Friday, November 23, 2012

Krugman, Unions and the Good Old Days

It's becoming more and more the meme to remember the period 1947-1973 as a kind of good ol' days: dynamic growth, sponsored (and unhampered) by high taxes,  supported by strong private sector unions.  I lived through those years and I'd have to sign on to a lot of that.  I'd add the qualifier that in many ways I hated the good ol' days: smug, narrow-minded, paranoid, racist times with tacky TV shows and maddeningly trite pop music.  I grant the economic virtues although in fairness, they are easier to see in the rear-view mirror.   I also join the chorus of those that believe the good ol' days nestled in an accidental sweet spot,  where major employers enjoyed semi-monopoly protections, generating incomes that they could share with semi-monopoly employees--and when we all (did I say this before?) drove crap cars.

I was therefore intrigued earlier this week to see Paul Krugman abandon his wonted tact and decorum and go to Defcon IV against the golden-age deconstructers.  He calls it "The Europe-in-Rubble Excuse."
Whenever I point out how well America did with strong unions and highly progressive taxation after World War II, I can count on conservatives trying to resolve their cognitive dissonance by saying “but it was easy then — all our competitors were in ruins!” ...
Sorry, guys, but that’s bad history and very bad economics.
[A]nyone who reflexively reaches for the idea that we were actually better off because Europe was in ruins as a way to explain the postwar economy should take a hard look in the mirror. Did you think this through? Or were you just grabbing for something, anything, to explain away a fact that your ideology says can’t have been true?
Now by disposition I tend to be a Krugman fan, but I think he misunderstands the argument here, and also draws the wrong inference.

First: I don't think those of us who gaze back at the golden age are focusing only on Europe-in-rubble (he could have added Japan.  And China).  For one, if we're being fair we'd have to grant that the ravaged nations mostly recovered far  more quickly and successfully than most people expected (and thank you, General Marshall).   And we'd have to grant that healthy trading partners can make us healthier: beggar thy neighbor is never a good long-term bet.

But rubble is only part of the story.  As Brink Lindsey aptly observes, there was a whole lot more going on in the golden age:
There was a pent-up demand for goods and services after the privations of the Great Depression and the mobilization of World War II. There was also a pent-up supply of new products that couldn’t be brought to market during the depression and war years. That pent-up supply was augmented by technological and organizational breakthroughs accelerated by the imperatives of total war. Big advances in transportation, communications, and air conditioning stimulated catch-up growth in the underdeveloped South and underpopulated West. And rapid upgrades in human capital (first explosive growth in high school graduates, then explosive growth in college graduates) doubtless helped to spur productivity gains.
Link  Reading Lindsey, DeLong concludes  that Lindsey drops an own-goal on his vaunted libertarianism.  DeLong is narrowly right  but it's irrelevant to my point.   For my money, Lindsey is quite right to argue that the old times were special in ways that might not be easy to replicate.

But here is where I think Krugman misses the point.  That is:  he could perfectly well concede that the old times are special without accepting that "speciality" as an argument against unions.  He might say: yes unionism was easier in the good ol' days.  But that doesn't mean unions are any less necessary in a different kind of economy.  It just means we have to work harder to explain and justify their importance to a functioning democracy, and that we must work harder to assure these virtues are preserved.

He could argue that.  For myself, I would argue that, kinda.  As I said above,  I lived through those days.  I remember railroad featherbedding, bogus type in the print shop.   I remember how big steel and the steel unions bound themselves together in a dance of denial that would do Kubler-Ross proud, until it virtually destroyed them both.

But I also believe in the kinds of insights Joseph Stiglitz argues for (in the book which, ironically, I trashed just the other day).  A functioning workforce is the very definition of a healthy society.  Masses reduced to pauperism and beggary are no good for themselves and, paradoxically, not much good for their overlords either.  Some sort of union movement is almost certainly part and parcel of such that healthy society   So I can understand Krugman's eagerness to defend the golden age.  I just think he'd be on firmer ground if he went about it a different way.


Ken Houghton said...

There's no question that the argument in favor of a union is straightforward and should be intuitive even to an economist: if you've got one person representing capital and 100 separate laborers, it's easier to negotiate terms for capital when the discussion is closer to 1:1.

There are four recessions in the Big Growth period, three during the Eisenhower Administration alone. (As Brink Lindsey should know, and Brad DeLong certainly does, there are that few recessions because we get the GI Bill, so that a significant chunk of those employable servicemen can be declared NILF for four or five years in a win-win that is not carried forward.) But none of them are long-term, and all of them are without the "inflation targeting" that stabilized the US economy--into a permanent state of increasing income inequality.

The uninterrupted "growth" is when the "police action" in Southeast Asia escalates. So the only sustained growth period for a stable US economy really is the Clinton Era, unless you could the Eisenhower Recessions as good things--which isn't a bad idea. (Do we get the Interstate Highway System--which Ike had wanted for thirty years by then--without the 1953-1954 decline?)

Jimbo said...

I lived during much of this period, too, though mostly as a kid/teenager. I think the key instrumentality is public investment: in human resources and in infrastructure and technology. The Marshall Plan rebuilt the infrastructure of Europe and sure that boosted our exports though most of that U.S. money was necessarily spent in the recipient countries by local companies. Second, the GI Bill, which the GOP hated, revolutionized higher education to the nation's long term benefit. As bad as the Cold War was, it spurred a huge technological wave of public investment (space, computers, DARPA and the Internet and interstate highway system, etc.). This was the really big USG investment in the economy, which the private sector never would have undertaken on its own. The old GOP understood this; the post-Reagan GOP does not/will not. Old style unions grew out of an atmosphere of constant confrontation, much of it violent, between labor and management - completely unlike, say, German or Japanese labor-management relations and we see the very different results. The problem isn't unionization; the problem is the perpetually bad cultural relationship in this country between labor and owners. Until that gets resolved we will always be economically hobbled, as a nation.