Our Annual Labor Issue Is Out!

0916cover-large-for-blogOur September/October Annual Labor issue is printing now, and the full-color pdf has been sent to electronic subscribers.  (Not a subscriber? Click here to subscribe.)  We have posted our lead feature, Class Struggle By Other Means: Tennessee, Volkswagen, and the Future of Labor, by Chris Brooks, and also John Miller’s “Up Against the Wall Street Journal column, “Equal Pay” Is Not So Equal.

This issue features a gorgeous cover collage and several interior illustrations by Brian Hubble.

Here is the pg. 2 editorial note from this issue:

If You’re Not Moving Forward, You’re Moving Backward

The U.S. labor movement has been in a rut for decades. Its problems, to be sure, are not all of its own making; it got into its predicament with no little amount of shoving from employers and the state. But the leadership of the “official” union movement has often been the movement’s own worst enemy.

Conservative business unionism, a lack of attention to or enthusiasm for new organizing, and a cozy relationship with employers and the state contributed to a long downward slide from the 1950s on. Over sixty years later, we’re still not out of the rut. The unions’ tactics of “friendly” relations with employers and government officials simply do not cut it—not even in industries that used to be union strongholds.

In this issue’s lead feature, Chris Brooks takes us to the auto industry, and the case of Volkswagen in Tennessee, against a backdrop of lavish government giveaways for companies and austerity for the working class. Instead of organizing aggressively around issues like the crushing pace of work, the United Auto Workers (UAW) staked itself on labor-management cooperation, loudly proclaiming its commitment to company “competitiveness.” Brooks calls for a more militant approach, based not only on facing up to conflict with employers and the government, but also on championing a broader agenda for the working class as a whole.

There are several other ways, highlighted in this year’s Annual Labor Issue, in which the labor movement’s future depends on its ability to adapt and fight in a changing industrial and political landscape.

Labor lawyer Ira Sills puts an encouraging piece of breaking news—the National Labor Relations Board’s recent ruling that graduate teaching assistants at private universities are, indeed, employees entitled to the protections of the National Labor Relations Act—into a broader historical context. As Sills points out, the NLRB became increasingly “politicized” from the 1980s on, especially with the appointment of anti-labor ideologues who were hell-bent on making things as hard on workers and unions as possible. The unions, accustomed to organizing within the NLRB election system, were not successful in finding other ways to organize. But the successes of graduate employee organization and public institutions and the struggles of graduate employees to organize at private institutions certainly provided some of the impetus behind the recent legal change.

The question of who is regarded as an “employee” has wider implications in the U.S. economy today, especially in light of the rise of contingent or “gig” employment. Economist Anders Fremstad looks at the reality of work today in one the highest-profile segments of the contingent labor market—“sharing economy” companies like Uber and Lyft. Fremstad argues that the “sharing economy” may work for underused physical assets (that, when lying unused, can be rented out at little cost to the owner), it’s a different story when it comes to labor time. Using even spare time for labor takes something away from the “gig” worker, and the huge slice of revenue that companies like Uber take off the top makes it very hard for sharing-economy workers to scratch out a living. Fremstad argues, instead, for alternative types of “sharing economy” enterprises—such as public enterprises connecting workers with consumers, without the exploitive cut taken by private for-profit companies.

Jeremy Brecher tackles the question of labor and the vexing challenge of climate change. He outlines an appealing and feasible program, originated by the Labor Network for Sustainability, that would bring about needed reductions in greenhouse gas emissions while creating more robust job growth than a “business as usual” (fossil-fuel based) scenario. The aim is not just to defuse any possible labor opposition—founded on the canard that environmental regulations are “job killers”—to climate policy. It is also to create the foundation for a new relationship between the labor and environmental movements.
New visions for the labor movement like these—visions of broad solidarity rather than narrow interest, of alternative economic institutions, of active struggle for a sustainable future—show how labor can move forward again.

Also in this issue: John Miller on the gender wage gap, Arthur MacEwan on the supposed threat of artificial intelligence, Gerald Friedman on the bleak jobs picture, and more.

The Federal Reserve Must Rethink How It Tightens Monetary Policy

By Thomas Palley

Cross-posted at the author’s website, thomaspalley.com.

