|The Small Print
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Q: why do air mattresses cost more than foam ones?
Seriously, prices are going up—as much as seven percent last year. The Federal Reserve considers a 2% annual rise in prices “normal,” and has been trying to tamp it down to that level. But why even two percent, which doubles prices after 35 years? Why can’t prices stay the same if the currency remains stable?1 And why do commentators speak of a “wage-price spiral” but not a “profit-price spiral”?
Let’s start with employee compensation: On Friday, the United Auto Workers union went on strike against Ford, GEM, and Stellanis (formerly Chrysler). Before blaming the UAW for being greedy, remember that during and after the Great Recession in 2008-2010 it agreed to wage cuts to help the auto manufacturers stay afloat. And since then, the companies have done really well. As Shawn Fain, the union’s progressive President, says, it’s time to share the wealth. Watch the video UAW released on the eve of the strike in which he lays it all out:
“We’re living in a time of stunning inequality throughout our society. We’re living in a time where our industry is undergoing massive transformations, and we’re living in a time where our labor movement is redefining itself,” Fain told NPR.
Before you shriek “This is class warfare,” just remember that corporations have waged war on unions forever and workers are simply fighting back. The Big Three auto companies profited $21B already this year. Don’t their employees deserve a fairer share of that?
If the UAW succeeds in gaining favorable contracts, which I believe they will, guess what will happen next? Automobile and truck prices will go up. The companies will justify it as maintaining their bottom lines, or in my view, padding their executives’ fat asses.
And that’s the thing. Studies have shown2 that corporations use higher wages and higher prices for materials they use as an excuse to increase profits. Stagnating wages mean employees have less buying power while executives accrue bigger bonuses. Great for yacht dealers; not so great for car dealers.
Thankfully, workers have “woke” to this and union membership is climbing after decades of decline. At Amazon. At Starbucks. At UPS. At Airlines. Remember how Reagan fired the striking air controllers even though they were unionized, and how state legislators in the Midwest outlawed strikes by public employee unions? Capital, abetted by pliant politicians, has always opposed worker empowerment and always will if it can get away with it. Remember that, and remember whose snout eats from the trough first and last.
I do agree that workers’ gains can be customers’ pains. California is about to legislate that restaurant workers earn $20 and hour. (This wouldn’t have happened without a food workers union.) Some now earn less than minimum wage without tips. While it’s only fair, it’s pretty clear that dining out will cost more once that law is enacted. People will complain about that, and attendance at restaurants may decline as a result. But why should food workers subsidize food eaters at their own expense?
Back to “normal” inflation; what’s that about? Since at least the 1980’s, workers’ pay stagnated in many sectors while prices rose. At the same time worker “productivity” (the economic value of an hour of work) kept rising, yet workers, especially the lowest-paid ones, rarely saw any return for accomplishing more.
The biggest driver of productivity gains, in my view, is technological advances, such as:
- New, cheaper and lighter materials that cut production and distribution costs
- Computers systems that analyze data and streamline workflows
- Robotic devices that perform processes and tasks done by manual workers
- Driverless cars pioneered by Uber and Google, that may replace livery, delivery, and taxicab drivers
- And coming fast, Artificial Intelligence applications that perform tasks done by office workers.
Businesses invest in technology not simply to increase productivity, but to replace factors of production that they don’t own (i.e., workers) to ones they can (e.g., computers, robots, algorithms and other intellectual property). As for material inputs, companies that need them try to acquire ones that produce them. By leveraging supply chains along with “labor-saving devices,” they need fewer workers to maintain productivity. That seems to be the game plan in one industry after another. Look at recent layoffs in the tech sector; 224,503 in 2023 to date according to TechCrunch, some due to post-pandemic overstaffing, some to replacement by lower-payed HB-1 foreign workers, but also to workplace automation.
Many technologists make good livings happily solving problems that previous “solutions” created. Companies use their inventions displace workers; I see new rounds of white-collar layoffs coming as AI permeates office work. AI-generated articles are already turning journalists into mere copy editors. I expect AI-authored books to flood the market soon, just in time to submerge my forthcoming novel.
Hassled by disgruntled workers, corporate executives subvert unionization drives and rent politicians to run interference. Doing their bidding, politicians enact “right to work” laws that inhibit union organizing or outlaw strikes by public employees. Let’s remember that to get Social Security passed into law, FDR had to exempt agricultural and home workers, and they still are. And today, most contract workers, such as Uber, Lyft, and DoorDash drivers, don’t receive employee benefits or compensation for idle time.
Stiffing workers creates fertile soil for organizing unions, and that’s what’s happening all across America, for example, the actors and screenwriters guilds’ strikes, now in their second month. So click the poster up top and sing along with Pete Seeger and Arlo Guthrie performing Woody Guthrie’s Union Maid.
Solidarity, brothers and sisters!
1In 2019, I asked Mitchell Hartman of Marketplace radio about this. His response boiled down to: 1) inflation is better for the economy than deflation, in which consumers defer spending, and 2) in the event of a downturn it gives the Federal Reserve more wiggle room to lower interest rates. So we suffer inflation to please bankers and investors.
2An Economic Policy Institute study looked at wages and prices after economic downturns and found: “… a chronic excess of corporate power has built up over a long period of time, and it manifested in the current recovery as an inflationary surge in prices rather than successful wage suppression. What was different this time that channeled this power into higher prices rather than slower wage growth?” They say the short answer is the pandemic. Yes, but low unemployment and union activism have given workers more bargaining power than they’ve had in a long time.
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