Big Labor: the Good & the Bad

Being that yesterday was labor day, I would like to discuss the topic of labor. Regular readers of this blog know that I am a strong supporter of the free markets, however, I do understand the need for labor unions, primarily in industrial and lower wage industries. Let's face it, a battle between a rich corporation and an individual worker is not really a fair fight, particularly in situations where the employee has limited options for alternative employment. This is especially true in rural areas where a single large employer, be it a coal mine or an auto parts factory, can dominate the local economy. Workers can only hope to make an impact if they unionize. There is little doubt that the Labor movement has done a lot for the American worker, particularly when it comes to such basic worker rights as health care, paid time off etc.

However, very much like big business, when left unchecked labor unions can turn into an economic and political nightmare. Let me give you just a couple of examples to demonstrate my point: A friend of mine used to work for General Electric. He tells me that if he needed to move a computer monitor from one office to another, he would have to wait for the designated union employee to do the job, and he was not permitted to make the move himself. When there was no choice he resorted to posting lookouts at both ends of the corridor to ensure that no labor union representative saw him doing the unthinkable... actually moving his own monitor?!

This week's Business Week had an article about the dismal state of the U.S. air transportation infrastructure. According to the article, the technology exists to vastly improve this infrastructure, however one of the reasons for the delay in implementing this technology (among many other reasons), is that air traffic controllers are fighting hard against the implementation of this new, more efficient technology for fear it may make some of them redundant. The fact that the technology is both safer and more efficient is, apparently, of little consequence to them.

I have to admit that my position on the labor movement is ambivalent. On the one hand, there clearly is a need for a balance of power between workers and employers. Without this balance there is little doubt that employers would take advantage of their power (in certain industries) to drive down employment cost and boost the bottom line. On the other hand, I am firmly and completely against work rules and contract terms that prevent companies from operating more efficiently. That is, if the port of Oakland can install technology to more cost-effectively and quickly load and unload ships, it should be able to do so, regardless of whether some people may lose their jobs as a result. If my friend wants to move his computer monitor to the next office on his own, he should be allowed to do so.

This is not a selfish consumerist argument. It is an economic argument: in the long run, efficiency and progress will always triumph. By trying to prevent, for example, the adoption of a new technology that might make some union members redundant, the union is only giving business an incentive to undermine the union, or even worse, if the union is too successful they may even make their firm uncompetitive in the global market place, thereby threatening the very existence of their company. Think I am exaggerating? For years auto companies have been moving plants from Detroit to the Southern U.S. Labor busting is one of the main reasons for this trend. Unions in Detroit have been so successful in pushing for their aggressive labor agenda that auto companies are simply moving away. In fact, as they teach it in business school, one of the main reasons GM started its Saturn brand and built its auto plants in the South is its attempt to move away from the constrictive unions it deals with in Detroit.

Bottom line: keep the unions fighting the battles that they must fight: minimum wage increases, paid vacation and health care, non-discrimination battles. Let management make decisions that impact the efficiency and competitiveness of the business. While unions may see some short term gains by fighting to stave off efficiency and technology, in the long run they are only undermining their own cause.

Someone once told me that the only reason we have cars in the U.S. today is that horses and ponies did not have their own labor union. It's a joke. Well, mostly anyways.

Free Fun for Little Ones

Software aimed at preschool age kids is big business these days. Companies are eagerly tapping into parents insatiable appetite for educating their kids and giving them a head-start on school. Software titles offer to teach your kids the alphabet, numbers, colors and more, all for a measly $20 or $30. A good deal? Maybe, but reality is that the Internet offers a wealth of resources that are just as fun, engaging and instructional as anything you can buy in the store. Moreover, these sites are all free, so why spend the money?

Here are a few free websites that my kids really enjoy:

Play House Disney - this website offers a wealth of activities based on Disney Channel shows. Everyone from the venerable Mickey Mouse, to the Wiggles and the Little Einsteins is there. There is also a for-pay section of the website called Preschool Time. More about that last website some other time.

Nick Jr. - another great website for kids is Nick Jr. The site does have a few ads sprinkled here and there, but if you don't feel too strongly about the issue, it's a wonderful site for your little ones. My son spends hours playing the Diego games, which are pretty impressive and highly educational.

PBS Sprout - Bob the Builder, Barney, Dragon Tales and many more are all featured here. The site also allows your kids to upload art projects and birthday cards to share them with the world. Yet again, PBS rocks.

Thomas & Friends - every boy I have ever met, including my own 3 are hooked on Thomas. A zero cost way of feeding that addiction is to visit Thomas online. It's certainly cheaper than paying $10 for a single, Chinese made, lead painted Thomas toy.

Enjoy these free websites, and if you have any others that you can recomemnd, please let me know.

