Saturday, April 30, 2011

It is just the same old class war

To get where we want as a society, free labor markets and trickle down economics are not enough.

(My apologies for a lack of editing...)

The attack on unions in Wisconsin and on workers in general by the Republicans brings up a very basic issue- why do unions exist? Do we still need them? What might succeed them?

Unions originated in an effort to redress the inhuman conditions of gilded age sweatshops, factories, and mines. After a long and bloody fight against management and the government in the late 1800's, the US political system (under progressives like Theodore Roosevelt and Woodrow Wilson) came around to the view that perhaps unions weren't as bad as ... a communist revolution! That spectre has now receeded, and so likewise has the political aquiescence by the upper classes that enabled unionization.

Why was unionization needed anyway? Wasn't the magic of the free market enough? This is a key question as we head into another era where free markets (even "freedom") are fetishized, where unions are withering, (and weirdly castigated as more double-unfree than corporations), and where the same Darwinian dysfunctions, whose principal fruit is gross income and wealth inequality, are striking at the heart of the American dream.

One would think that at this moment in the US, when upward mobility has slowed to a crawl, when income and wealth inequality has risen to guilded age heights, and following a cataclysmic financial meltdown created by FDR's "malefactors of great wealth", the political tide would have turned towards a new socialist or at least worker-friendly ethic.

But apparently not ... the rich have doubled down on greed, harnessing the now-private media and the lie of federal insolvency to hobble the government just as soon as it finished the important work of keeping financiers afloat and their own nests feathered. Homeowners and workers? The teaparty cynically deploys the rhetoric of freedom to erode all values but individual greed, breaking the social bonds that are embodied in social security, decent health care, and universal employment, among much else. As if economic insecurity equals freedom.

For at the bottom of this new callous age is the matter of unemployment. Unemployment is not an economic problem. Economies can get on just fine with an invisible mass of those who neither spend nor earn. Indeed, the unemployed have their uses in taming workers from raising their voices, defending their dignity, and bargaining for better pay. It is also one way to reduce inflation, though there are other, better ways.

Unemployment is a moral problem, and needs to be addressed as one. It exemplifies why free markets fail us in important ways, requiring remedies from our political community- the government. Over the last three decades, however, government policies have all tended in the opposite direction, eroding common purpose in favor of the "freedoms" of private capital, where fundamental assymetries are at play.

The last three decades can be seen as an extended attack on labor bargaining power, under the theory that labor empowerment leads to inflation (by the Phillips curve, NAIRU, and similar relations). After the high water mark of the 70's, the idea was to bring discipline back to the labor market at the same time that discipline was brought to the monetary system. Very well- inflation is now practically zero. Labor has been tamed in innumerable ways- weakening and breaking unions, allowing persistently higher unemployment via monetary policy as the chosen mechanism to lower inflation, competition with globalized, illegal, and offshored labor. Are we a better country for it?

This process has had the effect of bringing back a gilded age, where labor bargaining power is very low, companies can use the excess earnings as they see fit- either enriching managements, or paying shareholders, or engaging in takeovers and empire-building, reducing competition, or corrupting the political system. Corporate profits are at an all-time high, while corporate contributions to the common good, via taxes, are at an all-time low. The amount of money that is floating around, due to the ever-rising productivity of workers, is mind-boggling. But none of the productivity gains of the recent decades went to workers, due to the steady erosion of their bargaining power.

Now we stand at the nadir of this process, after the financial class engineered the spread of indebtedness through the lower classes to the point of insolvency, created harsher bankruptcy laws just in time, and secured government bailouts for their own positions. Management now, through the magic of epic unemployment and associated misery, has maximal power to gain wage concessions, cut benefits, and entrench their position ... unless there is a political response.

Aside from the direct misery it has entailed, this process has wasted labor on a epic scale, reduced aggregate demand on a permanent basis, and cut into the very foundations of the productivity the upper classes rely upon unthinkingly- our education system, research establishments, public infrastructure, and regulatory apparatus. And when a Democrat has the audacity to point out this gaping inequality, its pernicious effects, and its obvious solutions, the moneyed interests have the gall to cry "class warfare!" At least in ancient times, the rich had the good manners to provide public goods in return for their good fortune, like temples, stadiums, alms, and armies.

It is a sad and downward spiralling story, taken by the GOP as some kind of weird mantra- the need to destroy what we as Americans have spent a century and more building up. This is how empires collapse- through the self-generated dementia that takes for granted what led to greatness, and latches onto the most superficial and moralistic patent remedies for complex problems whose appreciation requires deep intellectual engagement.

