Bootleggers and Baptists-LVI: The War of the Wok

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Labor Unions have historically held anti-immigration and nationalistic sentiments on their platforms. This makes the fact Progressives romanticize organized labor somewhat puzzling, as both factions of political actors often have conflicting objectives. One example of the prevailing nativism in the labor movement was Cesar Chavez’s hostility towards immigrants; how contemporary liberals square this cognitive dissonance when they proudly proclaim they are “Pro-Labor” is beyond the veil of reason. It should not be shocking that labor unions were one of the driving forces in implementing anti-Chinese legislation in the early 20th Century. 

The article THE ‘WAR’ AGAINST” CHINESE RESTAURANTS, published in 2017 by Regulation Magazine, provides a historical example of the anti-Chinese sentiments of organized labor. In the early-1900s, the United States excluded Chinese immigrants from most spheres of economic life in the United States; since many jobs required licensing that was only available to U.S. Citizens (p.32). The growing communities of Chinese immigrants in cities like San Francisco were able to enter the food service industry and laundry services. Chinese restauranteurs succeeded in providing a quality and low-cost dining option; birthing the American love affair with chop-suey. This was not without resistance since these new exotic restaurants were siphoning away business from eateries owned and operated by native-born citizens. The American Federation of Labor affiliated, The Cooks’ and Waiters’ Union, was a staunch supporter of anti-Chinese legislation (p.33). Various food service unions boycotted Chinese Restaurants and advocated for laws to loosen their gripe on the restaurant industry.

After the boycotts failed to achieve the Union’s anti-competitive objectives, they decided to lean on the legislature’s pen to reclaim the market share lost by Caucasian restaurant proprietors. The unions had the perfect pretext for demanding regulation (p.13); that was the moral concern of white women. As detailed by Chin and Ormond:

“..Newspapers offered lurid reports that Chinese restaurants were fronts for opium dens, and that Chinese men used opium “as a trap for young girls.” The idea of white female victimization became a media trope. In 1899, King of the Opium Ring, by Charles E. Blaney and Charles A. Taylor, played at the Columbus Theater and the Academy of Music in New York. Later produced around the country, it featured a clown who rescues a young white woman from the balcony of a Chinese restaurant. Movies depicted similar scenes and renowned “realistic” artists painted Chinatown vistas… (p.34).

At the time, there was a profuse amount of propaganda suggesting that Chinese men would try to lure white women into their establishment and then take advantage of them. The upper-class habit of “slumming” made trips to Chinatown a popular destination. There remained a lingering fear that white women would be enticed by the food but would decline into exploitation and degeneracy. Organized labor capitalized on this perception of Chinese immigrants and utilized it to provide the pretext for creating laws that would derail the success of Sino-dining establishments. Most of these measures varied by state and municipality, the majority of these laws either restricting or barring white women from entering or being employed in Chinese restaurants (p. 34-37). The unions have since given up on these measures once Chinese restaurants no longer appeared to be a threat and have since moved on to other policy issues (p.37). This chapter in American history perfectly embodies the incentives and dynamics of Bruce Yandle’s Bootleggers and Baptists (1983) model of coalitions. Regardless of the veracity of the claims of Chinese men seducing white women, it is still a “moralistic” concern as it posits a normative motive for enacting such ordinances and state legislation. Some of the holy-rollers included missionaries who entered Chinese neighborhoods proselytizing Christianity, who purportedly witness this moral impropriety (p.34). It should be conspicuous who the Bootleggers are in this scenario, as a union in themselves are nothing more than glorified lobbyists whose pedigree of rent-seeking can be traced back to the medieval guilds.

Friday Feature Films-Free Thoughts: Labor Econ Versus the World (with Bryan Caplan)

The Syllogisms of Martyrdom

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Socrates= Died for our ignorance.

Jesus= Died for our sins.

Cato= Died for political integrity.