The Most Expensive Loan in History

A few days ago I was running my regular Quicken check-up of our finances and I noticed something strange. Our Citibank credit card was showing a $39 late fee as well as finance charges of $43, with both of those fees also showing an immediate reversal. This seemed strange, so I asked my wife about it. Her explanation blew me away:

Apparently, she paid our full balance off as we do every month. However, she paid the bill on the last day of the cycle at a few minutes after 9 PM PDT. Apparently, the billing cycle is calculated according to Eastern Time not to according to our local time zone. The good folks at Citibank, and by good I mean predatory, charged us a total of $82 in late fees and finance charges for supposedly paying our bill 7 minutes late. I think that if you were to calculate the APR on this supposed "7 minute loan" you would find that Citibank tried to charge us the equivalent of 4 million percent per year in interest. My wife, being the take-no-crap fighter that she is, called them up and gave them a good piece of her mind, at which point they relented and reversed this travesty.

Seriously, if you feel that the credit card companies are out to get you, it's probably because they are. Seems we are not alone in our battle against the evil credit card companies. Here is another post on the subject that I came across a few days ago. Jeff of Jethro's World simply escalated the fight until the credit card company (Chase in his case) cried "uncle".

It is good that some of us are fighting back against these predatory practices, but I have to wonder how many people are just paying these fees without a fight? Once again, where is Congress when you actually need them?

The Extremes of Investing

A few days ago I wrote a post about a friend of mine that picks stocks and tries to buy shares during IPOs. Today I would like to write about one of my colleagues, who takes the exact opposite approach.

Late last night I returned from a business trip to several mid-western cities. Accompanying me on this trip was a good friend and colleague. Our trip involved a lot of driving around and so we had a lot of time to chat. If you are going to spend much time with a personal finance blogger, the conversation will eventually work its way towards the topic of personal finance. It's the nature of the beast. During one of these long drives I was commenting to my friend about the extreme volatility we have been seeing in the market in recent days, I also commented on the fact that I think that the U.S. economy is headed towards a recession. My friend very calmly responded that he is not concerned about the stock market, because his entire portfolio is invested in cash. Then, completely disregarding my incredulous stare, he proceeded to encourage me to follow the same strategy. I think I will stick with a more sane asset allocation.

My colleague is about 15 years older than I am, in his very early fifties. He is a well compensated professional at the top of his career, however, he still has many years to go before retirement, which is why I was very puzzled by his investment strategy (or lack thereof). When I asked him about it he simply said that he is very risk averse, and following this ultra-conservative strategy allows him to sleep peacefully at night.

I have previously commented about the need to understand your true level of risk tolerance. Going above this level is a sure fire way to make stupid investment decisions, such as selling at the worst possible time. However, I think that my friend's complete lack of tolerance for risk is the riskiest strategy of all. With the meager returns you can generate in the money market or by buying CDs, you would need to be a truly copious saver to sock away enough money to allow for a comfortable retirement. I think my friend is suffering from a particularly nasty strain of the fear of investing disease.

As a final comment, I would like add that even though I think that we are on our way to a recession, I am holding on to our stock positions and will continue to do so. There are two main reasons for this. First, selling my stock portfolio would immediately trigger a massive capital gains tax liability. I may lose money by staying in the market, but I am guaranteed to lose money to greedy Uncle Sam if I bail. Second, while I think that we are headed for tough economic times, I do not have a crystal ball - let me tell you a secret, neither does anyone else. So while I trust my intuition and my training, I never try to out-guess the collective wisdom of hundreds of millions of investors. I may be smart, but I am not THAT smart. Very few people are.

Recommended Articles

Another week, another carnival. Here are what I consider to be the most original posts from this week's Carnival of Personal Finance hosted by Free Money Finance.

Cheap Healthy Good has a comprehensive article about saving money AND eating healthy while traveling. I happen to be on a business trip as I am writing these lines and I can tell you that whenever I travel on business, my eating habits go down the drain. The combination of crappy and expensive airport food, dinners with clients and snacks I buy in hotel gift stores is a really horrible mix. I really should reform my ways in this category.

Million Dollar Journey is talking about how to find out if the charity you are contributing to is wasting your money on administrative expenses. This is a very important topic. There are a number of websites which help would be philanthropists to evaluate the various charity options available. These include: Charity Navigator and Give.org. As long as we are on the subject of charity, check out Heifer International. It is an innovative and impactful charity organization.

Cash Money Life is currently running a series about the process of deciding whether to pursue an MBA, and if so which school to choose. As someone who has already gotten his MBA, I find this series of posts interesting. I also put together a small website on the same topic. You can find it here.

Finally, Home Finance Freedom provides some interesting information about understanding the data contained in the Federal Reserve's Survey of Consumer Finances. This is the source for much cited numbers about what Americans' net worth actually is.

I will add additional article recommendations later this week.