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The End of a Long Cycle

 

The latest move by the Fed to “stimulate” consumer spending by buying $600 billion in U.S. government bonds - "quantitative easing" - takes us a notch deeper into failed policy. We can’t lower interest rates any more and we have trouble selling our bonds. The solution: Print money.

We need instead to recognize that we’re at the end of a long cycle in which financial manipulations by government were preferred to regulation of the labor economy. This cycle started with Roosevelt’s New Deal. It now has to end. Money is not real. People’s productive capacities and consumer needs are real. The labor market is real.

Think back to when the New Deal started. People were then thinking in terms of work sharing to relieve unemployment. In April 1933, the U.S. Senate passed a bill for a national 30-hour workweek sponsored by Sen. Hugo Black. Initially, the Roosevelt administration was for it. Then, behind the scenes, the Administration made sure that this legislation did not pass the House.

It now seems that outside advisers and Congressional staffers were instrumental in killing that bill, especially Leon Keyserling, an aide to Sen. Robert Wagner of New York. He became the first chairman of the President’s Council of Economic Advisers during the Truman administration. In his memoir, Keyserling's mentor, Rexford Tugwell, wrote of the NRA, " It will be remembered that one of the reasons why NRA was sponsored by Roosevelt, and why the act was passed in the special session of spring, was the threat of a thirty-hour law being pushed by Senator Hugo Black."

Keyserling himself wrote to Arthur Schlesinger in 1958, " The National Recovery Act as they [Bernard Baruch's and Gerard Swope's men] wanted it would not have included either Section 7(a) or the wage or hour labor standard provisions. These emerged through a series of haphazard accidents reflecting the desire to get rid of the Black bill and to put something in to satisfy labor…"

The Roosevelt Administration subsequently went for a policy of deficit spending by government to stimulate the economy, and for paid retirement through Social Security. Keynesian economics came into vogue. The Administration did enact a 40-hour bill in 1938, including, however, a perverse incentive for employees to work longer hours to receive the higher overtime pay.The Depression dragged on for twelve years. Then World War II brought the economy back on track with massive government borrowing and labor-force restraint.

This lesson was not lost on government economists. A National Security Council memorandum, NSC-68, written by State Department analyst Paul Nitze with Keyserling’s help argued that the United States could best achieve economic growth through an arms build-up to counter the Soviets. The military budget would be increased from $13 billion a year to $50 billion. Preparations for war would produce a “growth dividend”, it was argued, so that the weapons program would practically pay for itself.

The Republican candidate for President in 1952, Dwight D. Eisenhower, argued against this approach. He accused the Truman administration of trying to fool the American people with a “deceptive prosperity” brought on by inflation. Eisenhower said: "There is in certain quarters the view that national prosperity depends on the production of armaments and that any reduction in arms output might bring on another recession. Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy? "

Eisenhower, who later warned of the growing influence of the “military-industrial complex”, knew that throwing dollars at a nonproductive enterprise such as the military would only inflate the currency. Yet, when his Vice President, Richard Nixon, during the 1956 campaign spoke warmly of the prospect that Americans might soon enjoy a four-day workweek and “family life will be even more fully enjoyed by every American,” White House staffers distanced the Administration from those remarks.

Since monetary and fiscal policy appear to have run out of gas, it’s time to get back to the approach favored by Hugo Black and the youthful Richard Nixon. We need to reduce working hours to offset the cumulative increases in labor productivity that have occurred over the past half century. Even John Maynard Keynes believed in this approach. In a letter to T.S. Eliot, he called shortened work time the “ultimate solution” to employment problems.

Specifically, we need now to amend the Fair Labor Standards Act in two respects: (1) Reduce the standard workweek from 40 hours to 32 hours. (2) Have employers pay the half-time overtime premium to the government instead of giving it to the employee. This money could go into a fund to reimburse workers their lost wages from shorter weekly hours.

I propose that a four-day workweek be put into effect immediately and then be kept so long as the unemployment rate remains above 6 percent. Then we can decide whether or not to keep it.

 

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