How the Spiral Spins
NOVEMBER 01, 1959 by HENRY HAZLITT
This article is reprinted by permission from Newsweek,
For years we have been talking about the inflationary wage-price spiral. But
Let us see just how those policies, over the last 25 years, have produced the wage-price spiral. First of all, under a series of laws beginning most notably with the Norris-La Guardia Act of 1932, followed by the Wagner Act and by its later modification, the Taft-Hartley Act, we decided that labor troubles developed chiefly because there was not enough unionization and because unions were not strong enough.
Therefore, we in effect put the federal government into the union-organizing business. We compelled employers to deal exclusively with the unions thus quasi-officially set up, regardless of how unreasonable the demands of these unions might turn out to be. Though illegalizing all efforts to deny employment to workers who joined unions, we explicitly legalized arrangements to deny employment to workers who did not join unions.
The Right To Coerce
But worst of all, we gave to the unions and union members a privilege not granted to any other associations or individuals—the power of private coercion and intimidation. By the Norris-La Guardia Act we in effect prevented either employers or nonunion employees from going to the federal courts for immediate relief from irreparable injury. We refuse, contrary to legal practice in every other field, to hold a union liable for the acts of its agents. We tolerate mass picketing, which is intimidating and coercive, preventing employers from offering to other workers the jobs abandoned by strikers, and preventing other workers from applying for such jobs. And then we are astonished and indignant when these special privileges, against which we provide no effective legal protection, are "abused."
The inevitable result of these laws is that we have built up huge unions with the power to bring basic national industries to a halt overnight. And when they have done this, we can think of no way of getting an industry started again except by giving in to the demands of the union leaders who have called the strike.
This accounts for the upward push on money wage-rates. But it does not account for the inflationary spiral. The effect of pushing wage-rates above the level of marginal labor productivity, taken by itself, would simply be to create unemployment. But as F. A. Hayek has put it: "Since it has become the generally accepted doctrine that it is the duty of the monetary authorities to provide enough credit to secure full employment, whatever the wage level, and this duty has in fact been imposed upon the monetary authorities by statute, the power of the unions to push up money wages cannot but lead to continuous, progressive inflation."
Not Facing the Issue
Soon or late our federal lawmakers and administrators must face up to the labor-union-boss dictatorship and the wage-price spiral that their own laws and actions have created. But they refuse to do this when each new crisis arises. When a nationwide steel strike is prolonged they become panicky. They seek to settle it by the only means that seem possible to them—by giving in once more to union demands, by granting still another wage increase and setting off a new upward wage-price spiral.
Senators demand the President appoint a "fact-finding" board to "recommend," i.e., to impose, in effect, compulsory arbitration that would compel the employers to grant another increase to employees who (at $3.10 an hour, compared with average factory earnings of $2.23 an hour) are already among the highest paid workers in the country.
Thus one government intervention begets a further government intervention. Because government has failed in its primary task—that of preventing private coercion—senators ask, in effect, for price and wage-fixing; and we are driven toward totalitarian controls.