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.

 And:

[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.

What Did Not (and maybe Will Not) Kill Twinkie

I see tht Hostess Brands is folding its hand after a rancorous bloodletting with its unions--heading for liquidation in bankruptcy under Chapter 7. Management says it is the fault of the unions. Unions say it's the fault of a heartless Bain-style destruction--"real products Americans love," says AFL-CIO President Richard Trumka" (cough).

Well, two things. One, learn Buce's law: when a company says its problem is all the fault of the unions, the one thing you can be sure of is that it is not all the fault of the unions. The union problem is bound to be a symptom of a larger problem in management discipline or creativity. And blaming it on the unions is pretty clear evidence of a failure to take responsibility or, perhaps even more likely, stark incomprehension of what the problem really might be.

Take Twinkie, Hostess' marquee product. Forget the jokes about how it will be around until the next ice age. Focus instead on the fact that it has been around since the last ice age, as unchanged in concept as it is apparently durable in manufacture.  And as Bill Rochelle (see infra) likes to say, this is an industry where tastes change, and where products must change or be left behind.   There are a lot of companies in the snack food biz/ The successful companies are the ones that innovate to beat the band. Think Procter & Gamble.  Think Frito-Lay. Think Grupo Bimbo.  Say you want about the misallocation of resources, the crime of capitalism, the gross waste of energy and effort, these guys are people who know how to make money under the existing rules.  If the Hostess people didn't understand that, they don't deserve to run a major commpany, and their workers are paying the price.

But there is a second wrinkle here.  Hostess may "liquidate in Chapter 7," but Hostess very likely is not dead yet.   The financial press is quoting Those in the Know as saying that the case is all about the  brands--the trademarks, the attendant intellectual property, the great name of Twinkie and suchlike.  The talk is that the ought to attract serious bidders and draw cash into the bankruptcy estate.

And?  And who knows?  And begin to produce something, anything, who knows what, under the Twinkie name.  Fine, it happens all the time.  But here's a guess: I suspect that whatever gets fobbed off as a Twinkie henceforth will differ from the former Twinkie in one vital respect and that is it will come from a non-union shop.    So the simple explanation of the liquidation/sale here may be that it is just an efficient way of getting out from under what Twinkie couldn't get out from under otherwise.

Acknowledgment:  Some of this is inspired by the insights of the world's greatest bankruptcy journalist, Bill Rochelle at Bloomberg. Here's Rochelle on Hostess's bankruptcy filing back in January.  And for a mid-gme update, go here (at1:52). And ask Bill to tell you what he thinks of Drake's Cakes.

Update: Too true, too true.

Unions? Who Needs 'em?

The strategic vision behind the calculations of these Democratic officials foresees a Democratic Party that consists chiefly of upper-middle-class professionals and enough very rich guys to fund its campaigns, and minority voters who are sufficiently disenchanted with public schools that they won’t mind, and may well support, efforts to bust up the teacher unions.

Link. But no, he doesn't approve.

One Big Union (Not)

There's an understandable lot of clucking about the news that the building trades unions are teaming up with Andrew Cuomo in going after the  public employee unions.  But in the larger context, it shouldn't be that much of a suprise: the union movement has a long history of internecine competition and conflict.  The reason people speak of "one big union" is precisely  because we do  not have it, and never have.  The AFL-CIO didn't get together until 1955.  True believers in union strenth have never counted the Teamsters as part of the team. We've seen any number of instances where competing unions have clawed each others' face off for new representations.

But I think there is an important long-term shift at work here also. That is:  my take is that unions have become far more sophisticated over the generations in making themselves co-venturers in an economic enterprise: far more disposed to recognize that their well-being rises or falls with the health of their employer.  From World War II until, say, the great inflection of the 70s, unions really didn't seem to care all that much how management made its money: it was management's job to manage the money, and the unions' to claw it away.   

I'd say that attitude had vanished long before the building trades opened their purse for the governor.  Lately we've had Steve Rattner speaking appreciatively of the role played by the UAW's in-house investment banker in helping to engineer the auto bailout.  And just this spring, we've had occasion to observe the American Airlines pilots going over the heads of their managers to talk directly with US Airways about the prospect of merger. Unions have come to know that they are a vendor of services, and that the way to make deals is to respond to the realities of the market.

One more point: many--I--have remarked on the blunt reality that public employee unions gain some of their cachet from their quasi-monopoly position,  as sharers in sovereign power.  I'll stand by that, with the qualification that unions in general thrive if and only to the extent that the employer is exempt from competitive pressures.  That is precisely why unions did so well in the United States between 1945 and 1972--and why they have weakened since.  Yet this leads us to a final irony.  I don't know the details of the New York deal, but just in general can you think of any union that has profited more from this access to monopoly protection than the building trades--not least because so much of their money comes straight from the public fisc, in the problem of government contracts?

