Kevin Drum - August 2011

Why Unions Matter: The Numbers

| Fri Aug. 5, 2011 2:55 AM PDT

A few months ago I wrote a piece for the magazine arguing that the decline in unionization over the past three decades has been a key factor in the decline of the American left over the same period. But it's a hard case to prove because there are so many moving parts to it. So I was intrigued earlier this week when my colleague Josh Harkinson linked to a new study that attempts to quantify the effects of unionization on income inequality using a rigorous regression analysis of census data.

The study comes from Bruce Western and Jake Rosenfeld and was published this month in the American Sociological Review. The authors use a model that accounts for both individual membership in unions as well as overall unionization rates in specific industries and regions. It also controls for education, age, race, ethnicity, and gender, which allows them to estimate the effect of unionization both between groups (e.g., the evolution of income inequality between high school dropouts and high school grads) and within groups (e.g., the evolution of income inequality within the entire subset of high school grads).

Once their model was in place, Western and Rosenfeld could manipulate their variables to estimate what income inequality would look like if union density had remained at its 1973 level. So what did they find? Answer: Among men, if you account only for the effect of individual membership in unions, it would be about a fifth lower, which agrees pretty well with previous estimates. But if you also account for the effect of unions on surrounding nonunion employers (who often raised wages to compete with union employers and to avert the threat of unionization in their own workplace), the effect is larger: Unionization at 1973 levels would decrease income inequality by a full third. You can see this in the chart below. For intragroup differences (which account for nearly the entire effect of unionization) the top line shows the actual rise of income inequality since 1973, while the red line is a prediction of what it would look like if union density were still at 1973 levels:

The effect of unionization on women is less dramatic because women were never unionized at the same rate as men. For them, increasing returns to education are a bigger factor in rising income inequality than deunionization. For men, however, deunionization has had a huge impact: "The decline of the US labor movement has added as much to men's wage inequality as has the relative increase in pay for college graduates," the authors say.

Western and Rosenfeld's explanation for this is similar to Jacob Hacker and Paul Pierson's in Winner-Take-All Politics, last year's best book on modern political economy. Roughly speaking, there's a direct economic effect of unionization on wages, but there's also an effect of unions on the political system that indirectly affects wages. Western and Rosenfeld put it like this:

[Our] analysis suggests that unions helped shape the allocation of wages not just for their members, but across the labor market. The decline of US labor and the associated increase in wage inequality signaled the deterioration of the labor market as a political institution.…The de-politicization of the US labor market appears self-reinforcing: as organized labor’s political power dissipates, economic interests in the labor market are dispersed and policymakers have fewer incentives to strengthen unions or otherwise equalize economic rewards.

…[Prior to 1973,] unions offered an alternative to an unbridled market logic, and this institutional alternative employed over a third of all male private sector workers. The social experience of organized labor bled into nonunion sectors, contributing to greater equality overall. As unions declined, not only did the logic of the market encroach on what had been the union sector, but the logic of the market deepened in the nonunion sector, too, contributing to the rise in wage inequality.

In other words, deunionization has allowed income inequality to rise partly because unions are negotiating wages for fewer people than they used to, and partly because unions no longer have the power to force the political system to pay attention to the needs of the middle class. But if income inequality has to be reduced in order for middle class wages to grow—and it does—and if robust middle class wages are a key driver of the liberal project—and they are—then we're all in big trouble. Mass unionization is gone, and it's not coming back. This means we still need something to take its place, and we still don't have it. Until we do, the progressive movement will continue to tread water.

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The Story of the Economy

| Thu Aug. 4, 2011 8:42 PM PDT

Just to make sure that everyone is still clear about this, here's the current trajectory of politics and the American economy stripped down to its bare essentials:

2001-2008: Republicans run economy into ditch.

2008: Obama elected.

2009-2011: Republicans respond by doing everything possible to prevent him from fixing things.

2012: Republicans use lousy economy as campaign cudgel against Obama.

2012: Republican candidate wins presidency (maybe).

Sure, sure, Obama deserves some blame for not being aggressive enough etc. etc. I get it. But that's a nit within the big picture. The basic story is the one above. It's still kind of hard to believe.