Prisoner’s Dilemmas: XI – DACA and Labor Shortages

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DACA (Deferred Action for Childhood Arrivals) is a controversial immigration initiative from the Obama administration. Implemented in 2012, it extended deferred action (“…administrative relief from deportation..”) to undocumented immigrants that came into the United States as children, albeit the following criteria:

“…To be eligible for DACA, applicants must meet several eligibility requirements such as: have entered the United States before their 16th birthday, be currently in school, a high school graduate or be honorably discharged from the military, be under 31 years of age, and not have been convicted of a felony, significant misdemeanor, or otherwise pose a threat to national security….”

migration.org/glossary/daca

However, this Obama-era policy has proven to be quite contentious, especially considering the nativist proclivities of the Trump administration. This sentiment is reflected in the Southern District of Texas ruling in  State of Texas et al v. United States of America et al ruling DACA to be illegal. There are many arguments for restricting immigration, but it is possible that limiting immigration could produce problematic consequences? Adverse outcomes beyond the lofty ideals of multiculturalism? Currently, in the United States, there is a labor shortage, being dubbed the Great Resignation. More people are declining to participate or return to back to the workforce. Labor force participation was reflected as 61.9 percent as of December 2021.; when compared to December 2019, 63.3 percent.

The discrepancy in workforce participation between 2019 and 2021 may seem minor, but to see the severity of the effect, one only needs to view the lack of staffing at the local grocery store. Combined with global supply chain shortages it becomes apparent that commodities and entry-level labor are in short supply. Does the question become why further decrease the pool of potential workers through cracking down on immigration? Then arises the erroneous myth that immigration, specifically illegal immigration harms American workers. Most Americans polled even admit that immigrants assume job roles that most native-born citizens are unwilling to perform. It should note that deporting DACA-eligible workers would also exacerbate current worker shortages in higher-paid jobs considering nearly a quarter of DACA have attained a college degree (p.2).

If anything, considering the current economic conditions, restricting immigration/ deporting undocumented workers could result in a Prisoner’s Dilemma. A mutual defection between undocumented immigrants that entered the United States as children (DACA Dreamers) and the vigilant “immigration hawks”. By the very fact, the dreams refuse to go back to their country of “origin” this could be seen as an implicit defection against the immigration hawks who seek to deport all illegal immigrations and be strict about who is permitted to assume residency in the United States. Naturally, the incentives structures between the two groups are irreconcilable, the odds of a mutually acceptable compromise are slim-to-none; the immigration debate is a winner-take-all game. Compromise can be achieved in politics but is rendered untenable because of political polarization. Immigration has become a hotly contested wedge issue where making concessions are no longer fashionable. The immigration hawks do not realize that they are shooting themselves in the foot. When labor shortages impact establishments ranging from the drive-thru to the emergency room, it affects everyone. Regardless of their position on immigration, making it asinine to refuse willing labor participation the right to work.

Bootleggers & Baptists XXXIX- AB-5 and Uber

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The emergence of the Gig Economy has allowed millions of Americans to earn additional money without the constraints of rigid work schedules. However, the flexibility allotted to contractors through ride-sharing and food delivery services is under threat in California. Back in 2019, the California legislature passed Assembly Bill 5 (AB-5) that would classify many freelance workers as “… workers bona fide employees, with schedules and hours determined by the company rather than the worker..” (p.4). The California courts apply AB-5 under the three-prong test developed in Dynamex Operations v. Superior Court to distinguish contractors from full employees; after AB-2257 passed in 2020, “..109 categories of workers were exempted from AB-5..” (p.7). In response to AB-5, delivery and ride-sharing platforms collectively generated Proposition 22 to exempt these services from the law (p.7). Unfortunately, the law was ruled as unconstitutional 2021; per the Los Angeles Times:

That’s in part because the law, Roesch wrote, infringes on the power of the Legislature explicitly granted by the state Constitution to regulate compensation for workers’ injuries.

 Hector Castellanos, et al. v. State of California, et al.

Amid all the AB-5 turmoil, one question emerges, who benefits from labeling gig workers as full-employees? It certainly isn’t the Uber driver. Considering, 80% of surveyed independent contractors “…reported having done some sort of independent contracting gig in the last year said that it was a part-time occupation…” (p.6). Also, most gig workers have insurance benefits either from their primary job or spouse (p.5) and prefer the flexibility over fringe benefits that “…bear opportunity costs in the form of foregone income they could have received if not for the benefits.” (p.6).

