We could very well have a double dip recession and the dippy newspapers would not prepare us for it. On Labor Day, in the worst recession since the Great Depression, the center of the New York Times op-ed page features John Grishman writing about his underwear.
At least Paul Krugman, in the side column, warns us that our economy looks a lot like 1937. Back then, weak-kneed politicians hesitated on continuing with a much needed fiscal stimulus and gave in to the theory-heavy, tired, wrong bromide that government budgets need to be balanced in bad times. The result? The economy tanked back into decline, and it was deficit spending for World War II that brought the economy back. Krugman says, correctly, the lesson is that “In a depression the usual rules don’t apply… austerity is self – defeating.”
But Krugman is only half way there—government stimulus is not enough to get us out, and keep us out of a recession.
One out of three economists thinks we are headed for another decline in economic growth. Last weeks’ unemployment news was bad, the rate grew to 9.6 percent. To keep up with the population, we need over 160,000 jobs per month—last month we created 54,000 Unemployment and poverty depresses consumption so that government spending needs to shock the economy back to life.
But short-term stimulus is necessary but not sufficient. Sustained economic growth requires a restoration of the balance of power between labor and capital, so that wages and income can grow.
Depression-era solutions included laws to protect labor unions which redistribute income away from rich to the middle and working class. To keep capitalism going, the rich need a robust spending class. Even conservative Richard Posner acknowledges the salubrious effect unions have on the redistribution of income.
And University of Chicago Economist Raghumram G. Rajan identifies income inequality as a major fault line in the American economy: in 1976 the top 1 percent of the households had under 9 percent of all total income generated in the U.S.; in 2007, the top 1% had over 23% of all income.
At 8 percent of the private labor force, unionization rates are too small to affect wages. Government spending is not enough to get us out of the recession. Hey Paul Krugman and Democrats, massive g-spending in World War II got us out of the recession but a growing labor movement kept us out of future depressions and it built the foundation for broadly shared prosperity and the healthiest economic growth this country has ever known.
No labor movement? Watch out for a continuation of this nasty recession and stagnation.
7 Responses to The Recession and Labor Day
dsdeaderick - September 8, 2010 at 9:51 am
Right on! This compelling argument is in parallel with that made by Harold Meyerson in the Labor Day edition of the Washington Post: “The Unshared Recovery: The toll of a nearly union-free America.”
dvacchi - September 8, 2010 at 10:05 am
If labor unions keep pouring money into politicians pockets, how can supporting them continue? The concept of labor unions is coming to a natural death as it is arguably part of the problem now. The waste of union dues and the illegal pressure they put on employees would make the conceivers of the union movement roll over in their graves. Unlike past recessions, in this one businesses have found ways to make employment cuts and keep them by running more efficiently. Amen to that! Growth will have to happen in new areas and with a different perspective than the tired old “raise taxes and deficit spend to get back to where we were” arguments. Let’s move forward for a change! Inspire entrepreneurs to develop affordable residential solar panels and windmills . Convert much of our bloated housing construction industry into solar panel and windmill installers. Some of these construction companies can create their own cottage industry of repairing a lot of the poor work they’ve been doing for the last 30 years. Just a few thoughts.
livefreeordie2 - September 8, 2010 at 11:41 pm
Once again, an absolutely ridiculous blog entry from the resident socialist economic hack. Suggesting that somehow a lack of unions has caused or will prolong the current recession has less validity than blaming the current economy on sun spots. There is nothing in the post and nothing in fact that ties the two together – other than, perhaps, leftist wishful thinking.Recessions are cyclical and will always be part of our economic lives. This one, however was exacerbated by a number of factors. First and foremost, the ridiculous mortgage policies promulgated by the government in the name of fairness that pushed banks to give mortgages to people with no hope of paying back the debt. Even so, the recession would probably have long been over but for a., the cost uncertainty of Obamacare, b. the cost uncertainty of potential tax increases generated by letting the 2001 and 2003 tax cuts expire, and c. the economic fear generated by the huge deficits run up by Obama and his Democrat allies in the Congress. We could be back on our economic feet in no time if the uncertainty brought about be the above issues were resolved. Make the tax cuts permanent. Repeal Obamacare. And reduce government spending dramatically and the unemployment rate would be back to 5% in well under a year. On the other hand, we can follow the prescriptions of Ghilarducci and her fellow travellers and the US will be a third world country in a decade. . .but that’s the goal of the left, isn’t it? It would be so much more fair for the US to be the economic twin of Zimbabwe. . .
