Business

Regulation Strangling Innovation: Planes, Trains, and Hyperloop

Let’s start by looking at some examples of innovation delayed and strangled by overly-cautious regulation, a problem especially prevalent where agencies are charged with protecting lives. The outcome of a mistake in approving something which turns out to be deadly is an immediate and sharp punishment for the regulators, while delay, increasing costs, and overly cautious blocking of a valuable new product directly hurts only those promoting it — the people who might have benefitted from the innovation tend to be unaware of what they have lost when it’s turned down, an effect also seen with housing, where local residents veto new development but the people who might have wanted to live in the new development get little say.

I have two good examples: the delay of the Valkyrie Co50, a sexy and innovative airplane that has $50 million in advance orders but can’t get timely approval because it is too innovative; and Titan Pharmaceutical’s Probuphine, a lifesaving implantable form of the anti-opioid-addiction drug buprenorphine.

The Valkyrie Co50 is faster and safer than existing light planes:

The Valkyrie Co50 can fly at up to 260 knots (roughly 299 MPH), significantly faster than other single-engine aircraft, which typically cruise at a max of roughly 242 knots. The plane stands at 30 feet long and 10 feet high, with a wingspan of 30 feet. Its unusual design, forward stabilizer and rear-positioned engine promised an usually smooth ride with, even in low altitudes, little-to-no-chance of a stall. According to Cobalt, 30% of fatal aircraft accidents are in low altitude stalls, a claim supported by the Air Safety Institute’s 2012 general aviation accidents study.

The company quickly racked up a reported $50 million in orders for a $749,000 aircraft that won’t arrive until 2017, if Cobalt and its customers are lucky. The hold-up? FAA Type Certificate process, which Cobalt describes as long, cumbersome and expensive…. The French entrepreneur and pilot understands the need for certification, “because it’s good for the safety of everyone,” but he contends that the process is needlessly slowing down the industry and increasing costs.

For example, when Loury was designing his planes, he found a $30 fuel valve — one that’s typically used in tractors — would work in the Valkyrie. However, according to Loury, when sold as a certified aviation part, the same valve costs $3,000.[1]

This is the same paperwork and certification problem that results in ballooning Defense Dept. costs, like $2,000 for an aluminum sleeve that would normally cost $10[2] and cost overruns for every major weapons system in the past few decades. The Israelis pioneered cheap, reliable drones for surveillance and warfare, but the US DoD versions cost orders of magnitude more because they have to be designed and built by defense contractors under bureaucratic bidding rules and without cheaper off-the-shelf parts.

The Valkyrie is beautiful:

Cobalt Valkyrie X – Photo: Cobalt

…But the new plane can’t be sold for commercial use without FAA approval, and the requirements are more time-consuming and costly because the plane is so innovative.

Regulators can’t keep up with what the aircraft designers are doing, said Loury, and, worse, the FAA continues to add new regulations — usually in response to air disasters.

Loury contends that, on Cobalt’s end, especially for things they cannot test in the air like a “ground vibration survey,” it takes “six months of work and thousands of dollars for one [certification] paragraph.”

The company is already selling an experimental version which is less regulated, but is barred from commercial use. Just getting its application ready requires years of expensive tests. The FAA notes that they cannot be faulted for delay because they have not received an application for the plane yet, but:

It’s true, Cobalt is still working its way through satisfying all the regulations before they submit their application to the FAA.

When Cobalt does finally submit the Valkyrie Co50 for certification, the FAA could grant it in three years, but it might also take four or more years. It’s a question everyone asks Loury. He really doesn’t have an answer. “I keep pushing because we have no reference…in how long it takes.”

And this is a well-capitalized company which can afford to wait out the lengthy approval process while being unable to sell their plane in the larger market. How many small companies might have accelerated development of new planes if they didn’t face a regulatory buzz saw and years of delay before being allowed to sell?

It’s often asked why we don’t have the flying cars and jetpacks envisioned in the 1960s of Tomorrowland:[3] the answer is that regulators and tort lawyers made it so slow and costly to innovate in the transportation sector that the rate of innovation has declined precipitously since 1970. As Glenn Reynolds writes:

1970 marks what scholars of administrative law (like me) call the “regulatory explosion.” Although government expanded a lot during the New Deal under FDR, it wasn’t until 1970, under Richard Nixon, that we saw an explosion of new-type regulations that directly burdened people and progress: The Clean Air Act, the Clean Water Act, National Environmental Policy Act, the founding of Occupation Safety and Health Administration, the creation of the Environmental Protection Agency, etc. — all things that would have made the most hard-boiled New Dealer blanch.

Within a decade or so, Washington was transformed from a sleepy backwater (mocked by John F. Kennedy for its “Southern efficiency and Northern charm”) to a city full of fancy restaurants and expensive houses, a trend that has only continued in the decades since. The explosion of regulations led to an explosion of people to lobby the regulators, and lobbyists need nice restaurants and fancy houses.

Maybe it’s just a coincidence that progress suddenly slowed down, but I don’t think so. Indeed, the Obama administration’s brilliantly successful policy for promoting private spaceflight ventures (basically one of benign neglect) can be seen as evidence that we can actually get the kind of progress we used to get, when we regulate lightly, like we used to. Who knows, if we regulated pharmaceuticals like we did in the early 1960s, perhaps we’d get as many major new drugs as we got in the 1960s. (“The time for a new drug candidate to gain approval in the United States rose from less than eight years in the 1960s to nearly 13 years by the 1990s,” notes Hanlon.)[4]

US-based light plane manufacturers boomed in the 1970s, but were nearly driven out of business by litigation and insurance costs between 1980 and 1993:

Following the recession in the early 1970s, production rates began to increase very rapidly, from 7,466 units in 1971 to 17,000 in 1977 – an increase of more than 125 percent in six years. Production in recent years is a trickle when compared to the heyday of general aviation. The numbers are compelling: Since reaching a peak of 17,811 shipments of light aircraft in 1979, U.S. production plummeted to 811 units in 1993, a decline of 95.5 percent. Other measures of general aviation activity in the United States are equally dismal. The number of private pilots fell 32.1 percent, from a high of 357,500 in 1980 to 288,078 in 1993. In 1980, there were twenty-nine U.S. manufacturers of piston aircraft and fifteen foreign producers. Today, there are sixteen U.S. and twenty-nine foreign manufacturers.

American manufacturers historically supplied most of the world’s general aviation aircraft and exported about 20 to 30 percent of the general aviation aircraft produced here. However, the nation lost this important contribution to its trade balance. Imports of general aviation aircraft, which include commuter airliners, exceeded the value of general aviation exports for the first time in 1981. By 1988, the trade deficit in general aviation aircraft soared to $700 million. The volume of exports plummeted from 3,395 units in 1979 to 440 in 1986. American aircraft accounted for a full 100 percent of the single engine piston aircraft sold in the U.S. in 1980. Today, American aircraft account for less than 70 percent. It is important to remember that this apparent surge in foreign competition is more an artifact of dramatically lower domestic production of single-engine aircraft, not a sign that the foreign firms were capturing sales that would otherwise go to American manufacturers hampered by product liability claims.
[5]

To revive the industry in the US, laws were passed at both state and Federal levels[6] to limit airplane manufacturer liability. Light planes manufactured in other countries had taken most of the market, since they faced much lower regulatory and legal costs. North Dakota tried to bring the industry back to its state in 1995:

The North Dakotans propose something new: an agreement before the accident, rather than a fight after it. The root of the problem, they maintain, is the ascendancy of torts over contract law. In the small-airplane market, for example, the buyer and the seller rarely hammer out their financial risks in a contract. Instead, the manufacturer, fearing suits, buys enormous liability insurance, then charges the buyer for it indirectly by marking up the price of the plane, often doubling it. These high prices, manufacturers say, have driven 20 of 26 small-aircraft manufacturers from the business in the past 20 years.[7]

These liability-limiting laws did help bring some light plane makers back to the US, but much of the industry was permanently lost. The US had dominated small plane manufacturing until the cost crisis, but today is a small player, and has lost even mid-sized airplane manufacturing to Canada’s Bombardier and Brazil’s Embraer. Legal and regulatory overhead tore down the big advantage of US firms — and once lost, the network of expert workers and subcontractors cannot be rebuilt easily.

Credit: Wikimedia

Note the zooming cost of airplanes beginning in the late 1970s, and the weak recovery in numbers shipped after liability-limiting laws were passed in 1994. What had been a booming market was strangled by rising costs — anyone planning to build a flying car could read the tea leaves; they would never get a foothold as a mass-market product like ground cars given the multiplying costs.

Now central planners dream of a continent-spanning high speed rail network, and in California money is being spent at a rapid clip to build 1960s transport today, a multi-billion-dollar line from nowhere to nowhere that doesn’t in any way meet the goals of the project California voters approved and will cost hundreds of dollars per ticket sold in additional operating subsidies. The fantasies of Europhile statists who fail to understand how big the US is compared to Europe, where such lines can make financial sense, result in bizarre proposals like this one:

US High Speed Rail System – proposed by Alfred Twu

I created this US High Speed Rail Map as a composite of several proposed maps from 2009, when government agencies and advocacy groups were talking big about rebuilding America’s train system.

Having worked on getting California’s high speed rail approved in the 2008 elections, I’ve long sung the economic and environmental benefits of fast trains.

This latest map comes more from the heart. It speaks more to bridging regional and urban-rural divides than about reducing airport congestion or even creating jobs, although it would likely do that as well.

Instead of detailing construction phases and service speeds, I took a little artistic license and chose colors and linked lines to celebrate America’s many distinct but interwoven regional cultures.[8]

So festive! How about a line to Yellowstone, wouldn’t that be great?—This romantic Progressive choo-choo dream, free of any tedious thoughts of engineering and economics, would shackle the US to a costly, inconvenient, backward-looking rail system when an updated FAA, with better GPS and more sophisticated air traffic control systems, would allow air passenger service that is faster, cheaper, and serves all destinations. Because the FAA is a hidebound government agency, though, innovation has been slow and costly, and air traffic is held down by antiquated software, scheduling issues and TSA hassles.

This particular accounting-challenged dreamer bills the total cost of his entire system at $40 billion per year for 30 years — that’s $1.2 trillion. Meanwhile, the slightly-less-deluded dreamers of Jerry Brown’s California high speed rail project — which will never be built from LA to SF as originally proposed unless helicopter money starts raining down on Sacramento — have budgeted $64 billion. Soon we’ll be talking about spending real money….

