reported that unions lost 78 of 141 decertification elections. In the prior six-month period, unions lost 86 of 149 votes. And in January 2009 alone, unions lost their representation power over the employees of eight companies ranging from the Cradle of Aviation Museum in New York to the Chariton Valley Electric Cooperative in Iowa to the Crystal Care Center in Minnesota. In eight more companies, decertification elections were held, but the unions held on to power.

Workers, not employers, initiated all these votes. Obviously, even though employees often believe a union's initial sales pitch, many workers come to realize that the union option is not the right one. And with a secret-ballot election available to protect them from intimidation and retaliation, they feel free to vote their consciences. As a result, unions lose more often than not.

Labor law is an inefficient mishmash. Instead of micro-managing business-labor relations, government's principal responsibilities should be to enforce contracts, prevent intimidation, and punish violence. But having set up a regulatory structure to promote unionization, Washington has a responsibility to protect workers as they express their preferences. And that requires preserving secret-ballot elections for union recognition.

That unions take the opposite position should come as no surprise. Contrary to the impression created by the white-hot rhetoric of union executives, American workers are not prevented from organizing. In fact, current law guarantees genuine "free choice" for employees by preserving their right to a secret ballot — precisely the problem in the view of labor executives, who want more money and influence. Congress should say no to big labor's push for the Employee Free Choice Act.

Of the 1,700 students, starting in kindergarten, in this private-school voucher program, 90 percent are black and 9 percent are Hispanic.

First the House and then the Senate inserted into the $410-billion omnibus spending bill language to eliminate the $7,500 annual scholarships for these poor children after the next school year.

A key executioner in the Senate of the OSP was Sen. Dick Durbin, Illinois Democrat. I have written admiringly of Durbin's concern for human rights abroad. But what about education rights for minority children in the nation's capital?

Andrew J. Coulson, director of the Cato Institute (where I am a senior fellow) supplied the answer when he wrote: "Because they saw it as a threat to their political power, Democrats in Washington appear willing to extinguish the dreams of a few thousand poor kids to protect their political base."

Teachers unions are a major part of that base. Among those demanding that Congress kill the voucher scholarship program was the largest teachers union, the National Education Association.

Two of the kids affected by the action, Sarah and James Parker, attend Washington's prestigious Sidwell Friends School. Their scholarships will end with the next school year. The classmates they'll be leaving will include Sasha and Malia Obama. The Obama children, of course, do not need voucher money to avoid Washington D.C.'s failing and sometimes dangerous public schools.

As New York Times columnist David Brooks noted, the congressional Democrats even refused to grandfather in the kids already in the voucher program, "so those children will be ripped away from their mentors and friends ... ." President Obama, he added, "has, in fact, been shamefully quiet about this."

Doesn't Obama at least have something to say publicly to those children and their parents when his own Secretary of Education Arne Duncan opposed the congressional shutdown of Opportunity Scholarships?

Said Duncan (New York Post, March 6): "I don't think it makes sense to take kids out of a school where they're happy and safe and satisfied and learning. I think those kids need to stay in their school."

Duncan suggests that donors provide financial assistance through graduation to those kids stripped of their Opportunity Scholarships. Perhaps our "education president," from his continuing royalties from the sale of his books such as "The Audacity of Hope," might help out.

One of the recipients of the Opportunity Scholarships, teenager Carlos Battle (VoicesOfSchoolChoice.org) said that in a D.C. public school she'd "have to think more about protecting myself than about learning."

As for the Sidwell Friends School, its headmaster, Bruce Stewart, told the Wall Street Journal that the school has welcomed the OSP students. He said that when parents get more educational choices for their children, their kids and the whole community benefit.

Virginia Walden-Ford, executive director of D.C. Parents for School Choice, offered an excellent suggestion for members of the White House press corps:

"I'd like to see a reporter stand up at one of those nationally televised press conferences and ask President Obama what he thinks about what his own party is doing to keep two innocent kids from attending the same school where he sends his?"

