Monday, January 31, 2011

Thoughts on the Waxing and Waning of Unions

In an earlier post I ask about why it seems that one of the differences between monetarist and Keynesian approaches is the consequences on union membership. However, upon further reflection, the difference between the two historical episodes may have had less to do with monetary policy than with another distinction: Keynesian demand-side economics vs. Say's supply-side economics. Reagan (in)famously pursued what was known as "supply-side" economics, which was, before Keynes, simply known as economics. I still have little doubt that Keynesian monetary policy protects unions, but it occured to me that a focus on demand over supply also has this effect.

A focus on demand results in government policies which focus on demand, and supporting demand protects unions because they work in already-established businesses, while supporting supply results in support for new companies supplying new goods, which are too new to have been unionized.

High taxes, bailouts during recessions, and a focus on getting consumers to buy rather than save has the effect of government support for already-existing companies and their products (not to mention subsidies and any number of other government policies, such as various barriers to entry). These tend to be pro-business in the sense of supporting already-existing businesses and protecting them from competition, including the creation of replacement technologies. High taxes are prohibitive of upstarts. Any kinds of barriers to entry are pro-already-existing-businesses at the expense of upstarts. This contributes to the creation of marge corporations to overcome all of these expenses. Such large corporations also then are ripe targets for unionization. And, as already noted in the linked post, Keynesian policies protect the unions from wage drops during recessions.

Low taxes, incentives for venture capitalists, and a focus on getting people saving their money has the effect of creating the conditions for new products and upstart companies to dominate in the economy. Capital, in the form of money from venture captialists and money available from savings, is available for people to engage in new ventures. Such policies also tend to be pro-business, only they are pro-new business. The availablity of new products allows for the rapid growth of new companies which succeed in the marketplace. Innovation drives growth, following Say's law. There is rapid technological and even company turnover, which does not allow for easy unionization. A supply side approach, then, undermines the unions, which require a fair amount of firm stability to get established in a company.

This suggests that it is the fact of a government's pursuing either demand-side or supply-side policies that affects the strength of unions. Monetarist policies would likely support either one, while Keynesian stimulus, focused as it is on demand, would necessarily support union stability.

It occured to me as I wrote this that my father, who was a member of the United Mine Workers of America when the coal mines were dominated by the unions, would be pleased that I am making this analysis as he has repeatedly, over the years, expressed a desire for me to figure out why unions strengthen and weaken. Out of necessity, he had to work in non-union mines the past 20+ years, but he would have happily gone back to work in union mines if he could have.
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