Unions: An Effective Remedy for Insufficient Demand
Picking up on Paul's question about why we didn't go back into recession/depression after World War II (and following Randall's point), I think unions did play a very important role. Strong unions are a great mechanism for ensuring that workers will get their share of productivity growth. Workers are far more likely to spend their income than owners of capital or managers. Therefore the strong labor movement that came out of the organizing drives of the the thirties and the war was a powerful mechanism for sustaining demand growth.
Of course many economists have complained that strong unions are harmful for precisely this reason. The argument was that they raised costs and created inflationary pressure. Obviously there is some truth to this story, but clearly unions are an effective tool against the sort of deflationary spiral that we saw at the beginning of the depression.
This is something to keep in mind as Congress debates the Employee Free Choice Act next year.
Obviously there is some truth to this story, but clearly unions are an effective tool against the sort of deflationary spiral that we saw at the beginning of the depression.
The actions of Hoover to prevent deflation are part of the reason why the Great Depression lasted so long.
December 17, 2008 11:35 PM | Reply | Permalink
The prevailing doctrine among businessmen in the 1920s was that high wages were necessary to maintain purchasing power.
Hoover agreed and established committees for the purpose of and supported legislation to maintain wages and regularly, successfully jawboned industries to maintain wages.
Which in a deflation means rising real wages.
Strong unions couldn't have asked for or gotten more than Hoover provided the working man -- at least the working man who still had a job.
December 18, 2008 5:19 AM | Reply | Permalink
created inflationary pressure.
And this is considered bad because...?
It is precisely the result of the Reagan/Volker assault upon unionization/inflation that the *"working class" in this country has seen its economic position erode, it's share of national wealth diminish, and its ability to generate demand disappear.
Ten percent year on year inflation for half a decade would cure our problems, and take a nice chunk out of the net worth of the Plutos
*Precious Blood of the Sweet Baby Jesus, what I would give to be able to remove the quotation marks...
December 18, 2008 12:32 AM | Reply | Permalink
It seems to me that it is possible inflation is simply a broad movement by merchants to seek higher profits. It is an opportunistic decision made when a situation is available to allow merchants to raise prices without appearing to gouge consumers. I would love to see how prices have fallen after fuel prices came back down to earth. We all know when gas was $4/gallon or more, prices for everything went up. Has anyone see them come back down? I mean besides on the price of gas?
December 18, 2008 3:49 AM | Reply | Permalink
The Earned Income Tax Credit is a far superior remedy--as is universal health care. Both achieve far superior distribution compared to unions, while increasing, rather than decreasing, labor market flexibility.
EITC also (Sandwichman, you listening?) provides incentive for people to work less because they can achieve a decent life without slaving long hours.
For single people EITC is alost nonexistent. Expanding it, and raising taxes to pay for it, will make us all more prosperous, and more equal.
(For some of the best analysis I've seen on EITC, see Lane Kenworthy's Egalitarian Capitalism.)
In general, the recipe for prosperity and stability seems to be a strong safety net/springboard (to maintain aggregate demand), combined with what many would consider to be a rather draconian approach to trade and labor issues (to maintain market efficiency).
The damaging effects of the latter are ameliorated by the benefits of the former.
December 18, 2008 12:52 PM | Reply | Permalink
... NOT make use of their 2nd amendment-guaranteed arms to spill the blood of the tyrants they work for. I suspect it's a large part of the reason that the expression is "going postal" and not "going minimum-wage".
December 18, 2008 5:09 PM | Reply | Permalink
(Sandwichman, you listening?)
The Sandwichman always listens.
December 18, 2008 1:57 PM | Reply | Permalink
Dean,
The single most important issue in the early days of the American Federation of Labor was the struggle for the eight-hour day. During the depression, labor adopted the thirty-hour workweek as a rallying cry. Dorothy Douglas wrote about how Ira Steward's eight-hour theory anticipated depression-era dilemmas about consumption and unemployment. Keynes signaled out working less as one of three "ingredients for a cure" to unemployment and as the ultimate one. You yourself argued that one of the two simple answers to the problem of secular stagnation is to work fewer hours.
