I want to come back to Eric's first question in a later post, the question of how depressions come about, and turn to his second question, "what happened to the principle of countervailing power after the New Deal? Did it remain a core concept of American politics, and if so, for how long?"
The idea that countervailing power is needed to balance labor markets has faded over time, and I think the movement toward deregulation in the 1970s is part of the reason for this, and that economists were one of the driving forces behind this change. We hear a lot about the role that Nixon and the Republicans played in bringing about a push for deregulation, a push that found success, but we hear less about the role that the economics profession played in setting the stage for the deregulatory phase that began in the 1970s, a phase that continued for decades and has only recently been muted - perhaps - by the present crisis in the US and world economies. Thus, I'd like to focus on changes within economics that set the stage for the anti-union movement and gave intellectual credence to this movement.
Two changes within the profession that provided the intellectual foundation for the deregulatory movement come to mind (and I'll be interested to hear other takes on this). The first big event was the failure of the Keynesian model to provide an adequate framework for understanding and responding to the economic events and turmoil of the 1970s. The model did not have an adequate theory of supply, it had a relatively naive view of expectations, and it did not have much to say about inflation, a key question in the 1970s.
The failure of the Keynesian model left a void in the profession, and it was quickly filled by the Chicago School's New Classical model, a model that dragged a good deal of ideology about government intervention into the public discourse. The model was hailed as a great intellectual and scientific leap forward. It was claimed to have microfoundations unlike it's ad hoc Keynesian predecessor, i.e. it was based upon optimizing behavior of households and firms. In addition, unlike the Keynesian model which simply imposed things like rigid wages without thinking through whether such arrangements were consistent with optimizing behavior, the model was built from the ground up and hence was based upon defensible economic principles. The Keynesian model could not make such a claim (not so for the New Keynesian model used today, microfoundations are one thing that separates the New Keynesian model from the Traditional Keynesian model). And finally, the Keynesian model had a very naive model of expectations that was no match for the rational expectations embedded in the New Classical structure. So Keynesianism, and it's belief that government intervention could make things better, gave way to a new paradigm.
A key element of the New Classical model was its ability to explain why money and output appeared to be correlated in the data without admitting that government intervention could be useful in stabilizing the economy. The ability to explain this correlation was one of the Keynesian model's triumphs over the older Classical model that existed before the New Classical revolution. In the oldclassical model, money is neutral - it does not change real variables such as output and employment - so prior to the New Classical model, classical economists had a difficult time explaining why money and output appeared correlated (and causal) in the data. The New Classical argument was that any policy that can be anticipated in advance will be offset by private sector responses to the policy - it will be completely ineffective - unless the policy is unexpected. So policy rules that move money in predictable ways - up in recessions, down when there is inflation - will be useless. But if the policy is unexpected, in which case it is non-neutral and does change real output and employment, it makes people worse off rather than better off because it drives us away from the optimal full information solution.
The result of this was the idea that government intervention always makes us worse off. Policy rules don't work, and unexpected random policy is counterproductive. The best thing the government can do is to provide transparent, certain policy so that nothing unexpected ever happens. Best to just let the money supply grow at a fixed, known rate than try to manage the economy by manipulating the money supply. To buttress the result that government intervention was counterproductive, the New Classical economists also began to challenge the idea that fiscal policy could be used as a stabilization tool in place of monetary policy. The government, in this way of thinking, has no business whatsoever intervening in markets. It always makes us worse off, never better off, so the best thing to do is to simply get out of the way and leave it to the private sector to take care of itself.
The other factor was an assault on the idea of monopoly power in markets. For example, one idea that emerged was the idea was that markets, even markets that looked relatively concentrated, were actually quite competitive, i.e. they were contestable. That is, as soon as a firm in a top heavy industry begins trying to exploit its monopoly power, even when it is the sole or one of the few producers in markets, another firm waiting in the wings will quickly enter and contest the market (the nature of capital is important here, it needs to be able to move into these markets quickly). This discipline by the firms waiting to pounce at the first opportunity, it was believed, was sufficient to ensure that markets that appeared highly concentrated would in fact be competitive in terms of pricing and other behavior. (Globalization of markets was another factor that led people to discount market power at the firm level.)
I don't want to oversell the contestable markets story, it was but one of many developments, but the point I am making is that there was widespread belief that markets that appeared to be quite top heavy were, in fact, quite competitive. And, importantly, if they weren't competitive, an automatic self-correction mechanism would take care of the problem, there was no need for government to do anything, natural forces would intervene as needed and solve the problem.