I wish Jay Leno had thought to ask Obama that question.

In a March 2 editorial, the Washington Post — not a conservative newspaper —summed up the Congressional Democrats' scholarship shutdown in these words: "It's about politics and the stranglehold the teachers unions have on the Democratic Party. Why else has so much time and effort gone into trying to kill off what, in the grand scheme of government spending, is a tiny program?"

In this deep downturn, most sectors of the U.S. economy are suffering, but a common thread among those in the deepest trouble is their heavily unionized work forces. That's an inconvenient truth that needs to be acknowledged as Congress prepares to consider legislation that would make it dramatically easier for unions to organize in the American workplace — the misnamed Employee Free Choice Act.

Studies show that while unionization can raise worker productivity, it typically raises wages and benefits even faster. Restrictive workplace rules, gold-plated health and pension plans, and inflexible hiring and firing rules add to the burden on employers, and cut into employer profitability.

In a major study of unions and the American workplace, Professor Barry Hirsch of Georgia State University found that unionized companies suffered not only lower profits but lower investment in physical and intangible capital and slower growth.

As a result, unionized firms tend to lose market share to nonunionized firms, whether foreign or domestic.

Companies can survive unionization as long as every other competitor faces the same "tax," or if markets are not competitive at all. This is why government is the only area where unionization has been growing.

But in a dynamic, open and competitive market, unionization can be a killer. In manufacturing, virtually all the job losses between 1973 and 2006 occurred among unionized workers.

The U.S. auto industry is a prime example of the link between unions and profitability. Management at Ford, Chrysler and General Motors have all made many mistakes, but arguably their biggest has been to approve lavish and unsustainable contracts with the United Auto Workers union.

Consequently, the cost of labor for the Big Three has been 50% higher than labor costs for the nonunion, foreign-owned auto plants elsewhere in the United States. This burden has driven GM and Chrysler to the verge of bankruptcy.

At a time when many American manufacturers are fighting to survive, Congress and President Obama appear poised to saddle them with another burden that will only accelerate the decline of struggling sectors.

The so-called Employee Free Choice Act would ease the task of union organizing by essentially jettisoning the secret ballot for union elections. Instead, workers will be asked to sign cards until a majority in a given workplace agrees to be represented by a union. Without a formally announced election date, the so-called "card check" process could be conducted largely in secret.

This would deny dissident workers as well as management any meaningful opportunity to present alternative views that would give workers a more complete picture of what is at stake, and limit the information available to workers.

This process also strips anonymity. Workers who refuse to sign will be known to union organizers and obviously open to intimidation. The secret ballot, long a pillar of representative government, would be abolished in the workplace.

Once a majority of workers were persuaded to sign a card, the employer would have 120 days to agree to a collective bargaining agreement with the newly organized union. If an agreement is not reached, terms would be imposed by a government arbitration panel. No appeals would be allowed. Employers would be forced to accept terms that could imperil the survival of their business, violating the basic American principle of the freedom of contract.

Under the imperfect but workable system currently in place, Americans who want to join a union can do so, but they also enjoy the protection of a secret ballot after hearing both sides of the argument, all administered by the National Labor Relations Board.

U.S. labor law should be neither tilted against noncoercive efforts to organize unions nor biased in favor of organizing. It certainly should not short-circuit long-standing protections for individual workers.

American workers deserve a free and fully informed choice before deciding whether to join a union.

It is a decision that could affect not only their future pay and working conditions but the very survival of their employer and their job.

One of the most important goals of the Obama program is to strengthen labor unions. Explained the president: "I do not view the labor movement as part of the problem. To me, it's part of the solution." Of course more powerful unions would make it easier for him to push through the rest of his policy agenda. That's why he is backing the "card check" bill, which makes it a battle to control the entire economy.

