Unions Are the Solution to an Unjust Economy
by Richard A. Levins
The process of devolving from a middle-class society into a banana republic is well under way in the United States. The signs are everywhere. Wages, even for college graduates, are falling behind inflation. The number of families in poverty is growing.
The middle-class debt load is off the charts and the personal savings rate is below zero. The costs of a college education, of health insurance, of energy for heating and driving, and of pharmaceuticals grow out of reach for ever more Americans with each passing day.
What economists call the "income distribution" is, from a middle-class perspective, as bad as it has been since the Great Depression. During the Roaring '20s, the split between rich and poor grew exceptionally large, leaving relatively few in the middle class. In the decades following the Depression, things began to change for the better as income and wealth became more evenly distributed.
But now we are back to where we were as the nation stood on the brink of its greatest economic catastrophe ever. The very rich are richer than ever, but the rest of us are falling behind at an increasingly rapid pace.
What caused these changes in the balance between a middle-class society and neo-Feudalism? The history of labor unions in America gives an important clue. Private-sector unionization was legislated during the Depression. Union membership grew until the mid-20th century, then began a slow decline that continues today.
Remember the income distribution numbers: a weak middle class in the Depression, a strong middle class in the decades following, and a weakening middle class now. The way these income distribution numbers generally track those for union activity is no coincidence.
Unions equalize power in the marketplace between those who work for a living and those who own something for a living. Those who work for a living are the stuff of which the middle class is made. Those who own something for a living fill the ranks of the very wealthy. When the balance of power is with labor unions, the gains from production stay with the middle class. When the balance shifts as it has today, the very wealthy take an ever-larger share from economic activity.
As the very wealthy become even more so, they do not spend money in the way middle-class people do. After all, how many houses and cars, no matter how fine, can one have? Once people have more money than they can possibly spend on goods and services, they no longer use it in ways that stimulate the economy.
Instead, they use the power their money brings to get more tax breaks, less regulation, more support for globalization, and policies that favor capital over labor. The middle class continues to weaken.
In spite of all this, we are told not to worry, because the United States is becoming what some politicians call an "ownership society." Instead of supporting unions that bring decent wages to working people, we are advised to buy shares in the corporations that profit when wages are falling. Meanwhile, we ignore the most important part of our economy -- we are a great market for goods and services.
The trouble with all strategies that trade good jobs for cheap toasters is that they eventually erode the market for the goods and services being provided. A handful of hyper-wealthy individuals, along with millions of people living on the economic edge, are not the sound, stable market needed for growth. Only the middle class, with buying power widely distributed, can provide that. And that is what we are losing.
Rebalancing power in the economy is essential if the middle class is to thrive. Doing this, however, will require more than our government alone can reasonably be expected to deliver. We must act together in the marketplace as well. The way to do that is the way we have always done it - to join and support the unions that built the middle class in the first place.
Richard A. Levins is Professor Emeritus of Applied Economics at the University of Minnesota. His latest book Middle Class: Union Made is available from Itasca Books at www.itascabooks.com or 1-800-901-3480.
A Landlord Society Benefits Only the Very Few
Price gouging, wage cutting, and excessive debt are weakening the middle class and leading us toward a landlord society that benefits none but the very few.
by Richard Levins
Recently, I pulled into a filling station near my house in Minneapolis. In three months, gas had increased in price by 50 cents per gallon. Everything I saw on the news said the price I was paying that day would soon look like a bargain.
During the hour or so I ran errands, combined profits of our ten largest energy companies ballooned another $13.5 million. Meanwhile, Congress had just served up another heaping portion of tax breaks to those same corporations.
Across the street from the station, the thrift shop's large parking lot was filled with cars. Hundreds of people were taking advantage of a sale on used back-to-school clothing. Those of slightly better means flocked to the new Wal-Mart a few blocks away to buy whatever had come in on the most recent boat from China. The Wal-Mart makes its home where a more middle-class, but failed, shopping center stood just a year ago. Surrounding retailers wonder how much longer they can afford to pay union-scale wages now that their low-wage neighbor has opened for business.