The Economist recently reviewed the California project (“Taxpayers could pay dearly for California’s high-speed-train dreams,” Mar 27th 2016):

The suit brought by Kings County Board of Supervisors and two Central Valley farmers accused the rail authority of violating restrictions imposed by a ballot held in November 2008 (Proposition 1A) that approved a $9.95 billion bond issue to help pay for the high-speed railway. Voters were told at the time that the project would cost no more than $33 billion, with the federal government stumping up $3.2 billion and private investors chipping in the balance. So far, such private investors have been conspicuous by their absence.

According to the Proposition 1A Bond Act, the high-speed rail project has to be financially viable; trains have to operate (without subsidy) every five minutes in either direction during the day; and funds for each segment of the route need to be identified before work on the leg in question can commence. Above all, trains have to make the 520-mile (840-km) journey between the Los Angeles basin and the San Francisco in two hours and 40 minutes, reaching speeds of 220 mph (350 kph). As for ridership, the rail authority reckoned some 65m to 96m passengers per year would be travelling the route by 2020. The basic fare was to be $55 one way.

That was all pie in the sky, a way of selling the deal to voters in 2008. A review in 2011 put ridership at a more realistic 30m passengers a year, with an end-to-end ticket price of $89. Meanwhile, the overall cost of the project had soared to $98 billion. And instead of going into service by the end of the decade, the high-speed railway would not be ready until 2033.

The uproar that ensued prompted a shakeup along with some hurried rethinking. The cost was subsequently pegged at around $68 billion for the first phase of the network, with an opening date in 2029 — almost a decade later than originally promised…. The draft 2016 business plan has now trimmed the cost of the first phase to $64 billion.

While private funds have shown little interest, at least the project’s finances are no longer quite as gloomy as they were a year or so ago. Jerry Brown, California’s govenor and a stalwart supporter of the high-speed train, strong-armed the legislature in Sacramento into allocating it 25% of the state’s annual “cap and trade” proceeds from auctioning off carbon credits to big polluters, which are currently worth around $1 billion a year. As a result, the rail authority has now identified the $21 billion required for building the project’s initial leg (San Jose to the Central Valley). It still needs a further $43 billion before it can start work on extending the line north to San Francisco and south towards Los Angeles.

With the rail authority’s finances resolved for the time being, opponents have focused instead on the project’s legal requirement to cover the distance between Los Angeles and San Francisco in two hours and 40 minutes. The rail authority claims (optimistically) that such a time remains doable, though cost-saving measures have forced the high-speed train to share tracks with slower-moving freight and commuter services in the Los Angeles basin and the Bay Area.

What also remains in doubt is just how many people will actually ride the high-speed network. In revising its revenue model, the rail authority has incorporated findings from surveys on rider preferences, along with forecasts of California’s likely population, housing and employment growth. The data were then crunched using Monte Carlo simulations to minimise the risks of being wrong. The analysis suggests that, based on a confidence level of 50%, the service will have some 28m passengers by 2029, generating $1.3 billion of revenue. However, as thorough as this analysis is, unanswered questions remain.

Above all, what is it that California’s railway planners know that their Japanese counterparts do not? The former state-owned Japanese National Railways and its partially privatised regional replacements have struggled for decades to make their high-speed Shinkansen (“bullet train”) routes profitable. Japan’s eight Shinkansen lines have little in the way of competition, thanks to over-crowded roads, expressways that charge exorbitant tolls and limited air services. Even so, only one Shinkansen service—JR Central’s 550-km line between Tokyo and Osaka—makes anything like a decent enough operating surplus to cover its costs, make necessary investments and pay a modest dividend.

It does so for one simple reason: the volume of traffic it carries—some 140m passengers a year. The Tokyo plain (Kanto) is home to 42m people, while greater Osaka (Kansai) has 23m. Between these two huge population centres reside a further 10m people in conurbations like Hamamatsu, Nagoya and Kyoto, all served by the Tokaido Shinkansen. At peak hours, trains leave Tokyo Station bound for Shin-Osaka and beyond on average every four to five minutes, and every seven to eight minutes for the rest of the day. The latest Nozomi (limited stop) service whisks passengers between Tokyo and Osaka in two hours and 22 minutes.

Compare that with California. As sprawling as it is, the Los Angeles basin has a population of just 18m. The nine counties surrounding the Bay Area have a little over 7m residents between them. The farming communities astride the proposed high-speed rail line through the Central Valley have a combined population of around 1m. In short, California’s high-speed railway is attempting to do what the Tokaido Shinkansen does, but with a third of the number of potential passengers, on a route that is half as long again. California’s taxpayers will pay dearly for Mr Brown’s high-speed legacy.[9]

Two notable new developments in transport, self-driving cars and the Hyperloop[10] (a passenger capsule propelled through a partly-evacuated tube by linear induction motors at up to 760 mph) have both managed to make progress by staying under the radar and working with the states before going to Federal regulators. One reason, of course, is that (especially in the case of Hyperloop) the risks of accidental death and destruction at high speeds are just as great, but the FAA is not involved because neither ever leaves the ground. And for self-driving cars, people are relatively used to carnage on the roads and it appears to most researchers that these cars will reduce accidents and deaths substantially.

The Hyperloop is especially glamorous (see the video of a test run here), and if the billions being spent on California’s high speed rail were instead spent on a Hyperloop line from LA to San Francisco, the result would be a technology-leading, tourism-generating marvel, not a has-been-technology, almost-as-good-as-French train. But the graft is already in politicians’ pockets, and it’s likely billions more will have been spent before the California high speed rail boondoggle quietly dies.

The Hyperloop technology has problems of its own, as the Economist article points out:

Everyone involved now accepts that Mr Musk seriously under-estimated the cost of building a Hyperloop between Los Angeles and San Francisco—probably by a factor of ten or more. There are few illusions, too, about the engineering difficulties involved. Fabricating an air-tight steel tube hundreds of miles long, with solar-powered linear motors providing propulsion while supporting passenger pods on air-bearings or by magnetic levitation is challenging enough. A bigger hurdle is overcoming the “pistoning” effect, caused by air in the tube (even though it would be at only a thousandth the pressure of that outside) piling up in front of the pod and slowing it down. Calculations done by NASA suggest the tube would have to be at least four times wider than the pod to prevent even the tiny amount of residual air within it blocking the pod’s passage. Mr Musk budgeted for tubes only twice as wide.[11]

In Bootleggers and Baptists terms, neither conventional high speed rail or Hyperloop are much of a threat to incumbent airline companies, and self-driving cars would be built by existing manufacturers, so they too are more likely to be allowed to prosper.

In an age of business meetings by Skype and telepresence, one would guess the market for costly long-distance passenger transportation would shrink, or at least not grow as quickly — flat demand is already observed in many business routes. More-efficient jets and updated air traffic control can limit emissions growth, while the pie-in-the-sky continental high speed rail and Hyperloop ideas would take a vast amount of capital, at least when built by government contracting rules where much of the money goes to law firms and environmental studies before anything is even built. But if California is to spend $billions on a boondoggle, let it be an interesting boondoggle which could probably attract passengers going from nowhere to nowhere.

—

[1] “Is the Valkyrie Co50 a test case for the FAA’s willingness to innovate?” – Mashable, Lance Ulanoff, Feb 21, 2016
http://mashable.com/2016/02/21/cobalt-valkyrie-co50-faa-analysis
[2] “For Pentagon, the price isn’t right” – By Lawrence Korb, Alvaro Genie, The Hill, 07/23/14

For Pentagon, the price isn’t right

[3] “Tomorrowland: Tragic Misfire,” Jeb Kinnison, Oct 31, 2015

“Tomorrowland”: Tragic Misfire

[4] “Why we still don’t have flying cars” – USA Today, Glenn Harlan Reynolds, May 12, 2016
http://www.usatoday.com/story/opinion/2016/05/12/technological-progress-stagnation-regulatory-explosion-1970s-column/84225066/
[5] “The rise and fall of general aviation: product liability, market structure, and technological innovation” – Truitt, Lawrence J., and Tarry, Scott E. Transportation Journal, 6/22/1995
http://www.freepatentsonline.com/article/Transportation-Journal/17572867.html
[6] Notably the General Aviation Revitalization Act of 1994: https://en.wikipedia.org/wiki/General_Aviation_Revitalization_Act
[7] “Clearing A Runway For Planemakers” – Bloomberg Businessweek, Stephen Baker, March 19, 1995
http://www.bloomberg.com/news/articles/1995-03-19/clearing-a-runway-for-planemakers
[8] “A US high speed rail network shouldn’t just be a dream,” by Alfred Twu, The Guardian, 6 Feb 2013
http://www.theguardian.com/commentisfree/2013/feb/06/us-high-speed-rail-network-possible
[9] “Taxpayers could pay dearly for California’s high-speed-train dreams” – The Economist, Mar 27th 2016
http://www.economist.com/news/science-and-technology/21695237-taxpayers-could-pay-dearly-californias-high-speed-dreams-biting-bullet
[10] https://en.wikipedia.org/wiki/Hyperloop – Hyperloop One, one of several startups working from Elon Musk’s technology proposal, did a full-scale demo May 11, 2016: see video at https://youtu.be/vbtNrpkHmpA
[11] “Taxpayers could pay dearly for California’s high-speed-train dreams” – The Economist, Mar 27th 2016
http://www.economist.com/news/science-and-technology/21695237-taxpayers-could-pay-dearly-californias-high-speed-dreams-biting-bullet

Death by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations, available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. Here’s the condensed version; view the entire review here.

