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Ask Auntie Pinko

October 13, 2005
By Auntie Pinko

Dear Auntie Pinko,

Didn't the American economy work better (fairly, productively) in the '50s and '60s when there were some government restrictions on major industries/services - such as the airlines, railroads, trucking industry, oil production, and when the strong unions produced a prosperous middle class?

Thanks,

Fae,
Somewhere in America


Dear Fae,

The short answer is "yes and no." The American economy is an enormously complex system with thousands of variables involved in its overall health. Some parts of the economy worked much better forty years ago, some didn't work as well - or at all. Overall, however, Auntie tends to agree with you that the economy of the 1950s and '60s produced a less lopsided distribution of wealth and greater economic stability than the current economy.

However, just to establish some clarity, I need to note that some nasty aspects of America's social structure that produced horrendous inequities for certain population groups (African Americans, Latinos, and Native Americans; unmarried women, etc.) were integral to the functioning of the economy at the time. Severely limiting the workforce opportunities for women and minorities reduced the size of the available labor pool and increased labor's bargaining leverage. America's trade protections locked many of the world's developing economies into cycles of appalling poverty. America's effective economic hegemony in the wake of WWII, combined with Cold War paranoia, proliferated banana republics and puppet dictatorships in the southern hemisphere.

But it was possible then for one wage earner to support a family with one 40-hour a week job. Even much of the unskilled and semi-skilled work paid well enough for a family to have a decent roof over their heads and food on the table. By the mid-1960s a full-time job was more likely than not to include health benefits and some form of retirement benefits. The economy of the 1950s and '60s opened up higher education to the children of the working class in unprecedented numbers. Home ownership soared.

While the peak level of unionization of the workforce contributed to workers' ability to acquire education and assets, and to consume at high levels, it would be a mistake to equate unionization and productivity. While unions contributed to increased productivity in some trades and industries through better training, higher retention rates of skilled and experienced workers, etc., unions could also inhibit productivity in some respects. And as unions grew into vast conglomerates, some mirrored the worst traits of capital, becoming tainted by corruption and strangled by bureaucracy and the inertia of tradition.

Still, there is no denying that a highly unionized workforce contributed strongly to an economy that distributed wealth more equitably between labor and capital.

Auntie remembers very fondly the days when if you moved, you simply called "the telephone company" and told them to transfer your service to your new residence. If you moved far enough, this meant changing your "exchange." Really far, and you acquired a new area code. But regardless of exchange or area code, if you had one-line, one-party service, you knew exactly what your basic bill would be every month, and it would be the same as everyone else with the same service.

There is much to be said for simplicity.

However, I have to acknowledge the downside to regulation. Highly regulated industries - especially monopolies (real or effective) don't have the same incentives to innovate, or the competitive pressures on price as less-controlled industries. By keeping prices fairly stable, and somewhat artificially low, regulation can inhibit growth and productivity.

However, it can also prevent industries from engaging in orgies of innovation and passing on huge retooling and product development costs to the consumer. And while regulation can keep companies from making stockholders wealthy, it can also prevent disasters like Enron, WorldCom, etc. Too much competition can also destabilize an industry's productivity and capacity for long-term profitability.

By keeping certain basic costs - water, electricity and heat, basic phone service, etc., very stable through regulation, the economy of the 1950s and 1960s also made "fixed" incomes more feasible and realistic. Once retired, few workers needed to rejoin the workforce just to make ends meet - which further reduced the size of the workforce, and kept wages apace with costs.

Deregulation has decreased the prices of some goods and services, and certainly it has vastly increased the array of goods and services available to consumers. Some of the innovations produced by deregulation are vital elements of our economy today. I don't know how long it would have taken "Ma Bell" to develop the cell phone, but I think it's safe to say that the mass communications available to the average consumer today owe at least some of their existence to deregulation.

Some air travel is much cheaper since the airline industry deregulated (if you compare it in fixed dollar values, most airfares today are much cheaper than they were in the 1960s.) But some travel (especially on low-traffic, unprofitable routes) is much more expensive, and today we have a notoriously weak industry that is perforated with bankruptcies and subsidies and public bailouts.

Auntie isn't an economist, thank heavens. I don't have to keep track of all those variables, controllable and uncontrollable, and try to guess how they will affect each other and how people will respond to them. But I do think that if those who make policy decisions about our economy would keep one simple rule in mind, we might end up with a stronger, more viable economy:

Keep the rules loose enough for free upward movement, and make decisions based on benefiting the middle three economic quintiles equally.

I'm not suggesting we abandon the poor! Heavens, no. To prevent poverty from becoming a drag on the economy as a whole, we must ensure certain decent minimums for the bottom quintile, too. But the vast majority of decisions about taxation, regulation, economic subsidy, etc., should be targeted to benefit those in the middle. The upper 20%, on the other hand, has plenty of resources to look after themselves.

Thanks for asking Auntie Pinko, Fay!


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