Krugman: Bust the Unions

The title is meant to be tendentious, of course.  I don’t think this is what Krugman is up to, and it isn’t an appealing conclusion for me, but I see something close to an argument against unions in Krugman’s most recent column.

Here’s an example of the way things used to be: In May 1981, the United Mine Workers signed a contract with coal mine operators locking in wage increases averaging 11 percent a year over the next three years. The union demanded such a large pay hike because it expected the double-digit inflation of the late 1970s to continue; the mine owners thought they could afford to meet the union’s demands because they expected big future increases in coal prices, which had risen 40 percent over the previous three years.

At the time, the mine workers’ settlement wasn’t at all unusual: many workers were getting comparable contracts. Workers and employers were, in effect, engaged in a game of leapfrog: workers would demand big wage increases to keep up with inflation, corporations would pass these higher wages on in prices, rising prices would lead to another round of wage demands, and so on.

Once that sort of self-sustaining inflationary process gets under way, it’s very hard to stop. In fact, it took a very severe recession, the worst slump since the 1930s, to get rid of the inflationary legacy of the 1970s.

Here’s Krugman on what’s changed:

But where are the unions demanding 11-percent-a-year wage increases? (Where are the unions, period?)

This would be a very compelling example of structural rigidities, if the connection is there.  The inflation of the 70s and the recession of the early 80s were disasters.

Are there are other sources of this kind of self-sustaining inflationary pressure? Krugman didn’t mention any, but we’re talking about an op-ed, not a lengthy academic paper.

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3 responses to “Krugman: Bust the Unions

  1. Instead, what we have now is BLS inflation numbers that are basically bogus due to the Boskin commission (real inflation is somewhere between 7-11%), and no wage increases at all — which means that Americans are getting less well-off all the time as prices relentlessly rise.

    In the future, to paraphrase Neal Stephenson, everyone will have the standard of living of a Pakistani bricklayer — and the future begins now.

  2. I don’t see how you get to 7-11% inflation from the Boskin commission. At the time it was instituted, it had a roughly 1% impact on inflation calculation, and it’s not obvious that you should assume that’s a proportional effect.

  3. It had a much larger impact on inflation than that. I really don’t have time to do the research (again) to point out something so obvious, but sites like this:

    Big Picture and this are good places to get started.

    This is one of those things, like gravity, that doesn’t matter if you believe it or not. It’s still true.

    Don’t get me wrong, there’s no grand conspiracy to keep the numbers down, or anything of that nature. It’s just that changes favorable to the current admin (at the time) tend to get made, and those that are not favorable don’t get made. These have cumulative effects. Excluding food and energy, allowing “hedonic adjustment,” excluding home prices — it’s changes like these, and more, that allow the numbers to be incorrect every month.

    The funny thing is, if you read the BLS report in toto, the correct numbers are there, it’s just not these that are reported. Look at the entire report one time, and you’ll see what I’m talking about.