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness, and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

More reading on other topics:

The Great Progressive Stagnation vs. Dynamism
Captain America and Progressive Infantilization
FDA Wants More Lung Cancer
Corrupt Feedback Loops: Public Employee Unions
Jane Jacobs’ Monstrous Hybrids: Guardians vs Commerce
Death by HR: How Affirmative Action is Crippling America
Death by HR: The End of Merit in Civil Service
Death by HR: History and Practice of Affirmative Action and the EEOC
Civil Service: Woodrow Wilson’s Progressive Dream
Bootleggers and Baptists
Corrupt Feedback Loops: Justice Dept. Extortion
Corrupt Feedback Loops, Goldman Sachs: More Justice Dept. Extortion
Death by HR: The Birth and Evolution of the HR Department
Death by HR: The Simple Model of Project Labor
Levellers and Redistributionists: The Feudal Underpinnings of Socialism
Sons of Liberty vs. National Front
Trump World: Looking Backward
Minimum Wage: The Parable of the Ladder
Selective Outrage
Culture Wars: Co-Existence Through Limited Government
Social Justice Warriors, Jihadists, and Neo-Nazis: Constructed Identities
Tuitions Inflated, Product Degraded, Student Debts Unsustainable
The Morality of Glamour

On Affirmative Action and Social Policy:

Affirmative Action: Chinese, Indian-Origin Citizens in Malaysia Oppressed
Affirmative Action: Caste Reservation in India
Diversity Hires: Pressure on High Tech<a
Title IX Totalitarianism is Gender-Neutral
Public Schools in Poor Districts: For Control Not Education
Real-Life “Hunger Games”: Soft Oppression Destroys the Poor
The Social Decay of Black Neighborhoods (And Yours!)
Child Welfare Ideas: Every Child Gets a Government Guardian!
“Income Inequality” Propaganda is Just Disguised Materialism

The greatest hits from SubstrateWars.com (Science Fiction topics):

Fear is the Mindkiller
Mirror Neurons and Irene Gallo
YA Dystopias vs Heinlein et al: Social Justice Warriors Strike Again
Selective Outrage
Sons of Liberty vs. National Front
“Tomorrowland”: Tragic Misfire
The Death of “Wired”: Hugo Awards Edition
Hugos, Sad Puppies 3, and Direct Knowledge
Selective Outrage and Angry Tribes
Men of Honor vs Victim Culture
SFF, Hugos, Curating the Best
“Why Aren’t There More Women Futurists?”
Science Fiction Fandom and SJW warfare

More reading on the military:

US Military: From No Standing Armies to Permanent Global Power
US Military: The Desegration Experience
The VA Scandals: Death by Bureaucracy

The Great Progressive Stagnation vs. Dynamism

In the US, the decades after WWII were marked by high growth and technological innovation. Rebound from recessions was quick, and reforms like the deregulations of the Carter era (trucking, railroads, airlines, interest rates on savings, and the breakup of the AT&T monopoly on phone service) and the tax simplifications of the Reagan administration lifted growth. Waves of labor-saving innovations grew productivity — computers first eliminated most manual record-keeping, then automated processes and streamlined production and logistics.

But each successive wave of recovery growth from recession has been weaker. This graph from the Center for Economic Policy Research charts the recoveries from the recessions of 1981, 1990, 2001, and 2007.

Recession Rebounds Compared – US Census Data

The weak growth for the quarter puts this recovery even further behind any prior recovery at the same stage. After eight and a quarter years, the economy is only 10.1 percent larger than its pre-recession level of output. A more typical recovery would have seen at least twice as much growth.[1]

Economist Tyler Cowen has coined the term “The Great Stagnation” for this gradual decline in growth and economic dynamism. His book The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better[2] was published in 2011, after the shaky recovery from the recession of 2007, but before we knew the stagnation would continue for many more years.

His major point was that the US post-WWII took advantage of one-time advantages and opportunities: most of the industrialized world had been crippled by war, and unskilled unionized workers could take advantage of their position to win seemingly stable, high-paying jobs while the technologies developed in the Depression and WWII decades were rapidly incorporated into production processes. When the rebuilt rest of the world began to catch up and compete directly, much of the easy profits for both US companies and workers were competed away, and technologies developed since have been adopted around the world quickly. The backlog of new technology waiting to be incorporated into production is gone, and meanwhile the overhead of law, regulation, and the web of intellectual property (patents, trademarks, and copyrights) has grown complex, to the point where innovation in products may be retarded by legal tangles.

Here’s the blurb for his book:

America is in disarray and our economy is failing us. We have been through the biggest financial crisis since the Great Depression, unemployment remains stubbornly high, and talk of a double-dip recession persists. Americans are not pulling the world economy out of its sluggish state — if anything we are looking to Asia to drive a recovery.Median wages have risen only slowly since the 1970s, and this multi-decade stagnation is not yet over. By contrast, the living standards of earlier generations would double every few decades. The Democratic Party seeks to expand government spending even when the middle class feels squeezed, the public sector doesn’t always perform well, and we have no good plan for paying for forthcoming entitlement spending. To the extent Republicans have a consistent platform, it consists of unrealistic claims about how tax cuts will raise revenue and stimulate economic growth. The Republicans, when they hold power, are often a bigger fiscal disaster than the Democrats. How did we get into this mess?Imagine a tropical island where the citrus and bananas hang from the trees. Low-hanging literal fruit — you don’t even have to cook the stuff.In a figurative sense, the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century: free land; immigrant labor; and powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are barer than we would like to think. That’s it. That is what has gone wrong.The problem won’t be solved overnight, but there are reasons to be optimistic. We simply have to recognize the underlying causes of our past prosperity—low hanging fruit—and how we will come upon more of it.

Cruft (a term from MIT hackers for useless, complicated leftover materials that have accumulated) has grown around our laws and practices, with vested interests blocking change through legal means and bureaucracy. New technologies continue to change our lives and speed up work, with the internet and web starting in the late 1980s and mobile apps and smartphones now connecting people on the go. Yet productivity does not appear to be increasing, and while there is a lot of improvement in living standards that doesn’t show up in GDP (no one enjoyed waiting in teller lines at the bank, for example!), all of that freed-up time is going somewhere else, and most people’s working hours aren’t shrinking, and their incomes aren’t rising much.

Occasionally a sector will be disrupted (the current buzzword for innovation that suddenly makes a stable sector of the economy unstable) and the efforts of the rent-seeking status quo defenders become more obvious, as with Uber and other ride-sharing services, which had cut into the business of cab companies in many cities before the taxi industry roused itself to try to outlaw them. Few understood the taxi system as it had been, with its taxi commissions, high-priced medallion licensing, and cabbies forced to rent cabs from medallion holders who made the lion’s share of the money. The taxi medallion system started in New York City in 1937 as another attempt to limit competition during the New Deal and spread elsewhere in following decades, originally justified as necessary to keep gypsy cabs and jitneys — low-priced, unregulated, and occasionally dangerous — from serving the needs of the poor and incidentally crowding the streets of Manhattan, where a free market in taxi services would have resulted in a tragedy of the commons in the form of continuous gridlock. Taxi commissions supposedly protected the safety of passengers, but they also restricted the market for local transportation, raising the price and reducing service. Medium-sized cities, low-income and low-density suburban areas adopting taxi regulations tended to end up underserved. In most places the benefits of Uber-like services were so apparent so quickly that politicians were forced to bow to Uber’s fait accompli, and the prices of taxi medallions giving the owner the right to operate a city-approved taxi fell dramatically:

To own a cab in New York, you need a medallion—a metal shield displayed on the vehicle’s hood—and there are a fixed number issued by the New York City Taxi & Limousine Commission (TLC). Until very recently, medallions were a good thing to have a lot of. In 1947, you could buy one for $2,500. In 2013, after a half-century of steady appreciation, including a near-exponential period in the 2000s, they were going for $1.32 million.

Then came Uber. Since the arrival of the car-by-app service… taxi ridership is down, daily receipts have declined, and drivers are idling—or going to work for Uber. Add it up, and desperate medallion sellers are trying to fob off their little tin ornaments for as little as $650,000.[3]

But that kind of disruption is rare and only happens when the public comes to understand the benefits of the innovative business before the vested interests can strangle it in the crib. More and more economic activities have come to be regulated and new entrants are kept out by the need for government approvals. Products and services from our most heavily-regulated industries — healthcare, education, energy utilities, cable and broadcast entertainment, housing, and finance — have seen outsized price increases without much increase in quality in recent decades, with government regulations either limiting competition or subsidizing consumption (or, as in the case of education and healthcare, both.) Routing around these government controls is starting to happen — household solar panels, Internet entertainment streaming, and homeschooling with online instruction from the likes of the Khan Academy[4] show what is possible when freed from monopoly providers. But breaking the grip of the vested interests in some of these sectors — like the NIMBY restrictions on new housing in the cities controlled by Progressive political machines, or the failed public K-12 schools in urban districts — will take more time and effort.

Virginia Postrel’s book, The Future and Its Enemies: The Growing Conflict Over Creativity, Enterprise, and Progress (1998)[5] set two opposing philosophies against each other: stasists, who prefer a regulated and controlled status quo offering predictability in a society mostly closed to new thinking, and dynamists, who accept instability, innovation, and change allowing higher growth and creative achievement. Her website has this blurb:

Postrel argues that these conflicting views of progress, rather than the traditional left and right, increasingly define our political and cultural debate. On one side, she identifies a collection of strange bedfellows: Pat Buchanan and Ralph Nader standing shoulder to shoulder against international trade; “right-wing” nativists and “left-wing” environmentalists opposing immigration; traditionalists and technocrats denouncing Wal-Mart, biotechnology, the Internet, and suburban “sprawl.” Some prefer a pre-industrial past, while others envision a bureaucratically engineered future, but all share a devotion to what she calls “stasis,” a controlled, uniform society that changes only with permission from some central authority.

On the other side is an emerging coalition in support of what Postrel calls “dynamism”: an open-ended society where creativity and enterprise, operating under predictable rules, generate progress in unpredictable ways. Dynamists are united not by a single political agenda but by an appreciation for such complex evolutionary processes as scientific inquiry, market competition, artistic development, and technological invention. Entrepreneurs and artists, scientists and legal theorists, cultural analysts and computer programmers, dynamists are, says Postrel, “the party of life.”[6]

Where are the jetpacks and the flying cars dreamed of in the 1960s? Disney’s Tomorrowland[7] suggested our shared pessimism had slowed progress and endangered the future, but it failed to address the source of the exhaustion and defeatism — the many regulations that now prevent an energetic entrepreneur from putting his or her new idea into practice in the world. People who tried to do something differently have found their way blocked, and their lives are often destroyed by vested interests using the legal system to delay their projects and drain them of energy and capital. Every effort to build something new becomes a political effort requiring that you not only interest customers, but pay off politicians and rent-seekers who see their interests threatened. The compliance overhead in growing from a small business to a large business is now so large that most people who might try are discouraged and stick with what already works for them. It’s far safer to work for a government or big corporation than to strike out on your own. The result for our economy is stagnation and declining growth.