Returning to the question of unions, they are hardly an ideal solution, being maddeningly sporadic in their effectiveness, and leading to excesses of their own. Unions have plenty of problems, even as they have successfully increased worker dignity and benefits- for their own members, and in many cases for all workers. Making decent treatment of workers dependent on the idiosyncrasies of union organization and industry setting is messy and unfair, so as successes have come, (and industries have not died as they claimed they would), the US political system generated various universal regulatory and economic rules that extended benefits first won by a few unions.

So workers are treated better now in most settings, being killed at lower rates in sweatshops, mines, slaughterhouses, oil rigs, and cubicle farms. But how are they doing in economic terms? Not well at all. As has been mentioned, the income share going to workers has declined for decades. Real incomes for the lower and middle class have been stagnant, while the economy's enormous gains in productivity have gone almost entirely to the wealthy in the form of high incomes and profits.

The economic function of unions has not been taken over by the state. Rather, it has withered. One of the principle successes of the labor movement- and of public policy in general- in the mid-twentieth century was establishing Keynsian economics at the core of federal economic policy. This was the decisive answer to the Great Depression and to Bolshevism, enshrining full employment as a primary goal of state policy, and state monetary and fiscal policy (via the Federal Reserve) as one way to accomplish it.

This great accomplishment is now withered husk. The recent financial crisis showed the upper classes feeding at the trough of a fully coopted government, (tax cuts, financial bailouts, bonuses with contract "sanctity"), while giving hardly a fig for either the unemployed or for the low-income homeowners and other debtors fraudulently ensnared in boom-time predatory lending. The Federal Reserve has showered money on banks, while only grudgingly revising credit card and real estate lending rules to modestly reduce the financial industry's rapacity. Now it claims nothing more can be done.

More importantly, unemployment, far from being the goal of Federal Reserve policy over the recent decades, has become the tool of a policy that is entirely focused on inflation reduction. Unnecessarily high unemployment and underemployment were in place long before the current great recession, and have systematically biased the labor market towards employers. This is the real story of our economic epoch, that a return of economic laissez-faire, at the hands of an economics profession besotted by mathematical models and false (indeed, pathological) behavioral models, as well as the usual moneyed interests, has put capital back in the driver's seat, and labor in the trunk.

Why don't labor markets work to correct this? What is the problem? First is that, in the presence of chronically tight policy by the Fed, (currently rendered defunct by deflationary forces from our own collapse and from abroad), labor markets, as noted above, strongly favor employers over workers. Tight money keeps economic growth sub-optimal, maintaining a reserve army of the unemployed. Imagine an ideal world where job offers are routine for anyone interested and capable of working, where training is understood as a part of employment, and where pay at the low end is rising, in aggregate, in step with worker productivity. That is a full-employment economy, and sustaining it with low inflation is the aim of Keynesian and more recently of MMT economic theory.

Second is the overall structure of labor markets and wage negotiation, which are woefully inefficient. Pay scales seem to have a great deal more to do with class and lifestyle expectations than with accurate competitive or market-based mechanisms, let alone metrics of true worth. If executives have the expectation that their janitors are blue collar and share support of their families with working spouses, then the pay offer will be commensurately low. It will be a subsistence wage at best (or less if various federal subsidies are counted in and off-loaded; medicaid, school lunches, food stamps, earned income tax credits). If they have the expectation that their accountants are white collar with higher personal lifestyle expectations, the pay offered will be higher, even if there are plenty of accountants to chose from. Pay is nominally set by market surveys and other peer-influenced methods, but in the end, it is an intuitive matter for the executive- a way to maintain a social hierarchy in the workplace that is culturally recognizable and traditional.

Neoliberal economics proposes that there would be a premium on pay for unpleasant or dirty work. But we see the exact opposite in the real world. Unpleasant and dirty work is paid the absolute least, and why? The conventional argument is that it is unskilled, so the market supply of laborers is high, thus the pay is low. But The supply of financial professionals is very high right now. Are they paid blue collar wages, as they should be? No, you will not see that happening. Blue collar work marks itself as lower-class, and is for that reason low-paid.

Neoliberal economics proposes that higher pay would increase supply of work. But we see the exact opposite in the real world, where those getting low pay work at least as hard, if not harder, than those paid far more. And those paid the most are most free to quit, retire, and take up golf instead. If pay is zero, there are still people willing to intern, to volunteer, and indeed to do extraordinary amounts of work that they are emotionally committed to. Conversely, if pay is very high, as is common in the financial industry, workers often work just long enough to buy their house and "make their nut", retiring and withdrawing their supposedly highly valuable skills from the workforce.

