Lost Labor Day

It’s the mattress sales. That’s how you know it’s Presidents Day or Labor Day – folks on radio and television breathlessly telling you about a great deal on queen sets or something. Some of the ads are urgent – in the deep radio voice – and some are pretty much screaming. And if you’re one of the few who still get a daily newspaper, there are the four-color inserts with the forty-eight point red type and the photos. But photographs of mattresses are rather boring – even if flanked by George Washington and Honest Abe. And the whole thing seems odd. Our secondary national holidays are occasion for hyper-commerce. But convincing people they really, really, really do need a new mattress and box spring set is damned difficult. That sort of thing is never urgent. A new mattress and box spring set makes a crappy gift – hardly romantic or thoughtful. And it’s not something you buy on impulse, because it gives you a smug thrill. It’s just what it is. But these folks don’t bother us with their two or three days a year of hype. It’s just worked out over the years that we give them those two or three days a year to do their thing, and clear their inventory. It’s become a bit of a tradition. Just don’t try to explain it to a visitor from France or Finland. There’s no explaining it.

And now another Labor Day rolls around, and you’d be hard-pressed to explain that too. It’s the holiday that marks in unofficial end of summer. After the weekend it’s back to school and back to work – what the French call la rentrée – the reentry – back to the routine, back to stultifying soul-destroying real life. And that’s how we see it too. Labor Day seems to have little to do with honoring the workers of the world. The rest of the world does that on May 1 – the workers of the world link arms and march in the streets, to assert their superiority over the parasitic owners of everything, the fat-cat capitalists who do no real honest work and exploit them – and sometimes red flags are involved. We’ll have no part of that. In fact, those fat-cat capitalists who do no real honest work and fire folks willy-nilly and have all their stuff made offshore are our folk heroes. They made it the top so they must be wonderful.

That’s easy to see. Out here in California it seems Meg Whitman – the former CEO of eBay – will be our next governor. She’s spent more than ninety million of her own money, so far, to make that happen. That’s okay – her net worth is well over a billion dollars. People admire that. And Carley Fiorina may be our next senator – she was CEO of HP, and although she was the one who decided HP should buy Compaq Computers, which turned out to be disaster, and although she was the one who was big on globalizing HP and eliminated ten or twenty thousand American jobs by moving those jobs to India or wherever, and although as this unfolded the stock price of HP fell off a cliff and the board abruptly fired her, she did get herself a twenty million dollar golden parachute. She’s a clever woman. People admire her attitude. In April 2009, Condé Nast Portfolio listed her as one of “The Twenty Worst American CEOs of All Time” – but she’s got balls. And she was one of John McCain’s economic advisors. He trusted her judgment and expertise implicitly, just as he trusted Sarah Palin’s judgment and expertise implicitly. That should count for something. Neither represents the workers of the world. Those are losers. No one would vote for one of them.

And that makes Labor Day rather odd, with its odd origins:

The first Labor Day in the United States was celebrated on September 5, 1882 in New York City. It became a federal holiday in 1894, when, following the deaths of a number of workers at the hands of the U.S. military and U.S. Marshals during the Pullman Strike, President Grover Cleveland put reconciliation with the labor movement as a top political priority. Fearing further conflict, legislation making Labor Day a national holiday was rushed through Congress unanimously and signed into law a mere six days after the end of the strike. The September date was chosen as Cleveland was concerned that aligning an American labor holiday with existing international May Day celebrations would stir up negative emotions linked to the Haymarket Affair.

Yep, angry workers throwing bombs was problematic. But so was the government shooting and killing workers who just wanted a better deal. Organized labor, the unions, often had a point, as someone had to stand up for fair wages and safe working conditions and realistic hours. Collective bargaining often made things better for everyone, and sometimes strikes were justified. So we honor that, even if we don’t really believe it. We really do want to put billionaire business folks in office – they know how to get things done no matter who gets hurt. We admire no-bullshit decisiveness, especially from someone who grabbed everything and made it big in the sorry world. People are angry these days, as the economy collapsed and cannot seem to recover. You want someone in office who will just get things done, no matter who gets hurt. You want someone who’s been a cutthroat CEO. You don’t want a union organizer.

And people these days hate unions – or have been told to hate unions. You know how that goes. Unions – organized labor – has ruined America by demanding a certain level of wages and benefits and workplace safely and pension plans all that stuff. American business cannot be competitive if they have to provide all that, and pay their CEO’s well and keep the dividends flowing to their shareholders. It’s just un-American, as that undermines capitalism itself. That why Bush’s first secretary of education, Rod Paige, said teachers unions were simply terrorist organizations – just like al-Qaeda, out to destroy America. All unions are like that. And thus it’s no wonder Labor Day in America is problematic. Anyone who does what they call real work is either a fool or a greedy bastard. The smart folks own the means of production and sit back and get absurdly rich. And isn’t getting rich the whole point? You’d do that if you could.

So Labor Day is kind of a joke. We don’t honor labor. We’re embarrassed by it. And Robert Reich, a secretary of labor in the Clinton administration, has a few things to say about that:

This promises to be the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor – most of the rest of us – are unemployed, underemployed or underwater. The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, while at least 125,000 are needed to keep up with the growth of the potential work force.

And we all know what’s happened. We have this Great Recession and none of the standard remedies – “near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package and tax credits for small businesses that hire the long-term unemployed” – seem to be working.

They just didn’t do enough, and Reich argues that this is because the real problem has to do with the structure of the economy, not the business cycle:

No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven’t kept up with what the growing economy could and should have been able to provide them.

And this may have been inevitable:

This crisis began decades ago when a new wave of technology – things like satellite communications, container ships, computers and eventually the Internet – made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).

Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.

When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless – as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

But of course the last coping mechanism had to fail. It was a bubble:

Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.

All the economic gains went to the top:

The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

So it’s a demand issue, and it is structural:

… the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns – sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.

Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can’t be sustained, at some point – 1929 and 2008 offer ready examples – the bill comes due.

Yep, you can’t borrow against your house any longer, and you’ve tapped out your credit, and you’re not buying anything. And Reich thinks one might want to think about that this Labor Day:

The Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures – Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage – leveled the playing field.

In the decades after World War II, legislation like the GI Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America’s middle class shared more of the economy’s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

But not much has been done since 2008 to “widen the circle of prosperity” – healthcare reform was nice, but Reich says it’s not nearly enough. He offers a list of suggestions for what might be done, but it comes down to this:

Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth – and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.

But of course folks don’t know what Labor Day is all about, other than new mattresses for sale that no one buys. Oh yeah – also all women know that after Labor Day one doesn’t wear white – it just isn’t done.

But demand matters, and labor matters, and folks do need jobs. And to that end, Matthew Yglesias offers this:

I recently unveiled my jobs program, namely that the government should spend a bunch of money to hire unemployed people to do some stuff. Useful stuff would be ideal. Harmful stuff should be avoided. If some of it is only very slightly useful or some of the money is wasted, that’s not so terrible. The important thing is to locate people who are currently not working but who are open to the idea of doing work in exchange for money, and then to give them some money in exchange for doing some work.

But you know what happened next. The Rick Santelli “STOP SPENDING” crowd got in the act:

This naturally prompted some smart-ass retorts about how the money has to come from somewhere.

That’s the argument of the deficit hawks. We simply cannot incur more debts to pay for such jobs. But Yglesias thinks that’s nonsense:

The problem, I think, is that because one of the functions of money is to serve as a unit of account we tend to measure wealth in terms of its dollar value, which leads people to confuse money and wealth. We say things like “Bill Gates has a lot more money than your average NBA player” when what we actually mean is that Bill Gates owns a ton of valuable Microsoft stock not that he carries more cash around in his pockets or is pointlessly stockpiling billions of dollars in checking accounts. But valuable resources and money are actually different things.

And that calls for a little parable:

To see the relevance of this, imagine what happens if you’ve got a country with full employment, and suddenly some guys show up with suitcases full of really good counterfeit money looking to buy stuff. Well, since people mistake the counterfeit for money, they’re happy to exchange goods and services for it. But the mere arrival of counterfeit hasn’t increased the quantity of goods and services the country can produce. The counterfeiters want a maid, so they need to find someone’s existing maid and offer her higher wages to go work for them. The counterfeiters buy some shoes, so there are fewer pairs of shoes for everyone else. What “has to come from somewhere” in this case isn’t the money (which is fake) it’s the maids and the shoes. There are only so many to go around.

But suppose the counterfeiters come to a country that’s fallen into recession? Here it’s a different situation. If they want to hire a maid, they can find one who was laid off a month ago. If they want to buy some shoes, this creates a very temporary shortage and the shoe-factory quickly un-cancels that extra shift. Then the guys at the shoe factory have higher wages and celebrate with a night out at the bar. Suddenly, the brewery needs more manpower and the bar needs to re-hire that waitress they had to let go. It’s the miracle of counterfeiting.

And we can do that:

The money still has to come from somewhere, right? Well, yes, literally speaking any money spent doing anything has to have an origin. But the government can do something even better than counterfeit – it can create real money. And if banks are holding excess reserves, the government can adopt policies that discourage them from doing so. If banks aren’t holding excess reserves, the government can adopt policies that reduce the quantity of reserves they’re required to hold. And if people have money that’s just sitting around because they like safety and liquidity, the government can offer to sell them safe and liquid treasuries and then redeploy the money for other purposes.

Problem solved – it was easy. And it makes sense:

Long-term economic prosperity is determined by how much value a country is capable of creating. America can create a lot more value per person than China can, and China can create a lot more value than India. But in the short-term, gaps can arise between what could be produced and what’s actually being produced. If that gap is small or nonexistent, efforts to “stimulate” production will lead to inflation or mere shifting of resources around. But if the gap is large, then policy needs to induce people who are currently not doing anything to start producing goods and services again. This requires money, and the money does have to “come from somewhere” – but it’s easy enough to obtain, and obtaining it can increase the overall quantity of wealth in the economy.

And a friend sends this along in an email:

The White House in particular, and the Democrats in general, should be arguing, and strongly, the case to the American people about spending, and how it’s needed right now in this weak economy, and how if the Republicans get control or the House and/or Senate, they may try to cut spending, and therefore hurt the economy, simply because they don’t understand economics. Yes, I can see why they don’t bring it up. The point is counter-intuitive, and it risks driving voters into the arms of the opposition. But in fact, the voters are headed that way anyway, maybe because nobody has the courage to tell it to them straight.

And he adds this:

Every day I drive by a nearby church that has on its little marquee out front the words, “You can’t spend your way into prosperity.” (I’m tempted to turn them into the IRS, for engaging in politics.) I’m sure they think they’re just saying something obvious that nobody could dispute, but I argue with that sign every time I pass it. If, as that Rick Santelli from CNBC says, you “Stop the spending” completely, you would have not just a sick economy, you’d have a dead one.

People need to be told that, when your family spends money, it means money going out, but when somebody spends money in an economy, to somebody else, it represents money coming in!

What makes an economy healthy is that there’s lots and lots of spending going on. In fact, the exact opposite of “no spending” is “prosperity”!

So buy that new mattress!

No, just think about what there is a Labor Day each year. Once, long ago, we were all in this together.

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About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
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