United States: Capitalist Definitely, Democratic Less So

Ezra KleinThe United States is a democratic capitalist system. At least in theory. Today, Ezra Klein wrote, Three Sentences No One Should Forget About Unions. The sentences come from Richard Yeselson in an interview with Jonathan Cohn for New Republic, Happy Labor Day. Are Unions Dead? And they get at something I talk about a lot. In fact, I talked about it this morning in the birthday post for union organizer Walter Reuther: liberal policy is an important aspect of making capitalism work.

The issue could not be simpler: you need to feed the lion. If you don’t feed the lion, he will get hungry and eat you. In a democratic capitalism, there are two forces that push against each other: the power of the rich to manipulate the political system to funnel money from the poor to the rich, and the power of the poor to enact laws that take money away from the rich and redistribute it. Labor unions are incredibly important in this. But in modern America, the first force has had far more power over the last four decades than the second force.

Richard Yeselson’s three sentences explain the issue:

What’s ironic about that is that unions are inherently conservative institutions, which historically developed parallel with the development of capitalism itself. They are as much a part of capitalism as Henry Ford or Apple. Unions use contracts — and there’s nothing more intrinsic to capitalism than the right of contract — to link their members to the fortunes of the companies they contract with.

This goes right along with the last article I wrote, The Rich as Spoiled Brats With Infinite Power. The point I was making was that the rich act in a very shortsighted way because they believe that the government will always bail them out. And the poor exhibit all the signs of learned helplessness.

But let’s look at a graph from Ezra Klein (edited by me for aesthetic reasons). It shows the unionization rates of the various countries in the OECD:

Unionization Rates - OECD Countries

You will note that the United States is pretty far down the list and that includes public employees. But unionization rates are not the only thing that matters. France is not on the chart and it has a lower level of unionization. I assume this is because French labor law is such that workers generally don’t feel they need a labor union. The government protects their interests. In the United States, the government is exactly the opposite: it does everything it can to limit what protections unions provide.

Another graph in Klein’s article shows how well correlated the incomes of the top 10% are with the decline in unionization. He cautions us to not read too much into this. That’s correct. In fact, I suspect the relationship is more the opposite. The more power the top 10% has managed to get, the more they have used it to crush unions and everything else that might limit their ever increasing wealth. I’m sure that a graph of the income of the top 10% and their political power would be at least as stark.

There is a complimentary graph that shows public support for labor unions over the last three decades. What it shows is that union support has been shockingly consistent even while actual unionization has gone steadily down. So the dying union movement isn’t caused by people losing interest. It is just that destroying labor unions is a government policy.

In the United States, we clearly have a capitalist system. When it comes to whether we have a democratic system, it is at least not clear. What the people want doesn’t seem to much matter.

Update (1 September 2014 8:43 pm)

According to Richard Yeselson, “France actually has smaller percentage of union members than the US, but union contracts cover almost the entire workforce.”

The Rich as Spoiled Brats With Infinite Power

Anthony in It's a Good Life

One of the most famous episodes of The Twilight Zone is, “It’s a Good Life.” In it, Bill Mumy plays Anthony — a little boy with special mental powers that isolates a small group of people in his own world where we acts like a monster, killing and torturing at will. At the same time, he doesn’t like it when people aren’t “happy.” He is a spoiled child, but with infinite power. He reminds me of the rich in the United States.

Paul Krugman posited a few of reasons the rich are so obsessed with economic austerity even though it is not in their long-term interests, Inflation, Septaphobia, and the Shock Doctrine. As the title of the article indicates, he suggests it is because: (1) they are rentiers; (2) they are obsessed with the stagflation of the 1970s; or (3) it is just a convenient excuse to screw the working class. I think he is closest on the third point, but it does kind of beg the question. It doesn’t explain why the rich are interested in screwing the poor.

I think it is all about a kind of social psychopathy. The rich are in favor of what they see as being in their interests. It doesn’t really matter if a given policy works in an absolute sense — only that it works in a relative sense. What I mean by this is that it doesn’t matter if the rich see their income go up by 10% if they also see the poor’s income go up by 20%. They see that as losing ground. Just the same, losing 10% would be okay as long as the poor’s income decreased by 20%.

Over the last four decades, we’ve seen this more or less happen. The only time the poor have seen their situation distinctly improved was during the Clinton era and the rich hated it, even though they did vastly better. It is hard not to see it as something like childish spite. But this shouldn’t be shocking. Obama was widely supported by Wall Street when he ran in 2008. But they turned against him soon after his election. And why was that? Certainly it wasn’t because of his anti-finance policies, since he didn’t have any. It was because he called them fat cats. That’s childish nonsense.

