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Dangers of Government Control   Leave a comment

We are a nation of 325 million people. We have a bit of control over the behavior of our 535 elected representatives in Congress, the president and the vice president. But there are seven unelected people who have life-and-death control over our economy and hence our lives — the seven governors of the Federal Reserve Board.

The Federal Reserve Board controls our money supply. Its governors are appointed by the president and confirmed by the Senate and serve 14-year staggered terms. They have the power to cripple an economy, as they did during the late 1920s and early 1930s.

Their inept monetary policy threw the economy into the Great Depression, during which real output in the United States fell nearly 30 percent and the unemployment rate soared as high as nearly 25 percent. The most often stated cause of the Great Depression is the October 1929 stock market crash. Little is further from the truth. The Great Depression was caused by a massive government failure led by the Federal Reserve’s rapid 25 percent contraction of the money supply.

The next government failure was the Smoot-Hawley Tariff Act, which increased U.S. tariffs by more than 50 percent. Those failures were compounded by President Franklin D. Roosevelt’s New Deal legislation. Leftists love to praise New Deal interventionist legislation. But FDR’s very own treasury secretary, Henry Morgenthau, saw the folly of the New Deal, writing: “We have tried spending money. We are spending more than we have ever spent before and it does not work. … We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started … and an enormous debt to boot!”

The bottom line is that the Federal Reserve Board, the Smoot-Hawley tariffs and Roosevelt’s New Deal policies turned what would have been a two, three- or four-year sharp downturn into a 16-year affair.

Here’s my question never asked about the Federal Reserve Act of 1913: How much sense does it make for us to give seven unelected people life-and-death control over our economy and hence our lives?

While you’re pondering that question, consider another: Should we give the government, through the Federal Communications Commission, control over the internet?

During the Clinton administration, along with the help of a Republican-dominated Congress, the visionary 1996 Telecommunications Act declared it “the policy of the United States” that internet service providers and websites be “unfettered by Federal or State regulation.” The act sought “to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.”

In 2015, the Obama White House pressured the FCC to create the Open Internet Order, which has been branded by its advocates as net neutrality. This move overthrew the spirit of the Telecommunications Act. It represents creeping FCC jurisdiction, as its traditional areas of regulation — such as broadcast media and telecommunications — have been transformed by the internet, or at least diminished in importance.

Fortunately, it’s being challenged by the new FCC chairman, Ajit Pai, who has announced he will repeal the FCC’s heavy-handed 2015 internet regulations. The United States has been the world leader in the development of internet technology precisely because it has been relatively unfettered by federal and state regulation. The best thing that the U.S. Congress can do for internet entrepreneurs and internet consumers is to send the FCC out to pasture as it did with the Civil Aeronautics Board, which regulated the airline industry, and the Interstate Commerce Commission, which regulated the trucking industry. When we got rid of those regulatory agencies, we saw a greater number of competitors, and consumers paid lower prices. Giving the FCC the same medicine would allow our high-tech industry to maintain its world leadership position.

Source: Dangers of Government Control

Walter E. Williams is the John M. Olin distinguished professor of economics at George Mason University, and a nationally syndicated columnist. To find out more about Walter E. Williams and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate web page.

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Never Let a Crisis Go to Waste   Leave a comment

“Those who tell you of trade-unions bent on raising wages by moral suasion alone are like people who tell you of tigers that live on oranges.”

– Henry George, 1891
Union organization had been around since colonial times and various forms had been tried. In the United States, the workers themselves had rejected the radical ideologies often associated with unions in Europe, so the unions had joined the Progressive Movement to work toward incremental change. All through that era, the government had bolstered unions with helpful legislation and even wartime nationalization of industries that resisted. But during the 1920s, a healthy vibrant economy had convinced most workers that they didn’t need an outside nanny organization to tell them what was best for them.
Image result for image of great depression union violenceIt would be an interesting alternative history to see what might have happened to the labor movement and society in general if the Depression of 1929 had not been meddled with to the point of becoming the Great Depression. That’s the novelist in my wondering about it.
During the Great Depression, Congress enacted a sequence of six major pieces of labor legislation favored by unionists, virtually revolutionizing labor markets:
  • Davis-Bacon (1931)
  • Norris-LaGuardia (1932)
  • National Industrial Recovery Act (1933)
  • Wagner National Labor Relations Act (1935)
  • Walsh-Healey (1936)
  • Fair Labor Standards Act (1938), popularly known as the minimum wage law.
This avalanche of legislation to entrench unions part and parcel with the prevailing doctrine of 1920s business leaders that “high and rising wages were necessary to a full flow of purchasing power and, therefore, to good business,” and its corollary “‘reducing the income of labor is not a remedy for business depression, it is a direct and contributory cause.'”
Understand that the people who actually study economic history say this was ignorant blather that ignores the reality that high wages are an effect of high productivity and prosperity, not a cause of them. If it were otherwise, rather than producing themselves rich, nations could simply declare all good things cheap and all wages high, and thus abolish poverty by fiat.

