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Shorter working hours and debt-driven growth
by William McGaughey
 

A threat to working Americans in the mid 19th Century was the displacement of labor caused by the introduction of “labor-saving” machines. The new factory system introduced machines to do the work more efficiently, and that meant that fewer workers were needed. Working people fought back with demands that the work day be shortened to eight hours. Even during the Civil War years, a self-taught mechanic named Ira Steward led a movement of working people toward that end. A nation-wide strike for the eight-hour day on May 1, 1886, laid the foundation for an international labor holiday known as May Day.

Republican administrations were generally sympathetic to that effort. In 1868, a Republican Congress passed and President Ulysses S. Grant signed into law a bill establishing an eight-hour work day. However, loopholes in the law allowed employers to evade their requirements. Labor agitation continued. Campaigning for President in 1880, the Republican candidate, James Garfield, said: “We may divide the whole struggle of the human race into two chapters: First, the fight to get leisure; and the second fight of civilization - what to do with our leisure when we get it?”

Another form of leisure was vacation time. On July 31, 1910, the New York Times published an article asking how long a man’s vacation should be. President Taft, a Republican, proposed three months. Business leaders disagreed, saying that one month a year was acceptable. Today, a century later, American workers average less than two weeks of paid vacation. Something has happened to the American dream.

President Warren G. Harding and his Secretary of Commerce, Herbert Hoover, played active roles in ending the steel strike of 1919. After reading a church report on the 72-hour workweeks in the American steel industry, Hoover concluded that such hours were a “black spot on American industry” and ordered the Commerce Department to do its own study.

President Harding’s help was enlisted. The President wrote a letter to the head of U.S. Steel asking that his company reduce working hours. He next invited top steel-industry officials to dinner at the White House to discuss the matter. Over much of the next year, President Harding and his cabinet members wheedled, badgered, and cajoled steel executives to end the long hours. Finally, on August 23, 1923, in the same issue that reported President Harding’s untimely death, the New York Times carried an announcement that directors of the American Iron and Steel Institute had approved plans for the “total elimination” of the 12-hour day in their industry.

After Herbert Hoover became President, the Great Depression began. The Hoover administration, enlisting the support of both business and labor, responded to the employment crisis by urging employers to reduce weekly working hours and pay. According to the administration, 25 percent of all employees were eventually put on shorter work schedules, saving between three million and five million jobs.

The Democrats reacted to this by passing their own shorter-workweek bill. The incoming Roosevelt administration initially supported the labor-backed Black-Connery bill calling for a 30-hour workweek. This bill passed the U.S. Senate on April 6, 1933, and the House was about to pass it as well. Then, according to historian Ben Hunnicutt, “the Roosevelt administration got cold feet and encouraged government jobs programs instead of work sharing to increase employment.” The House Rules Committee buried the shorter-workweek bill.

There is evidence that New York Senator Robert Wagner and his legislative aide, Leon Keyserling, worked behind the scenes to kill the Black-Connery bill. The National Industrial Recovery Act was drafted in its place. A Roosevelt advisor, Rexford Tugwell, wrote in his memoir: "It will be remembered that one of the reasons why NRA was sponsored by Roosevelt, and why the act was passed in the special session of spring, was the threat of a thirty-hour law being pushed by Senator Hugo Black."
Keyserling went on to become the first chairman of the President’s Council of Economic Advisers during the Truman administration and later was an advisor to the United Automobile Workers. In the latter capacity, he vigorously urged the union to abandon its campaign for shorter working hours. This was considered a defeatist approach when compared with the option of economic growth.

Franklin Roosevelt’s Administration did later propose and enact two pieces of legislation promoting shorter working hours: The Walsh-Healey Act of 1936 and the Fair Labor Standards Act of 1938. The latter set a standard workweek of forty hours and required that workers asked to work beyond forty hours in a week be paid one and a half times their regular rate of pay. However, this law had a defect in that the higher rate of pay encouraged workers to work the longer hours. The trade-union movement, which had once agitated for shorter work hours, now became filled with overtime hogs.

