In an arm-length transaction the unions would negotiate with management for a share of the corporate profits.  If the company pays too much of its resources to shareholders, management, or union, then the company goes out of business. There is an inherent requirement in union negotiations that they do not try to take an excess share of profits because in doing so, they will eventually destroy the company and themselves.

Governments have no profits; they just have tax- and fee-based revenues. The control and use of the taxing authority of the government resides in the elected officials. An elected official that is beholden to a public-service union (or any other subsidy receiving industry) is not dealing in an arms-length transaction in negotiating with the unions for their pay and benefits.

In a polarized political environment, this “corrupt” situation is exacerbated because both the unions and the elected official are fighting for their paychecks. If the elected official loses their elected position, they lose their paycheck, power, and podium for advancement. There is a direct benefit for the union-leaning politician to give more pay to the unions so the unions can give more direct campaign contributions, as well as support the politician through volunteer efforts. This effect more tightly weds the favored politician to the union because each are fighting for their preservation against those tax-payers who would direct the available tax revenues to other uses.

This is not a theoretical possibility, but in fact the reality of today’s political environment. Public service unions were the largest single supplier of election funds in the 2008 elections outside of the political parties themselves. These funds were given almost completely to the Democrats, who promised to continue to support their pay and benefits.

This is a “corrupt” system, where corrupt is defined as being unsupportable in the long-run because eventually the tax revenues can not support the system and the system collapses upon itself. See Greece’s current economic conditions for an example of what happens in the long-run if this system is allowed to become entrenched.

The same problem extents to any industrial group seeking subsidies or other transfer payments from the government, whether it is the oil & gas industry, the farming industry, etc.  If those payments are used to lobby or elect political representation, it is bad for democracy, it is bad for the economy, and most importantly it is very bad for tax paying citizens.

It is very bad for citizens because this is a corruption of the democratic system required to maintain economic balance and longevity to any civil society.

Updated March 14, 2011:
In Wisconsin, police and firefighting unions are threatening to boycott businesses that do not support their efforts to over-turn the recent Wisconsin laws.

The subtle long-term threat about which I wrote has moved into direct threats against citizens from the civil servants responsible for protecting those citizens.

Free association is a guaranteed right in this country. No one has suggested otherwise in any of the reasonable debates about public service unions.

The police and firefighter unions were explicitly excluded from the new Wisconsin laws. Yet, the police and firefighter unions are leading the threats against businesses if they do not sign a petition to rescind these laws.

“Corruption” has taken on a new definition with respect to the impact of public service lobbying on democracy.

This was balanced by the two articles in the Wall Street Journal that discuss youth unemployment and the current discussion in Washington, DC of a federal Value Added Tax.

Here’s the gist -

From Daniel Henninger’s article -

The U.S. unemployment rate for workers under 25 years old is about 20%.

This is similar to the perpetual unemployment rate for youth in old Western European nations.

These are the Western European nations that spent the postwar period free of Soviet domination. With that freedom they designed what came to be called the “social-market economy,” a kind of Utopia where a job exists to be protected and the private sector exists mainly to pay for the state’s welfare plans. … In the final month of 2009, these were European unemployment rates for people under 25: Belgium, 22.6; Spain, 44.5; France, 25.2; Italy, 26.2; the U.K., 19; Sweden, 26.9; Finland, 23.5.

Couple these unemployment statistics for youth with this tidbit from the WSJ Editorial Board -

“Answering a question at the New York Historical Society on Tuesday, Mr. Volcker said that a VAT—a consumption tax levied along stages of production—”was not as toxic an idea” as it has been, and that both a VAT and some kind of tax on energy need to be on the table. “If at the end of the day we need to raise taxes, we should raise taxes,” he said.

The VAT has been a staple of European taxation policies for decades, and high rates of taxation is one of the causal mechanisms of slow economic growth in the countries.

In the middle of the worst economic situation in nearly a century, we are building the economic policies that replicate the social welfare state of old Western Europe.  These policies have led to perpetual under-employment (particularly of youth and immigrants), low economic growth rates, and stratification of the economic classes (i.e. limited upward mobility amongst the economic classes).  Is this the future model of the US economic system?  I hope not.

Long-term economic survival requires a successful risk/reward system that provides opportunities for great success, and great failures.  Why?  Because without a risk/reward system (with both the highs and lows) you get a steady state society that eventually leads to stagnation.  And stagnation of an economic system will eventually lead to its demise.

In short, you can not (over) tax the system to reduce economic disparities; nor can you (over) regulate the economy, and the people, to keep bad things from happening them.  If you do, the system stops working.

Economic policies can be compared to forestry management policies.  Bad forestry management (as practiced in the middle to end of the last century) tries to put out all fires – everywhere – all the time.  The result is that when a fire eventually happens, the dead wood and scrub brush fuel load is so high that the fire burns too intensely hot and destroys the forest.  Good forestry management requires an occasional (small) fire to reduce the fuel load.

Adequate risks and rewards serve this same purpose in the economy.  You cannot reduce the risk of failure (or any other personal catastrophe) to zero.  If you do, the accumulation of bad (dead) wood will burn your (economic) house down.  In addition, a vibrant growing economy, like a forest, needs clear access to resources (like capital) without the choking over-growth of underbrush, deadwood, and over-regulation.

crystal clear that the state’s tax policies are resulting in a significant decline in the state’s wealth.

A more insidious effect is that the study found a

less-robust “in-migration,” the study finds that people who are moving to New Jersey aren’t as wealthy as those leaving.

So why would one care about those wealthy people who want to “escape” paying their “fair share”.

Well for one thing, class warfare is bad. Nobody likes to be called a villain, particularly those who are working hard to be successful for their families, their co-workers, and their communities. Making people feel guilty for being successful is not conducive for a healthy community.

For another, you need a concentration of “excess” wealth to feedback into the local investment of new technology and jobs. Governments do not do this; they redistribute wealth. Individuals and corporations operating in their own self-interest invest in opportunities that create wealth, which as a by-product create additional goods, services, and jobs.

I am not suggesting that we “starve” schools. What I am suggesting is that if you chase out (or otherwise make the community unattractive for those who wish to immigrate into that community) those who are at the head of the bell curve in terms of success, the community will eventually suffer. All one has to do is look at the problems seen in New York, California, and New Jersey.