Obviously, people have a right to join unions. But there is no reason for government to promote unions, especially in today's world. For all the cant from union officials about how everyone in America is desperate to join a union, labor membership has been falling steadily for reasons unrelated to the latest National Labor Relations Board ruling.

Just 7.6 percent of private sector workers today belong to unions because most workers view unions as irrelevant in today's rapidly changing economy. Sclerosis and stasis, the normal prescriptions of union leaders, benefit labor bureaucrats rather than workers.

But these unions won't take no for an answer. Current law requires that an organizing election be held if 30 percent of workers sign a union card. But if that's all a union collects, it is likely to lose the vote. In fact, organizers figure they have to collect the signatures of three-quarters of the workers to have a 50-50 chance of winning. Unions typically lose 40 percent of organizing contests. As a result, the AFL-CIO melodramatically claims, "workers still lack the freedom to form unions." UAW President Ron Gettelfinger even compares the plight of union workers to that of blacks fighting Jim Crow.

To redress this phantom injustice, organized labor has concocted the so-called Employee Free Choice Act. The bill would force recognition of the union if 50 percent plus one person signed a card, a process known as card check. The legislation also would impose a contract through arbitration if the union and company could not agree.

The goals are to eliminate organizing elections and bias contract negotiations. Since it's hard for unions to argue against elections -- they demand them for decertifying unions and promote them for labor unions overseas -- organized labor claims that the current system is unfair. Employers supposedly can fire organizers and propagandize workers.

But NLRB figures indicate that in fewer than three percent of organizing campaigns are union organizers illegally fired. The obvious solution to any abuses is to adjust penalties rather than end elections. Employers also have legitimate arguments to make, arguments best offered in the course of a secret ballot election.

The secret ballot is key. It protects workers from retaliation -- that's why the U.S. elects public officials, rather than allowing citizens to sign election cards. It doesn't take a rocket scientist to tell which worker is more vulnerable to pressure and even violence: one who gets to cast a secret ballot or one who must sign or not sign a card in public view. Four decades ago a federal appeals court declared: "it is beyond dispute that secret election is a more accurate reflection of the employees' true desires than a check of authorization cards collected at the behest of a union organizer."

Former union organizer Jen Jason testified before the House Education and Labor Committee: "During the course of my employment with the union, I began to understand the reality behind the rhetoric. I took in the ways that organizers were manipulating workers just to get a majority on 'the cards' and the various strategies that they employed. I began to appreciate that promises made by organizers at the worker's house had little to do with how the union actually functions as a 'service' organization."

In fact, misrepresentation and intimidation are routine, as union organizers lie about what signing the care means (claiming, for example, that it certifies attending a meeting or requesting more information) and badger employees to sign (sending groups of pro-union workers to people's homes). The National Right to Work Legal Defense Foundation has collected the stories of many employees, such as that of Mike Ivey, a South Carolina materials handler, who complained that the UAW "created a hostile work environment" through relentless pressure to sign cards. These abuses would be multiplied if card check automatically yielded recognition, foreclosing the need for a vote.

This may be why even union members favor elections. Polls have found that eight to nine of every ten of them favor a vote. Card check is a tool for union executives and Democratic politicians, not workers.

The proposal for binding arbitration may be no less dangerous. Having foisted a union upon unwilling workers through card check, labor leaders want to foist a union contract upon unwilling companies. The card check bill sets virtually no standards to guide the process. Notes University of Chicago law professor Richard Epstein in a detailed new study: "Nothing in the statute settles questions of how arbitration panels are to be set up, the scope of their powers, or the reviewability of their decrees on matters of fact and law."

Arbitration of grievances is a common procedure, but authorizing someone to determine the "interests" of two parties over the wide range of issues covered in a typical contract is very different. In the public sector this practice has increased costs, which "have long been seen as a significant feature of out-of-control local government budgets," notes attorney Thomas P. Gies. Moreover, the process would likely lead to an economy-wide standard irrespective of industry, product, service, or finances. Organized labor is hoping for a double "gimme" -- recognition without winning an election and contract without completing a negotiation.