The decline in new business formation and business dynamism from 1978 to 2011:[8]

Startups and Dynamism In Decline – US Census Data

It’s ironic that the free world outcompeted and ultimately broke the Communist central planning systems of the USSR and China, with both Russia and China now authoritarian mixed kleptocracies with at least some freedom for private industry, yet the US is now tied up by central-planning bureaucrats and regulations that are crippling growth and favoring larger corporations that support politicians through favor-trading and campaign contributions. Every small loss of economic freedom and increase in corruption has been accompanied by government-funded propaganda to explain how much it benefits The People. And The People have awakened to a hangover of enormous debts and poor job prospects, having been slipped a mickey of miseducation and dependency.

The French have a term to describe their tendency to let a centralizing state control business activity: dirigisme, “to direct.” Progressives have gradually molded the US population to more closely resemble the French in looking to the state to decide economic matters, and borrowed many of the ideas of the welfare state and public education from German models. The bureaucracies they spawned tend to grow, and those employed to write regulations will never run out of ideas for new and more detailed specifications of how everything should be done. Because Progressives believe wise rulers (themselves) can make better decisions on every choice less enlightened citizens might make — and it’s their duty to improve society by improving people, for their own good. As C. S. Lewis said:

My contention is that good men (not bad men) consistently acting upon that position would act as cruelly and unjustly as the greatest tyrants. They might in some respects act even worse. Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be ‘cured’ against one’s will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.[9]

While this book will touch on overregulation and bureaucracies, there are already quite a few studies and books on each of the affected industries — books on the failures of public education alone number in the hundreds. This book is primarily about labor regulations and their costly and productivity-draining intrusion into hiring and employment practices. Employer fears of exposure to lawsuits led to extensive delegation of control over hiring and firing decisions to HR departments. Government-enforced unions, Civil Service rules, and increasing efforts to require equality of outcome while denigrating excellence are reducing growth now and may doom us to a second-rate future as other countries not so crippled outcompete us. The US can return to a high-growth, lower-inequality path, but only if these sectors are unlocked and allowed to innovate in both process and personnel. Freedom to work and trade as we choose — and not as Washington dictates — will keep us free, and give our children the future we dreamed of.

[1] “Falling Investment and Rising Trade Deficit Lead to Weak First Quarter” – Dean Baker, Center for Economic and Policy Research, April 28, 2016
[2] The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, by Tyler Cowen. Dutton (January 25, 2011) http://amzn.to/1pTybdh
[3] “The Struggles of New York City’s Taxi King” — by Simon Van Zuylen-Wood, Bloomberg, Augist 27, 2015 http://www.bloomberg.com/features/2015-taxi-medallion-king/
[4] https://www.khanacademy.org/
[5] The Future and Its Enemies: The Growing Conflict Over Creativity, Enterprise, and Progress, Virginia Postrel, Simon and Schuster, 1998 http://amzn.to/1SFodo7
[6] From Virginia Postrel’s web site.
https://vpostrel.com/future-and-its-enemies
[7] https://substratewars.com/2015/10/30/tomorrowland-tragic-misfire/
[8] “The Rate of New Business Formation Has Fallen By Almost Half Since 1978: America’s declining ‘business dynamism’ has affected all 50 states and nearly every single metro area.” Richard Florida, Citylab, May 5, 2014
[9] From C.S. Lewis’s essay anthology “God in the Dock” (1948), viewed 4-28-2015 at http://www.wsj.com/articles/SB10001424052702304527504579170134126854254

—

If you have a good story or anecdote from your organization, please email it to jebkinnison@gmail.com. I can use a few good tales (anonymized, of course) to illustrate the problems.

Death by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations, available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. Here’s the condensed version; view the entire review here.

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness, and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

More reading on other topics:

Jane Jacobs’ Monstrous Hybrids: Guardians vs Commerce
The Great Progressive Stagnation vs. Dynamism
Death by HR: How Affirmative Action is Crippling America
Death by HR: The End of Merit in Civil Service
Corrupt Feedback Loops: Public Employee Unions
Death by HR: History and Practice of Affirmative Action and the EEOC
Civil Service: Woodrow Wilson’s Progressive Dream
Bootleggers and Baptists
Corrupt Feedback Loops: Justice Dept. Extortion
Corrupt Feedback Loops, Goldman Sachs: More Justice Dept. Extortion
Death by HR: The Birth and Evolution of the HR Department
Death by HR: The Simple Model of Project Labor
Levellers and Redistributionists: The Feudal Underpinnings of Socialism
Sons of Liberty vs. National Front
Trump World: Looking Backward
Minimum Wage: The Parable of the Ladder
Selective Outrage
Culture Wars: Co-Existence Through Limited Government
Social Justice Warriors, Jihadists, and Neo-Nazis: Constructed Identities
Tuitions Inflated, Product Degraded, Student Debts Unsustainable
The Morality of Glamour

On Affirmative Action and Social Policy:

The greatest hits from SubstrateWars.com (Science Fiction topics):

More reading on the military:

US Military: From No Standing Armies to Permanent Global Power
US Military: The Desegration Experience
The VA Scandals: Death by Bureaucracy

Corrupt Feedback Loops: Public Employee Unions

Civil Service rules insulated government employees from political demands, but also made firing the incompetent more difficult. The final barrier to accountability was the addition of another layer of employee empowerment, the public employee union. Private-sector unions are not the enormous political force they once were, but public-sector unions have continued to grow until they now control one of the two US political parties and have driven many state and local governments to near-bankruptcy, with underfunded pension and medical coverage for retirees taking a larger and larger share of local government revenues.

How did we get here? The advent of industrialization and large workplaces encouraged formation of worker associations. Facing a powerful employer, workers that joined in a union could send a message about compensation or working conditions with less fear of individual reprisal. In the United States, the union movement coalesced in the late 1880s, about the same time Wilson and the Progressives were formulating their program to mold the citizenry through government directives and regulation.

Since unions threatened the interests of powerful industrialists and employers, conflict was inevitable. Violence broke out between management and labor forces, with contract security agents (“company men”) from Pinkerton infiltrating and fighting union members during extralegal labor actions. Unions were illegal in some places, and union tactics like picket lines enforced by union violence were met by violence from company goons.

In one incident, the Homestead Steel Strike of 1892, steelworkers union members fought Andrew Carnegie’s Homestead Steel company managed by Henry Clay Frick. Frick intended to break the strike and had hired an army of three hundred Pinkertons to help get strikebreakers into the Pittsburgh-area riverside plant, bypassing the strikers’ picket lines by boat. With both sides armed with guns and thousands of workers and local citizens joining the battle, fighting went on for days, killing nine strikers and seven Pinkertons. Martial law was declared and public opinion turned against the union, resulting in deunionization of most US steel plants.[1]

Union activity was seen as a threat to the social order and unions themselves were feared as introducing “socialist” ideas. Conspiracy to join together to raise pay had been illegal under English law, and US law had followed suit. Many typical union tactics — picket lines and harassment of workers and suppliers trying to get into plants, secondary boycotts, and sabotage of equipment — were illegal. Yet unions could perform a valuable function in communicating worker views to management, and many thoughtful employers were able to work with unions as an outlet for worker grievances.

The Depression and FDR’s New Deal administration brought much more government recognition and support for union activities. The new administration believed overproduction and low prices were the key reason for economic weakness, and so favored controls on agricultural and industrial production to reduce quantities and raise prices — so the administration also supported union activity restricting the entry of low-priced labor and increasing wages for union members. Much New Deal legislation protected and encouraged labor unions, and the National Labor Relations Act of 1935 (the “Wagner Act”) guaranteed the right of workers to form unions and bargain collectively in the private sector. Nonunion industries were organized, strikes increased, and wages rose in those sectors. For those left out of unions, notably black men, prospects of employment were diminished, and the economic recovery as a whole is thought to have been delayed by the New Deal’s legalized cartels and restraints on competition.

Clarified rules and legalization of a constrained right to strike under the law defused most of the violence and disorder associated with union activity. Private-sector unions became another accepted part of the American scene, and the big labor union coalitions like the AFL-CIO joined in disavowing Communism to rid themselves of “un-American” associations.

The simplistic narrative of the noble union is usually set in a one-company town, say a coal mine, where workers have little choice of employer, while management is free to take advantage of their monopoly on local employment to gouge and mistreat workers. In a modern urbanized area, these conditions rarely occur, and workers have a choice of employers vying to hire them, which provides a competitive environment that tends to improve compensation and working conditions as productivity increases.

In reality, unions grew powerful where a choke point existed — where a large and expensive plant, fixed rails, or docks prevented re-routing the business activity elsewhere during a strike. Unions did best where workers were low-skilled and interchangeable, and where the workplace could not be moved and had a lot invested in it, or where a government monopoly existed, as in transit and garbage in many cities. Unions could raise worker compensation and write work rules tailored to union preferences in such situations, making the union job preferable to any competitive nonunionized work, with the union as a barrier to entry of new workers — those already in the union got more money and protection from competition who might be willing to take the job for less.

Unions in private industry with free trade and low barriers to entry tend to harm their hosts and eliminate themselves over time as their hosts are crippled by high costs and loss of flexibility. As a result, entire union-dominated US industries were either offshored or automated, and private-sector union employment as a percentage of total private employment has fallen from a peak of around 35% in the mid-1950s to 7% today.[2] Unions are no longer a significant drag on the private sector, and remaining private-sector unions are much more aware of their need to cooperate with company management to produce high-quality, competitive products in a globalized world.