Homestead: Geography is Destiny

Still making my way through David Nasaw's biography of Andrew Carnegie, I'm perched just now at the pivot point--the infamous Homestead strike of 1892, by any measure one of the nastiest of 19th Century labor conflicts, and the one that pretty much put paid to any claim by Carnegie to special status as an above-the-battle Friend of Humankind (though like others after him, he spent the rest of his life trying to recover his entrepreneurial virginity).  Though never a Disney movie, Homestead is a well-known story and I can't say it comes as entirely new to me, but here's something right before my eyes that I never noticed before.  Specifically: a dominant reason why Carnegie was so eager to keep a cap on wages is that the center of gravity in the steel industry was shifting--from Pennsylvania to the environs of Chicago--and the Carnegie crowd was simply finding it harder and harder to compete.  Flipping the point around, Carnegie's earlier success surely arises at least in part from the fact that he caught the perfect wave: the right place at the right time, as the demand for steel exploded.  Whether he was also "the right man"--or just lucky--is a more complicated question that I leave, perhaps for another time.

Two other points about Homestead.  One, it's fascinating how much turns on a momentary tactical error: the undertaking to unload the Pinkertons at a point along the river where the strikers had a pretty good chance to obstruct them.  The strikers didn't exactly win the round--they counted more dead--but it robbed management of the initiative, something they never really regained through the whole long dreary aftermath.

And another: I love it when some reporter asks the Great Man why he didn't just bend a little and stump up a bit more.  Why, it is the fault of the unions. Carnegie responded. The unions? How the unions? Wny, it is their fault that they didn't insist on higher wages from our competitors.  I don't suppose anything shows more clearly how well Carnegie understood the concept of economic rents (even if he had never heard the term) and that the unions are, indeed, whatever else you may say, a vast conspiracy in restraint of trade.  It's going to take a few years more for management to figure out that the road to labor peace is to cut the workers into their own--i.e., the manager's--conspiracy in restraint of the trade, and so allow them to them to enjoy their chokehold on the consumer surplus together.

Who's Unionized Now? A Wisconsin Footnote

I'm beginning to suspect that everything I assumed about public employee unions is wrong (Teachers actually make less than private sector employees!  Public employees in non-union states do pretty well!).  But I suspect I'm not alone in this--I suspect a lot of folks are more surprised at this kind of data than perhaps they are letting on.  Anyway, I don't see why my (erstwhile?) ignorance should bar me from popping off on the topic. So here's a point I haven't seen elsewhere.

Specifically: there seems to be some general dismay over the (alleged) declining support for public sector unions.  But I haven't seen anybody link this point to the almost-universal decline in private sector unions.  Start with my neighbor, the City of Vallejo, the poster child of municipal bankruptcy. Granted (or assume for purposes of argument) that ladelled out the goodies to its  public sector workers.  But Vallejo is a blue-collar town, where (at least 40 years ago) you would have found a strong temperamental disposition to favor unions in general, and so a willingness--call it "only fair" to allow public employees into the fray.  If there is still support for public employee unions, I suspect it is carried forward by inertial force.  I doubt that all those dis-unionized private-sector blue collar workers would be so tolerant this time around of allowing a protection for public employees that they no longer enjoy.

Is That a Union Endorsement in your Pocket, Or Are You Just Happy to See Me?

I guess the only thing that surprises me about this headline (link)

Most U.S. Union Members Are Working for the Government, New Data Shows
...is that it didn't happen years ago. Surely it has been obvious to anyone looking that private-sector unions are tending to disappear while those in the public sector maintain themselves or flourish. I assume we can anticipate a new eruption of bile from websites of a certain sort about the evils of the teachers, the TSA employees and others of that sort--and of their corrupt alliance with the Democrats--but the issue is a good deal more general that. Those who want to holler about the teachers' unions--you don't usually see them telling us that we need to stand up to the prison guards or that part of our problem is lush pensions for police and firemen.

It's a dreadful problem all round, but it exists for one good non-insidious reason: positional advantage. Unions worldwide do well in things like rail and trucking--the historic core of the Teamsters Union--because they've got geography on their side: you can't leave home without them. Same with a good many public employee unions: when the day comes that the Meter Maid can pound her beat with Google goggles from Bangla Desh, I'm sure there will be somebody trying to make it happen. Meanwhile, we are more or less stuck with real cops on real beats, looking for real bennies and real pensions.

Positional, plus the grandfather effect. While the cop is tooling around in his cruiser all night, he has plenty of time to think about his situation--and think, and think, and think, until he has come up with 20 more ways to leverage some extra dollars out of the public fisc. Surely some of those 20 include ways of strengthening his relationship with the running dogs of the protected market system who are in the position to help keep him comfy and secure.

The virus, then, is quite general, and I don't see any immediate or obvious cure--the kind of thing that tends to grow in any stable society as it ages and becomes more entrenched. Meanwhile, we welcome the new Senator from Massachusetts, who arrives in Washington with the endorsement, inter alia, of her opponent's husband's own union.