Yet Randall Wray has made a blanket statement that I find astonishing:
Now, even if it were true that "it [work time reduction] has never had a significant effect [on unemployment]" how in blazes could we know? But more importantly, it's not true. It's not even plausible. In fact it's absurd. If workers hadn't taken part of the productivity gains from technological progress as reduced working time, they would have had to have taken it all as increased income and when would they have had the time to spend it working 12 hours a day, six days a week!
So could you please elaborate on your earlier mention of working fewer hours and could you comment on Professor Wray's contention that work time reduction has "never had a significant effect."
December 18, 2008 3:02 PM | Reply | Permalink
I vastly prefer the EITC to unions, and I'd even consider universal health care (which I think is a terrible idea) as an alternative.
The EITC is a better redistributive mechanism than universal health care because it is less distortionary; it doesn't just prop up one industry, it throws money at everyone equally (except relative to income of course).
Trying to revitalize unions would be the end of American manufacturing. Transportation and communications are inexpensive now; factories would just move overseas. And that's even ignoring the deadweight loss due to cartelization of labor and the deadweight loss inherent in union dues themselves (you pay a lot for the privilege of cartelization).
Of course, I'm far from sure why anyone thinks redistributive policies are necessary or desirable, but that's not a topic for this forum, since everyone seems to take that as an article of faith.
December 18, 2008 3:30 PM | Reply | Permalink
Unions shouldn't be just for manufacturing. Wal-Mart is the first employer that ought to be unionized. If they want to pick up their stores and move to China, it would be an improvement for both countries.
December 18, 2008 6:03 PM | Reply | Permalink
Just to be clear:
I'm not saying that unions aren't relevant. Unions, however, do not increase demand for goods and services (and given that America's problem is too much consumption spending and not enough investment spending, we should want what the author is looking for anyway). Unions decrease the supply of goods and services.
That's not good, cetaris paribus.
December 18, 2008 6:25 PM | Reply | Permalink
Dean: re strong unions
Yeah. And, said Keynes, their ability to resist wage cuts during a recession invalidated the classical theory of a self regulating economy.
And perhaps militated against revolutions says I.
And maybe freed management to be management. You can't maximize independent variables. Management can't half try to earn a profit.
Its job is to get as much production as legally possible at the lowest cost. If it tries to also be "fair" , to pay any more than the lowest wage it can get away it will fall between two stools.The shareholders will object to the manager playing Santa Claus with their assets and the workers will want more.Of course. How not?
Reporter: Mr. Gompers .What does Labor want?
Samuel Gompers: More
The Unions' job - and with respect to some matters-that of the Government- is to relieve Management of the impossible burden of trying to argue both sides of the issue. So the Government can require the Triangle Shirt Waist Comany to stop barring the Fire Exits , and Unions can strike until they arrive at an agreement sufficiently good that it's not worth staying out any longer.
Every party does its job. Galbraith called it the concept of Counterveiling Powers.
Sorry for the diversion.
December 18, 2008 10:36 PM | Reply | Permalink
Sandwichman,
I don't know what evidence Randall is referring to, but I was making a very simple point. If we don't have a desire to consume more than it is a very simple matter to take the benefits of productivity growth in the form of shorter work hours.
If productivity rises by 2.0 percent, this means that instead of getting 2.0 percent more pay (which we may all save) we instead work 2 percent less. This could mean having one week a year of additional vacation or perhaps an hour less of work a week.
If the problem we face is secular stagnation due to not spending enough, this should solve the problem. The math works back where I come from.
December 19, 2008 11:32 AM | Reply | Permalink
Thanks, Dean, for clarifying that (and for replying!). I agree with your "very simple point" (as did Luigi Pasinetti, by the way -- emphatically -- in his 1981 opus, Structural Change and Economic Growth). I also don't know what evidence Professor Wray is referring to because he didn't cite specifics, but I have a hunch, having read a load of frequently cited econometric studies all of which rely on an extremely simplistic (and demonstrably wrong) "labor supply model".
The good news, though, is that Professor Wray mentioned the forthcoming book a former student of his, Robert LaJeunesse. I'm now in possession of a draft of chapter 5, "Employment Effects of Work Time Reduction," which I strongly suspect will put forward substantial evidence for your very simple point (& mine).
December 19, 2008 3:30 PM | Reply | Permalink