No one can predict with certainty the economic consequences of card check. Unions assume they would have millions of new members and billions of new dollars.

The first result would be to further immobilize the economy. Although some individual employees -- and especially union leaders -- might benefit from today's coercive collective bargaining process, a new study by Stan Greer of the National Institute for Labor Relations Research found: "The record shows that the prevalence of union monopoly bargaining is correlated with lower real incomes, higher living costs, slower growth in jobs and job benefits, and higher unemployment." Similarly, economists Richard Vedder and Lowell Gallaway pointed out that "the overall evidence is overwhelming that labor unions in contemporary America have had harmful aggregate effects on the economy. Unions are associated with lower rates of growth in incomes and jobs." The Alliance to Save Main Street Jobs warns of an employment loss of 600,000 if card check passes.

Indeed, turning control of the economy over to organized labor would follow Europe, which values stasis over growth. The organizing principle of most European labor organizations is a sense of entitlement: someone somewhere should pay them for doing as little as possible. This system may be the principle reason that Europe went for years without creating a single net job. Flexible and vibrant are not terms anyone would apply to the European economy.

The second result would be to expand government authority over the economy and virtually every other aspect of our lives. Organized labor spent up to a half billion dollars in the 2008 election cycle. Government unions, most notably the Service Employees International Union, have become particularly dependent on government largesse. The SEIU invested nearly $2 million in Rod Blagojevich's two gubernatorial campaigns and was caught up in the federal investigation of the former Illinois governor's apparent desire to auction off Barack Obama's Senate seat. Union officials see politics as an easy means to get benefits that they cannot win in a marketplace.

But union activists want to do more than win more money for their members. Unfortunately, the labor leadership seems to see itself not as the representative of working men and women, but as a partner in the liberal coalition. Thus, unions have been leading efforts to block policy reforms that would most benefit their members: provide families with choice in education, expand consumer-directed health care, offer retirees control over their own futures, increase access to new energy sources, expand participation in the international marketplace, reduce income redistribution programs, limit baseless lawsuits filed by trial attorneys, and so on.

Above all, it is imperative to ensure that workers retain the right to vote before the government requires companies to recognize a union. That means defeating the Employee "No Choice" Act. It also means pressing for state constitutional amendments guaranteeing elections, as promoted by the group Save Our Secret Ballot, chaired by former Rep. Ernest Istook. And contracts must be arrived at through negotiation, not imposition.

It is bad enough that card check would in fact deny workers a free choice about whether to unionize. But if it passes, ECFA would end up denying the rest of us a free choice about many of the economic decisions that we still take for granted.

What accounts for the rise in income inequality since the 1970s? According to most economists, the answer lies in structural changes in the economy — in particular, technological changes that have raised the demand for highly skilled workers and thereby boosted their pay. Opposing this prevailing view, however, is Princeton economist and New York Times columnist Paul Krugman, winner of the 2008 Nobel Prize in economics. According to Krugman and a group of like-minded scholars, structural explanations of inequality are inadequate. They argue instead that changes in economic policies and social norms have played a major role in the widening of the income distribution.

Krugman and company have a point. For the quarter century or so after World War II, incomes were much more compressed than they are today. Since then, American society has experienced major changes in both political economy and cultural values. And both economic logic and empirical evidence provide reasons for concluding that those changes have helped to restrain low-end income growth while accelerating growth at the top of the income scale.

However, Krugman and his colleagues offer a highly selective and misleading account of the relevant changes. Looking back at the early postwar decades, they cherry-pick the historical record in a way that allows them to portray that time as an enlightened period of well-designed economic policies and healthy social norms. Such a rosy-colored view of the past fails as objective historical analysis. Instead, it amounts to ideologically motivated nostalgia.