The point, then, is that economists by and large began to believe that markets were self-correcting, even with respect to monopoly power, and anything governments do, from intervening to break up monopolies to supporting union power, gets in the way of this natural, self-correction process. Thus, unions were not needed as a countervailing force, markets would take care of the problem until there was nothing left to countervail, i.e. markets would naturally produce a competitive marketplace. All government had to do was step aside and watch the magic happen. Market power was bad, whether it be in the hands of firms or workers, and since firms operated in competitive markets, there was no need for unions to balance power. They would just make things worse by causing departures from competitive ideals and making it harder for business to compete in world markets.
We have now observed how well the idea of self-correction and self-regulation worked in financial markets - it didn't work well at all - and I see no reason why it should work any better in bringing about a competitive labor market where one does not exist previously. I don't think the self-correction ideas lived up to their promise, there was and still is an imbalance of power in labor markets with firms surely having the upper hand, and some means of balancing the negotiations between laborers and firms is needed. The only question for me, and it's one I don't have the answer to, is whether the old institutional structure supporting unions is the best possible institutional structure going forward in a highly globalized, interdependent, and flexible world economy. I'm not sure that it is, but I do believe that more balance is needed in labor markets, and until we have something better, unions will certainly more than suffice.
The Rude Pundit on how Fantasy Obama would conduct tonight's press conference on the stimulus bill.
As always, it's brilliant, dead-on and X-rated.
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Author, quiverfull mother of ten, and Pastor's wife Stacy McDonald is training up her daughters in the ways of the Lord. She is instilling within them the understanding that they are to be "weaker vessels," and as such, they should forgo higher education and concentrate on serving their father until they find a husband to be their master:
A special measure of honor is given to a lady, ?the weaker vessel,? by a gentleman. Interestingly, this is unique to the Christian lifestyle. Heathen cultures do not honor or value women ? and even their version of ?protecting? women has more to do with selfishness and possessiveness (kind of like protecting your livestock) than it does truly protecting or valuing them.Mrs. McDonald goes on to note the dangers young women face if they attend a university:
Matthew Henry had this commentary on 1 Peter 3:7) [sic]She is the weaker vessel by nature and constitution, and so ought to be defended: but then the wife is, in other and higher respects, equal to her husband; they are heirs together of the grace of life, of all the blessings of this life and another?The weakness of the female sex is no just reason either for separation or contempt, but on the contrary it is a reason for honour and respect: Giving honour to the wife as unto the weaker vessel.
There?s a book I?d like to review soon called Unprotected that gives very real examples of how vulnerable young women are in university settings. The author exposes the hook-up culture with very candid stories of real heartbreaking accounts. Some of the examples are shocking. It?s written by a campus counselor who got tired of being limited by what type of counsel she could give her students. Pills, abortion, and condoms were ok, but God, the Bible, and real facts about STDs and immoral lifestyles were forbidden.
While we must equip both our sons and our daughters to be strong lights in a dark age, our sons are likely to be called to lead and provide for their families, while our daughters are likely to be called to be helpers. Even if they?re never called to marriage, our hope is that our daughters will feel content as a helper in our home (or a relative, if we die) ? or even in the church. If God were to never bring them husbands and we were to die (the grand ?what-if? question we?re asked), and nobody was willing to take them into their own family, then we are perfectly confident in God?s provision.But raising one's daughters to be "weaker vessels" has its price. Worldly people do not understand why a parent would refuse to send a daughter to college, nor do they understand why a daughter should give her heart to her father for safekeeping:
Our daughters are much more capable of taking care of themselves than I was at their age and I still managed to find a very good job (without having attended college) when I had to. College and being groomed for independent living isn?t the magic pill so many people think it is. Sometimes it can even make one less equipped for life?s trials. Talk to women who were raped while living alone; indoctrinated by feminist, atheist professors; or duped into putting off marriage or children (for the sake of a degree or a career) until it was too late.
There is no law that says ?Thou shalt not send your daughter to college.? I'm sure I would have remembered that! LOL For us, it?s kind of like homeschooling. We do not believe that it?s inherently sinful to send your child to public school. However, since we are given the responsibility to train up our children in the ways of God night and day (Deut. 6:7-9), we feel like the best (if not the only) way to ensure that this is done (especially these days) is to teach them at home.
Our daughters have been made fun of for the way they dress (yes, we do wear dresses and skirts ? we believe they?re both feminine and modest ? sorry if that offends you); they?ve been criticized for not going away to college; and they?ve been gossiped about for ?giving their hearts? to their father in honor of their commitment to courtship.Others may ask, "What if God does not bless a daughter with a husband; what happens to her then?" Well, Mrs. McDonald has considered that possibility as well. They will serve in their father's household until the parents die. Then, it's up to God to take care of her:
Even if they?re never called to marriage, our hope is that our daughters will feel content as a helper in our home (or a relative, if we die) ? or even in the church. If God were to never bring them husbands and we were to die (the grand ?what-if? question we?re asked), and nobody was willing to take them into their own family, then we are perfectly confident in God?s provision.
