An unsettled argument about the Great Depression

What if the US owed its former marvelously robust middle class to anti-competitive regulations from Franklin Roosevelt? Would that make the heads of conservatives and libertarians explode? Well, folks, especially those from the aforementioned groups, that is a very strong possibility.

Lots of politically-minded people have reasons to try to tear down FDR's legacy. (I suppose a similar number have political reasons to bolster it. I'm not neutral, but, as always, I tend to bow to evidence.) A gem fell in the laps of anti-FDR folks in the form of a study from two UCLA economists claiming that some FDR policies slowed recovery from the Great Depression by seven years. Specifically:

"So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

Suppose you don't focus on the second half of that paragraph (the stalling of a 'beautiful recovery'), but instead focus on the policies that allowed businesses to collude as long as they paid their workers more.

Wow! This sounds like paying factory workers well. They can then afford to buy homes, let their children stay in school, enjoy occasional vacations, and generally live a decent life due to their decent wages. This also sounds like the American dream.

So there are all sorts of conservatives and libertarians beating up on FDR, but perhaps he was responsible for the well-paid, productive US factory workers who were the backbone of the halycon 1950's. When conservatives and libertarians say that we can have a much better, more productive economy, aren't they subliminally asking us to imagine the 50's? I think so. I don't think they're asking us to envision the periods when steel companies crushed strikes or when meatpacking companies cared little about the deaths of their workers.

What if the greatest period in US history is the product of the paternalist and socialist tendencies of FDR, and not the due to the vitality of American industries and the work ethic of their employees?

Well, if we're honest, no one thinks we can go back to the 1950's. We were the only industrialized country that hadn't been devastated by war, so we didn't have the international competition that we have today. We also have tapped out some of the resources we had back then, which is another reason we can't go back.

We can't go back to times that conservatives and libertarians consider 'better.' However, we can't use the same policies that FDR used either. Would we accept public works jobs that paid the present-day equivalent of $1 a day (as the WPA paid) and housed workers in dormitories? I can't imagine that we would. No, solutions to today's economic and employment problems aren't going to be found among New Dealers, or Austrian/libertarians, or nostalgic tea partyers, or staunch supply-siders.

. . . but maybe we'll try them all before we realize that.

WPA sewing project

Image: livingnewdeal.org

Extra. More revisionist history about the Depression that isn't quite accurate. A fascinating discussion of the monetary policy before and after the crash of 1929.

Update 2/20/17. Possibly some more evidence of this. From a fascinating article about how modern capitalism is about to face a huge pushback, here are two graphs showing how workers are losing their share of the economic pie while the rich are taking it:

Image: macrobusiness.com.au

This isn't supposed to be a zero-sum situation. Supposedly, we can all get richer together, so it doesn't matter if the ultra rich become ultra richer. But maybe we're experiencing that it does matter.

Update 10/25/17. Some extra information. A graph showing income gain (or loss) over 6 decades. Yes, increases in income used to be shared more evenly across the spectrum than it is now. This article credits the Wagner Act of 1935 concerning collective bargaining for the increase in workers' wages.

Immigration reform is a massive hot potato

How much immigration reform have we had in the last 30 years? Aside from the amnesty in 1986, we haven't had much. And since then, we've had roughly one million per year of legal immigrants and large numbers of illegal immigrants.

Our policy ... and our real policy

Our de facto national policy has been to tolerate illegal immigration. There are been very few sanctions against employers of illegal immigrants, or landlords, or merchants who sell to illegal immigrants. Schools are required to teach children who are illegal immigrants, and hospitals are required to treat them. Considering this, it's not surprising that illegal immigrants numbers have grown in the country.

The lure is pretty clearly jobs and a better life in the US. Wages are lower in Latin America; crime and corruption are higher. Of course the US will be a magnet. Yet we haven't changed our policies to counteract those forces that draw immigrants here. Why not? Well, just take a look at who benefits from illegal immigration.

Pros and Cons

Different groups have different reasons for supporting illegal immigration. Humanitarian groups see the conditions the immigrants are fleeing, and they are sympathetic to their plight. I'm pretty sure this is reasonable, up to a point. Businesses like hard workers who can't or won't demand higher pay--it's good for their profit margins. This is less defensible. However, if your competition is hiring illegal immigrants and paying less, you may have to do the same or shutter your business. Businesses also benefit from a larger consumer base, and they won't complain about that. Democrats like illegal immigrants because supporters/allies of illegal immigrants also generally support of most of the Democratic agenda--social spending, cultural diversity,  . . . and voting Democratic, naturally.