When viewed through the lens of Bootleggers and Baptist (1983), it is clear that few economic agents are hiding within the smokescreen of the workers’ rights coalition. The irony is, the demographic that AB-5 is designed to “help’, vehemently opposed the legislation. It can be assumed that the California legislature is a Dual-Role Actor in this coalition. Why? State lawmakers most likely passed this law as a worker protection provision for gig economy employees. However, Judge Roesch’s admission that excluding gig workers interferes with the authority of the legislature. Lawmakers are also Bootleggers for having an invested interest in not relinquishing political power.

 One notable economic agent on the bootlegger side of the coalition would be labor unions. Some readers may wonder why labor unions would not be considered a Baptist or even a Dual-Role Actor. Unions are heavily involved in the political process (p.410), theoretically could be perceived more as political interest groups than employee protection organizations. Arguably, these organizations do little to advance the interests of workers. Labor unions within the state of California had angled to organize ride-share drivers, “…contributing to the pressure on legislators to make a change..”(p.7). Various labor unions throughout California have expressed that AB-5 would reduce the exploitation of contract employees. However, they benefit from this legislative victory because it reinforces their political currency as an interest group. One union that stands to gain the most from reclassifying Uber drivers are taxicab unions. It is well known that the taxicab industry has struggled to compete with the convenience and lower rates of ride-sharing apps. The state of Nevada has placed restrictions on platforms offering ride-sharing services. Uber has faced many regulatory barriers often supported by taxi drivers (p.191); most notably “medallion systems” where governments issue a limited number of licenses to operate as a driver (p.574). Classifying Uber drivers as full-employees would make employing contractors more costly and onerous, thereby disturbing Uber’s operations. All of this to shield taxi drivers from the Schumpeterian gales of creative destruction.

Bootleggers and Baptists XXXIII- The Three-Tiered Distribution of Beer in the “Bible Belt”

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The southeastern region of the United States has a peculiar relationship with alcoholic beverages. Southern states such as Kentucky and Tennessee have a long history of whiskey production. The south is also the home of many conservative Baptists that view alcohol consumption as being immoral. The result of the ethical opposition has been the formation of dry counties and onerous laws governing alcohol production and sales. Presenting more opportunities for interest groups (Bootleggers) to find ways of strategically gaming the system from multiple points of the supply chain (p.386). Often the Bootleggers, operate as a source of backdoor funding for morally justifiable policy campaigns (Regulation Magazine, Vol 44, No.1, p.14-15). The geographic “chessboard” strategy of keeping dry counties adjacent to wet counties dry is far from the only approach deployed by various interest groups (p.397).

Another strategy used by business interests in the south’s beer industry is regulatory capture. A means of leveraging market power to mold regulations to the benefit of corporations; is a typical extension of soft-political power used by corporations throughout the United States. States such as Georgia have long prohibited direct-to-customer sales from breweries, historically referred to as tied-house (p.390). States that have permitted self-distribution by smaller brewers since 1978 have seen more growth in craft breweries (p.392). These restrictions date back to the legally sanctioned distribution arrangement of tiered distribution systems. In this system, beer is distributed to retail outlets via a licensed distributor. Favored by larger breweries such as Pabst and Miller since the market share they lost in the years before the Volstead Act from smaller breweries self-distributing their beer (p.390). The reason why bigger breweries still favor these archaic laws is that they would rather not have to compete with the dizzying array of microbreweries for shelf space (p.395).

However, has the moral argument of limiting direct sales reduced the instances of problematic drinking held up to scrutiny? That would be resounding no. Empirically, restricting direct alcohol sales has had little influence on overall alcohol consumption (p.399). It also should be noted that craft breweries have stronger connections to their communities. As stated by the executive director of the Georgia Craft Beer Guild:

“….I would like to think that craft breweries, because of the community connection, aren’t nearly the threat to intemperance that multi-nationals are, or Wal-Mart…”

Bootleggers & Baptists: XIX- Ron Paul and The Federal Reserve

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Ron Paul is responsible for the growth of the Federal Reserves Balance Sheet?:

The Consequences of various policy prescriptions oftentimes are cannot be easily predicted. This can alone can explain the enduring influence of F.A.  Hayek’s observations regarding the pretense of knowledge. Ironically, one of F.A. Hayek’s admirers and one of the most notable exponents of Austrian economics fell into this very trap. This individual would be former Texas congressman Ron Paul. In a provocative piece published on Alt-M George Selgin describes how Dr. Paul is partly responsible for the exponential growth of the Federal Reserve’s balance sheet.