Davis-Bacon: Passed in 1931 following a sharp decline in construction activity at the beginning of the Great Depression. Construction expenditures went from $11 billion annually to $3 billion, with over half of the reduced activity financed by government. Competition for contracts and jobs was fierce and mobile contractors using migrant labor entered the market to underbid some local contractors. Many contractors and building trade unions welcomed the law to protect themselves from the competition of what one congressman called “carpetbagging sharpie contractors.”

The law requires that workers on federally financed construction be paid wages at “local prevailing rates” for comparable construction work. The clearly stated intent was to protect local workers and contractors from the competition of outsiders. The ambiguity of prevailing wages gave the United States Department of Labor scope to set minimum wage rates at union wages in about half of its wage determinations. Estimates are that has cost taxpayers at least a billion dollars per year in higher construction and administrative costs ever since.

Since 1931, Congress has extended the prevailing wage provision to include most federally assisted construction, whether state, local, or national government is the direct purchaser. Additional amendments in 1964 added fringe benefits to prevailing wage calculations. The effect of the Labor Department’s administration of the law is not to protect local contractors from competitors but to dish out government work to high-cost contractors and the building-trades unions. Davis-Bacon regulates about 20% of all construction. Construction workers are among the highest paid in America, earning twice the hourly rate of employees in retail trade. Most states passed “little Davis-Bacon” Acts to further unionize the construction industry, driving up costs for most construction.

Norris-LaGuardia Anti-Injunction Act: Signed by President Herbert Hoover on March 23, 1932, this bill passed the House 363-13 and the Senate 75-5. It was the culmination of a 50-year union campaign against “government by injunction.”

The threefold purpose of the act was to

  • declare nonunion employment agreements (“yellow-dog contracts”) unenforceable in federal courts (section 3);
  • grant labor organizations immunity from liability for wrongful acts under antitrust law (sections 4 and 5); and
  • give unions immunity from private damage suits and nullify the equity powers (injunctive relief) of federal courts in labor disputes (sections 7–12).

The overriding object of the act was to free organized labor from the constraints that bind businessmen and ordinary citizens, essentially giving them immunity from prosecution when they use aggressive and violent tactics in organizing. The number of strikes suddenly doubled between 1932 and 1933 to 1,695 and then continued climbing to a 1930s peak of 4,740 in 1937. This outburst of strikes occurred during a period of deep depression and massive unemployment, while previous business downturns had always diminished strike activity and caused many unions to disappear.

“We have now reached a state where [unions] have become uniquely privileged institutions to which the general rules of law do not apply.” Frederick Hayek

NIRA: The National Industrial Recovery Act was among the many Roosevelt interventions to boost prices and wage rates on the mistaken theory that falling wages and prices were causing the depression rather than being market-driven adjustments to re-coordinate the economy and restore production and employment. The NIRA — the New Deal fascist system of codes to cartelize both industry and labor markets and push up prices throughout the economy — was struck down by the Supreme Court in the famous Schechter Poultry case of 1935 on the grounds that the act delegated virtually unlimited legislative power to the president. Section 7(a) of the NIRA promoted unions and the practices of collective bargaining. Congress then re-packaged similar labor regulations and new interventions piece by piece in surviving legislation like the Wagner, Walsh-Healey, and Fair Labor Standards Acts.

National Labor Relations Act (NLRA): Otherwise known as the Wagner Act, the NLRA was a rewrite of the NIRA’s section 7a. The act passed the Senate 63-12 and an unrecorded voice vote in the House, and Roosevelt signed it July 5, 1935.

The NLRA remains the overall labor framework in the United States to this day. It declares that the labor policy of the federal government is encouragement of the practice and procedure of collective bargaining, as well as protection of worker designation of representatives to negotiate terms and conditions of employment. It uses federal coercion to make it easier to unionize enterprises and employees in the private sector who otherwise would not participate in unionization and collective bargaining. The main regulatory features of the act were as follows.

  • The creation of a politically appointed board, the National Labor Relations Board, to enforce the act, thereby escaping the too-frequent apolitical (“anti-union”) rulings from courts of law. So now, when unions break the law or businesses seek relief from their violence, they go before a pro-union board rather than a judge who might be neutral.
  • The specification of multiple “unfair labor practices” by enterprises to hamper their resistance to organized labor.
  • NLRB enforcement of majority elections for union representation.
  • NLRB determination of eligibility to vote.
  • NLRB enforcement of exclusive (monopoly) bargaining for all employees in a bargaining “unit” by NLRB-certified unionists only. You might think you have a better way of doing it, but you can’t legally implement those new ideas.
  • NLRB enforcement of union pay rates for all employees represented, whether union members or not.

