Microeconomic Facts are Stubborn Things

Posted by Jeff Carter
on September 10th, 2010

There are several areas of economics to learn about. Macro, micro, statistics, finance to name a few. Economics runs through virtually every area of our life. Kevin Murphy at the University of Chicago famously challenges new students to think about a “marriage market”. There is a supply curve for marriage, and a demand curve. Where there are curves, there is a price-which means a market can be made! Funny but true.

Macro economics is generally what people talk about when it comes to politics. Macro has a lot of math involved with it, but it’s an art form. Many concepts within the macro community are very hard to prove, and sometimes only work on a chalkboard.

Micro economics is different. Micro can be proven. It is unbending. Principles carry through from the blackboard to the real world. One of those principles is that unionization of workers results in more unemployment. Why? Unions will create an artificially higher wage for its members, resulting in dead weight loss in the market. Companies when faced with unions will hire less workers because they have to pay existing workers more.

In the attached video, New Jersey governor Chris Christie makes that point abundantly clear. He starts in on unions at around the three minute mark. At the six minute mark”The teachers unions made the choice” is the key microeconomic phrase to prove that unions cause unemployment.

I make no value judgement about whether unions are “good” or “bad”. Just know that they create more unemployment than would otherwise be there.

Sorting out what happens to public employees is going to be very difficult. This is where a lot of the money goes in our system. Cutting the size of government cannot happen without solving this problem.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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