To any reader familiar with Ron Paul’s policy positions, this charge sounds completely absurd. Arguably Dr. Paul has been more hostile towards the Federal Reserve than any other politician in modern history.  How could this longtime critic of the Federal Reserve possibly have emboldened this institution? Most libertarians and conservatives understand that the results of policies that support government intervention can yield unpredictable and lackluster results. Could the same be said for policies that aim to curtail the power of government agencies and firms with contractual obligations to the state?  Purportedly the Federal Reserve is a “private company”. Much like another central bank boasting similar claims, this point is debatable considering without the federal government its existence would most likely be a paradox. Even in the arena of curtailing state power good intentions, sometimes do not amount to good results. 

Defining the Basic terms

Due to the complex and jargon-heavy nature of monetary economics, it is important to define a few important terms before proceeding.

• Open Market Operations:  The purchase and sale of assets (securities) by any central bank. This is done to maintain the money supply held on reserve by domestic banks. When the Federal Reserve purchases Treasury securities it increases the money supply. When securities are sold it decreases the money supply.

• TGA (Treasury General Account): An account kept by the treasury at the Federal Reserve where taxes and bond payments are transferred. The government utilizes these funds for payments ranging from social security distributions, employee payroll, and even interest payments on debt. Funds transferred to this account are considered a liability to the Federal Reserve and an asset for the U.S. Government. (p.1-2). Per George Selgin, this account also provides a source of funds for relief and emergency spending. For every dollar the treasury transfers to this account, the Federal Reserve must take on in asset purchases.

• TT&L Accounts (Treasury and Tax and Loan Program Account): Accounts that the Federal Reserve deposits business and individual tax payments. These accounts are held at commercial banks and do not impact the Fed’s operations.

Ron Paul the Baptist:

Back in 1979, congressman Ron Paul supported a bill that aimed to amended Federal Reserve Act’s section 14(b) that would prohibit the Fed from direct asset purchases from the treasury. This was a privilege that was awarded to the Federal Reserve during World War II to quickly raise emergency wartime funding. This power was renewed in 1947 and 1950 by congress, however, this was never intended to be a permanent privilege. By the late-1970s it became evident that the Fed was engaging in direct assets purchases outside of the context of a war emergency. Dr. Paul vehemently supported H.R. 3404 due to this abuse on the part of the Fed for utilizing this function in the absence of war. He went on to recommend that the Fed could gain greater access to liquid cash through the “ establishment of interest-bearing TT&L accounts”. Thus relinquishing the need for the direct purchase authority. Unfortunately for Paul, the bill failed to pass, however, the direct purchase privilege was not renewed in 1981. At least temporarily Dr. Paul’s appeal for fiscal responsibility won out over the Fed’s tacitly accepted overreach with the direct purchase authority. Limiting the Federal Reserve’s procurement of money to open-market operations which in theory should curtail (to some extent) inordinate money creation.

Paul’s argument in favor of fiscal responsibility unquestionably makes him a Baptist. This normative argument for preserving the financial health of our nation and fighting the ills of institutional abuses. Paul’s advocacy has a populous appeal and while no politician is perfect, at least his intentions were (in this scenario) laudable. The question becomes how did Ron Paul’s praise-worthy policy position result in an inadvertent unholy alliance with the Federal Reserve? Well, it is not quite that linear. It is more of a policy constraint meant to curtail the authority of the Fed ended up aiding them in expanding their balance sheets years down the road. No one could have foreseen this consequence that seemingly would have contained the expansion of their balance sheet.

The Federal Reserve the Unintended Beneficiaries of Paul’s Purposed reform (Our Bootleggers): 

The obvious observation that can be made is that the Federal Reserve stands to benefit from being able to easily expand its balance sheet. Making them the Bootleggers. Per Selgin, it was not until October 2008 that the Federal Reserve opted to “pay interest on bank reserves”. Making it fruitful to accumulate “TGA balances”. After the Fed lost the ability to direct purchases from the treasury, they found another loophole that has enabled them to expand their balance sheet to unprecedented levels. While no one directly engineered this loophole, it still was an unpredictable blind spot in the 1979 initiative.