Unions and the End of Liberalism

The idea that health care reform could be the final act of liberalism has received a lot of attention on the Web this week, and Atlantic contributor Mike Konczal joins the debate with a complex and thoughtful post in which he calls for a more muscular working class with "stronger bargaining power." This is the most provocative section:

Without a strong middle and working class you don't have natural constituencies ready to fight and defend the implementation and maintenance of a safety net and public goods. The welfare state is one part, complimenting full employment, of empowering people and balancing power in a financial capitalist society.

This is collapsing in real-time. One working definition of an approach to liberalism is "It's best to just maximize growth rates, pre-tax distribution be damned, and then fund wicked-good social insurance with huge revenues from an optimal tax scheme" (Karl Smith, Wilkinson). I'd ask where are all these increasingly wickedly-well funded programs? We just had to bribe the top 3% with massive tax cuts for the next two years in order to keep unemployment insurance extensions in place for another year. Unemployment benefit extension are a net job creator and should have been a no-brainer, but it couldn't pass without a massive bribe. This doesn't include the brutal battle for extending health care to an additional 30 million+ people. This is even after the Federal Reserve created an alphabet soup of wicked-good safety net for the top 3% of the financial system, it's difficult to get extra benefits for working-people in the largest post-war downturn.

Public universities are being defunded at exactly the moment when people are most focused on a "polarized" job market and a lack of supply of high-skills. Jeffrey Williams asks us to consider student debt as a modern equivalent of indentured servitude, and I think the comparison is correct.

Mike and I overlap on most macroeconomic policy points, but I had some critical reactions to this section.

First, government welfare is a pill, not a vitamin: It often comes with side-effects. Much of our safety net incurs a tradeoff between efficiency and fairness. Unemployment benefits are fair to the unemployed, but subsidizing unemployment probably produces more of it. Minimum wages are fair to low-skill, low-pay workers, but they probably keep some low-skill, low-pay workers out of jobs that would have been filled at lower wages. I support unemployment insurance and minimum wage laws, but it's important to acknowledge that important patches of the safety net don't necessarily support full employment.*

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Second Mike's objection to the tax deal has more to do with politics than policy. He's upset that we had to bribe Republicans to buy a year's worth of unemployment insurance. So am I! But the most specific explanation for that political event is that five conservative Democrats and one Republican in the Senate wouldn't sign onto tax increases. Would 10 percent higher union membership change the minds of a half dozen Senators?

Third, I'm not sure what Mike wants from Washington right now, except for more public borrowing to relieve the debt of those who can't borrow: states, schools, families, and students. I want that, too, but it seems separate from the ongoing construction of a liberal state. It's more about putting buckets under the leaks of the state we already have.

Fourth, Washington didn't kill unions -- at the very least, they provided one of a thousand bullets. For example, the fall of organized labor paralleled the marginalization of manufacturing, whose share of the labor force shrunk from 25% in the middle of the century to below 10% today. Why did manufacturing shrink? Because work became cheaper overseas, robot arms replaced humans arms at home, companies realized they could make more with less. As globalization bargained down the price of labor, countries in Asia, Europe and South America caught up to the U.S. in education attainment and productivity, creating even more pressure for earnings-focused executives to push low-skill work overseas.

All these factors make life difficult for the middle class. But they aren't choices made in Washington. They're developments that are mostly secular to U.S. tax and welfare policies. We can respond to more income inequality with more income redistribution or more public goods, but we can't stand at the shores asking the tide to stop.

*Some patches of the safety net (like EITC) are lower risk, because they essentially skim some money from the richest Americans and redistribute it to the less wealthy without tying the money to insurance or energy subsidies.