Actually, it sounds like everyone should like illegal immigration. I must have neglected the downside. Let's see . . . it costs extra to educate them, provide medical care, jail them, enforce laws, etc. They are stiff competition for desirable jobs. Some people dislike that they are Latino (or Asian or black) rather than European stock like the majority of the country, but I strongly disagree with that as a valid reason.

So with a bunch reasons to support illegal immigration and also a bunch of reasons to be against it, it's no wonder that we haven't controlled the level of illegal immigration that well.

The Unspoken Reason for Allowing Illegal Immigration

I think I forgot to mention another major reason to support illegal immigration: it helps prevent wage and price inflation. For some economists and a bunch of politicians, that is a major reason to tacitly support it. Inflation is quite the bogeyman, but if you can prevent it, you can have all sorts of wonderful growth numbers that make you look like a shining success. You can have growth in housing (built for less using illegal immigrant labor), growth in jobs, growth in GDP, growth in tax revenue--all these good things without the growth in costs. You don't have to give the economy a dose of that nasty anti-inflation medicine of raising interest rates to prevent overheating.

Yes, this is the biggest reason that we haven't exercised control over the level of illegal immigration. It's because the economy as a whole benefited in the short term. It's too bad that it was actually a bubble, and had to pop sometime. Now, we have over 11 million illegal immigrants, most of whom are working, are integrated into our economy and communities, and many of whom have American-born or naturalized family members. How are we going to disentangle this situation?

Incomplete Solutions

I don't see a good solution. Much of the GOP (except for the businesses that benefit and the economists who like very low inflation) don't really have a solution to offer. Some GOP-led states have tried to make employment and renting difficult for illegal immigrants, forcing them to move to other states or go back to their home countries. (I wonder how they go home. Do they have passports in order to board planes and cross borders? I don't know.)

I don't think that this squeezing has actually worked, though it seems like it should. There is certainly a lot of resistance to these tactics. It's not a humanitarian course--making life so inhospitable that people give up and go home even though the home country is a wreck. You've not only angered the illegal immigrants, you've also angered all their supporters. And, those state laws have been mired in the courts, so they haven't had a noticeable effect.

The GOP also says that it wants much tighter border security. I've read that the border is so wide open that anyone can cross. I doubt this, but I'm not close to any border, so I don't know if it's true or not. Border security sounds reasonable, but it's limited in its effectiveness. Many illegal immigrants come to the US in legal ways--on visitor or student visas, and then stay on. Border security isn't going to do anything about that. I seriously wonder how much improvement can be made. Should we erect walls like Israel has? We haven't even started the discussion and assessment to make a cost-conscious decision on this.

I don't hear the GOP talking as much about putting the screws on employers so they won't hire illegal immigrants. This should be part of their proposal, except that it antagonizes businesses, who are necessary GOP allies. That's yet another case of political necessity trumping principle.

The Democratic proposals are even weaker. Most Democrats want amnesty for illegal immigrants and a path to citizenship (and voting for Dems in elections). They don't say much about preventing further illegal immigration.

Punt

I don't have a good proposal myself. I lean towards deportation, but that may be economically disruptive and it's a humanitarian nightmare. Is there a way to legalize the good illegal immigrants, send the marginal ones back, and then cut off the flow in the future? That's what I'd like, but I don't know how to accomplish that. So I'd appoint a bipartisan commission, have them study the issues and make recommendations. And unlike other times with other commissions, I'd actually listen very carefully to what they recommend. That's how I'd handle this hot potato--give it to people who are smarter than me.

Do you want to know what's the most ironic thing here? Both sides say they want 'comprehensive immigration reform.' HAHAHAHAHA. Yeah, right. That's why we've had so much progress in the last 28 years.

Image: mwfpress.com

Extras and sources. Watered down employer sanctions and other problems in the 1986 reform. Texas is still not ready to hold employers accountable. Anti-immigrant site with its take. Does the announcement on immigration fall under the mantle of legitimate discretion? It's not lawless, according to a conservative legal scholar. What can the GOP actually do about Obama's plan? A history of the recent promises of immigration reform.