February 4, 2009

'50s Policies in the Modern Economy

Justin Katz

As I recall, it was during America's discovery of FoxNews, just after 9/11, that I saw Robert Reich on Hannity and Colmes, and Hannity made a comment to the effect that Reich's ability to talent for promoting detrimental economic policies was frightening. That memory came to mind while reading Reich's recent essay promoting the "Employee Free Choice Act" as a form of economic stimulus:

WHY IS THIS recession so deep, and what can be done to reverse it?

Hint: Go back about 50 years, when America’s middle class was expanding and the economy was soaring. Paychecks were big enough to let us buy all the goods and services we produced. It was a virtuous circle. Good pay meant more purchases, and more purchases meant more jobs.

At the center of this virtuous circle were unions. In 1955, more than a third of working Americans belonged to one. Unions gave them the bargaining leverage they needed to get the paychecks that kept the economy going. So many Americans were unionized that wage agreements spilled over to non-unionized workplaces as well. Employers knew they had to match union wages to compete for workers and to recruit the best ones.

Cast your mind back, dear reader, to the time of fuzzy bunnies and economic prosperity — all the way before technology booms and Reagan, back to a time that relatively few of you remember with an adult's clarity. What was responsible for that technicolor past of prosperity? Unions! Ignore that those were days of pre-globalization innocence; ask not what happens when labor becomes more expensive in the United States in an environment already characterized by companies' looking for less-expensive nations in which to operate.

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Reich is just spewing the union / Democrat "company line."

"Unions created the middle class" is one of the myths that unions use to sell themselves to the public and (especially) to prospective members.

So too with the "union members make more than non-union workers" myth. While certainly true in the competition-less public sector, it is not true in the private sector, at least not over the long term.

One can distort the market for a while, and in monopoly situations for an extended period of time.

Just look at the UAW and/or the non-offshoreable airline industry. Eventually the market adjusts union compensation through job loss and/or bankruptcy.

Just ask the hundreds of thousands of former UAW members watching unemployed from Michigan as new non-union plants are being built and hiring thousands of workers in the UAW-free Southeast.

Or just ask the thousands of non-offshorable airline pilots who lost their union negotiated pensions and took pay cuts in post-9/11 bankruptcies.

Posted by: Tom W at February 4, 2009 12:18 PM

Perhaps this is the real problem:


Posted by: dude at February 4, 2009 5:51 PM

One of the real problems, as illustrated in the link above, is the fact that capital has been hoarded into massive stagnant stockpiles, interrupting the free flow of currency that is needed for a smoothly functioning economy and the nourishment of burgeoning enterprises.

Capital, like water, must be free flowing and present in adequate amounts over the whole economic cropland, in order for new businesses to germinate, take root and grow.

People need stores of capital in order to start businesses, and the destruction of real wages in America, combined with rising costs of living, have made it all but impossible for average people to accumulate the necessary stores of capital, forcing them to rely on predatory bank loans, and the compound interest on such loans financially chokes new small businesses to death.

Break up the huge accumulations of stagnant capital, and allow the money to flow back through the system, and we'll see people accumulate the necessary amounts of money and necessary free time to create the businesses that will secure our nations future.

Money is merely a medium of exchange... hoarding vast quantities of the medium of exchange society needs to conduct business, far beyond ones own needs, is immoral, and is one of the main phenomena destroying Americas economic prospects.

Attacking union members for wanting to hold firm in one of the last bastions of decent wages, benefits and working conditions is not a solution.

Breaking up the huge non-productive pools of stagnant capital is one crucial part of the solution.

If you really want to change things for the better, that's where you should start.

Posted by: dude at February 4, 2009 6:03 PM

I more or less agree that the solution is to keep capital (and power) from collecting in one spot, but I note that you haven't actually presented a solution.

Posted by: Justin Katz at February 4, 2009 7:15 PM

Good point. We're in a real pickle in this country. Decades of real wage shrinkage and uncontrolled wealth accumulation by those at the top have created a possibly deadly imbalance.

Here's one possible solution on the table:


To really suggest an informed solution, I'd have to look at the states budget and financials. Do you know where I can find them online?

Also, the details of our tax structure?

If we really want people to understand these issues, and the need for corporate income tax cuts, we need to do a better job of presenting the information to them in ways they can understand.

The ProJo does a mediocre job of that at best, never taking steps to outline, in detail, exactly how RI's corporate tax structure and regulations are so burdensome and uncompetitive compared to other states.

We could probably also benefit from some very detailed and high powered economic analysis software, to run projections and scenarios, and post them online.

Posted by: dude at February 4, 2009 8:39 PM

"Breaking up the huge non-productive pools of stagnant capital is one crucial part of the solution."

Isn't that a fancy way of saying "redistribution of wealth"?

Posted by: Monique at February 4, 2009 10:57 PM

Perhaps, but it could also indicate policies intended to keep money flowing in the economy — encouragement of investment and competition, in other words.

Posted by: Justin Katz at February 4, 2009 11:02 PM

This appears to be the crux of the problem in our economic system:


Posted by: dude at February 5, 2009 4:13 PM
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