The FAA Hobbles Back to Life

| Thu Aug. 4, 2011 2:35 PM PDT

Our hardworking members of Congress have finally agreed to keep the FAA running:

Under a deal Reid made with House Speaker John Boehner (R-Ohio), the Senate will pass the House bill that includes cuts to rural flight service to airports in Nevada, West Virginia and Montana. But Transportation Secretary Ray LaHood will use his authority to waive the airports from the cuts, ending a 13-day impasse.

....The House and Senate passed a 20th short-term extension of FAA funding in May when the chambers both passed versions of the longer-term bills that were drastically different. The House version included provisions that would undo changes to labor rules that were adopted by the National Mediation Board to make it easier for railroad and airline workers to unionize.

So this is now the 21st short-term funding bill, and it will pass only because its actual provisions are meaningless. Yay Congress. A real bill remains held up indefinitely because Republicans are more interested in union busting than in — well, than in almost anything.

There is nothing — absolutely nothing — that Republicans feel more strongly about than union busting. That includes taxes, abortion, welfare spending, overseas wars, gun rights, tort reform, oil drilling in Alaska, and every other alleged conservative hot button. In the world of actual action — as opposed to the world of rhetorical fireworks — the only thing that even comes close is keeping taxes on the rich low.

This should tell you something about the real-world power of organized labor in the broader political economy. It's something conservatives have understood well for a long time.

Getting Tough is Harder Than it Looks

| Thu Aug. 4, 2011 12:48 PM PDT

So what can President Obama do to show that he's not a wimp? Jonathan Bernstein suggests the he ignore the "we're technically not in recess because we're holding pro-forma sessions every few days" ploy and just go ahead and make a few recess appointments anyway:

There’s nothing at all stopping Obama from calling this pro forma non-recess recess a farce, saying that for all practical purposes it’s really a recess (and after all, it certainly is in the sense that the Senate has no intention of working on nominations for the entire month), and appointing someone anyway....In my view, the president should start with a relatively uncontroversial pick — say, his commerce secretary appointee, John Bryson. And he should make it clear: He’ll continue with more, plenty more, if Republicans continue their unprecedented levels of obstruction.

I'm all for this. Not because I care about Obama showing off how big his package is, but because I'm in favor of just about anything that stirs up a fight over the absurd impasse we've reached on presidential appointments. As far as I'm concerned, the constitution requires the Senate to act on presidential nominees in some kind of reasonable time and it requires a simple majority vote for confirmation. It's not an optional thing. So bring it on.

More broadly, though, I think it's worth pointing out that this business of displaying toughness is an asymmetric war. Opposition parties in Congress can do pretty much anything they want and pay no price as long as they keep public opinion under control. Presidents can fight back a bit, but frankly, there's not that much they can do. No matter how mad he gets, Obama just doesn't have a lot of leverage to hurt John Boehner in any serious way.

Unfortunately, the flip side is different because presidents actually want to accomplish stuff, not merely bring the other side to a halt. Think about Obama's first two years in office. With the exception of a few weeks at the end of 2009, he never had 60 votes in the Senate. That meant that to get anything done he always needed at least two or three Republican votes. He didn't get any of those votes for healthcare reform, but he did get them for the stimulus, for Lily Ledbetter, for Dodd-Frank, for DADT repeal, for START, and for several other bills. (Student loan reform got passed via reconciliation and didn't need any Republican votes.)

So what would have happened if Obama had taken a confrontational, take-no-prisoners stand from the very beginning? One possibility is that the public would have swooned, Republicans would have been overwhelmed, and he would have gotten a lot more done. And I guess that's possible. But what's far more likely is that if he had turned into a partisan warrior then even the few moderate Republicans left in the Senate would have toed the party line and refused to support anything with Obama's name on it. That's what happens when you amp up the tribal lines.

How would that have worked out in the end? I guess there's no telling. But if I had to bet, I'd say that Obama would have gotten a whole lot less done. David Corn provides the White House line on all this here, in a piece worth reading. I'd say that Obama has been more accommodating than he should have been, but the truth is that he just doesn't have the luxury of lashing out. He's got a country to run, after all.