dsdeaderick - September 9, 2010 at 10:34 am
You both have missed the point. Dr. Ghilarducci argues for restoration of a balance of power that will promote growth in wages, now stagnant or heading downward, so workers once again can spend on goods and services, thus stimulating the economy on the private side. “To keep capitalism going, the rich need a robust spending class.”Labor makes contributions to politicians that pale in comparison to corporate contributions. Should we stop supporting corporations? (And didn’t the Supreme Court decide that both can be unlimited?)”Making the tax cuts permanent” is economically irresponsible, since it those 2001/2003 cuts comprise the single largest contribution to the structural deficit. It also contributes to the transfer of wealth to those who need it the least (the top 1-2%) and who largely pocket it without providing that fictional “trickle-down” benefit to others – unless they are family.Are you off work this weekend? Thank the labor movement.
livefreeordie2 - September 10, 2010 at 3:08 pm
dsdeaderick #4 – While there is no question that the labor movement played an important role in American history, it was long before I was born – and I’m getting up there in age. I’ve never been a union member and, quite frankly, would never take a job that requires it. And I don’t have the weekend off because of the labor movement, just like I don’t have my salary thanks to a union, and I don’t have my vacation time thanks to a union. My current relationship with my employer* is based on two things – my job performance and my ability to negotiate and renegotiate my remuneration. My wages aren’t restricted by a contract that requires that I earn what everyone else earns.I’m sorry. . .but unions are basically for losers who are afraid to handle the working world on their own. That’s why there are fewer and fewer in the dreaded private sector. The only reason that they survive in the public sector is because those who sign the contracts – government managers and politicians – aren’t spending their own money. BTW, one of the finest moments of the last half century is when Reagan destroyed PATCO single handedly. Regarding the tax cuts, here’s a better plan. Stop the spending. It may be beyond your ability to comprehend, but tax dollars are EARNED by people, not by the government. When Obama say, “we can’t afford tax cuts” or “someone has to pay for this tax cut,” it’s all BS. It’s not his money. It’s not the government’s money. So, stop the insane spending and there won’t be a problem. By the way, in his first 18 months in office, Obama has increased the national debt by more than all the debt accumulated from George Washington through Ronald Reagan. That’s right. In 18 months, Obama equaled the amount that took almost the first 200 years of the country’s existence to accumulate. Stop the spending and lower taxes. That’s the ticket back to prosperity.* My original relationship with my employer was achieved by spending a lifetime making good decisions, working hard, and developing an outstanding reputation. In other words, I initially demonstrated the potential for significant value to my employer and have subsequently shown that my value continues to increase. That’s not something union membership can provide!
bernie49 - September 11, 2010 at 11:29 am
There is a fundamental fallacy in Teresa’s reasoning, which would be more evident to her if she had actually ever created jobs based on meeting the demands of consumers. When consumer demands change those who previously met those demands need to change also. When the consumer stops demanding for whatever reason, then the jobs disappear. Our cycles of economic activity in large measure reflect the emergence and satiation of consumer demands. It is not that income distribution has nothing to do with it, but it is not by any means a primary driver. The dramatic growth in the Chinese economy is a good example of the unleashing of effective demand via exports, coupled with a huge pent up consumer demand all lubricated by the unleashing of entrepreneurial spirits of Chinese businessmen and businesswomen.Consumer demand in Western economies is largely satiated given current technologies. We need the equivalent of fiber optics and wireless communications – two technical innovations that created dramatic and economy wide increases in effective demand, massive infrastructure spending and huge replacement spending as consumers tried to enhance their lives with the new communication gadgets. Unlike solar power and other so-called green technologies this technical revolution led to real gains in efficiency and effectiveness for consumers. Energy solutions are needed if only for strategic reasons but this type of replacement technology is unlikely to have much of a multiplier for the US economy. The question is what are some of the unmet US consumer needs that could be met by entrepreneurs through US based product or service providers? I currently do not see what these might be.One can create some of these somewhat artificially by, for example, requiring the replacement of all fossil fueled vehicles with electric cars by a date certain. However, this will require a commitment to a huge expansion of nuclear power not to mention the temporary death of large segments of the auto industry. This is unlikely to happen because … that’s right Unions and environmentalists.
dsdeaderick - September 15, 2010 at 12:00 pm
#5 by livefreeordie2 – “By the way, in his first 18 months in office, Obama has increased the national debt by more than all the debt accumulated from George Washington through Ronald Reagan.” That is disinformation. By far the greater share of the deficit is attributable to the combination of two wars and the 2001/2003 tax cuts, none of which was paid for. See the graph at: http://www.cbpp.org/cms/index.cfm?fa=view&id=3036