But the dynamics of public sector unions are quite different, and their enormous growth from the mid-1960s until today means the majority of union members now work for government — 35% of government employees are now unionized,[3] and public employee unions are important members of the political coalitions that keep governments in power at all levels. While private-sector unions decline in influence, public-sector unions have never been more powerful. Federal Election Commission statistics show public employee union campaign and PAC contributions grew from $17 million in 1998 to $54 million in 2014, with the vast majority going to Democrats.[4] Public employee unions now dominate election spending for local issues like school board races, city councils, and state-level ballot initiatives affecting their interests. There’s no good source for data on total state and local campaign contributions, but the Federal election numbers show how unions distribute their contributions:

Table 1: Public Sector Unions: Top Contributors to Federal Candidates, Parties, and Outside Groups, 2014 Election Cycle. Source: Open Secrets.org Center for Responsive Politics

			To Candidates and Parties			To Outside Spending Groups
Rank	Contributor	Total Contribs	Total	Dem%	Repub%	Total
1	National Education Assn	$24,961,199	$2,183,752	91.1%	8.8%	$22,787,447
2	American Fedn of St/Cnty/Munic Employees	$10,002,495	$2,288,816	99.2%	0.3%	$7,717,155
3	American Federation of Teachers	$4,797,032	$2,484,870	98.8%	0.8%	$2,312,162
4	American Federation of Govt Employees	$4,072,005	$1,019,250	94.3%	5.6%	$3,052,755
5	International Assn of Fire Fighters	$2,184,303	$1,948,946	84.4%	15.6%	$235,357
6	National Assn of Letter Carriers	$2,113,796	$1,688,360	94.9%	4.9%	$425,436
7	American Postal Workers Union	$1,007,341	$988,950	98.8%	1.2%	$18,391
8	National Rural Letter Carriers Assn	$735,500	$735,500	76.8%	23.0%	$0
9	National Treasury Employees Union	$681,550	$631,550	96.1%	3.9%	$50,000
10	National Active & Retired Federal Employees Assn	$441,000	$441,000	75.7%	24.3%	$0

When a private-sector union overplays its hand with a private industry, that industry declines and the goods or services it provides are either imported or are replaced by alternatives. Unfortunately government services are usually monopolies, so there’s no competitor or foreign supplier waiting to provide what they cannot. Public employee union power continues to grow as governments become more dysfunctional as a result.

Civil service employment almost never declines, and monopoly services like public schools, police, and transit are ideal for giving unions more negotiating power via strikes and slowdowns since no alternative service is available in the short term. Wages and benefits can go up consistently without harming the host government, at least up to the point where tax burdens are so high citizens start moving away to less taxed locales.

Public employee unions were not legal in most jurisdictions until the 1960s. Politicians recognized that many public services were too critical to the orderly functioning of cities to allow unions to strike. The Boston Police Strike of 1919 and the resulting outbreaks of looting and violence had turned the public against the idea:

In the Boston Police Strike, Boston police officers went on strike on September 9, 1919. They sought recognition for their trade union and improvements in wages and working conditions. Police Commissioner Edwin Upton Curtis denied that police officers had any right to form a union, much less one affiliated with a larger organization like the American Federation of Labor (AFL). Attempts at reconciliation between the Commissioner and the police officers, particularly on the part of Boston’s Mayor Andrew James Peters, failed.

During the strike, Boston experienced several nights of lawlessness, although property damage was not extensive. Several thousand members of the State Guard, supported by volunteers, restored order. Press reaction both locally and nationally described the strike as Bolshevik-inspired and directed at the destruction of civil society. The strikers were called “deserters” and “agents of Lenin.”

Samuel Gompers of the AFL recognized that the strike was damaging the cause of labor in the public mind and advised the strikers to return to work. Commissioner Curtis refused to re-hire the striking policemen. He was supported by Massachusetts Governor Calvin Coolidge, whose rebuke of Gompers earned him a national reputation. The strike proved a setback for labor unions, and the AFL discontinued its attempts to organize police officers for another two decades. Coolidge won the Republican nomination for vice-president of the U.S. in the 1920 presidential election.[5]

During the New Deal era, FDR famously rejected public employee collective bargaining and strikes while his administration paved the way for further unionization of private industry:

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management. The very nature and purposes of government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with government employee organizations. The employer is the whole people, who speak by means of laws enacted by their representatives in Congress. Accordingly, administrative officials and employees alike are governed and guided, and in many instances restricted, by laws which establish policies, procedures, or rules in personnel matters. Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of government employees. Upon employees in the Federal service rests the obligation to serve the whole people, whose interests and welfare require orderliness and continuity in the conduct of government activities. This obligation is paramount. Since their own services have to do with the functioning of the Government, a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable.[6]

Both the public and politicians remained opposed to public employee unions for decades after. In 1943, a New York Supreme Court judge held:

To tolerate or recognize any combination of civil service employees of the government as a labor organization or union is not only incompatible with the spirit of democracy, but inconsistent with every principle upon which our government is founded. Nothing is more dangerous to public welfare than to admit that hired servants of the State can dictate to the government the hours, the wages and conditions under which they will carry on essential services vital to the welfare, safety, and security of the citizen. To admit as true that government employees have power to halt or check the functions of government unless their demands are satisfied, is to transfer to them all legislative, executive and judicial power. Nothing would be more ridiculous[7].

The conflicts of interest inherent in giving public employee unions the legal power to organize, collect dues, and wield typical union strategies of withholding labor and attacking the employer (the government, and ultimately the citizenry) are obvious:

The very nature of many public services — such as policing the streets and putting out fires — gives government a monopoly or near monopoly; striking public employees could therefore hold the public hostage. As long-time New York Times labor reporter A. H. Raskin wrote in 1968: “The community cannot tolerate the notion that it is defenseless at the hands of organized workers to whom it has entrusted responsibility for essential services.”

A core problem with public sector unionism is that it creates a uniquely powerful interest group. In theory, bureaucrats are supposed to work for and be accountable to the elected representatives of the people. But suppose those bureaucrats organize into large, well-funded, powerful unions that can tip election results. With very few and very unique exceptions, no workplace in which the employees elect the supervisors functions well for long. [8]

Constitutionally, states were free to allow public employee unions, and the dam of opposition began to burst in the 1950s. In 1958, New York City Mayor Robert Wagner, Jr. issued an executive order authorizing unions and allowing exclusive representation, a concept borrowed from Federal law where employees could vote to authorize a single union to bargain collectively for the employees, even those who chose not to join — and those objectors still had to pay union dues, enshrining the system of enforced contributions that has served to grow public employee unions into political donation powerhouses. Unions had already become powerful enough in New York City politics to win this enforced monopoly, which further entrenched their power.[9] This also was roughly the peak of New York City’s postwar prosperity, and shortly thereafter it began to decline into the crime-infested, decaying New York City of the late 1970s as crime rose and government services faltered, driving prosperous residents to the suburbs.

In 1962, President Kennedy signed Executive Order 10988,[10] permitting collective bargaining for federal employees. This order authorized Federal employees to form unions but continued to disallow strikes; the order was intended to forestall imminent passage of a bill in Congress which would have gone further and allowed exclusive representation, so-called union shops. Military and intelligence agencies were wisely exempted.

Later orders and legislation legalized other typical features of private-sector unions like closed shops, paycheck withholding of dues for all non-management employees, and union work done on time paid for by taxpayers, called “official time”:

Unionized federal employees spent 2.48 million hours working for their labor unions while getting paid by taxpayers during 2013, and more than 360 workers who are on the federal payroll spent 100 percent of their time working for their union.

Under federal rules, employees who are members of a labor union are entitled to so-called “official time,” where they are dismissed from their duties as a government employee to engage in labor union organizing activities. A new report from the Government Accountability Office shows the use of official time has increased over the past several years as the size of the federal workforce has grown.

And it’s costing taxpayers plenty. According to the Office of Personnel Management, which tracks federal employees’ time, federal employees were paid more than $157 million during 2012 while doing work for labor unions.

The GAO says the price tag may be even higher, since some federal agencies are not adequately tracking their employees’ official time.

“Since agencies are most often managing the use of official time using an approach that has no specified number of hours, they could be at greater risk for abuse,” auditors warned in the report, released last week.[11]

Efforts to contract out services currently provided by public employees are effectively blocked by union power, with lawsuits and work actions typical when outsourcing is attempted. When AFSCME workers struck University of California campuses recently, one of their objectives was a contract preventing outsourcing of functions like janitorial and food services. The AFSCME spokesman commented, “We need to deal also with these staffing issues, because what good is a raise if you are permanently injured on the job or if you are out of a job because the UC decided to outsource it to some low-wage, inexperienced contractor?”[12]

Minimum wage laws (first implemented as Federal law in 1938) went well with union efforts to outlaw low-priced competitive labor, especially from newly-arrived Southern black men in Northern cities. (In this, unions played the Bootleggers in a Bootleggers and Baptists coalition to pass minimum wage laws.) By outlawing low-end, low-wage work, minimum wage laws help unionized businesses stay competitive. In the current Democratic push for much higher “living wage” minimum wages of $15/hour, both private and public-sector unions have actively campaigned for the increases since even though most of their members make much more than minimum wage, their wages will tend to be bumped up to some margin above the minimum wage, either by contract or future negotiation, and nonunion firms become less competitive when they are forced to use only higher-priced labor.

The rent-seeking nature of union demands for higher minimum wages was exposed when the same unions also sought carveouts that would allow businesses to pay below minimum wages to union workers under a negotiated contract.[13] This demonstrated that the wages of union members were not as important to union bosses as hobbling their nonunion competition; by offering employers a special deal, unions could organize even more workplaces and thereby obtain more members and more dues, allowing them to donate even more to the local politicians who had passed the minimum wage increase.

Attempts to streamline Federal agencies by contracting out some noncritical services have also been blocked by union actions:

Last May, nearly 250 workers [at the U.S. Department of Labor] received word that their jobs had been eliminated and would be outsourced through the Administrative Support Services Competition, a departmental bidding process, without an absolute guarantee that another job could be found for them within the department. Their union, American Federation of Government Employees Local 12, protested the decision, holding a rally by the Capitol Reflecting Pool in June and pointing out that most of these “non-inherently governmental” jobs (as the department’s human resources staff called them) were held by minorities and women.[14]

Of course the jobs that would have been sent out under contract might well have been filled by minorities and women also, but at much lower cost to taxpayers. Those minorities outside the union walls are just out of luck, since without the protection and sponsorship of the union and its contributions to political campaigns, they will remain jobless. The plantation system lives on, with dues collected by largely white Democratic power brokers.

Education researcher Terry Moe has written about the capture of elected local school boards by teacher’s unions, and the resulting inability of school boards to act in the best interests of students and their parents:

Since A Nation at Risk warned in 1983 of a “rising tide of mediocrity” in America’s schools, the nation has invested heavily in reform efforts to bring about significant improvement—generating countless changes to the laws, programs, structures, and curricula of public education, and spending untold billions of extra dollars.