It is also dangerous. Thanks to what was mostly racial backlash, Ronald Reagan was swept into power in the 1980s and he effectively destroyed organized labor in this country. As far as the rich were concerned, this was fantastic. But here we are in our fourth decade and we seem to have reached a new equilibrium where large numbers of people are permanently unemployed. The only time we reach full employment is when there is a stock or real estate bubble. I’m talking about secular stagnation. And what this means in the long term is that corporate profits will decline. But as William Lazonick noted in Profits Without Prosperity, many corporations are now destroying their long term profitability for short term profits.

The problem is that companies cannot be profitable if there is no market for their goods. By gutting the middle class, the rich managed to take more short term profits. That seems to have come to an end. So now they are destroying themselves in a kind of autocannibalism. But it doesn’t matter to them. The point is that they keep doing better. And it doesn’t much matter that the long term results of their actions are catastrophic. They know from experience that the government will never let them fail. They are the “right” kind of people. After they did enormous damage to the global economy, the government bailed them out, and during the recovery, almost all of the gains went to them. Most Americans are still waiting for the recovery to trickle down to them.

So at every point, regardless of how shortsighted it may be, they will pick whatever is good for themselves and bad for the rest of us. They live in a consequences-free world. Call it affluenza or spoiled brat syndrome. The problem is not them. The problem is that we continue to give them political power that allows them to continue to affect policy that enrichs them regardless of how they behave. It’s like we’re stuck in “It’s a Good Life,” and no one is willing to attack Anthony when he is vulnerable. Tomorrow ain’t gonna be a real good day.

Labor Day Was Won Not Given

Happy Labor Day!Happy labor day, comrades! Do you know why labor day is today and not on May Day — International Workers’ Day? Well, it’s because of the commies and anarchists. President Grover Cleveland was afraid of associating the international worker movements with the American movements. Of course, Cleveland wasn’t all that keen on the labor movement. But he made Labor Day a national holiday! Why? Because he was trying to make nice after totally screwing up in the government’s response to the Pullman Strike.

This is an interesting but totally typical story. The Pullman Company made railroad cars. Following the Panic of 1893, Pullman lowered worker wages. There is nothing especially wrong with this. It can be much better than laying workers off. Of course, Pullman did lay off workers. It probably only lowered wages because it had an excuse. But all that was probably okay.

The problem was that the workers lived in a company town. They paid the company for rent and food and more. But when the company lowered wages, it did not lower the cost it was charging workers for their necessities. The workers were, not surprisingly, unhappy about this situation. But George Pullman refused to lower his company town prices and refused to even arbitrate the matter.

Eugene DebsNotice the situation here: Pullman thought that his workers should suffer because of the bad economic conditions. But he didn’t think he should suffer at all. During the first years following our financial crisis and the bursting of the housing bubble, there was endless repetition that what the country needed was “shared sacrifice.” But if you dug down even a little into these pleas, you saw that it was all sacrifice by the lower classes — none by the upper. For example: we heard constantly that we had to cut Social Security, but we couldn’t even mention raising the payroll tax cap. (That would be class warfare!) The bankers were bailed out without much fuss but homeowners were just left to their foreclosures. And there were large cuts to social programs but only a tiny increase in the very top marginal tax rate and only because it was going up anyway.

More desperate than we are today, many of the workers joined Eugene Debs’ American Railway Union (ARU). And they went on strike. It got ugly. Union members eventually stopped railroad service in a number of places. Then Grover Cleveland used the interruption of mail delivery to justify sending in federal troops. This did eventually end the strike — at a loss of 30 striker lives and almost twice as many wounded. This is generally the way it goes.

The government does not like organized labor. It is too much of a threat to the status quo. When organized, workers have enormous power. That was why, in 1947, we got the Taft–Hartley Act, which outlawed “jurisdictional strikes, wildcat strikes, solidarity or political strikes, secondary boycotts, secondary and mass picketing, closed shops, and monetary donations by unions to federal political campaigns.” And after that, Reagan savaged unions and basically made the remaining union rights void through lack of enforcement.

Grover ClevelandIn 1894, of course, the government was scared. Grover Cleveland and the rest of the government wanted to make nice with organized labor. They probably had Louis XVI of France in mind and were trying to hedge their bets. So only six days after the strike ended, Cleveland signed the legislation making Labor Day a federal holiday.

As for old George Pullman, well, a national commission was appointed to look into the causes of the strike. It found Pullman culpable and said his company town was “un-American.” In 1898, the company was forced to sell off the land, which became part of Chicago. It didn’t matter to George Pullman, however; he died the year before.

After the strike, Debs was arrested and charged with conspiracy to obstruct the mail. You know: it wasn’t enough to have your strike crushed; Debs was a little man and so the government needed to crush him too. But Debs was represented by one of the great heroes of that period: Clarence Darrow. Darrow argued that Debs didn’t conspire to do anything and that it was the railroad that conspired against the workers. This is something that doesn’t seem to be understood by my libertarian enemies who almost to a man hate unions: if workers aren’t able to organize, it isn’t fair; the company management is very organized.