I drove back to our house that originally sold new for around $10,000 and was well within the means of a blue-collar family with one wage earner. My wife and I purchased the house when it was over 45 years old and in need of substantial work, paying more than ten times the original price. Five years later, the house can be sold for twice what we paid. A blue-collar family with a single wage earner cannot dream of buying the house now without public assistance and all of the attendant risks.
Through all this, the house has remained what it always has been -- a place to live. The additional value is of no use whatsoever to us. Before the mortgage was paid off, the high value was a benefit mostly to the mortgage company because it meant higher payments to them.
We, on the other hand, had less money to spend on other things during the years we made payments on this and other houses. Now that it is almost paid off, we can access the value of the house only by selling it (and sleeping outside in a Minnesota winter?) or by taking on a new mortgage and relinquishing at least part of our ownership to lenders again.
In barely an hour, my trip to the gas station and back home had revealed three parts of a growing economic crisis:
1. We are gouged on prices for essential goods and services.
2. Our wages are driven down by globalization.
3. When we can no longer afford a decent lifestyle, those who have become wealthy at our expense lend us back our money so we can keep spending. We slide deeper and deeper into debt.Not surprisingly, very few of us benefit from this scenario. The U.S. Census Bureau reported that the number of people living in poverty rose to 37 million in 2004. The ranks of the working poor swelled and annual earnings of full-time workers had fallen $1,000. Median household income was less than it had been in 1999. There were 700,000 more working people without health insurance than there had been a year earlier; the share of workers with health insurance was the lowest since 1993.
In spite of these and many other gloomy figures, we are told not to worry, because the United States is becoming what some politicians call an "ownership society." What we lack in wages we will make up for by smart investments in real estate and the stock market. Why worry about your falling wages when the value of your house is climbing higher than you ever imagined? Why worry about price gouging when you own part of the corporation that is setting those high prices?
Most Americans no doubt agree, at least in general, on what a successful economy must do. It must provide highways and other essential public services. It must provide police, fire, and military protection of life, property, and liberty. It must be compatible with basic human rights and democratic principles. It must reward hard work and entrepreneurial innovation. It must be one in which everyone, be they children, wage earners, or retirees, can expect at least a modest standard of living and the health care to live life to the fullest.
But it's getting harder and harder for me to see how our current economic course will get us where we want to be. The overall personal savings rate in the United States has fallen below zero. Wouldn't we be better off if people were able to measure their finances by what they had been able to save, rather than by what they were able to borrow?
We have repeated calls to be more competitive in world markets. But note that those countries that excel at low-cost production tend to be very poor. Wouldn't we be better with a goal of having the highest standard of living in the world? The solution to more and more economic problems seems to be cutting taxes. Isn't the better goal to have an economy that provides enough to all of its citizens so they can afford the taxes necessary for education, public services, and an advanced society?
We are rapidly developing into a society in which a very few people have a larger and larger share of the nation's wealth, something we haven't seen since the Great Crash of 1929. Wouldn't it be better if more people were comfortably middle class, even if it meant that fewer lived like royalty? Will our society become more just and prosperous as we rely more on income from ownership and less on income from wages and salaries earned by working Americans?
My own views on this question have been shaped by 25 years as a university specialist working directly with farmers on questions of profit, costs, policy, and markets, and teaching basic economics to hundreds of college students.
My experience has led me to believe our current economic policies, parading under the "ownership society" banner, are leading us farther from the economic society we would all like to see. Our current troubles in providing education, health care, decent jobs, and adequate savings are only a prelude of what is to come.
The United States has always been a successful economic model for the world. For this to remain true, however, we will have to pay greater attention to restoring and sustaining the middle class.
Government must help with this task, but it cannot do it alone. Strong and effective unions are an essential part of any strategy that will restore and maintain the American middle class.
To see why, we must understand the economic forces of price gouging, wage cutting, and excessive debt that are weakening the middle class and leading us toward a landlord society that benefits none but the very few.Richard Levins is a Professor Emeritus in Applied Economics at the University of Minnesota. This essay is an excerpt from his new book, Middle Class: Union Made.
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