All this activity might seem to be the sign of a wellfunctioning democracy. But pull away the curtain and the picture is not nearly so pretty: the reforms of the last few decades, despite all the fanfare, have been incremental and weak in practice. The nation is constantly busy with education reforms not because it is responsibly addressing social problems, but because it never actually solves them and they never go away— leading to continuing demands for more reforms. This is what keeps the “education reform era” alive and kicking: not democracy, not responsibility, but failure….

The teachers unions have been masters of the politics of blocking for the past quarter century. Major reform is threatening to their vested interests in the existing system, and they have used their formidable power — leveraged by checks and balances — to repel and weaken the efforts of reformers to bring real change. This is not the whole story of the modern reform era, needless to say. But it is at the heart of it….

The public school system emerged in roughly its present form about 100 years ago, and for most of its history was a union-free zone. Many teachers belonged to the NEA, which, even in the early 1900s, was the vanguard of the education establishment. But the NEA was a professional association controlled by administrators, and it was opposed to unions.

All this changed during the 1960s and 1970s, when most of the states (outside the South) adopted public-sector labor laws. These new legal frameworks fueled dramatic increases in public-sector union membership and collective bargaining. They also triggered a transformation of the NEA, which, in competing with the AFT to represent the nation’s teachers, turned itself into a union—and soon grew to be the biggest union of any type in the country. The portion of teachers covered by collective bargaining soared from near zero in 1960 to 65% in 1978, and the system then settled into a new steady state. Bargaining coverage has remained virtually unchanged among teachers ever since. Membership levels have consistently been much higher, at about 79% and stable.

By the early 1980s, the teachers unions reigned supreme as the most powerful force in American education: with millions of members, armies of political activists, enormous wealth for campaign contributions and lobbying, and more. The rise of union power transformed the world of American public education, creating what amounted to a new education system, one that has been in equilibrium now for roughly thirty years—and protected from change by the very union power that created it….

Collective bargaining is also profoundly important for another reason: it has enabled the unions to impose ineffective forms of organization on the schools, thus exacerbating the very problems the reform movement has been trying to correct. Among other things, local contract provisions tend to include: salary rules that pay teachers based on seniority and formal credits with no attention to performance; seniority rules for transfers and layoffs that allow senior teachers to lay claim to available jobs; onerous rules for evaluation and dismissal that virtually assure that all teachers will get satisfactory evaluations and no one will be dismissed for poor performance; and more.

These and countless other contract rules are designed to promote the job-related interests of teachers, but from the standpoint of effective organization they are simply perverse. Yet this is how America’s schools are actually organized. There is a disconnect between what the public schools are supposed to do and how they are organized to do it—and this disconnect is a built-in feature of the modern American school system, a reflection of its underlying structure of power. Why have the districts “agreed” to ineffective organization? Partly it’s because no district wants a fight, because most work rules don’t cost them anything; and because as monopolies they have had little incentive historically to insist on effective organization anyway. But there is also a crucial political reason: school board members are elected, and the teachers unions are typically the most powerful forces in those local elections. As a result, many board members are union allies, others are reliably sympathetic to collective bargaining, and the rest have reason to fear that, if they cross the unions, their jobs are at stake.[15]

The Wall Street Journal review of Government Against Itself: Public Union Power and Its Consequences by Daniel DiSalvo (who is quoted above as well) had this to say:

Pension and benefit obligations weigh down our cities. Trash disposal in Chicago costs $231 per ton, versus $74 in non-union Dallas. …Mr. DiSalvo [argues] that “unionization and collective bargaining in state and local government impose significant costs on society while providing few broadly shared benefits.” Still, the value in “Government Against Itself” lies not in the conclusion but in the lucid fashion in which his primer lays out facts and busts myths.

The facts: Public-sector unions are not underdogs. Since 2009, membership in unions such as the American Federation of State, County and Municipal Employees and the National Education Association has totaled more than the membership in traditional private-sector unions. The United Mine Workers, the union that resulted from the Harlan County conflict, counts under 50,000 active members, while the NEA boasts 2.5 million.

As Mr. DiSalvo shows, public-sector unions are also rich. Taken together, they spend hundreds of millions of dollars annually lobbying governments on behalf of their members. Our courts have ensured that funding for political activity will flow in the future by upholding rules that require payments from workers. Opponents of public-sector unions must content themselves with minor victories such as the recent Supreme Court opinion in Harris v. Quinn, which grants home-care workers, a narrow group, the right not to pay union dues….

The very timing of local elections, as Mr. DiSalvo demonstrates, has worked to the unions’ advantage. Towns hold elections in off years as well as presidential-election years. Turnout in off-year municipal elections runs about 36% lower. Unions, which can get out the vote, thus enjoy a disproportionate say in off years and schedule their referendums accordingly. But presidential years can yield results as well. When public-sector unions “pull out all the stops,” Mr. DiSalvo writes, “they almost always win.” By voting for Prop 98—powerfully pushed by the teachers’ union—Californians in 1988 guaranteed that four in 10 dollars of California’s general fund would henceforth be spent on K-12 education. This pattern of victory replicates itself across the states.

The trend is a shame and a drag on the economy. For the costs of public-sector unions are great. “The byproduct of political management of the economy is waste,” the author notes. Second, pension and benefit obligations weigh down our cities. Trash disposal in Chicago costs $231 per ton, versus $74 in non-union Dallas. Increasingly, such a burden is fatal. When Detroit declared bankruptcy in 2013, a full half of the city’s$18.2 billion long-term debt was owed for employee pensions and health benefits. Even before the next downturn, other cities and some states will find themselves faltering because of similarly massive obligations.[16]

While public employees are still forbidden to strike in 39 states[17] and many cities, strikes and illegal job actions still occur, and even where strikes are illegal, threats to monopoly public services are powerful inducements for governments to kick the can down the road and give in to labor demands:

When the government entity bargaining with government employees cannot afford the cost of the union demands, the government increases the fringe benefits, i.e. pensions, and pushes the costs off to the future. The heavily unionized government worker states, including California, Illinois, New Jersey and New York, have the largest unfunded pension and retiree health care liabilities. In Wisconsin, public employers from 2000 to 2009 contributed $12.6 billion to public employee pensions while the employees contributed only $55.4 million.

State Budget Solutions examined the Bureau of Labor Statistics Databases and found dramatic evidence of the increases in fringe benefits by state and local governments. The revelation that public employees receive pension and retirement benefits that were worth 337% more than private sector employees is shocking, and illustrates the lengths to which governments will go in bargaining.

Overall, state and local government employees receive total benefits worth 171% more than what public sector employees earn. On an hourly basis, state and local government employees earn an average of $40.28 per hour in total compensation, whereas private sector employees average only $27.75 per hour.

In Milwaukee the average teacher will earn this year $59,500 in salary and $41,591 in benefit for $101,091 in total compensation. The average Milwaukee teacher has a $23,820 health insurance plan with no premium. Contrast that with a private sector employee in Wisconsin, who has a $14,656 insurance plan with a 20% premium. Despite this, last July the teachers union sued when the Milwaukee Public Schools stopped giving free Viagra because it cost the district nearly $800,000 per year and district was facing a deficit. The union just dropped this lawsuit on March 7, 2011.

Just as public sector unions are not concerned with the bottom line, performance is also not valued as it would be in the private sector. For example, Milwaukee School teacher Megan Sampson was laid off less than one week after being named Outstanding First Year Teacher by the Wisconsin Council of Teachers. She was laid off because the collective bargaining agreement requires layoffs to be made based on seniority rather than merit.

Government unions don’t bargain with the taxpayers who pay the bills. When teachers go on strike, they pay no penalty when their absence forces schools to close. Adding insult to injury to taxpayers, their actions force parents to either take time off work or quickly find someone else to care for their children. Also, unlike private sector unions, a government union has a natural monopoly over government services. This monopoly gives government union leaders extraordinary power over elected officials.

Most government unions would not exist without forced union dues. One of the first things government union leaders bargain for is a “union security” clause, which forces all government employees in the unit to pay for union services as a condition of employment. If a government employee works in a state with a “union security” clause, the individual must pay tribute to the union or they will be fired.

The money the government unions collect in dues helps to elect politicians who support the unions’ objectives. Government unions play a major role in electing their management team! In essence, government unions have a seat on both sides of the bargaining table. The U.S. Supreme Court made it clear that there is no “right” to collective bargaining. Collective bargaining for government employees makes them “super citizens” and the rest of the taxpayers are relegated to second-class status.

Today, the number of unionized government workers surpasses the number of unionized private sector workers. As a result, national unions have become advocates for higher taxes and government expansion, despite the fact that many of their private sector members oppose these efforts.

In the last election at the national level, government unions spent more than $200 million to defeat Republican candidates. The American Federation of State, County, and Municipal Employees — the main union of state government employees — spent over $90 million during the campaign, and it was the top donor to the Democrats’ efforts to win gubernatorial and state legislative races.

As a result, the Democratic Party is now heavily reliant on unions and forced political contributions from their members. Unions help elect Democrats who repay the unions with more pay and benefits, many of which are unfunded. In effect, government unions elect their “management,” who in turn can forcibly extract more money from taxpayers to increase wages and benefits. Government officials can promise pensions and retiree health care benefits that future taxpayers will have to fund. This, in turn, sucks jobs from the private sector by forcing businesses to pay higher taxes….[18]

Local and State government employee compensation

Public vs Private-Sector compensation costs

The high direct costs of unionization hurt, but the inability of governments to implement changes to improve service quality hurts more. Incompetent or even criminal employees are protected (as we have seen in the VA and IRS scandals) and attempts to put services online are either absurdly expensive, complete failures, or both (as millions who waited for the Healthcare.gov web site to sign up for ACA health insurance can testify.)