Light Bulbs, Agenda 21, and You

| Thu Aug. 4, 2011 10:53 AM PDT

A couple of days ago I accidentally stumbled onto an odd bit of conservative outrage over the Obama administration's alleged attempt to force farmers to get commercial drivers licenses if they wanted to continue operating their tractors and combines. It wasn't true, but that didn't really matter. The outrage had long since become self-sustaining.

Anyway, as I was googling my way through the woods trying to figure out what this was all about, I kept coming across references to Agenda 21, which was apparently some kind of nefarious UN scheme for world domination or something. But I wanted to stay focused on the whole farm thing, so I didn't look into it beyond a quick peek at Wikipedia, which told me it was a "comprehensive blueprint" for sustainable development adopted in 1992. That's a long time ago, and not much has happened since then, so it didn't really seem like much of a menace.

But I was wrong! By coincidence, Tim Murphy has a piece up today about.....Agenda 21. And Michele Bachmann. And light bulbs. Here's a taste:

To some conservatives, Agenda 21 became something far more nefarious—a gateway to a global government built on a radical doctrine of secular environmentalism.

As these conservatives saw it, the agreement paved the way for the entire planet to be controlled by a central bureaucracy: Humans would be cleared out of vast swaths of settled areas—like the Upper Peninsula of Michigan, for example—and instructed to live in "hobbit homes" in designated "human habitation zones" (two terms embraced by tea party activists). Public transportation would be the only kind of transportation, and governments would force contraception on their citizens to control the population level. A human life would be considered no more significant than, say, that of a manatee. "Sustainability," the idea at the heart of the agreement, became a gateway to dystopia.

I guess this is the new Trilateral Commission. Or the new NAFTA superhighway. Or something. In any case, there's more, so much more at the link. I can't believe that Glenn Beck never picked up on this. Or did he?

How Much Finance is Too Much?

| Thu Aug. 4, 2011 9:07 AM PDT

As financial sectors grow, they generally get more robust and more efficient at allocating capital. This is a boon for economic development, which is why a vigorous, well-managed banking system is a key component of all modern capitalist economies. But can a financial sector get too big? That is, not just big enough that the returns to scale become small, but big enough that they actually become negative, hurting economic development? A paper published a few months ago by Jean-Louis Arcand, Enrico Berkes, and Ugo Panizza suggests the answer is yes:

Our results show that the marginal effect of financial development on output growth becomes negative when credit to the private sector surpasses 110% of GDP. This result is surprisingly consistent across different types of estimators (simple regressions and semi-parametric estimations) and data (country-level and industry-level). The threshold at which we find that financial development starts having a negative effect on growth is similar to the threshold at which Easterly et al. 2000 find that financial development starts increasing volatility. This finding is consistent with the literature on the relationship between volatility and growth (Ramey and Ramey 1995) and that on the persistence of negative output shocks (Cerra and Saxena 2008).

If their results are right, the financial sector in the United States is about twice as large as it should be. And it's not just us: they say that their findings suggest that "all the advanced economies that are now facing serious problems are located above our 'too much' finance threshold." The chart above shows the full set of countries that are above or, in some cases, way above their threshold.

Food for thought. The full paper is here. (Via Felix Salmon.)

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Raise the Gas Tax!

| Thu Aug. 4, 2011 8:42 AM PDT

No one in Congress wants to raise the gas tax even though our transportation infrastructure is crumbling and revenue from the tax has been falling. Brad Plumer rounds up some substitute ideas:

One idea is a vehicle-miles traveled tax, which would track driver habits via GPS and charge per mile driven....Another is to charge some sort of congestion fee on overclogged highways....Mica, for his part, has suggested extending the Build America Bonds program....A bipartisan team affiliated with the Carnegie Endowment has proposed an upstream tax on oil combined with a variable gas tax that shrinks when oil prices rise and expands when oil prices plummet.

Uh huh. Or we could, you know, just raise the gas tax. We are ruled by idiots.

Quote of the Day: Rick Perry's Texas-Sized Problem

| Thu Aug. 4, 2011 8:00 AM PDT

From Paul Waldman, after noting Rick Perry's aggressively maintained more-Texas-than-thou persona:

It's true that voters in the Northeast, Midwest, and West may have an irrational, kneejerk reaction against his voice or even just his home state, without actually knowing whether that reaction is justified. But the truth is, in his case, it pretty much is.