In the 1950s, continued progress in labor productivity prompted discussion of further reductions in hours. Vice President Richard Nixon spoke enthusiastically of the day, “not too far distant”, when Americans would be working only four days a week and “family life will be even more fully enjoyed by every American.” That was in 1956, in the heat of the Eisenhower-Nixon reelection campaign. The youthful Vice President was promptly overruled by advisers in the White House who dismissed the speech as “an unstaffed idea”.

A Special Senate Committee on Unemployment, chaired by Sen. Eugene McCarthy of Minnesota, failed to recommend that the hours of work be reduced to meet the threat from automation. McCarthy himself later came to regret that decision. Senator Lyndon B. Johnson summed up the prevailing attitude at the time: “Candor and frankness compel me to tell you that, in my opinion, the 40 hour week will not produce missiles.”

Arthur Goldberg, Kennedy’s Secretary of Labor, stated: “Let me say categorically for the National Administration that the President and the Administration do not feel that reduction of hours will be a cure to our economic problem or to unemployment ... It is my considered view that the effect of a general reduction in the workweek at the present time would be to impair adversely our present stable price structure by adding increased costs that industry as a whole cannot bear.”

I think that a case can be made that Republicans have been better friends to working people than the Democrats with respect to promoting shorter work hours. Because of its close association with the labor movement, that would seem not to be the case but the historical record bears it out.

My proposal, then, is that progressive Republicans now support the call for a four-day work week that Richard Nixon recommended during the 1956 national campaign and that a Democrat of great intelligence and courage, Eugene McCarthy, proposed in the 1980s. Even if the unions are no longer backing this measure, it would go a long way toward easing the nation’s problem of long-term unemployment. There are few realistic alternatives.

This proposal now has an international dimension. It is a complicated subject which is not well understood. Further writings can be found at shorterworkweek.com.

During the 1930s, a Democratic administration abandoned the work-sharing approach of Herbert Hoover to pursue financial solutions to economic recovery. In 1936, British economist John Maynard Keynes published his book, “General Theory of Employment, Interest, and Money” in 1936, proposing the idea that government might ease national unemployment through deficit spending. During economic downturns, government money could create an artificial demand for products by spending with borrowed money. Then, when economies recover, the money could be paid back. The idea was that government need not have a balanced budget in all years - as narrow-minded Republicans seemed to favor - but should regulate spending to mitigate excesses of the business cycle.

In 1935, the Democratic administration of Franklin D. Roosevelt created the Social Security program. An American physician named Francis Townsend proposed giving every retired American, 60 years of age or older, a monthly pension of $200 as an inducement for older people to withdraw from the work force and make room for younger workers. This so-called “Townsend Plan” soon had supporters in all parts of the country. The Roosevelt administration responded with its own less-generous program to encourage retirement. Its Old Age Assistance, originally $20 a month, was increased in 1939. A Social Security trust fund was established with contributions from employers and employees. Individual retirement benefits varied according to length of service and financial contributions.

Social Security benefits have risen from $1,278,000 paid to 53,000 beneficiaries in 1937 to 3,477,243 - $961,000,000 paid to 3.4 million beneficiaries in 1950 to $31,863,000,000 paid to 26.2 million beneficiaries in 1970 to $247,796,000,000 paid to 39.8 million beneficiaries in 1990 to $615,344,000,000 paid to 50.9 million beneficiaries in 2008. The Medicare program, enacted in 1965, to pay medical bills for older people cost $599 billion in 2008. Medicaid, a companion program for low-income people, cost $204 billion in 2008. Despite increased contributions from employers and employees, the benefit payments from these three programs cannot be sustained over the long term. Current workers are paying for benefits to workers in a previous generation.

The Great Depression lasted for twelve years. Down from 25 percent in 1933, U.S. unemployment was still at 15 percent in 1940. What ended the depression was not New Deal social programs but wartime spending and manpower use during World War II. The government borrowed heavily to finance the war. Millions of young men, who might otherwise have sought jobs, were drafted into the military. Because of wartime wage-and-price controls, employers to attract labor started offering health-insurance benefits. After the war, there was a pent-up demand for consumer products which carried the economy into more prosperous times.

