The 60s and the 90s: The Golden Age for American Workers

     Jared Bernstein did that post a few months back about the fact that if you put your money into the market during only Democratic Presidents you'd have a huge return while you'd have a much more modest return if you put your money and held it in the market only during Republican Administrations.

     Of course we can speculate on this in various ways-there is always the danger of the correlation-causation fallacy. Still the question begs: seeing that this is the case why does Wall Street prefer the Republicans? When push comes to shove they always feel more comfortable with them being the ones to give them "business friendly policies."

     Why is this in view of Bernstein's observation? Good question. I guess Wall St believes in certain policies-low or no taxes on capital gains, deregulation, union busting that the GOP is the more reliable partner on. What's really sobering when you hear what the truly "business friendly" countries are held to be-Singapore, Latvia, Ireland.

    Maybe Wall Street wants the party that has presided over the most boom-bubble-busts. In that regard the GOP has the lead though the Clinton 90s became a bubble.

     Switching form Wall Street to Main Street, it's pretty clear which party American workers do better under. The golden ages for US workers are the Kennedy-Johnson 60s and the Clinton 90s. Both decades finished with unemployment beneath 4%.

     Marcus Nunes over at his Faint of Heart website a few months back did a piece comparing the 60s to the 90s as well. He preferred the 90s. He prefers it because of price stability. Yet, inflation was not a problem in the Kennedy-Johnson years until 67-68, and even then it was quite mild in absolute terms. Arguably that was the start of the inflation boom we saw in the 70s.

    Yet the end of the Clinton years were perhaps the start of the real estate bubble-it started in 97-98 though it really came into its own from 2002 on.

    What's interesting is that by the 90s there was no "wage-price spiral" like there was in the era of the 60s which is why Greenspan didn't raise rates all that much despite talk of "Irrational Exuberance." He did wonder if there were an "asset bubble" but never followed up on it.

     What's interesting to me is that while both the 60s and 90s were high growth years with very low unemployment under a Democratic President, ,employers themselves are not always so comfortable which such low unemployment. The 60s boom led to the concern over a "labor shortage."

      Why? Because if you see the labor market as just another market of supply and demand of a (human) commodity then you see that eras of such low unemployment are "sellers markets."

      What we have lived in during the current era of Krugman's "Depression economics" is a buyer's markets. In some ways corporate American thrives under such conditions as perverse as that is. Here we can't but think of MInsky's instability hypothesis. True, his instability he had in mind was financial.

       But he did somewhat pessimistically say that there is no final resting place of stability in a capitalist system, though it is possible to usher in a large period of stability-like the New Deal Capitalist era of the postwar era.

       Marx-of course capitalism's great nemesis-spoke of internal "contradictions" in capitalism.  One aspect that is certainly in major tension is the fact that during worker golden ages, corporate America often starts to chafe even if profits are up because labor is too strong for their purposes.

      In many ways ideas like NAIRU are much more efficacious to them. Again, recall, that in the 90s during the early years of Clinton it was wondered how much hotter the economy could become-it was believed that the "natural unemployment" rate was only about 6%, any lower would open the Pandora's Box of inflation.

      Greenspan concluded that with the weak unions there would be no wage-price spiral. Since the Bust of 2008 many Republican economists have been talking about the idea that we are already at NAIRU. What really is Tyler Cowen's Great Stagnation hypothesis but the same NAIRU idea in a new wine bottle?

      Keeping unemployment higher enforces labor discipline keeping wages lower. So while some wrongly say that Cowen's hypothesis is nonideological-not Left or Right or even Keynesian or Monetarist-it is basically a Right wing notion.

       The idea of keeping unemployment at 9% or even what it is now at 8% might seem pretty brutal particularly if you are one of the unemployed. Yet there is a theory that having a higher unemployment rate is somehow socially optimal or welfare enhancing.

       Anyway this begins to give you an idea why though the Democrat agenda has been better for workers-and indeed Pace Bernstein for the stock market-this agenda is still very controversial with a lot of push back. Strange to say that in good times when everyone is employed and getting richer there really is some smoked filled room of businessmen, policy makers at both the Fed and in Congress worrying that workers have it too good.