After more than 7 years of economic recovery, the Federal Reserve is positioning itself to tighten monetary policy by raising interest rates. In light of the wobbly reaction in financial markets, an important question that must be asked is whether raising interest rates is the right tool.

It could well be that the world’s leading central bank is going about the process of tightening in the wrong way. Owing to the dollar’s preeminent standing, that could have severe global repercussions.

Just as the Fed has had to rethink how it combats recessions, so too it must rethink how it transitions from an easy monetary policy stance to a tighter stance.

A quick review

In December 2015, the U.S. Federal Reserve increased interest rates for the first time in almost a decade. This move came with the expectation of gradually raising its interest rate to a new normal of 3%. Initially, normalization aimed to lighten pressure on the monetary policy pedal, and only later would it turn to hitting the monetary policy brake.

The normalization process was contingent on the data showing continued improvement, but the U.S. economy slowed in the first half of 2016, putting it on hold. However, since May, the data have again been robust regarding job creation and wage growth. Furthermore, there are signs of asset and house price exuberance in the U.S. economy that can be destabilizing and also inflict large future losses on working families.

These recent developments have prompted the Federal Reserve to consider restarting the process.

Raising interest rates is the wrong way to begin normalization

The problem is not that the Federal Reserve wants to restart the normalization process, but rather that it wants to do so by raising its policy interest rate. That risks spilling the infamous monetary policy “punch bowl”.

Raising interest rates is a dangerous step in today’s integrated global economy. The Fed must calculate especially carefully given that other economies (the UK, Japan, and the European Union) are on the ropes and lowering rates.

Raising U.S. rates in such an environment threatens to cause an inflow of hot money into the United States that will appreciate the dollar’s exchange rate and further fuel US financial markets.

That, in turn, will negatively impact manufacturing via lower exports and increased imports. It will also lower investment spending by injuring manufacturing. And it would further distort financial asset prices, setting them up for a possible disorderly correction.

There is an alternative normalization path

There is an alternative normalization policy path that avoids these problems.

1. The Federal Reserve should shelve plans to raise its policy interest rate. Later, if the normalization process goes well, it can put rate hikes back on the policy table.

2. The Federal Reserve should immediately stop reinvesting the income from its private sector bond holdings and should start running-off those holdings.

Having the private sector repay debt held by the Federal Reserve would drain liquidity from financial markets, thereby tamping down financial speculation and also putting incipient upward pressure on long-term interest rates, which is what policymakers desire.

3. If the Federal Reserve is concerned about house price inflation, it should impose a temporary reserve requirement on new mortgages.

That would make new mortgages more expensive, given that banks would pass on the cost of the reserve requirement to borrowers, thereby cooling house price inflation.

Most importantly, this well-targeted measure would not affect interest rates in the rest of the U.S. economy, thereby avoiding causing hot money inflows and collateral damage on manufacturing and investment.

4. If the Federal Reserve is concerned about a stock market bubble and related impacts on consumption spending, it should raise margin requirements.

Margin borrowing for stock purchases is at near-record levels. Even a symbolic increase would put speculators on notice and discourage borrowing. Such a move would also rehabilitate an important anti-speculation policy tool that has been allowed to fall into disuse.

Rethinking monetary policy in normal times

Chairwoman Yellen’s recent Jackson Hole conference speech was titled “The Federal Reserve’s Monetary Policy Toolkit: Past, Present, and Future”. She argued that the policy tools developed in the economic crisis to promote recovery need to be retained for possible future deployment. Those tools include interest on excess reserves (IOER), large scale asset purchases, and explicit forward guidance.

Whereas the Federal Reserve has radically rethought how to combat recessions, its policy framework for normal times is less changed and remains focused on interest rates. For instance, both IOER and forward guidance concern interest rate policy.

This lack of change means the Federal Reserve risks spilling the punch bowl. The above alternative program shows how that can be avoided.

Instead of immediately raising interest rates, the Federal Reserve should use the current transition as an opportunity to introduce quantitative policy tools such as margin requirements and adjustable discretionary reserve requirements on problematic asset classes. Doing so can allow it to drain the punch bowl without spilling the punch.

Unfortunately, the Fed is far behind the curve. It has directed all of its efforts to preparing the market for higher interest rates, when it should have first been preparing the market for these type of targeted measures. However, better late than never.