A lot of Congress had voted for the legislation in fear of Roosevelt (the destroyer of political careers), and hoped that the Supreme Court would overturn the law as unconstitutional (as it clearly was) as they had done with the NIRA, but in April 1937, contrary to expectations, the court declared the Wagner Act constitutional by a 5-4 vote possibly motivated by Roosevelt’s famous threat to pack the court. The Wagner decision marked the judiciary’s general abandonment of constitutional protection against federal encroachment on economic rights and due process.

Years later, public disgust with adversarial unionism and underworld corruption produced federal legislation to modify the Wagner Act — principally the Labor-Management Relations (Taft-Hartley) Act in 1947 and theLabor-Management Reporting and Disclosure (Landrum-Griffin) Act in 1959 — that has been marginally less favorable to unions. Neither law tampered with the basic privileges and immunities previously granted to organized labor. Taft-Hartley was a partial union victory because it maintained the original structure of the statutes, making it more difficult to return to common law. Ah, yes, the power of precedent.

Section 602A)in Landrum-Griffin, although intended to rein in union officials’ abuse of members’ rights, highlights the immunities the state grants to unions:

It shall be unlawful to carry on picketing on or about the premises of any employer for the purpose of, or as part of any conspiracy or in furtherance of any plan or purpose for, the personal profit or enrichment of any individual (except a bona fide increase in wages or other employee benefits) by taking or obtaining any money or other thing of value from such employer against his will or without his consent. [Emphasis added.]

The exclusion in parentheses is remarkable, because such open exceptions (privileges and immunities) for labor unions are necessary to free an organized labor movement from the ordinary constraints of civilization to extract money from employers against their will with the proviso that the loot be mostly paid to union members in wages and benefits.

Public Contract (Walsh-Healey) Act: Passed in 1936, this act tried to accomplish for all unions what Davis-Bacon did for the building-trades unions, but it turned out to be relatively ineffective. Walsh-Healey targeted bureaucratic administration of employment conditions for all government contracts over $10,000. The law allowed the Secretary of Labor to fix minimum wage scales among nearly all businesses contracting with the government. “Responsible” businesses (defined as previously unionized employers) urged that standards be imposed in order to discipline “unscrupulous” (low-cost, nonunion) competitors. The Department of Labor never could settle on a consistent method of determining the “prevailing wage” for such a bewildering array of jobs, individual skills, and pay systems. Thus, you’ve never heard of Walsh-Healey but every business in America knows all about Davis-Bacon.

The Fair Labor Standards Act: Passed in Congress in 1938, this act set a national minimum wage rate of 25 cents per hour. It applied to an estimated 43% of employees in private, non-agricultural work and gradually grew to cover nearly 90%.

Family story here – my mother worked as a dishwasher after school, getting paid $3 a week. When FLSA was passed, she would have been paid $9 a week instead. The diner she worked for closed because they typically only brought in about $30 a day and this new law meant they couldn’t make payroll and buy food to sell to their customers who couldn’t afford a tripling of the cost of eating out. Mom got another job taking care of an old lady for room and board and worked late into the night repairing harnesses for local farmers to pay for high school (no, public high school wasn’t paid for by the taxpayers in those days; students or their families paid tuition).

Image result for image of minimum wage destroying employmentState minimum wage laws today cover most remaining employees. Effective July 24, 2008, the federal minimum was $6.55 per hour and became $7.25 per hour effective July 24, 2009, a 29-fold increase over the first minimum wage in 1938. A 90-day beginners’ minimum of $4.25 per hour applies to workers under age 20. Covered “nonexempt” employees must be paid overtime rates of 150% the regular pay rate for any hours over 40 in a 7-day period. Generally, the minimum wage has fluctuated between 35 and 50% of the average hourly wage in manufacturing.

How does the minimum wage help unions since less than 10% of all wage and salary employees have wage rates low enough to be directly impacted by the minimum wage? Unions benefit by pricing competitors and potential non-union entrants out of business. Many low-skilled young people, women, older people, and members of minority groups such as inner-city blacks find it more difficult to find beginners’ jobs because minimum-wage and union wage rates price them out of the market. Yet accepting a low-paying job for its on-the-job training is no different in principle from paying to go to school. Economic studies show that about half of the training in the US economy occurs on the job rather than in school.Shrunken work opportunities caused by the minimum-wage law have ruined uncounted careers and essentially created the tragedy of our inner cities, impacting blacks to a far greater degree than whites. Instead of being an antipoverty device, the minimum wage is the greatest driver of unemployment in the economy.

Posted September 10, 2016 by aurorawatcherak in History

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