Labor: Wall Street, Labor Unions, and the Obama Administration: A New Paradigm for Capital and Labor?
Friday, Nov. 13
12:00 noon – 2:00 p.m.
Chinese Room
– Mr. Harold Meyerson, Editor-at-Large, The American Prospect
– Ms. Amity Shlaes, Senior Fellow for Economic History, Council on Foreign Relations
– Mr. Damon A. Silvers, Associate General Counsel, American Federation of Labor-Congress of Industrial Organizations
– Prof. Todd J. Zywicki, Foundation Professor of Law, George Mason University School of Law
– Moderator: Hon. Steven J. Law, Chief Legal Officer and General Counsel, U.S. Chamber of Commerce
Moderator: Hon. Steven J. Law opening remarks:
quoted from Amity’s “The Forgotten Man” – likened the current economic decline to the decline of the Great Depression
Mr. Harold Meyerson:
unemployment is up, underemployment is up, people are working fewer hours or lower paid positions than they were before.
in the under 35 population, only 31% feel that they can save money for later; used to be 52%
in the 60+ population, higher % are working than in past years and many are pushing off retirement even further
retirement is becoming a luxury of the elites and unreachable to the average worker
recently there has only be a 5% increase in unionization – it is too hard to unionize in the private sector due to laws that favor private corporations over unions
is there a changing paradigm? He hopes so. He’d like to see greater enforcement of the minimum wage laws and enactment of laws more favorable to unionization so the youth entering the work force can
if we continue to slip behind, we will no longer be the world power we have been used to
Ms. Amity Shlaes:
in 1937 song “Nice work if you can get it” gives insight into the conditions of the Great Depresion
that was a reference to prostitution, but the song caught on and is romanticized
late 30’s created a new social divide – the depression had lasted too long – what explains the longevity?
the labor price was too high
in the 20’s companies faced with economic decline either laid off workers or cut wages – when the economy lifted, they hired back workers and providing raises again
in 1929, President Hoover encouraged companies to keep wages high so that workers would have money to spend
companies who laid off were more hesitant to rehire back
the Wagner Act caused wages to increase
the country saw a depression within a the Great Depression
the plan was perverse – wages were 20% higher than they should be based on trend
unionization in the 30’s did not help labor – it helped some workers – overall work hours were down (fewer were getting paid, fewer were employed) and wages were up (for the few who were employed, they had more money than the market trend)
are we headed to a new paradigm? fears that we are following the old paradigm with regard to labor-price matters
proposed a new song title “Nice economy if we can get it”, but we can’t
Mr. Damon A. Silvers:
all kinds of arguments about history are possible when those who lived it are dead
he sees 4 big problems that have to be addressed:
- wage-productivity gap. post-war America wages and productivity were tied tightly together until the 80’s when they separated. they were tied again briefly in the 90’s, but separated again. the equation is complicated by wages in the form of healthcare insurance, but that high cost to employers is barely an increase in wage to employees since that itself is an overinflated cost. Understanding the gap is crucial to understanding the pressures on modern employees.
- structural trade deficit. China’s money is pegged to the U.S. dollar – this is not an accurate picture of worth. they lend us money, we purchase imports from them, they lend us more. the “compression of global risk spreads” is problematic. Risky lending without charging a premium for the risk leads to inaccurately priced loans.
- financialization of our economy. financial activity is an intermediate function and should not be 40% of our economic base. quotes the President of the AFL-CIO as saying “finance should be the servant to the economy, not its master.”
- our approach to energy. both a big problem and an opportunity. our energy use policies are not sustainable, but there is the opportunity to take the lead in developing new energy policy.
How do we relate this to capital, labor, and government?
labor and business have a joint interest in solving – we need a solution that is viable in a global economy – other nations increasingly are gaining a comparative advantage in various industries
we have to ask ourselves, what kind of society do we want to live in? what are the outcomes of the changes of the 1930’s?
the social conflict that is engendered by labor-market flexibility is undesirable and dangerous
these changes are not how you would want society to be founded
we need a strategy to deal with these 4 structural problems
he hopes the Obama administration is attempting to do that, but is unsure that the political system is prepared to accept a solution
Prof. Todd J. Zywicki:
Fears that we are entering a new paradigm that will lead to long term stagnation, social inequity, and decline
the paradigm threatens the rule of law specifically regarding contracts and property law
threatens the rule of law:
demonstrated by the Chrysler case – he is disgusted by this case
the lynch pin of bankruptcy has always been that the priority goes to the secure creditor
in Chrysler, secured creditors received 29¢ to the dollar, while the UAW received 50¢ to the dollar
the UAW essentially stole money from the secured creditors (rousing applause)
perhaps even more distasteful is the way the government played a role in Chrysler
banks who were on TARP basically rolled over and allowed the demise of those who were not – they were safe because they were on “government welfare” – they acted in “moral cowardice”
as soon as we start the game of allowing some emergencies to overrule property rights, we lose the rule of law
threatens the economy:
there is an increased risk of lending and additionally have to consider the political risk
http://online.wsj.com/article/SB124217356836613091.html
if dealing with a company with political risk, and they have credit problems, and can’t get private loans, the government will have to bail them out again
Fannie & Freddy are prime examples
when corporate giants become too big to fail, they gain the comparative advantage over everyone else because they don’t have to worry about financing – they know the government will have to bail them
if the top 10 are too big to fail, what happens to number 11? obviously they merge with another smaller company in attempt to become one of the top 10 – perverse incentive to rent sharing
long term threat to free enterprise
President Obama is obviously not an economist – when he learned about Public Choice, but he must have mistaken what he was taught – Public Choice theory is a cautionary tale, not a how-to manual
what is perhaps most pernicious is the rent extortion the government is engaged in by using politics to play corporations against each other
what is essentially happening is the government is saying to corporations “we have a right to destroy you, and you have a right to buy back your life”
wrap up:
Ms. Amity Shlaes:
(regarding a question comparing the U.S. unemployment to Europe)
“Why do we want to be like Europe where you has no future?”
remarks on the posttests in France over labor law and the response was to say that the youth cannot have what their parents had – this points to the very problem of a social welfare system – it denies the youth that which they are most entitled to: economic growth and prosperity in their own lives
Prof. Todd J. Zywicki:
it all comes to basic economics
in a recession, either have to cut wages or cut employees – there are only 2 options – you cannot both keep the employees and continue to pay them the same wages
unions create economic rents – just look at the number of discrimination cases from the 1950’s where a union is the defendant – initially unions were run based on favors and who knew who
since 1963, women who had been excluded through the union networks entered the work force
Ms. Amity Shlaes:
If past is prologue:
in the 1950’s we were the only power around – there were no economic challenges – we were protected – that’s why there was no disparity between wages and productivity
so, how do we deal with that now? protectionism is not the answer
freedom, education, and freedom to become educated are the answers
the teachers union is the union to support above all