Once those bygone policies and norms are seen in their totality, it should be clear that nostalgia for them is misplaced. The political economy of the early postwar decades, while it generated impressive results under the peculiar conditions of the time, is totally unsuited to serve as a model for 21st-century policymakers. And as to the social attitudes and values that undergirded that political economy, it is frankly astonishing that self-described progressives could find them attractive.

Patients with multiple diagnoses require someone who can organize the efforts of multiple medical professionals. It is not unreasonable to imagine that delivering health care effectively, particularly for complex patients, could require a corporate model of organization.

At least two forces stand in the way of robust competition from corporate health care providers. First is the regime of third-party fee-for-service payment, which is heavily entrenched by Medicare, Medicaid, and the regulatory and tax distortions that tilt private health insurance in the same direction. Consumers should control the money that purchases their health insurance, and should be free to choose their insurer and health care providers.

Second, state licensing regulations make it difficult for corporations to design optimal work flows for health care delivery. Under institutional licensing, regulators would instead evaluate how well a corporation treats its patients, not the credentials of the corporation's employees. Alternatively, states could recognize clinician licenses issued by other states. That would let corporations operate in multiple states under a single set of rules and put pressure on states to eliminate unnecessarily restrictive regulations.

It is commonly supposed that economic regulation is immune to constitutional challenge since the New Deal. That's not the case with this labor law.

Consider card check and the First Amendment. Under the National Labor Relations Act (NLRA) today, an employer can insist upon a secret ballot after 30% of workers indicate by card checks their interest in a union. The campaign that follows lets the employer air his views about the downsides of unionization before the vote takes place.

To be sure, the employer's free-speech rights are limited under the NLRA. He cannot threaten to move or shut down if workers vote for the union. Nor can he promise higher wages if they don't. But he can make predictions of what will happen if his firm is unionized, and he can point to the reversal of worker fortunes in other unionized firms.

The Supreme Court (unfortunately, in my view) has held that the peculiar labor-law environment justified these abridgements of ordinary speech rights. But it hardly follows that if the government can curtail speech rights, the EFCA can eliminate them. There is simply no legitimate government interest in promoting unionization that justifies a clandestine organizing campaign which denies all speech rights to the unions' adversaries.

The mandatory arbitration provisions of the EFCA are also constitutionally suspect. True, the takings clause of the Fifth Amendment today is quite lax when the state just restricts how an owner can use his property. But it imposes a firm duty to compensate someone whose property is occupied pursuant to a government decree. The Supreme Court also has established that any company subject to rate regulation (such as in telecommunications, transportation, insurance, etc.) may raise a judicial challenge to secure a reasonable rate of return on invested capital.

These Fifth Amendment protections apply to labor markets. The NLRA strips employers of basic common law rights, including the right to refuse to deal with the union. It imposes on employers (and unions) a duty to bargain in good faith toward a contract. But this duty does not force agreement. Either side is free to walk away from any deal it does not like. Unions can strike, and firms can lock out workers. Today's law, accordingly, restricts arbitration to interpreting existing agreements, not to making agreements from whole cloth.

The EFCA takes away the employer's right to walk. Now the successful union, backed by direct government power -- i.e., mandatory arbitration -- can force itself on the firm. Yet the proposed law does not let any court block the deal or ensure that the mandated terms offer a reasonable return on its invested capital. (Even modern rent control statutes require that much.)

The government-chosen panel could well impose terms that might cripple the firm competitively. Consider that the takings clause surely prevents the government from forcing any person to buy real estate for twice its market value from a seller. That same principle applies to this labor law: No government should be able to force a firm to hire labor at $50 per hour when the company is not willing to pay half that much.

Worse, the EFCA also permits the government arbitrator to strip the employer of all its standard management prerogatives on everything from subcontracting out to promotion policy. By flatly denying the employer any option to walk away, mandatory arbitration under the EFCA runs smack into the takings clause.

Let's hope that the Democratic Congress will moot this analysis -- by refusing to jump head first into a labor-law abyss that promises to wreck labor markets in times of acute national economic distress. The Employee Free Choice Act should not be passed, and it should be struck down by the Supreme Court if it is.

