Sunday, May 24, 2015

Fear and the prevailing wage

Over at Right Wisconsin, I have a column on the failure of some Republicans to support repeal of Wisconsin's prevailing wage law. My organization released a report this week that says school districts could have saved  between $ 163.2 and 244.8 million over the last five years had school bonding projects been conducted under market wages instead of the so-called "prevailing wage." In an environment in which reductions in state aid to schools are regarded by many as existential or even akin to "rape," one would think that not paying more for public works than we have to would be one of those things that we can all agree on. Even if we don't want to return that money to taxpayers, you'd think that we could agree that it would be better to spend the money on schools or the University of Wisconsin.

But we can't agree. I understand why Democrats oppose reform. Part of it is realpolitik. When unions are a major source of your support, it is difficult to cross them. But they also have a principled, if erroneous, objection. For the most part, Democrats actually believe that there is some kind of Keynesian magic by which money spent by the government turns into more money. In their view, paying more for public works somehow "creates" money.

Keynes believed that there were limited circumstances in which this might be true (although it's not clear that such circumstances have ever existed) and there are certainly things that the government might buy or build that add value. But the notion that government "injects" money into the economy that was not there before is almost always wrong. We should almost never spend tax dollars with the view that the act of spending itself has intrinsic value. The question should always be on the intrinsic value of the particular goods and services that the government is proposing to buy or provide. We should never want to pay more for these things than we have to.

Still, Democrats can at least claim to be acting on principle. (Of course, it's not that simple. Democrats have a powerful incentive to believe as they do because they live on a coalition of people who benefit from government spending. There is a great deal of self interest at work.)

But Republicans presumably know better. So why does a stubborn minority continue to block reform ? There are apparently no good arguments to be made for their position because no good arguments have been made. Opponents of reform have made an uncommonly silly - and flat out dishonest - argument that eliminating prevailing wage will somehow result in the hiring of workers who are in the United States unlawfully. In fact, it would continue to be illegal for employers to do so.

So I have to believe that the opposition of some Republicans is rooted in fear. That's not unusual. Politicians, as a class, are not notable for their courage (and, yes, I understand that courage does not preclude prudence). But who are they afraid of? It can't - or at least it shouldn't - be unions. They are going to oppose vulnerable Republicans no matter what.

They are afraid of politically connected contractors. There is a lesson here.

I often hear people who don't like markets ask how we can "trust" individual businessmen to get things right. The answer, of course, is that we can't - just as we can't "trust" government to do so. But that fact is not a weakness of markets, it's their strength. Markets establish a system of competition by which the talents, ideas and preferences of millions of individual actors can be aggregated. They don't produce perfect outcomes but, in the great run of cases, they tend to produce better outcomes than any individual actor - including the government - could ever manage.

But support for markets is not the same as supporting the desires of individual market participants. Businesses don't necessarily want to compete. Competitions can be lost. The prevailing wage law is a way for contractors to minimize price competition and exclude new entrants.

Republicans need to recognize that they are the party of competition and not individual competitors.

Cross posted at Purple Wisconsin.

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