27 November 2008

A new WPA? Over my dead Union!

I read an interesting Newsweek article about the "new affluence" in America. With the current situation, and forseeable future adjustments, any bright spots are about 10 years away, with belt tightening rampant at all social strata until then.

America still has foreign debt, and seems to be maintaining current spending levels only by printing and selling T-bills (maybe the wrong term, but we're printing and selling something). The U.S. Government is currently disbursing a $700 million piss-in-the-wind fund, with some expectations of a second economic stimulus package.The American economy is very resilient, but real economic activity will be slowing to about half because all the "liquidity" has just evaporated in a meltdown of leveraged credit. Comming regulations are badly needed, but will have no impact on economic activity.

Retailers.... are just screwed. Consumers have negative net worth these days and almost zero savings. With a bleak economic forecast, the smart consumers will be shunning luxury items and even 'perks.' Those franchises that just opened new branches and dont have appreciable market share in their new areas - closing and writing off those same branches their best option.

TARP is a very apt name; hide financial weakness by whitewashing it. Throwing big wads of cash at fundamentally unsound problems. I think the Federal Government is making an enormous mistake by propping up AIG and CitiBank. The way I understand it, the only way of recouping government money is if those firms start to profit again. Unless this Republican administration required them to abandon using unregulated financial instruments (I'd be suprised, Paulson has been mum on the topic of further regulation, I read that as quiet resistance), they will continue to do so. These firms will feel even more pressure to profit now, so that they can stop Uncle Sam from looking over their shoulder. I have to expect that their past methods of 'risk management' will continue, especially since they have just been 'fixed'. A continuum of repeat failures on the parts of these firms is not acceptable to me.

Add that the American automakers are going to fail. If they've gone begging to the government, like they have done, then they are on the verge of going under. Again. They were losing money during times of prosperity, and they are going to do much worse now. Its way past time to pull the plug. And that means we're heading for an umemployment rate in the U.S. of something like 10%.

Almost out of the blue, someone mentioned to me that they had heard rumors of a WPA program coming. That was a suprise, and probably not grounded in fact, but it did get me to think about the overall state of affairs. If a Federal Public Works program were created, it would create a lot of jobs for skilled and unskilled labor, largely building infrastructure which is badly needed in many areas despite recent American prosperity. Surely that would be much more cost effective than an economic stimulus package. Prima Facie, it sounds good to me.

Unions won't stand for another WPA. Maybe that is a good thing, in the way that a terrorist attack is a serious wake up call to a situation of lax security (or poor socio-economic foriegn policy, but I digress). I feel that labor unions no longer serve a useful purpose, and are now actually anathema to free enterprise. Unions artificially increase wages while acting to reduce productivity. [Feel free to disagree here, but don't forget to factor in lost productivity time for picketing, contract negotiations, and union-determined productivity] I'm not saying that worker protections are uneccesary, I'm saying that unions have become powerful entities that are hindering economic progress. Certainly the U.S. automakers would agree. [Automakers almost don't count though, theres a forest of dead wood there that seems uninterested in making radical changes necessary to seriously compete in the auto market. Their cash cow until recently was pickup and SUV sales. That is not innovation, thats a gimmic which exploits a CAFE loophole. A loophole I want to see closed.]

I mentioned to my friend that the unions would never stand for a new WPA. He replied that their voice will count little when there are no jobs. That sounds good, but its an over-simplification. Here is what I see happening in the next 3 years. The big three fail, declare bankrupcy, merger, restructure or a combination of these. My money is on bankrupcy - the dead wood executives will want to restructure their status quo. There will be many union job losses but not 100%. So UAW will continue only slightly diminished.

Pilots, mechanics, and other airline workers have been getting progressively shittier deals through continual airline failures. They are union, but its not doing them a fat lot of good. There are many other union groups but I'll lump them with the most powerful - road construction and railroad workers. Construction companies do private work as well, but their main meal ticked is Federal and State infrastructure. The railroad industry has the most powerful lobby of the U.S. Government. Somehow they figuratively hold channel lock pliers around congress' balls. Amtrak collision? It was the respective railroad company's rails or signals that failed, but who picks up the tab? Uncle Sam. We never hear of Union disputes with the Railroad. Ever.

There is clearly a spectrum of union organizations in terms of union strength, which appears to be tied to the economic stability of their industry. So, how would they respond to a new WPA? They would all oppose out of solidarity, but by worker population they would be a minority. Unions serving economically weakened industries would rubberstamp this opposition, but a growing percentage of their former membership will want a WPA, and somewhat undercut their position. The stronger unions would be the most adamant, Railroad being the anchor, butconstruction workers causing the biggest problem. They will claim that a proposed WPA would be taking their jobs. Thats not necessarily true; it would be entirely possible for WPA jobs to work alongside union construction by performing lesser jobs. Also, WPA would not necessarily be limited to construction jobs. The reality would be that no construction company could compete with a cost effective WPA. They wll use the claim of unfair competition to try to litigate any WPA out of existance and try to get injunctions postponing any work and making a WPA ineffective.

That brings me to another WPA roadblock; Congress. A few lines above I used the phrase "cost-effective WPA." I don't see that happening as a result of actions from a contemporary congress. Given the abject failures or reconstruction in Iraq [which I blame on congress' failure to provide adequate oversight to planning and structuring the reconstruction program - since it clearly turned into a free for all of inept firms winning contracts to provide shoddy workmanship] I am extremely skeptical that congress could create a successful public works program.

These are my thoughts at the moment, I'll revisit and edit this some later.

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