IF ONLY MAN WERE CLAY IN MEN'S HANDS TOO (via Robert Schwartz):

Once Upon a Time in America: Why GM and the UAW's postwar economic vision failed. (MICHAEL BARONE, November 27, 2005, Opinion Journal)

The success of the Big Three and the UAW seemed a fit symbol of America's postwar economic dynamism. In fact, this was an economy characterized not by dynamism but by stasis, to use Virginia Postrel's term in "The Future and Its Enemies." New Deal legislation had been designed not for economic growth but for protection from the downward spiral of deflation. Those laws, not least by encouraging unions, strove to prop up wages and prices and to provide security to workers and existing firms. Keynesian economics was employed to flatten out the business cycle as much as possible and to reduce unemployment.

By the mid-1960s, it was generally agreed that this system worked and would continue indefinitely. The Big Three could always make money by rolling out the big cars families needed to go up north each summer. As John Kenneth Galbraith then argued, auto makers could induce consumers to buy as many cars as they wanted to sell by clever advertising. UAW workers could always look forward to ever-increasing wages and benefits. The big demand in the 1970 contract negotiations was retirement for auto workers in their early 50s. The confrontational labor-management politics of the 1940s and 1950s was replaced by consensus, as Henry Ford II joined Reuther in endorsing LBJ in 1964.

Reuther, a man of great energy and ability, wanted to use the UAW as an entering wedge to transform America into a Scandinavian-style welfare state. His contracts would set the pattern for national wages; the union movement would expand into new industries and unionize most of the economy; growth would enable workers to enjoy not only high wages, but job security, medical benefits, generous pensions. They would be protected against competition by large corporations. Reuther employed a Scandinavian architect to build Solidarity House, the union's headquarters on the Detroit River, and Black Lake, its educational center in northern Michigan. Reuther, like Marx, and like so many other social democrats, envisioned workers devoting their increasing leisure hours to pursuing the culture that seemed so inaccessible to workers earlier in the century.

The problem was that the default character of the economy, after the shocks of depression and war, turned out to be not stasis but dynamism.

Bad to be wrong about how an economy works--disastrous to be wrong about how human nature works.

Posted by Orrin Judd at November 28, 2005 8:03 AM