Weekend Economists Waiting for FDR July 13-15, 2012

[Demeter]

35. The Great Capitalist Heist: How Paris Hilton’s Dogs Ended Up Better Off Than You

http://www.nakedcapitalism.com/2012/07/the-great-capitalist-heist-how-paris-hiltons-dogs-ended-up-better-off-than-you.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Gerald Friedman teaches economics at the University of Massachusetts, Amherst. He is the author, most recently, of “Reigniting the Labor Movement” (Routledge, 2007). Edited by Lynn Parramore and produced in partnership with author Douglas Smith and Econ4. Cross posted from Alternet.

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... Back in the 18th century, Alexis de Tocqueville called America the “best poor man’s country." He believed that "equality of conditions" was the basic fact of life for Americans. How far we've come! Since then, the main benefits of economic growth have gone to the wealthy, including the Robber Barons of the Gilded Age whom Theodore Roosevelt condemned as “malefactors of great wealth” living at the expense of working people. By the 1920s, a fifth of American income and wealth went to the richest 1 percenters whose Newport mansions were that period’s Greenwich homes. President Franklin Roosevelt blamed these “economic royalists” for the crash of '29. Their recklessness had undermined the stability of banks and other financial institutions, and the gross misdistribution of income reduced effective demand for products and employment by limiting the purchasing power for the great bulk of the population...Roosevelt’s New Deal sought to address these concerns with measures to restrain financial speculation and to redistribute wealth down the economic ladder. The Glass-Steagall Act and the Securities Act restricted the activities of banks and securities traders. The National Labor Relations Act (the “Wagner Act”) helped prevent business depression by strengthening unions to raise wages and increase purchasing power. Other measures sought to spread the wealth in order to promote purchasing power, including the Social Security Act, with retirement pensions, aid to families with dependent children, and unemployment insurance; the Fair Labor Standards Act, setting a national minimum wage and maximum hours; and tax reforms that lowered taxes on workers while raising them on estates, corporations and the wealthy. And the kicker: Through pronouncement and Employment Act (1946), the New Deal committed the U.S. to maintain full employment.

The New Deal reversed the flow of income and wealth to the rich. For 25 years after World War II, strong labor unions and government policy committed to raising the income of the great majority ensured that all Americans benefited from our country’s rising productivity and increasing income. Advocates of laissez faire economics warned that we would pay for egalitarian policies with slower economic growth because we need inequality to encourage the rich to invest and the creative to invent. But the high costs of inequality in reduced social cooperation and wasted human capital point to the giant flaws in this view. A more egalitarian income distribution provides better incentives for investment, and our economy functions much better when people can afford to buy goods and services. The New Deal ushered in a period of unusually rapid and steady economic growth with the greatest gains going to the poor and the middle-class. Strong unions ensured that wages rose with productivity, government tax and spending policies helped to share the benefits of growth with the poor, the retired and the disabled. From 1947-'73, the bottom 90 percent received over two-thirds of economic growth.

Then, the political coalition behind the New Deal fragmented in the 1960s. Opponents seized the moment and reversed its policies. They began to funnel income toward the rich. With a policy agenda loosely characterized as “neoliberalism,” conservatives (including much of the economics profession) have swept away the New Deal’s focus on employment and economic equity to concentrate economic policy on fighting inflation by strengthening capital against labor. That has worked out very badly for most of America...The GOP has led the attack on Roosevelt’s legacy, but there has been surprising bipartisan support. President Carter got the ball rolling with his endorsement of supply-side taxation and his commitment to fight inflation by promoting labor market competition and raising unemployment. Carter's policies worked to reverse the New Deal’s tilt toward labor and higher wages. Under his watch, transportation and telecommunications were deregulated, which undermined unions and the practice of industry-wide solidarity bargaining. Carter also campaigned to lower trade barriers and to open our markets to foreign trade. These policies were presented as curbs on monopolistic behavior, but the effect was to weaken labor unions and drive down wages by allowing business to relocate production to employ lower-wage foreign workers while still selling in the American market. Carter also began a fatal reversal of economic policy by refusing to support the Humphey-Hawkins Full Employment Act. Instead of pushing for full employment, Carter appointed Paul Volcker to chair the Federal Reserve with the charge to use monetary policy to restrain inflation without regard for the effect on unemployment. Since then, inflation rates have been brought down dramatically, but unemployment has been higher and the growth rate in national income and in wages has slowed dramatically compared with the New Deal era.

Already in the 1970s, a rising tide of anti-union activities by employers led Douglas Fraser, the head of the United Auto Workers to accuse employers of waging a “one-sided class war against working people, the unemployed, the poor, the minorities, the very young and the very old, and even many in the middle class of our society.” Organized labor’s attempt to fight with labor reform legislation amending the Wagner Act found little support in the Carter White House and went down to defeat in the Democratic-controlled Senate. Any residual commitment toward collective bargaining under the Wagner Act was abandoned during the Reagan administration, ironically the only union president ever elected to the White House. Reagan, of course, is known as the president who fired striking air traffic controllers in 1981. He is also known for the devastating regulatory changes during his presidency and those of his Republican successors (the two Presidents Bush). Their appointments to the National Labor Relations Board helped to turn this agency from one charged with promoting union organization and collective bargaining to one charged with ensuring that employers were free to avoid unions. Under this new regime, private sector unionism, the unions covered by the Wagner Act, has almost disappeared...