For the record, I don't think Perry can win the Republican nomination, and I know that he can't beat Obama in a general election. I'd love to see him try, though.

Europe Still Falling Into the Abyss

| Wed Aug. 3, 2011 11:51 PM PDT

So what's the latest in Europe? Here's the New York Times explaining their latest problems:

Now, another type of contagion is causing concern: the risk of problems spreading to big banks, especially in Italy and Spain....The banks own so many bonds issued by their home countries that they are being weakened as the value of those bonds falls, amid concerns that the cost of government borrowing could become too expensive for Italy and Spain to bear. Now there are signs that these concerns are, in turn, starting to make it harder and costlier for the banks to borrow money to finance their day-to-day operations, a troubling trend that, at the worst, could lead to liquidity problems.

Hmmm. Banks are having trouble funding themselves. Here's the Wall Street Journal:

In Italy, one of the country's biggest banks, UniCredit SpA, faced numerous questions from analysts about the bank's short-term loans and whether disruptions in the funding market pose a threat. Executives acknowledged the market turmoil was having an impact, but downplayed its severity. "Liquidity…is available in the market. It's very, very short [term], but available," one senior executive said.

"Very, very" short term funding is all that's available to UniCredit. When that happened to Lehman Brothers, it had about a week left to live. The overnight market can dry up — well, overnight if a bank's solvency comes into question. The Washington Post tries to put this all into perspective:

The deepening woes raised the prospect of a crisis that would be almost as calamitous for the global economy as the one just avoided in Washington.

No no no. Europe is facing the prospect of a crisis that could be much more calamitous than our little debt ceiling kerfuffle. It might not happen in a week, but it's sure starting to look like it might happen in a month or two. As usual, I hope I'm just being an underinformed worrywart, but one way or another, this shoe sure looks like it's going to drop in pretty short order. Buckle up.

For more details, the Journal article is the best of the bunch. However, the Post has the best quote about Italy's travails: "Berlusconi is more interested in his bunga-bunga parties than his bond market," said Louise Cooper, a markets analyst at BGC Partners in London. And the Times has the best overall advice: "I don't think anyone wants to be long European banks right now,” said Simon White, an analyst and partner at Variant Perception, a London-based research firm. Probably not.

Presidential Power

| Wed Aug. 3, 2011 3:49 PM PDT

I apologize in advance for indulging in a wonky process post yet again today ("more boy talk," as Twitter follower Stella calls it), but I want to repeat a point that I haven't made for a while. It got kicked off by this tweet from Dave Roberts:

My answer: No, he just has the easiest job. McConnell's sole goal for the past two years has been obstruction, something that Senate rules make easy. And the debt ceiling deal was a dog's breakfast of ideas from various sources. McConnell took credit for its final form, but he could do that mainly because, unlike John Boehner, he didn't have to put up with a big tea party contingent and was able to compromise without fear of losing his job.

More broadly, though, is it true that Republicans are just more ruthless and better strategists than President Obama? Matt Yglesias, after noting that the House is refusing to adjourn in order to prevent Obama from making recess appointments (they'll hold a pro forma session every few days), goes there:

I find that my mood around this fluctuates. Mondays and Wednesdays I’m frustrated by lefties who seem to see the unprecedented Republican obstruction the President is dealing with as part of an 11-dimensional chess game through which Obama “really” wants his progressive initiatives to be frustrated at every [turn]. On Tuesdays and Thursdays I think this is the most damning critique of all. In the face of an opposition that’s been relentlessly innovative, the White House has been staggeringly uncreative. Rather than a game of tit-for-tat, the Republicans seem to be inside the administration’s decision loop, heading off their retaliatory options before the President has even exercised them.

