We’ll not keep
you in suspense. The rather forced pun
in the title of this blog comes from the fact that the article that suggested
it, “When the Welders Came to Capitol Hill” (Wall Street Journal, A19) appeared on May 15, 2017, the one hundred
and twenty sixth anniversary of the issuance of Rerum Novarum, Pope Leo XIII’s encyclical “On Labor and Capital.”
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| Representative Tom Snozzi (D, NY) |
The piece by
Representative Tom Snozzi (D, NY) zeroed in on how “America needs more of them
[i.e., welders] and what they
represent: good jobs at good wages.” As
the Hon. Mr. Snozzi expanded on his theme,
Census data show that in 2015 there were 105 million full-time jobs
in the U.S., about 59 million of which paid less than $50,000 a year. That’s not enough to raise a family and
achieve the American dream.
Mr. Snozzi appears
to put the blame on “[g]lobalization and technology.” As he said, cheaper foreign labor and
displacement of domestic labor by improvements in capital “rendered [the
American workers’] stable, good-paying jobs obsolete.” His solution?
Policy experts, economists and politicians (including me) have
pushed college education as the solution.
We’ve argued the more you learn, the more you earn. Yet minting more college graduates in the
STEM subjects — science, technology, engineering and math — is only half the
story. The other half ought to be
creating jobs that can be filled by graduates of high schools, trade schools,
community colleges and union apprenticeships.
And how to do
this? Mr. Snozzi has the answer there,
too:
The policy debates in Washington — over the corporate tax, the
income tax, regulatory reform, infrastructure spending — should be centered on
creating positions like these.
Republicans and Democrats should pledge to work together to create and
fill, by 2020, five million new jobs that pay at least $80,000 a year. . . . [Americans]
don’t need a massive infrastructure plan only because America’s roads, bridges,
sewers, water lines and mass transit systems are in disrepair. Americans need these things because they will
create jobs at home and rebuild the middle class.
So why is this
ironic? Wasn’t it published on the
anniversary of Rerum Novarum, the
encyclical on the living or just wage, and that called for massive State
intervention in the economy?
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| Pope Leo XIII |
Not exactly. An objective reading of Rerum Novarum reveals something very odd. For example, regarding government
intervention to create jobs or guarantee life’s necessities or anything else,
right up front we read, “There is no need to bring in the State. Man precedes
the State, and possesses, prior to the formation of any State, the right of
providing for the substance of his body.” (§ 7.)
Now, admittedly,
barely two years after Rerum Novarum
the Panic of 1893 and the Great Depression of 1893-1898 hit the United
States. The Panic and the subsequent
economic downturn were triggered and exacerbated by an inadequate banking
system and an inelastic, debt-backed reserve currency — but that is a
discussion for another day. Our concern
today is the remedy proposed by Jacob Coxey of “Coxey’s Army” fame and others:
increase government debt to inflate the currency and finance public works to
create jobs.
Twenty years
before the U.S. government had done nothing to alleviate the effects of the
Panic of 1873 and the Great Depression of 1873-1878 except restore a sound
currency. While the reserve currency
(the National Bank Notes) was inelastic and debt backed, parity with the gold
currency had finally been restored along with convertibility; the paper dollar
and the gold dollar had the same value.
What brought the
country out of the depression was bumper crops of cotton and wheat in the U.S.
and the failure of the cotton crop in India and inadequate wheat harvests in
Europe. U.S. farmers had a market for everything
they could produce.
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| "The Great Commoner," William Jennings Bryan |
Nor did the
government do anything during the Great Depression of 1893 to 1898 except start
discussions on the need for monetary reform . . . which were derailed by
William Jennings Bryan’s making “the Silver Question” the issue of the
day. What brought the country out of the
depression was a repeat of 1878: bumper crops of wheat in 1897 and 1898 (the
boll weevil was making inroads on cotton at this time) and failure of the wheat
crop in Europe. Once again U.S. farmers
had a market for everything they could produce.
The push for
monetary reform did not get under way until the man-made Panic of 1907, “the
Bankers’ Panic,” revealed the deep flaws in a financial system without a
central bank and saddled with an inelastic, debt backed reserve currency. Enslaved by past savings, the currency was
faced with supporting future growth, which is unsustainable in the long run —
but, again, a topic for another day.
It wasn’t until
the Great Depression of 1930 to 1940 following the Crash of 1929 that programs
like those Mr. Snozzi recommends were put in place. The New Deal was, to all intents and
purposes, what Jacob Coxey had proposed in 1894: debauch the currency and issue
government debt to finance job creation to rebuild infrastructure.
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| President Franklin Delano Roosevelt |
The results of John Maynard Keynes's and Franklin Delano Roosevelt's New Deal are revealing. In the 1870s
and 1890s the government did nothing except restore or maintain a sound
currency. There were problems with it,
of course, but nothing that was not fixed with the Federal Reserve Act of 1913
and the Sixteenth Amendment (yet another subject for another day: why a central
bank and an income tax — although certainly not the way they are being used
today — are essential and necessarily go together in a modern economy). In both cases, the country brought itself out
of the depression in five years due to increased production and a market for
what was produced.
In contrast, the
Great Depression of the 1930s lasted a decade — and included a “depression
within the depression” — as a result of the artificial stimulation of demand by
inflating the currency and increasing government debt. The U.S. only pulled out of the depression
when the country started gearing up for war and the government was buying
everything that could be produced.
Thus, while we assume
that Mr. Snozzi is well-intentioned, he is proposing a State-driven artificial solution
that has been proven not to work, and ignoring a natural one that has worked at
least twice in the last 150 years: Let the State provide equality of means and
opportunity, while people meet their own needs.
Monday we’ll take
a look at why Mr. Snozzi’s proposal is wrongheaded and won’t work.
#30#