At every level, government grows less competent and more expensive as a result of the rigidities imposed by Civil Service and union rules. As public-sector unions came to dominate the Democratic party, Republicans have made gains in state and local elections partly due to the public’s perception of corruption and special interests:

This leaves us with a superficially ironic situation. The Republican Party emerges as the organised champion of everyone who stands to lose in the fight over the fisc when public-sector unions win. The GOP’s base electoral incentive to hobble their rival’s main source of campaign cash and voter mobilisation leads it to function as a countervailing force against overpowered public-sector unions to the benefit of rich people, yes, but also to the benefit of less powerful and more needy constituencies within the Democratic coalition. A bit of public-employee union busting at the state and municipal level wouldn’t leave government workers vulnerable. There’s every reason to believe they’d continue to function as a powerful, pampered political faction. Pushback against public-sector unions would simply make the always-unfair fight over the fiscal commons slightly less unfair, and make fiscally prudent policy slightly less unlikely.[19]

Looming unfunded liabilities and fiscal issues are creating crisis conditions in several local US governments, notably in the bankruptcy of Detroit and problems in Illinois and its major city, Chicago. Puerto Rico has run out of time, and other states and cities have only a few years before they reach the same dead end. Efforts to reform pensions have largely been blocked by union lawsuits, and the downward spiral of higher taxes, fleeing taxpayers, and bankrupt governments is coming to more and more of the US.

Reform of the system is difficult — it is always easier to patch problems temporarily than to address the underlying structure of incentives that have caused them. But it will now be necessary to either reform public employee labor rules or let whole regions, and even the Federal government, slip into default and shut down some services entirely. The recent water contamination crisis in Flint, Michigan, is a harbinger of the type of regression to incompetence that is coming unless something is done.

The goal should be a single system that both protects employees from direct political retribution and allows managers to hire, fire, and rearrange workers as needed. Public-sector workers should lose their jobs at about the same rate as private-sector workers, and sinecures must be eliminated. And public-sector unions should not have their dues withheld from paychecks, or be allowed to contribute to election campaigns or lobbying efforts. Plato saw the corruption inherent in government employees dealing in property and business, and having tenured public servants is an invitation for them to act against the public interest to choose their own managers — which is how school boards became vehicles for protecting bad teachers and shutting out the interests of students and parents. “A tenure system increases [a] bureaucrat’s incentive to implement bad policies to replace a politician who does not share their preferences. Thus, tenure tends to make bureaucrat’s performance worse, and this tends to lower [total] welfare.”[20]

No one directly selling to a government body should be making campaign contributions to the politicians that run it, and retiring from public service to a high-salaried lobbying job should also be seen as the shameful double-dealing it is. Glenn Reynolds’ proposal of a Revolving Door Tax is one idea for shutting down this scam. The money that needs to be taken out of politics comes from public employees and corporate contractors to government, not contributions from private individuals and unregulated corporate sources.

[1] https://en.wikipedia.org/wiki/Homestead_Strike
[2] “Union Membership in U.S. Fell to a 70-Year Low Last Year,” by Steven Greenhouse, New York Times, Jan 21, 2011. http://www.nytimes.com/2011/01/22/business/22union.html
[3] http://www.bls.gov/news.release/union2.nr0.htm
[4] https://www.opensecrets.org/industries/contrib.php?cycle=2016&ind=P04
[5] “Boston Police Strike,” Wikipedia accessed 4-21-2016. https://en.wikipedia.org/wiki/Boston_Police_Strike
[6] “112 – Letter on the Resolution of Federation of Federal Employees Against Strikes in Federal Service,” Franklin D. Roosevelt, August 16, 1937. http://www.presidency.ucsb.edu/ws/?pid=15445
[7] “The Trouble with Public Sector Unions.” Daniel DiSalvo, National Affairs No. 5, Fall 2010.
http://www.nationalaffairs.com/publications/detail/the-trouble-with-public-sector-unions
[8] “The Trouble with Public Sector Unions.” Daniel DiSalvo, National Affairs No. 5, Fall 2010.
http://www.nationalaffairs.com/publications/detail/the-trouble-with-public-sector-unions
[9] “Management’s View of the New York City Experience,” Anthony C. Russo, Proceedings of the Academy of Political Science, Vol. 30, No. 2, Unionization of Municipal Employees (Dec., 1970), pp. 81-93
http://www.jstor.org/stable/1173366?seq=1#page_scan_tab_contents
[10] “Executive Order 10988 – Employee-Management Cooperation in the Federal Service,” January 17, 1962.
http://www.presidency.ucsb.edu/ws/?pid=58926
[11] “Labor union work by federal employees on ‘official time’ costs taxpayers millions,” by Eric Boehm, Watchdog.org, November 24, 2014
http://watchdog.org/184413/official-time-costs-taxpayers/
[12] “UC Workers Union Plans to Strike Again,” AFSCME Local 3299 web site, February 19, 2014
http://www.afscme3299.org/2014/02/19/uc-workers-union-plans-to-strike-again/
[13] “L.A. labor leaders seek minimum wage exemption for firms with union workers,” LA Times, May 27, 2015
http://www.latimes.com/local/lanow/la-me-ln-los-angeles-minimum-wage-unions-20150526-story.html
[14] “Pushing Back Against Privatization,” The American Prospect, August 1, 2007
http://prospect.org/article/pushing-back-against-privatization
[15] “Teachers Unions, Vested Interests, and America’s Schools,” Terry M. Moe

Click to access Terry-Moe.pdf

[16] “Public Unions vs. the Public,” Amity Shlaes. Wall Street Journal, Jan. 15, 2015. http://www.wsj.com/articles/book-review-goverment-against-itself-by-daniel-disalvo-1421366405
[17] “Why Public-Sector Strikes Are So Rare,” Governing, by Heather Corrington, Oct. 10, 2012
http://www.governing.com/topics/public-workforce/col-why-public-sector-strikes-are-rare.html
[18] “Differences between private sector unions and government unions,” State Budget Solutions, March 23, 2011
http://www.statebudgetsolutions.org/publications/detail/differences-between-private-sector-unions-and-government-unions
[19] “Budgets and bargaining power: Government workers don’t need unions,” The Economist,
Feb 7, 2011
http://www.economist.com/blogs/democracyinamerica/2011/02/budgets_and_bargaining_power
[20] “Civil Service Reform,” Gergely Ujhelyi, Dept. of Economics, U Houston. Nov. 26, 2012
ftp://ftp.repec.org/opt/ReDIF/RePEc/hou/wpaper/201303216.pdf

Death by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations, available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. Here’s the condensed version; view the entire review here.

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness, and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

More reading on other topics:

On Affirmative Action and Social Policy:

The greatest hits from SubstrateWars.com (Science Fiction topics):

More reading on the military:

US Military: From No Standing Armies to Permanent Global Power
US Military: The Desegration Experience
The VA Scandals: Death by Bureaucracy

Death by HR: The End of Merit in Civil Service

Civil Service Exams prep book

People are taught that the Civil Service is a corps of competent public servants, screened by examinations and insulated from political interference to act in the best interest of the people. There never was too much truth in that children’s story, but over the past few decades, that public-spirited image has become dangerously misleading.

The Chinese Imperial examination system screened for literacy, but not directly for competence in a particular position. The best person for a job may not be the one who tests highest for general measures of intelligence or subject knowledge; many job skills aren’t easy to test for, and so it would be a mistake to rely entirely on written exams to fill positions. And since there are thousands of different jobs requiring different skill sets, it would be impractical to come up with exams tailored to every job.

The wave of affirmative action programs starting in the 1970s weakened civil service exam requirements. Courts found many exams discriminated against minorities, especially when it was clear the exams covered material largely unrelated to job skills. Some affirmative action programs race-normed the passing grades, which allowed more minorities to qualify with scores that would otherwise have failed. Many positions were entirely removed from examination requirements. Where the qualifying standard had been “top 3” or “best,” it became “good enough” or “adequate.”

The needs of a bureaucracy may not always favor hiring the most intelligent or skilled candidate. As in private industry, some managers would prefer to hire people who are bright enough and skilled enough, but not too much more than that, lest they be unhappy in the job or liable to be hired away by others — the brilliant scientist who wants to work as a police officer while writing papers on theoretical physics in her spare time is out of luck. In Connecticut, a Federal judge ruled the state was not discriminating unlawfully when it denied an applicant the opportunity to interview for the police force because his intelligence test score was too high.[1] Not rocking the boat is valued over ability in many hierarchies.

But these are just entry-level positions. What happens when promotion from within is favored, while entry-level employees are screened to ensure the very bright or overqualified are kept out? Entry-level positions in organizations are often open to all in theory, while in practice networks and connections of family, ethnicity, neighborhood, and religion can assist in placing people at the bottom rungs. If higher-level positions are filled from within this can result in entire organizations dominated by a single affiliate group, for example the Irish police forces of early 19th century cities and on a smaller scale, the Filipino-dominated air passenger screening agents at San Francisco International Airport in 2002 who were in danger of losing their jobs when the TSA was formed and citizenship was to have been required.[2]

Veterans were recently outraged to discover that the preference for veterans in VA hiring supposedly enshrined in the Veteran’s Preference Act of 1944 is largely ignored, with all but the most menial jobs at the VA filled by nonveteran union members.[3] Very few veterans are actually employed by the VA, because the true rulers of the agency are unions and upper-level bureaucrats who aren’t that interested in what Congress or veterans want or require — and why should they be, when Congress does nothing to change the underlying civil service and union control over VA staffing?

Current Federal civil service rules require only the minimum qualifications suggesting an applicant will be capable of competence in a particular job, which is a long way from aiming for the best candidate. Merit has been replaced by “good enough,” with even that low bar lowered further to allow affirmative action targets to be met. Since almost no one is fired for incompetence, affirmative action candidates are almost guaranteed to be hired and promoted to above their level of actual competence. Which means a large percentage of Federal civil service employees are now unable to efficiently and competently perform their duties; all they need to do to succeed is show up, write some reports, and collect their paychecks. And there are many cases where even failing at those minimal efforts did not result in termination, as in this egregious EPA case:

A former high-level official at the Environmental Protection Agency admitted Friday that he stole nearly $900,000 from the government by pretending to work for the CIA in a plea agreement that raised questions about how top agency managers failed to detect the scheme since it began in 1994. John C. Beale duped a series of supervisors, including top officials of the EPA’s Office of Air and Radiation, disappearing from the office and explaining his absences by telling his bosses that he was doing top-secret work for the CIA and its “directorate of operations.”

He lied about contracting malaria (he didn’t) while he served in Vietnam (all his military service was in the United States) to obtain a parking space reserved for the disabled that cost the EPA $8,000 over three years. He took personal trips to Los Angeles for which he charged the government more than $57,000, according to new court filings.

