You can’t blame legislation for inequality

By Felix Salmon
June 12, 2012
NYT today, I review the new books from Paul Krugman and Tim Noah.

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In the NYT today, I review the new books from Paul Krugman and Tim Noah. Short version: these are both really smart people, whom you should pay attention to. But neither has produced a great read, a book which works really well qua book. Krugman and Noah have good reason to be upset at me for this, because the fact is that the overwhelming majority of the nonfiction books which pile up around me every day are just as dull as theirs are. To say that these books are a bit of a slog is not to say something mean about Krugman and Noah in particular, so much as it is to say a simple truth about virtually every popular book about economics. But these are the books I was asked to review, and if anybody asked me whether they should read either one of them, I would reply by pointing that person to Krugman and Noah’s online writing instead. Because that is much more digestible, and even fun to read.

I didn’t have a huge amount of space to go into the substance of the books’ arguments, but on Twitter today, Noah took exception to my characterization of how he presents the importance of the Taft-Hartley Act of 1947. In the review, I say that after giving us chapter and verse on the act, Noah’s ultimate point is that the act wasn’t actually all that important in terms of rising inequality. Noah responds that I’m wrong: Taft-Hartley was very important, he says, and that was actually “kind of the chapter’s point”.

Now I’m not one of those post-modernists who thinks that an author has no privileged access to his own work, and that my reading of the chapter is just as valid as Noah’s. If he says that he was saying that Taft-Hartley was very important, then I’ll take him at his word. But that’s not the impression I got, either from the chapter in particular or from the book as a whole.

The chapter in question is called “The Fall of Detroit”, and covers the decline of unions in the US. In terms of the number of union members, the decline began in 1979; in terms of the percentage of the population, it began much earlier, in 1954. And it’s possible to blame some amount of the rise in inequality to the decline in unions. Noah cites Berkeley’s David Card, who reckons that somewhere between 15% and 20% of the growth in male income inequality between 1973 and 1993 was attributable to the decline of unions, while among women the impact was minimal. Noah, of course, is talking about a divergence in inequality from 1979 to the present day, most of which took place after 1993, and it’s fair to assume that if unions had already pretty much declined by 1993, the effect of their further decline over the past 20 years is slim. So if you’re looking for causes of the Great Divergence, I don’t think you can reasonably make a case that the decline of unions is responsible for more than 10% of it.

And if the decline of unions as a secular trend is a minor but still important part of the reason why inequality has increased so much, the next question is the degree to which the Taft-Hartley Act was responsible for that decline.

Noah’s argument here is subtle. It has to be, because the 1950 Treaty of Detroit, a high point in the history of unions, came three years after the Taft-Hartley Act became law. Still, writes Noah, Taft-Hartley was a kind of ticking time-bomb:

Another reason unions fell fast and hard was that the Treaty of Detroit, formidable though it was when constructed in 1950, lay atop the fault line of an antilabor law whose passage big labor had been unable to prevent three years earlier. If the 1935 Wagner Act was labor’s Magna Carta, the Taft-Hartley Act was its Little Bighorn.

Are the unions represented by George Custer and the 7th Cavalry Regiment, in this metaphor? If so, it doesn’t really work: Custer died at Little Bighorn, while the unions’ best days — like the Treaty of Detroit — were still ahead of them when Taft-Hartley was passed. But in any case, Noah’s basically saying that Taft-Hartley allowed corporate management to undercut labor in the decades ahead, and that as a result the Treaty of Detroit was much less of a victory than it might otherwise have been:

The momentum enjoyed by the labor movement and the remarkable job-creating postwar prosperity that would emerge within a few years (and on which big labor would come to depend) obscured for a couple of decades what a powerful weapon Taft-Hartley placed in management’s hands. “After ten years of experience” with the law, the University of Buffalo economist Joseph Shister wrote in 1958, “this controversial piece of legislation can be viewed with considerably less emotion.” Shister concluded that while the law had made it somewhat more difficult for unions to organize, the power relationship between management and labor was essentially unchanged. That judgment was correct for 1958, but it didn’t remain so.

So Noah has to make the case that because of Taft-Hartley, a lot of bad things happened to unions in the decades after 1958 that wouldn’t have happened otherwise. And frankly it’s a hard case to make, because elsewhere in the chapter Noah quite convincingly explains that bad things were going to happen to unions no matter what:

Management and labor were more adversarial in the United States than elsewhere. Mechanisms for compromise, either public or private, were few, and there was little tradition of joint economic stewardship. The resultant conflict made old-line industrial unions appear, to much of the public, maddeningly intransigent as the Rust Belt fell into steep decline. Some unions, like the Teamsters, were blatantly corrupt, with extensive ties to organized crime. That didn’t help labor’s image either.

But an underlying reason for labor intransigence was that Reuther was never able to build on the Treaty of Detroit sufficiently to establish a partnership between labor, management, and government comparable to what western Europe achieved after the war. American management wouldn’t allow it. It was too socialistic, too impertinent. When a corporate leader believed that Reuther had an excellent idea about how to run his business, he still felt compelled to reject it, on principle.

That, it seems to me — and this was certainly the impression I got from reading Noah’s book — is the real heart of the reason why America’s unions declined. In Germany, union representatives were invited onto corporate boards; in the US, they were treated as the enemy.

More broadly, in the book, Noah explains that the ovewhelming majority of the rise in inequality cannot be attributed to any one cause, like the decline of unions: it’s a much broader and subtler political phenomenon. Here’s where Noah completely convinces me:

Economists and political scientists previously resisted blaming the Great Divergence on government mainly because it didn’t show up when they looked at the changing distribution of income taxes…

But recently a few prominent economists and political scientists have suggested looking at the question differently. Rather than consider only taxes and benefits, they recommend looking at what MIT’s Frank Levy and Peter Temin call “institutions and norms.” It’s a vague phrase, but in practice what it mostly means is “stuff the government did, or didn’t do, in more ways than we can count.” In Levy and Temin’s view, the Great Divergence was the product of “a shift in the political environment.” Great income inequality, they wrote, would be impossible to achieve “without government intervention and changes in private sector behavior.” The two were mutually reinforcing.

In his conclusion, Noah writes that:

Today it can feel as though we live in a society that’s the precise opposite of Rawls’s ideal. The first principle isn’t economic equality; it’s economic inequality. Any effort to minimize income differences is held politically suspect, an intrusion on individual liberty.

I think he’s right about this. If Taft-Hartley hadn’t already passed in 1947, it would have passed some time later: as we just learned again in Wisconsin, the anti-union sentiment that allowed Taft-Hartley to get a two-thirds majority in both houses, enough to override Harry Truman’s veto, never really went away. Taft-Hartley is a symptom of a much broader syndrome; it’s not a significant direct cause of today’s inequality. And that’s why repealing Taft-Hartley would be so ineffectual as a weapon in the war against inequality. The real problems are deeply embedded in American society, rather than being enshrined in some labor-relations law. Do what you like to Taft-Hartley: the rich still run this country. And will continue to extract as much as they can in the way of rents.

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