Hard times for workers on Labor Day 2010

via Harold Meyerson of the WashingtonPost:

Only a purblind ideologue could miss the pattern here. American employers — more than employers in other nations and more than American employers in earlier downturns — have imposed the costs of the recession and, increasingly, the costs of doing business, on their workers, and kept for themselves damn near all the proceeds from doing business.

What gives? Are American employers meaner than their European counterparts and American forebears? I doubt it. The difference is that American workers have markedly less power than their European counterparts and their American forebears.

That’s partly because unemployment remains so high here. More fundamentally, though, the U.S. private sector is almost entirely — 93 percent — nonunion. Unlike European workers, unlike their own parents and grandparents who lived in a much more heavily unionized America, U.S. workers are now powerless to stop their employers from pocketing all the change.

The source of this problem is outlined in two reports scheduled for release Monday from two very different organizations, the liberal Human Rights Watch, and Freedom House, an organization with a staunch Lane-Kirkland-esque antipathy toward authoritarian regimes left and right: Through the weakness of our labor laws, the reports say, private-sector American workers can no longer form unions. Human Rights Watch documents how corporations that are model (and highly profitable) employers in Europe and frequently collaborate with unions there descend to American employer norms — denying workers the right to join unions — when they come over here. Freedom House, citing the near-impossibility of forming unions in this country, laments that the United States cannot be classed among the 41 nations that afford their workers full freedoms.

A union-free America. Growth down a little, employment down a lot. Profits and productivity up, wages flat. Health-care costs up for workers, down for employers. The return of a thriving middle class? Dream on.

And a happy Labor Day, one and all.

Published in: on September 6, 2010 at 5:37 pm  Leave a Comment  
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Welcome to 1938

via Paul Krugman

And just as some of us feared, the inadequacy of the administration’s initial economic plan has landed it — and the nation — in a political trap. More stimulus is desperately needed, but in the public’s eyes the failure of the initial program to deliver a convincing recovery has discredited government action to create jobs.

In short, welcome to 1938.

The story of 1937, of F.D.R.’s disastrous decision to heed those who said that it was time to slash the deficit, is well known. What’s less well known is the extent to which the public drew the wrong conclusions from the recession that followed: far from calling for a resumption of New Deal programs, voters lost faith in fiscal expansion.

Consider Gallup polling from March 1938. Asked whether government spending should be increased to fight the slump, 63 percent of those polled said no. Asked whether it would be better to increase spending or to cut business taxes, only 15 percent favored spending; 63 percent favored tax cuts. And the 1938 election was a disaster for the Democrats, who lost 70 seats in the House and seven in the Senate.

Then came the war.

From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today.

Had anyone proposed spending even a fraction that much before the war, people would have said the same things they’re saying today. They would have warned about crushing debt and runaway inflation. They would also have said, rightly, that the Depression was in large part caused by excess debt — and then have declared that it was impossible to fix this problem by issuing even more debt.

But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits.

The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.

But the story of 1938 also shows how hard it is to apply these insights. Even under F.D.R., there was never the political will to do what was needed to end the Great Depression; its eventual resolution came essentially by accident.

I had hoped that we would do better this time. But it turns out that politicians and economists alike have spent decades unlearning the lessons of the 1930s, and are determined to repeat all the old mistakes. And it’s slightly sickening to realize that the big winners in the midterm elections are likely to be the very people who first got us into this mess, then did everything in their power to block action to get us out.

But always remember: this slump can be cured. All it will take is a little bit of intellectual clarity, and a lot of political will. Here’s hoping we find those virtues in the not too distant future.

Published in: on September 6, 2010 at 4:14 pm  Leave a Comment  

Making Social Security less generous isn’t the answer

via Ezra Klein

Raising the Social Security retirement age has become as close to a consensus position as exists in American politics. House Minority Leader John A. Boehner (R-Ohio) supports it. House Majority Leader Steny H. Hoyer (D-Md.) has said that “we could and should consider a higher retirement age.” And for a while, I agreed with them, too. It seemed obvious: People live longer today, and so they should work later into life. But as I’ve looked at the issue, I’ve decided that I was wrong. So let me be the skunk at the party. We should leave the retirement age alone. In fact, we should leave Social Security alone — unless we’re making it more, rather than less, generous.

Social Security provides disability insurance and survivor’s benefits, but when people talk about it, they tend to be referring to its role as a program that provides income support to retirees. The average monthly benefit of $1,170 replaces about 39 percent of the person’s pre-retirement earnings. Over the next two decades, the “replacement rate” is slated to drop to 31 percent. That is less than in most developed countries — the Organization for Economic Cooperation and Development ranks it 25 out of 30 member nations.

The system, in other words, is not that generous, and it’s becoming less so every year. The age at which you can begin collecting full Social Security benefits is moving from 65 to 67, as part of a deal struck in the 1980s to ensure the system’s solvency. And all this at a time when employers are getting rid of defined-benefit pensions, which means that most workers will have no guaranteed retirement income except for Social Security.

Which brings us to Social Security’s financial “crisis.” The issue isn’t that Social Security is spending too much or that we’re living too long. It’s that we’re not having enough children (or letting in enough immigrants). As Stephen C. Goss, the system’s chief actuary, has written, Social Security projects an imbalance “because birth rates dropped from three to two children per woman.” That means there are relatively fewer young people paying for the old people. “Importantly,” Goss continues, “this shortfall is basically stable after 2035.” In other words, we only have to fix Social Security once.

The size of that fix is significant, but not astonishing. Over the next 75 years, the shortfall will be equal to about 0.7 percent of gross domestic product. How much is 0.7 percent of GDP? To put that in perspective, the Center on Budget and Policy Priorities calculates that it’s about as much as George W. Bush’s tax cuts for the rich will cost over the same period. Saying we can afford those cuts — which is the consensus Republican position — but not Social Security’s outlay is nonsensical. Coming up with 0.7 percent of GDP isn’t a crisis. It’s a question of priorities…

Published in: on September 6, 2010 at 2:49 pm  Leave a Comment