Not surprisingly, the prospect of all this new spending (above and beyond the record spending increases during the past eight years) has triggered a feeding frenzy among special interests. Home builders, auto companies, road builders, state and local governments, the education establishment, the food stamp lobby, the green lobby, and alternative energy companies are among the groups fighting for a place at the public trough.

It would be easy to dismiss this orgy of new spending as the spoils of war. The Democrats won the election, after all, and now they intend to reward the various special interests that supported them. But that's not a complete explanation. Some supporters of this new spending seem genuinely convinced that the federal government can create jobs.

In part, this is a debate about Keynesian economics, which is the theory that the economy can be boosted if the government borrows money and then gives it to people so they will spend it. This supposedly "primes the pump" as the money circulates through the economy. Keynesian theory sounds good, and it would be nice if it made sense, but it has a rather glaring logical fallacy. It overlooks the fact that, in the real world, government can't inject money into the economy without first taking money out of the economy. More specifically, the theory only looks at one-half of the equation — the part where government puts money in the economy's right pocket. But where does the government get that money? It borrows it, which means it comes out of the economy's left pocket. There is no increase in what Keynesians refer to as aggregate demand. Keynesianism doesn't boost national income, it merely redistributes it. The pie is sliced differently, but it's not any bigger.

The real world evidence also shows that Keynesianism does not work. Both Hoover and Roosevelt dramatically increased spending, and neither showed any aversion to running up big deficits, yet the economy was terrible all through the 1930s. Keynesian stimulus schemes also were tried by Gerald Ford and George W. Bush and had no impact on the economy. Keynesianism also failed in Japan during the 1990s.

To be fair, the inability of Keynesianism to boost growth may not necessarily mean that government spending does not create jobs. Moreover, the argument that government can create jobs is not dependent on Keynesian economics. Politicians from both parties, for instance, argued in favor of pork-filled transportation bills earlier this decade when the economy was enjoying strong growth — and job creation generally was their primary talking point.

Unfortunately, no matter how the issue is analyzed, there is virtually no support for the notion that government spending creates jobs. Indeed, the more relevant consideration is the degree to which bigger government destroys jobs. Both the theoretical and empirical evidence argues against the notion that big government boosts job creation. Theory and evidence lead to three unavoidable conclusions:

• The theory of government-instigated job creation overlooks the loss of resources available to the productive sector of the economy. Frederic Bastiat, the great French economist (yes, there were admirable French economists, albeit all of them lived in the 1800s), is well known for many reasons, including his explanation of the "seen" and the "unseen." If the government decides to build a "Bridge to Nowhere," it is very easy to see the workers who are employed on that project. This is the "seen." But what is less obvious is that the resources to build that bridge are taken from the private sector and thus are no longer available for other uses. This is the "unseen."


• So-called stimulus packages have little bang for the buck. Even if one assumes that money floats down from Heaven and we don't have to worry about the "unseen," government is never an efficient way to achieve an objective. Based on the amount of money that is being discussed and the claims of how many jobs will be created, Harvard Professor Greg Mankiw filled in the blanks and calculated that each new job (assuming they actually materialize) will cost $280,000. But since money doesn't come from Heaven, this calculation is only a partial measure of cost. In reality, the cost of each government job should reflect how that $280,000 would have been spent more productively in the private sector.


• Government workers are grossly overpaid. There are several reasons why it costs so much for the government to "create" a job, including the inherent inefficiency of the public sector. But the dominant factor is probably the excessive compensation packages for bureaucrats. According to Bureau of Economic Analysis data, the average employee for the federal government now gets paid nearly twice as much as workers in the productive sector of the economy.

Notwithstanding these points, it is quite likely that politicians in Washington will pass a boondoggle-filled "stimulus" bill. While there may be a few naïve folks who think a big increase in the burden of government somehow is a recipe for job creation, politicians have a self-interested motive to move in that direction because it increases their power and influence.