In all, Beale was paid for 2.5 years of work he did not perform since early 2000 and received about $500,000 in “retention bonuses” he did not deserve for nearly two decades, according to court papers and interviews.

“To our knowledge, prior to [current EPA Administrator] Gina McCarthy expressing her concerns, no one at EPA ever checked to see if Mr. Beale worked for the CIA,” said Assistant Inspector General Patrick Sullivan, who led the investigation that included interviews of 40 people. Only one, an executive assistant, suspected Beale’s story of working for the clandestine service. Nor did EPA personnel compare Beale’s travel vouchers, which said he was in places such as Boston and Seattle, with hotel receipts for the same dates that showed him in Bakersfield, Calif., where he has family. Even during the probe, which began in March, Beale continued to insist that he could not be interviewed because of his work for the CIA, Sullivan said. Only when investigators offered to question him in a secure room at the agency’s Langley headquarters did he admit he had no connection to the CIA, Sullivan said.[4]

Many local government special services like police and firefighting now have certification requirements, with courses and testing designed to assure that candidates have the abilities to succeed in their jobs. Women and minorities continued to struggle with these, and the pioneers were often harassed and held back by those running the certification courses; many lawsuits later, in some locales even those standards — which allow special coaching and assistance for those having trouble meeting them — have been waived.[5]

But most positions in the bureaucracy involve administering the regulations of the administrative state, essentially office jobs involving reading, writing, and paralegal work. Specialized technical knowledge is required in some parts of some federal agencies, like the EPA, while in others like the Social Security Administration only simple accounting and managerial skills are needed.

College degrees and certifications are no guarantee of skill or common sense in regulation. The EPA, for example, is notoriously unscientific in its estimation of risks, setting low standards in some areas and unreasonably high standards in others, with stacked cost-benefit calculations that ignore outside expertise and economist’s studies to reach politically-desirable goals, like the umpteenth announcement of tightening in pollution standards, or the finding that carbon dioxide qualifies as a pollutant which the EPA claims the legal authority to control.[6]

Wilson’s ideal of a dedicated corps of technically competent staff, in contact with the needs and wishes of the citizenry and able to wisely decide regulatory issues, has been betrayed by the decline of competence as the highest value in these agencies. Staff who refuse to compromise science and economic sense to give their masters what they want are harassed and isolated, and the remainders share a progressive mindset that tends to undervalue the vitality of the business and industry that citizens depend on for their livelihoods. Seeing a host of theoretical dangers, but protected from the consequences of their edicts to those trapped in the wasteland of flyover country, a bureaucrat goes along to get along and finds what justification is needed to provide another press release for the politicians running the agency.

Civil service exams aimed at finding the best candidates were outlawed some time ago when courts determined the exams were excluding minority candidates disproportionately. For example, the PACE exam for mid-level (GS-5 and GS-7) positions was abandoned by court decree in 1981, during the Reagan administration:

On November 19, 1981, the United States District Court for the District of Columbia resolved a class-action suit that was filed in 1979 (http://archive.opm.gov/luevano_archive/luevano-archive.asp). The suit alleged that the Professional and Administrative Career Exam (PACE), which the Government used to fill approximately 110 occupations at the GS-5 and GS-7 grade levels, had an adverse impact on the selection of African Americans and Hispanics.

The resolution of the suit (known as the “Luevano consent decree”) ended the PACE examination and required the use of alternative assessments for those occupations at the GS-5 and GS-7 grade levels that were once subject to the PACE exam.[7]

Today, Federal Civil Service regulations are a complex maze of assessments, requirements, pay grades, and rules governing everything about employment, more convoluted than even the largest corporation’s system. Internal management efforts to recruit the most effective employees are often blocked, and the level of effort required to remove an incompetent employee of any class, but especially of an EEOC-protected class, is enormous. More commonly, deadwood is transferred away or allowed to accumulate in forgotten departments not critical to the agency’s mission. We call upper-level federal bureaucrats “mandarins,” but the original Mandarins of Chinese Imperial service would not recognize some of the uncultured and incompetent people now elevated to high management positions by a system that rewards conformity, mediocrity, and racial and sexual minority status.

Here are the current OPM guidelines on use of testing:

D. Written and performance tests — Occupational series/positions with written and/or performance test requirements are identified in the section entitled test requirements. Written and performance tests are to be used as follows:

Initial appointments — Tests are required for some occupational series, either for all applicants or for those applicants who do not meet specific requirements indicated in the standard. If a test is required, applicants who are subject to that test must pass or have previously passed it to be eligible for initial appointment. This includes competitive appointments, and appointments under most noncompetitive appointing authorities.

Inservice placement —

(1) Tests required by OPM. There are a few occupational series for which a test is required by OPM for inservice placement. For such series, agencies must use and applicants must pass the appropriate OPM test. Occupational series with such requirements are also identified in the Test Requirements section.

(2) Tests required by agencies. For positions for which OPM does not require a test, agencies may develop and use tests without OPM approval, as long as the test is part of a comprehensive set of assessment procedures used in ranking employees. The use and appropriateness of such tests are the responsibility of the agency. Agencies cannot, however, use existing OPM tests for such positions, unless specific approval has been received from OPM.

(3) How inservice applicants can be examined. In occupations other than those where OPM requires a test for inservice placement, if an agency prefers to use alternatives to testing (e.g., evaluation of training and experience, interview, performance appraisal) to measure qualifications, it can do so, or it may use a test as one of several tools in evaluating applicants. Tests can be used to determine basic eligibility (i.e., on a pass-fail basis) or as the sole basis for ranking inservice placement applicants, only when specific approval has been received from OPM.

(4) Performance tests. As a general guide, performance tests (e.g., typing proficiency tests) can be used to evaluate inservice placement applicants when, within the past 3 years, they have not performed successfully in a position that required proficiency in the skills needed for the position to be filled.[8]

Penetrating the bureaucratese, testing, while it is still used in qualifying some hires, is minimally important in advancement past entry level. Management promotions depend on politicized and subjective evaluations of communications skills and management ability, and office politics are as important as competence. In a private company, upper management will strive for efficiency and try to employ the most productive workers, and if management does a poor job, the company will suffer and eventually fold, releasing the resources it uses to other firms which may use them better. In government, agencies tend toward the eternal, with the occasional scandal resulting in minimal change in management and almost no change in the rest of the staff. Monopoly government agencies cannot die or be superseded by other firms, and when there is a threat from private business, the agency will fight back — as when the Postal Service tried to enforce its monopoly on the mail, set up by the Private Express Statutes[9] in 1792:

Over the last three years the United States Postal Service has collected more than $500,000 in fines from companies that sent “nonurgent” mail by private couriers like Federal Express or DHL… The Postal Service has fined 21 companies for violating the 1872 law that established the Postal Service monopoly on mail delivery. A 1979 amendment to the law broke the monopoly on urgent mail, establishing as the definition of urgent, mail that must arrive by noon the next day or lose its value. The Postal Service has the right to decide what is urgent and what is not.[10]

US states have their own civil service systems modelled on the federal system, but some retain more of the original merit selection and testing features; for example, California has over a hundred different exams for various special skills and technical jobs.[11] But in general, states and cities have similarly politicized employment systems and affirmative action programs, and suffer similarly by having more than a few incompetent employees and the public employee unions that prevent their removal. And since there is limited reward for competence and little downside for incompetence, morale of high-achieving employees suffers and many of the best leave for private industry.

[1] “METRO NEWS BRIEFS: CONNECTICUT; Judge Rules That Police Can Bar High I.Q. Scores,” New York Times, Sept. 9, 1999

[2] “Airport job insecurity / When feds take over, many Filipino screeners will be unemployed,” Annie Nakao, San Francisco Chronicle, 3-18-2002
http://www.sfgate.com/news/article/Airport-job-insecurity-When-feds-take-over-2863780.php
[3] “VA Manager Says ‘Thank God’ They Don’t Have To Hire Veterans,” Daily Caller, Luke Rosiak, 04/13/2016
http://dailycaller.com/2016/04/13/va-manager-says-thank-god-they-dont-have-to-hire-veterans/
[4] “Ex-EPA official pleads guilty to theft, pretended to work for the CIA.” By Ann E. Marimow and Lenny Bernstein, Washington Post, September 27, 2013 https://www.washingtonpost.com/local/crime/ex-epa-official-expected-to-plead-guilty-of-theft/2013/09/26/2c95166e-2708-11e3-ad0d-b7c8d2a594b9_story.html
[5] “Woman to become NY firefighter despite failing crucial fitness test.” New York Post. Susan Edelman. May 3, 2015
http://nypost.com/2015/05/03/woman-to-become-ny-firefighter-despite-failing-crucial-fitness-test/
[6] “How Carbon Dioxide Became a ‘Pollutant’.”
By Keith Johnson, Wall Street Journal, April 18, 2009
http://www.wsj.com/articles/SB124001537515830975
[7] OPM “FAQ: Assessment Policy”
https://www.opm.gov/FAQs/QA.aspx?fid=a6da6c2e-e1cb-4841-b72d-53eb4adf1ab1&pid=796dd1e8-3069-4aaf-860e-2710cbb32360
[8] OPM: “Classification and Qualifications: general Schedule Qualification Policies.” Viewed 4-15-2016. https://www.opm.gov/policy-data-oversight/classification-qualifications/general-schedule-qualification-policies/
[9] https://en.wikipedia.org/wiki/Private_Express_Statutes
[10] “Private Couriers and Postal Service Slug It Out,”
New York Times, February 14, 1994. http://www.nytimes.com/1994/02/14/business/private-couriers-and-postal-service-slug-it-out.html
[11] California Dept. of Human Resources: “Take or Schedule an Exam,” accessed 3-15-2016. https://exams.spb.ca.gov/exams/exam_start_submit.cfm
—

Death by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations, available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. Here’s the condensed version; view the entire review here.

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness, and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

More reading on other topics:

On Affirmative Action and Social Policy:

The greatest hits from SubstrateWars.com (Science Fiction topics):

More reading on the military:

US Military: From No Standing Armies to Permanent Global Power
US Military: The Desegration Experience
The VA Scandals: Death by Bureaucracy

Jeb Kinnison

Writing About Life and Love

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