Whippings for Workers and Locusts for Savers
The strike at Caterpillar‘s Joliet plant has ended in a crushing defeat for the union. Members agreed to accept a pay freeze for six years for most workers, and one 3% raise for those hired after May, 2005, a freeze on pension benefits, and a sharp increase in the worker share of health care premiums. Caterpillar is immensely profitable. It just gave its CEO a 60% increase in compensation, to $16.9 million. Based on the figures in the New York Times, I estimate the payroll at the Joliet plant at about $39 million.
At one level, this is just more evidence of the death of the liberal bargain. The old deal was that as productivity increased, some of the increased profits went to workers, and some to capital. The revised deal, effective about 1980, is that the workers only share in the gains from productivity if we are at full employment, and then much less than before. As Caterpillar explains, its employees at the Joliet plant were making more than market wages, and they needed to be whipped into line. In pursuit of its own self-interest, Caterpillar might increase wages at this plant if local labor markets tighten. In other words, no matter about productivity, work harder and Caterpillar gets all the profits. Not much incentive to work hard, is there? Perhaps CEOs are not subject to the same incentives as those stupid people who operate the machines to build hydraulic parts.
And in the comedy portion of this post, think about the CEO, Douglas R. Oberhelman, running a milling machine. On the other hand, I’m sure he’s pretty good at setting up asset-backed securities to off-load Caterpillar’s accounts receivable. Ayn Rand would be so proud.
At another level, this is the inevitable outcome of the failure of the government, led by conservatives of both parties, to deal with massive unemployment. Caterpillar union members aren’t cowards. They went months on next to nothing, but in the end, facing an intransigent management, and recognizing that a single plant can’t halt a world-wide enterprise, that other people are desperate for jobs, and with minimal support from their parent union, they surrendered. When management says “paid above local market levels”, they mean they can find acceptable replacements who would love to work for minimum wage. As long as unemployment continues, workers have no leverage against greed.
That liberal bargain about shared productivity gains isn’t the only part of the deal that has been destroyed. The old deal was that if you work hard, live within your means and save for retirement, you can accumulate enough money to provide for a good retirement and still leave something to help your kids. Lots of Americans lived by those principles, didn’t refinance their homes, didn’t borrow heavily, saved up to educate their kids and for retirement, and hoped to retire on Social Security, perhaps a small pension and the income from a small pile of financial assets.
The crisis next time: collapsing investment incomes for older Americans as artificially reduced interest rates force them to use up their savings and drive more pension plans into failure.
The Fed has been keeping interest rates low for more than ten years. The stated rationale for this policy is to encourage people to borrow and invest, making capital available to create jobs. Ha. Or as Johnston says:
Holding down interest rates to prop up banks and the economy and help the already rich buy assets on the cheap, amounts to an official policy to take from the ants who saved for their old age and give to the Wall Street grasshoppers. Given the economic devastation this causes, it is more accurate to say to give to the financial locusts.
Millions of everyday people, some in unions, some not, lived in accordance with these unstated bargains. They worked hard, they saved, they lived within their means, and now their savings are food for locusts. Mitt Romney and Paul Ryan are the spokesmen for the Oligarchy, telling all those people that the big problem is that government gives money to the poor bastards who bought the official line of borrow and consume as if tomorrow didn’t matter. That’s all worked out well for the pigs on Wall Street and their sleazy clients, because when push came to shove, the entire government apparatus fell all over itself to come up with creative ways to give them money. It really sucks for everyone else.