In 1929, a writer named Kenneth Burke wrote a satirical essay titled “Waste - the future of prosperity” for the New Republic, accurately anticipating future trends in the economy. “War is our great economic safety-valve,” he said. “For if waste lets up, if people simply won't throw out things fast enough to create new needs in keeping with the increased output under improved methods of manufacture, we always have recourse to the still more thoroughgoing wastage of war."

Although this article was meant to be satyrical, it proved prophetic. In 1947, Bernard Baruch, who had directed the War Industries Board during World War I, proposed a 44-hour workweek to increase national output and jobs. He said: "Unless we work, we shall not be able to maintain our claim to power. That would be the greatest blow we could receive, for it would strip us of our strength to preserve our way of life."

There is evidence that top government officials in the Truman Administration favored increased military spending for purposes of economic stimulus. A National Security Council memorandum, NSC-68, written by State Department analyst Paul Nitze with Keyserling’s help argued that the United States could best achieve economic growth through an arms build-up to counter the Soviets. This document required that the United States increase defense spending to as much as $50 billion per year from $13 billion. Preparations for war would produce a “growth dividend” so that the weapons program, the report authors suggested, would practically pay for itself.

Dwight D. Eisenhower, a man of considerable military experience, argued forcefully against this approach in a speech delivered during his 1952 campaign for President. He accused the Truman administration of trying to fool the American people with a “deceptive prosperity” brought on by inflation.

Eisenhower said: "There is in certain quarters the view that national prosperity depends on the production of armaments and that any reduction in arms output might bring on another recession. Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy? According to this way of thinking, the success of our foreign policy would mean a depression."

Nevertheless, what departing President Eisenhower called “the military-industrial complex”, championed by Keyserling and others, did carry the thrust of what became U.S. economic policy: We would “grow” our way out of economic difficulties by enterprises useful or not, including arms production. Besides containing Soviet expansion, such spending financed through debt would “prime the pump”. Becoming a military superpower on borrowed money was so much more important than what individuals having more free time might do with their stupid little lives.

And so, under the influence of Democratic administrations, more of the U.S. economy came under the control of government. More economic control was placed in the hands of persons who managed pools of money. Besides Social Security and related programs, we had private pension funds. We had more shares of stock managed through mutual funds. Health insurance was another growing type of monetary accumulation. Private investors also turned to money-market funds, real-estate investment trusts, commodity-index funds, private-investment funds, hedge funds.

It was a bonanza for Wall Street banks and investment firms. Such firms started giving to Democratic as well as Republican candidates. Politicians of both parties became beholden to them. Deregulation of the banking industry, introduced at the close of the Clinton administration, opened the floodgates to outright gambling with other people’s money. Meanwhile, public and private debt soared to unsustainable levels.

In the second half of 2008, the Lehman Brothers investment firm went bankrupt as the housing bubble burst. The Wall Street gamblers had bought credit-default insurance from insurance companies having inadequate reserves to cover their bets. Treasury Secretary Henry Paulson and Ben Bernanke at the Federal Reserve arranged for a taxpayer bailout of AIG to save Goldman Sachs and, they said, prevent total collapse of the nation’s credit industry. The voters rightly turned the profligate Republicans out of office and put Barack Obama in the White House. But the Wall Street party continued - more borrowing, more bonuses, more stimulus money to help interest groups.

Americans today are worried about jobs. Officially the latest recession has come to an end, but the jobs have not returned. There are currently 4.8 job applicants for every job opening. People realize that, in view of production being outsourced to low-wage countries in Asia, the well-paying jobs that used to be found in the manufacturing sector may never return.

Professional educators, playing upon those fears, hawk their high-priced product as the only way to avoid a life of menial labor or the unemployment lines. Today’s generation of young people therefore begin their careers shouldering a heavy load of student debt even as the job outlook remains bleak.

Debt, debt, and more debt are everywhere. Our national debt stood at 5.73 trillion when George W. Bush took office in January 2001. Barack Obama’s administration inherited a debt of $10.63 trillion in January 2009. Today, less than two years later, the national debt stands at $13.67 trillion.

This is the end of the line for a type of economic policy begun in the New Deal and carried on through the Truman administration. Deficit spending is a policy that can be squarely tied to the Democratic Party. Old-style Republicans, George W. Bush not among them, are relatively clean.

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