The prosecutors saw they were going to lose the case, so they dropped the conspiracy charge. Debs was later convicted on the lesser charge of violating a Supreme Court injunction and was given six months in jail. Although he entered jail what we might call a liberal, he left a socialist. While in prison he read a whole bunch of Marx and that changed his outlook. He was also influenced by visits from Victor L Berger. Along with him and others, Debs founded the Social Democratic Party of America. He went on to run for president as a socialist five times — the last time in 1920, he did from prison. He was serving a ten year sentence for violating Obama’s favorite law, the Espionage Act of 1917. He violated it by giving a speech that “obstructed recruiting” for World War I.

In 1921, The Bridgemen’s Magazine wrote:

Labor Day evolved from the aspiration of the labor movement; it was not handed down as a present. Its recognition as a legal holiday was won by labor: it was not given as a present.

So enjoy your Labor Day. But don’t forget the suffering and loss that it represents. And don’t stand for people like Eric Cantor showing such great disrespect to it. We know conservatives hate the labor movement. We know that many so called liberals are at best apathetic towards the labor movement. But the least we can demand is that they all show a modicum of respect one day of the year. Now go enjoy your barbecue or whatever.

One Weird Trick to Fix Globalization!

Thomas FrankOne fine day in January, 1996, AT&T announced it was cutting 40,000 white-collar jobs from its workforce; in response Wall Street turned cartwheels of joy, sending the company’s price north and personally enriching the company’s CEO by some $5 million. The connection of the two events was impossible to overlook, as was its meaning: What’s bad for workers is good for Wall Street. Within days the company was up to its neck in Old Economy-style vituperation from press and politicians alike. Then a golden voice rang through the din, promoting a simple and “purely capitalist” solution to “this heartless cycle”: “Let Them Eat Stocks,” proclaimed one James Cramer from the cover of The New Republic. “Just give the laid-off employees stock options,” advised Cramer, a hedge fund manager by trade who in his spare time dispensed investment advice on TV and in magazines, and “let them participate in the stock appreciation that their firings caused.” There was, of course, no question as to whether AT&T was in the right in what it had done: “the need to be competitive” justified all. It’s just that such brusque doings opened the door to cranks and naysayers who could potentially make things hot for Wall Street. Buttressing his argument with some neat numbers proving that, given enough options, the downsized could soon be — yes — millionaires, Cramer foresaw huge benefits to all in the form of bitterness abatement and government intervention avoidance. He also noted that no company then offered such a “stock option severance plan.” But the principle was the thing, and in principle one could not hold the stock market responsible; in principle the interests of all parties concerned could be fairly met without recourse to such market-hostile tools as government or unions.

—Thomas Frank
The 1 Percent’s Long Con
Quote from One Market Under God

Just for Labor Day: Walter Reuther

Walter ReutherOn this day in 1907, the labor leader Walter Reuther was born. He was the man that turned the United Automobile Workers (UAW) into a major political force in the country. He was also a very important supporter of the civil rights movement. Unions were often impediments to racial equality. Reuther understood that workers are workers.

One of the maddening things about Americans is the way we allow special interests to turn us against each other. This is almost a founding principle of the country. It’s the reason we had the slavery of African Americans. At first, it wasn’t a racial issue. But black and white slaves had this nasty habit of ganging up and revolting against the rich. So the rich came up with a great idea: make the Europeans free so no matter how bad their lives were, they would feel okay because at least they weren’t slaves. And indeed, that did put an end to the poor seeing themselves as a single group.

Reuther understood this. But it is so ingrained in who we are. And so many American myths (for example, the rugged individual) have been crammed into our minds that it is very hard to fight. But Reuther tried and succeeded to a large extend. As I noted last year:

He had what I think was a very common political arc for people of his time. He started as a socialist (even a communist) but after the New Deal came in, he became a liberal. Conservatives tend to vilify FDR for bringing socialism to America. That isn’t true, of course, and that thought is typical of the conservative “all or nothing” mentality. If they thought about it for a moment, they would realize that what FDR did was save capitalism from revolution. People like Reuther thought they wanted socialism, but all they really wanted was a more fair and equitable political and economic system. Is a safety net to avoid the worst excesses of capitalism so much to ask?!

Reuther turned the United Automobile Workers (UAW) into a major force in the United States. He also integrated it with the Democratic Party — where he was a major figure until his death. He was also a prominent supporter of the civil rights movement. He was on stage with Martin Luther King Jr during his “I Have a Dream” speech at the March on Washington for Freedom and Jobs. He also took part in the Selma to Montgomery March. Unfortunately, he died in a plane crash with his wife and others at the age of 62.

Happy birthday Walter Reuther!