Has the White House really been staggeringly uncreative compared to Republicans? We don't have to guess about this. We recently had a Republican president in office for eight years and we can see just what he did. Keep in mind that George Bush was a very partisan animal and was advised by Karl Rove, a man with a major-league reputation for political ruthlessness. So what did Bush do to whip Democrats in line when they opposed him? Let's roll the tape:

  • 2001 tax cuts: passed by reconciliation so no Democratic votes were needed.
  • No Child Left Behind: No arm twisting here. This was a bipartisan bill cosponsored by Ted Kennedy. Bush got Democratic votes by agreeing to give Kennedy a lot of what he wanted.
  • War resolution: No arm twisting here either. After 9/11 Democrats were gung ho to invade Afghanistan and kick some al-Qaeda butt.
  • PATRIOT Act: Ditto.
  • Sarbanes-Oxley: This was basically a Democratic bill. Not only was there no arm twisting, Bush signed it reluctantly.
  • McCain-Feingold: Ditto.
  • Iraq war resolution: No arm twisting again. Lots of Democrats favored this and so did the public.
  • Homeland Security Department: Let's see. Oh yeah, I remember: Bush got his way here by winning the 2002 election and regaining his majority in Congress.
  • 2003 tax cuts: Again, passed via reconciliation. No Democratic votes needed.
  • Medicare Part D: Lots of arm twisting here, but mainly by Tom DeLay against his fellow Republicans. Several Democrats voted for it in the Senate, but let's be honest about this: details aside, it got some Dem votes because it was a piece of liberal social welfare legislation of the kind that Dems have long favored.
  • Social Security privatization: This failed. Bush was unable to get support from his own party, let alone coerce any support from Democrats.
  • Immigration reform: Ditto, more or less.

Contrary to his reputation, Bush mostly succeeded by pressing a moderate, and sometimes even liberal, agenda. Tax cuts aside, which he passed solely primarily with Republican support, the only real ruthlessness he showed toward Democrats on behalf of a conservative priority was the campaign hardball he played to add a union-busting provision to the Homeland Security bill. That was about it for presidential toughness. Ironically, the biggest show of ruthlessness during the Bush years was in the appointment of judges, but the ruthlessness there was wielded by Orrin Hatch, who made it easier to confirm conservative judges by peremptorily changing the blue slip rule in a remarkably cynical display of naked power politics. Democrats responded by filibustering a bunch of judges, which was also pretty unprecedented, and the whole thing eventually got resolved by a group of centrist senators called the Gang of 12. In this case, both sides displayed some ruthlessness, but not President Bush. He was just about the only person not really involved.

I'm not trying to make it sound like presidents are powerless. They can set agendas, they have control of executive orders, they have a pretty free hand in foreign policy, they can sway public opinion, they can lead their own party, and they can bargain with the other party.1 But Richard Neustadt taught us a long time ago that, especially on domestic issues, presidential power is distinctly limited. There's just not that much in the way of ruthless arm-twisting that they can do these days, and while Obama may not be as creative on this score as he ought to be, neither was Bush. That's more a reflection of political reality than it is of the character of either one of them.

1On the specific issue of the debt ceiling, the obvious thing Obama could have done differently was to insist that it be included as part of the lame duck deal last year. But for all the grief he's gotten over this, it's worth keeping in mind that Obama got a helluva lot out of that deal. In the end, he got a food safety bill, passage of the START treaty, a stimulus package, repeal of Don't Ask Don't Tell, and a 9/11 first responders bill. Maybe it would have been worth risking all that over inclusion of a debt ceiling increase, but that's hardly an open-and-shut case.

What's more, Obama also won passage during his first two years of a stimulus bill, a landmark healthcare bill that Democrats had been trying to pass for the better part of a century, a financial reform bill, and much needed reform of student loans. And more: a firm end to the Bush torture regime, the Lily Ledbetter Fair Pay Act, a hate crimes bill, a successful rescue of the American car industry, and resuscitation of the NLRB. Oh, and he killed Osama bin Laden too.

Sure, we all could have wished for more. Everyone has different hot buttons, and I particularly wish that financial reform had been stronger and that Obama had somehow managed to get cap-and-trade across the finish line. I'm also unhappy with the extension of the Afghanistan war and Obama's Bush-like policies regarding national security and civil liberties. Still and all, in two years Obama has done more to enact a liberal agenda than George Bush did for the conservative agenda in eight. That's not bad, folks. All things considered, I'd say Obama is the most effective politician of the Obama era. And the Bush era too.