They win and taxpayers lose.

In contrast, I argue here that licensure not only fails to protect consumers from incompetent physicians, but, by raising barriers to entry, makes health care more expensive and less accessible. Institutional oversight and a sophisticated network of private accrediting and certification organizations, all motivated by the need to protect reputations and avoid legal liability, offer whatever consumer protections exist today.

Consumers would benefit were states to eliminate professional licensing in medicine and leave education, credentialing, and scope-of-practice decisions entirely to the private sector and the courts.

If eliminating licensing is politically infeasible, some preliminary steps might be generally acceptable. States could increase workforce mobility by recognizing licenses issued by other states. For mid-level clinicians, eliminating education requirements beyond an initial degree would allow employers and consumers to select the appropriate level of expertise. At the very least, state legislators should be alert to the self-interest of medical professional organizations that may lie behind the licensing proposals brought to the legislature for approval.

Such populist sentiments are often based on misunderstandings about the role of corporate executives in the economy and the vigorous competition that exists for these highly skilled leaders. In the past, federal regulatory efforts based on such misunderstandings have generated unintended consequences, which have damaged the economy and hurt the ability of the market for executives to self-regulate over time.

The labor market for executives and the associated pay levels are already subject to high levels of regulation. Indeed, U.S. corporations are subject to more stringent executive pay disclosure requirements than corporations anywhere else in the world. Before additional regulatory and legislative efforts are unleashed, policymakers should examine the rationale for current pay structures and the strong links between executive pay and corporate performance.

The misperceptions that drive regulatory efforts are grounded in the idea that the market for executives is not competitive and that pay levels do not reflect supply and demand for talent. Critics claim that executives essentially set their own pay through their influence over the boards of directors of corporations. This "myth of managerial power" leads some policy makers to conclude that greater government regulation is necessary because the market is "rigged." However, a large body of empirical research documents that labor markets for executives are indeed competitive, and that pay levels track corporate performance.

This study examines the market forces that set the parameters of executive compensation, the process that boards use to determine pay packages, and the data that indicate the efficient workings of the current "pay-for-performance" model. It also discusses the adverse consequences of imposing rules and regulations on an executive compensation system that has helped to generate great wealth for shareholders and millions of jobs for American workers.

The U.S. issues only 65,000 H-1B visas for skilled workers each year and that's not very many. Senators McCain and Obama have both said they would support raising the cap. They acknowledge we need more skilled workers, and they're right. Yes, it would be good for innovation and growth and it would bring down the prices of goods created by skilled workers, but here's another reason you might not have thought of: Wage inequality.

Increases in wage inequality over the past few decades is primarily a story of the supply and demand of skilled labor together with the effects of technological innovation. Wage increases tend to track improvements in the productivity of labor and gains in productivity tend to be driven by innovations that help workers do more in less time. But in recent decades, technical innovation has increased the productivity of more highly-educated workers faster than it has for less-educated workers. These growing inequalities in productivity have helped create growing inequalities in wages.

But that's not the whole story. The American system of higher education produces skilled workers too slowly to keep up with the demand. This scarcity in the supply bids up the wages of the well-educated even more, further widening the wage gap. If we raised visa quotas on skilled labor, that would help bring supply in line with demand and reduce the wage gap between more and less skilled workers.

These days, almost everybody but their beneficiaries think agricultural subsidies are a lousy idea. They benefit a few already relatively wealthy American farmers and agribusiness firms to the detriment of poor farmers around the world. But H-1B visa restrictions are subsidies that benefit relatively rich domestic workers over their poorer foreign peers, and so it turns out many of us liberal-minded college grads are enjoying our own protectionist boost.

In this case, it seems the moral outrage is... well, we seem to be keeping it to ourselves.

Will Wilkinson discusses immigration on Marketplace (July 16, 2008) [MP3]