Economic Truisms from the Left

There are two economic truisms being repeated from the left. The first one is that high government spending ended the Great Depression. The second is that unions were responsible for the rise of the middle class in the 1950s and 1960s and unions' decline since then had led to the decline of the middle class and a great redistribution of wealth. These are examples of the rule that correlation does not equal causation - just because two things happened does not mean that the first caused the second. These truisms are linked by what goes unsaid - World War II.

I've written about spending during World War II before so I will just give the short version here. While it is true that the government spent record amounts during the war, the ways it was being spent were nothing like today's stimulus goals. Instead of spending money on infrastructure, schools, green jobs, etc. we spent it on weapons. Then we used those weapons to demolish the industrial capabilities of Germany, Italy, and Japan. Those countries, in turn, had already spent enormous energy destroying the industries of the rest of Europe and Asia.

By the end of the war the United States was the only major power with its industrial base intact. It took decades for the rest of the world to rebuild. England was on the winning side but rationing continued there until 1954. Germany was worse off.

So, on one hand you have widespread destruction and on the other hand you have a country looking for post-war markets. Basic economics says that this would cause a boom for the United States. Organized labor didn't cause this boom, it simply benefited from it.

Remember, collective bargaining does not create jobs. If anything, it destroys them by raising labor costs. This happens in both the short-term and the long term. The short-term effect is obvious. If the costs of hiring or retaining a worker are higher then the benefit, that position will be eliminated.

For the long-term effects, just look at the manufacturing jobs over the last half-century. As labor costs went up, so did the potential savings of automation and off-shoring. The United States still manufactures more than any other nation but does it with a fraction of the workforce from 50 years ago. Unions cannot reverse this trend because they are devoted to increasing the cost of labor.

Aircraft manufacturer Boeing is an example of this. They have been repeatedly hurt by union strikes so they choose to build a new plant in a non-unionized states. This is being fought by the unions through the NLRB (National Labor Relations Board) on the basis that Boeing admitted that getting away from unions was a factor in their decision. Boeing is likely to win this. Even if they do not, smaller companies are making the same decision regularly, either moving away from unions or leaving the US completely.

While it is unrelated to the rest of my argument, I should point out that the union's ultimate weapon, the strike, seldom helps the worker. That is because every week that a worker is on strike represents 2% annual income. A union member who gets a 5% increase after a three week strike will have to work over a year just to break even. Averaged over two years, this increase will only raise the worker's cumulative pay by 2% (5% times two years minus 6% wages lost during the strike). As workers have figured this out they have become reluctant to unionize which is the real reason for declining union membership and influence.