The conventional theory would respond that higher-paid work is more valuable, in terms of corporate needs, than low-paid work. But the financial crisis put that myth in a somewhat new perspective, both for the companies involved, and for society at large. How does one measure value, and do executives typically do a good job of it? I would suggest that wage value is one of the most subjective decisions one can make, and is unconsciously freighted with all sorts of non-economic factors, like ... gender, likeability, similarity to one's self, dressing habits, paper credentials, ... one could go on and on. A common denominator is ... class, class, class. Socioeconomic class seems to me to be the leading ingredient in the pay scale decision, since what else do we have to fall back on, once the dream of rational economic valuation of labor turns out, as it inevitably will, to be impossible?

But when has pay for labor ever represented a purely economic transaction? Isn't what we are paid a measure of what we are "worth" in more than economic terms? Aren't the ├╝ber-executives competing for stratospheric pay- which eventually has to be given away- really competing for something more than their relative economic contribution to shareholder value and long-term company growth? They are competing for status of the most crass and uneconomic kind, and are hardly shy about crony-ing or embezzling their way to this "valuation".

So, unions are one way to address some of these issues, reeling in the pay structure from its various current dysfunctions. I'd address the patchy nature of their benefits by instituting unions as a mandatory part of normal corporate governance. Each company would have a worker's board, have one representative from that board on the main board, and these would collectively bargain for pay and work policies as standard practice. Books would be open, so information assymetry would be minimized, and a standard rate of profit sharing would be established by cultural convention or law between the stakeholders- management, shareholders, and workers. These unions would, however, not be allowed to band together into industry-wide or other forms of cooperation, unless companies were allowed to as well, keeping the parties evenly matched.

Secondly, the minimum wage needs to be raised to realistic levels so that it is truly a living wage. The US should not allow employers to run sweatshops and off-load the true cost of labor to the government in the form of safety net programs for working people. Truly low-wage work is better left to other countries.

Thirdly, we need a more worker-friendly macro-economic policy that returns us to a high employment environment, thus naturally putting workers in a better bargaining position in a free labor market. The MMT school of economics claims that we can have a looser economic policy on an ongoing basis- that for various reasons of ideology, theoretical error, and forgetfulness of Keynesian principles, we have had a chronic bias towards tight money that has led to the chronic underemployment, economic underperformance, and the growing wage / wealth disparity we see today.

This school also promotes the idea that, monetary policy aside, we can institute full employment directly as government policy, by offering state-sponsored minimum (living) wage jobs in public service to every able-bodied person as a replacement for the paraphernalia of the means-tested system- the supplemental income tax credits, the welfare, the food stamps, unemployment insurance ... all of it. People do want to work, and deserve to be treated and paid fairly for it.

A fifth pillar would of course be a restoration of progressive taxation, which has so eroded over the last decades that the richest corporations pay little or no taxes at all, and the richest people less than other brackets, while gathering enormous political and media influence to entrench their position. Has all this tax-cutting and CEO worship made us more prosperous? Only if you drive a yacht. It has not trickled down, or enlarged the pie, or improved our civic or political atmosphere. The current Republican plans to further enrich the rich while destroying public goods are thus not just callous, but economically destructive, culturally destructive, and dangerous to our common future.

Conservatives are beginning to speak of American "decline"- worries about economic, cultural and strategic decline, not just in relative terms as other nations like China follow a modernizing path in our wake, but in more profound terms that something is not quite right within our system. They blame the usual suspects- the 60's, immigrants, government regulations, civil rights, taxes, Obama. But into the mirror is where they should be looking.

"Additional reports about the meeting allege that Pakistani prime minister Yousaf Raza Gilani told Afghan president Hamid Karzai the U.S. strategy in Afghanistan was failing, that China is an ascendant power, and asked that the insurgent Haqqani network be given a political role in Afghanistan as part of a peace settlement."
"The point is that if the US Congress follows Bernanke’s advice to make deficit cutting the priority, then these projections will not be achieved. As they stand – they lock the US labour market into an unacceptably high unemployment situation for the next several years.
Bernanke offered no clue as to how deficit reduction will also be consistent with those projections. He failed in his main task."

1 comment:

  1. "As if economic insecurity equals freedom." Darn right... you have the freedom to be poor!
    Thanks for the excellent post. It's insightful and well presented... and thus probably won't be read or understood by anyone who needs to read and understand it (isn't that always the way?). Keep up the good work.