And that's an interesting sign.
President Obama’s call Monday for providing more money in the economic stimulus legislation than is likely to be passed by the Senate was a boost to education advocates.
Advocates angling for more education funding in the economic stimulus package during conference negotiations received a major boost Monday from President Obama, who said he wanted some of the education money restored.
"The Senate version cut a lot of these education dollars; I would like to see some of it restored," Obama said in Elkhart, Ind. "We should talk about how we can make sure that we’re investing in education, because that’s what’s going to keep companies investing right here in the United States over the long term."
That's more than just good news for education advocates, though. That -- if it means he wants it restored in this bill as opposed to some later legislation -- means the White House may intend to intervene in the negotiations between the two houses with an eye toward making some of those restorations. They may well come at the price of cuts elsewhere if the few Senate Republicans behind the deal balk, but it's good news for anyone who was concerned that the Senate was locking everyone into their position. It's one thing for House Members to protest being bullied by the Senate. That happens all the time, both the bullying and the protesting. But it's quite another for the President to get your back on it.
Still, this is a long way from actually getting their backs. It's just the opening round of talks, for the moment. But it may be the first clear signal of what some have assumed all along: that the negotiations over the differences in the two versions of the bill may take place less inside the formal conference structure than in three-way talks with the White House. In the end, the conference committee may just end up being the vehicle for delivering the deal back to the two houses.
Education's certainly a good place to start, both politically and substantively.
David Rogers / The Politico:
Stimulus advances; Treasury next — Spurred on by President Barack Obama, an $838 billion economic recovery plan advanced toward passage in the Senate on Tuesday after clearing a last procedural hurdle with the help of three Republicans Monday evening. — Sen. Edward M. Kennedy (D-Mass.) …
David Rogers / The Politico:
Senate advances stimulus package — Spurred on by President Barack Obama, an $827 billion economic recovery plan advanced in the Senate Monday, clearing a last procedural hurdle with the help of three Republicans and the return of Sen. Edward Kennedy, ill with cancer.
David Rogers / The Politico:
Ailing Kennedy aids cloture win — Spurred on by President Barack Obama, an $838 billion economic recovery plan advanced toward passage in the Senate on Tuesday after clearing a last procedural hurdle with the help of three Republicans Monday evening. — Sen. Edward M. Kennedy (D-Mass.) …
In a February 8 Washington Post column, cars columnist Warren Brown claimed that "there has been no gasoline saved in response to ... the various iterations of federal Corporate Average Fuel Economy [CAFE] rules." However, a 2007 Government Accountability Office report stated: "According to estimates by the National Academy of Sciences (NAS) and other experts we consulted, the CAFE program has helped save billions of barrels of oil and could continue to do so in the future." Further, according[...]
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David M. Herszenhorn / New York Times:
Senate Clears Path for Vote on $838 Billion Stimulus — WASHINGTON — Senate Democrats on Monday advanced the $838 billion economic stimulus bill, clearing a major procedural hurdle by a razor thin margin with the help of just three Republicans. A vote on final passage of the bill is expected on Tuesday.
The 25 lines edited out of the court papers contained details of how Mr Mohamed's genitals were sliced with a scalpel and other torture methods so extreme that waterboarding, the controversial technique of simulated drowning, "is very far down the list of things they did," the official said.
Another source familiar with the case said: "British intelligence officers knew about the torture and didn't do anything about it. They supplied information to the Americans and the Moroccans. They supplied questions, they supplied photographs. There is evidence of all of that."
Tell us again, Ex-President Bush, the United States Does Not Torture. Memo to President Obama: Release these documents. As the ACLU said today, don't hide behind Bush's state secrets claim. [More...]
"Eric Holder's Justice Department stood up in court today and said that it would continue the Bush policy of invoking state secrets to hide the reprehensible history of torture, rendition and the most grievous human rights violations committed by the American government. This is not change. This is definitely more of the same. Candidate Obama ran on a platform that would reform the abuse of state secrets, but President Obama's Justice Department has disappointingly reneged on that important civil liberties issue. If this is a harbinger of things to come, it will be a long and arduous road to give us back an America we can be proud of again."
The following can be attributed to Ben Wizner, a staff attorney with the ACLU, who argued the case for the plaintiffs:
"We are shocked and deeply disappointed that the Justice Department has chosen to continue the Bush administration's practice of dodging judicial scrutiny of extraordinary rendition and torture. This was an opportunity for the new administration to act on its condemnation of torture and rendition, but instead it has chosen to stay the course. Now we must hope that the court will assert its independence by rejecting the government's false claims of state secrets and allowing the victims of torture and rendition their day in court."