Paul Graham on unions

by on May 8, 2007 at 2:22 am in Economics | Permalink

The early twentieth century was just a fast-growing startup overpaying for infrastructure.  And we in the present are not a fallen people, who have abandoned whatever mysterious high-minded principles produced the high-paying union job.  We simply live in a time when the fast-growing companies overspend on different things.

Here is more, provocative throughout.  Thanks to Craig Fratrik for the pointer.

1 spencer May 8, 2007 at 8:17 am

But autos were not a new industry in the 1950s. In the 1950s autos were a mature industry deep into the consolidation phase of development. If he had said this about the 1920’s maybe I would have given the idea some consideration. But if his grasp of economic history is this poor why should we pay any attention to his thesis.

What actually happened with auto unions in the 1950s was the development of pattern contracts so that labor cost were exactly the same for the big 3 — if GM paid $10/hour for a tool & die man with 15 years experience Ford & Chrysler would pay exactly the same. Given that the industry was an oligopoly this meant that management had no reason to take a strike over labor cost.

2 Dave May 8, 2007 at 9:42 am

It is a sad day when I don’t merely have to deal with technologists pointing me to Graham’s poorly-thought-out-but-fluent-arguments-which-sound-compelling-because-they-tell-you-what-you-want-to-hear
(English direly needs a single word for that), but now have economists doing it as well. At least this one wasn’t blatantly self-aggrandizing, nor contained any obvious technological mistakes (just logical ones).

3 Dave May 8, 2007 at 9:54 am

Gladwellic! Perfect. The day is redeemed.

4 Cyrus May 8, 2007 at 10:39 am

The Kurt Vonnegut term ‘foma’ (true, beautiful lies) would be well-adapted to fill this lexical gap.

5 happyjuggler0 May 8, 2007 at 11:24 am

His thesis is sound once you realize that all US manufacturing was in an anomalous growth phase following the phsyical destruction of capcity in most of the developed world. In this rare moment there was a serious labor shortage, and in that rare moment unions mattered because they couldn’t be ignored or sidestepped.

This ended when the the rest of the world rebuilt and afterwards when demand finally plateaued for things like washing machines and dryers, refrigeratros etc. which people only wanted one of. Thus endeth the fluke growth phase of manufacturing and importance of unions.

6 Tyler May 8, 2007 at 11:57 am

(English direly needs a single word for that)= Truthiness

7 Dave May 8, 2007 at 1:11 pm

In this rare moment there was a serious labor shortage, and in that rare moment unions mattered because they couldn’t be ignored or sidestepped.

Were that the case, you would expect to see it reflected in low unemployment rate. With a handful of exceptions for war-time years, unemployment in the 50s and 60s isn’t much lower than it was in the 90’s or 2000s.

8 JRip May 8, 2007 at 1:54 pm

Graham wrote:
“People who worry about the increasing gap between rich and poor generally look back on the mid twentieth century as a golden age.”

I think the whole Gap discussion is based upon a poor framing of the population to be considered.

But first – a note for happyjuggler0 – The period before WWII was the depression and before that the unions were in their formative years. Back then you could find the poor, oppressed workers laboring in unsafe conditions. OSHA did not come along until Nixon. +++

You could also say that from 1900 through 1950s the world was composed of relatively isolated nation states. Global trade was relatively tough and slow. (no FAX machines, no email, no fast FedEx shipping. Telephone calls were not yet electronically switched and TELEX text communication for business and government was new in the 1930s [and dying in the 1970s].)

During that period the USA grew as an exporter and exports exceeded imports.

So the Unions grew in strength after WWII at a time when the USA was unchallenged due to much of the rest of the developed world recovering from war. Growth was rapid and despite some strikes the industry prospered and so did unions. In that sense Graham was correct.

When folks look at the Gap between Rich and Poor in that era they just considered the island that was the USA and excluded the rest of the planet. Today they are trying to do the same thing. Examine only the USA – but we are no longer an industrial island.

Today the economy is global and becoming more so.

The comparisons made should be planet-wide. If you go to the website of the TED Conference and watch the 20 minute presentation by Hans Rosling you will gain a new perspective on the Gap between rich and poor. Net: from 1960 thru 2005 the world has become much more middle class.

That is not to say that there is not a gap inside the USA.

At the high end of income we should ask why the salaries are growing faster than inflation; or perhaps faster than revenue or profit of the company a CEO might head; or faster than the stock price… Perhaps there is some sort of “island effect”…

+++ For MSM clarity…
We should ask why the gain in value of a stock option is reported as income when the option has not been exercised.

We need to face the fact that globalization means a world where the only permanent difference between a worker here and a worker in China or India is the cost of shipping/transportation, the time taken in shipping/transportation and the nominal cost of communication. If unions want to exist on any large scale they need to unionize the rest of the planet.

9 Kevin Postlewaite May 8, 2007 at 3:08 pm

“The early twentieth century was just a fast-growing startup overpaying for infrastructure.”

Perhaps a company would want to pay more than the market-clearing labor rate to insure that it was fully staffed at all times, but I don’t see how that relates to the employees’ level of unionization. Were unions better than the companies at finding prospective adequate employees? If so, why? Did the unions somehow allow companies to grow faster or scale better?


10 JRip May 8, 2007 at 8:33 pm

Steve Sailer – Graham qualified his remarks thusly:
“… generally look back on the mid twentieth century as a golden age.” and “In those days we had a large number of high-paying union manufacturing jobs that boosted the median income.”

Auto unions did form in the 30’s but with the depression and later the No-Strike agreement during WWII the jobs did not become really High Paying until after the war.

At which point the growth rate in the auto industry was tremendous. Remember from the end of WWII until the mid 1960s the market belonged to Detroit. OT at least it seemed to…

Toyota did not begin exports to the USA until 1958 and in 1964 they brought 2000 cars to America. In 1965 the number was 6,400 and 1968 71,000.

11 spencer May 9, 2007 at 8:41 am

for all those talking about the 1950s as an unusual era because of the recovery from the depression and WW II destruction I would just point out that industrial production growth averaged 4.3% in the 1950s as compared to 5.5% in the 1960s. We had three recessions in the 1950s as the fed wrung the WW II — Korean Way inflation out of the system. From just under 3% at the end of the Korean War the unemployment rate rose to 7% at the end of the decade. John Kennedy ran on a platform of “let’s get the economy moving again”.

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