David R. Henderson  

Obama's New Deal, Part 3

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In a recent post, I said that whatever other mistakes Obama was making, at least he was repeating only 1 of 4 mistakes that Hoover/FDR (I think I'll start calling them Herbert Delano Roosevelt) made. Commenters pointed out correctly that Obama might be repeating a second mistake: the protectionist (I call it "barrierist") mistake that Hoover made.

Well, now Obama is going for the trifecta. According to the WaPost:

Obama issued an executive order Friday requiring federal agencies to consider putting in place agreements that set wages, work rules and other benefits when awarding major construction contracts.

In other words, Obama is trying to maintain wage rates on construction projects at an artificially high level. That's, of course, something Hoover and FDR did with wage rates generally, with devastating effects.

The Post continues:

The executive order "has the unfortunate potential to limit contractors' ability to compete for projects" at a time when 1 million construction workers have been laid off, Stephen Sandherr, chief executive of the Associated General Contractors of America, said in a statement.

Also:

"If the purpose of these projects is to get Americans back to work, why would we pick an approach that would allow only a small percentage of the construction workforce to participate?" asked Jerry Gorski, national chairman of the Associated Builders and Contractors. The industry group says 84 percent of the country's construction workers are not in labor unions.

How does Obama justify this? Here's the following from Obama spokesman Tommy Vietor:

"We think it will make procurement dollars more efficient so taxpayer dollars aren't wasted," he said. "It creates a more smooth and efficient process that protects workers and employers before the project begins."

Get it? Adding a constraint makes things smoother and more efficient.

HT to Steven Davis


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CATEGORIES: Labor Market



COMMENTS (10 to date)
dearieme writes:

Hoover was conspicuously clever; FDR was a frivolous chump with a nasty streak. Yet they made much the same mistakes, except for FDR having the sense to stop the bank runs. There's a lesson there but I'm not sure what it is.

liberty writes:

I have been scared of Obama's tendency to repeat FDR's mistakes from the beginning.

I will point out the obvious: so far, this is only federal contract work (only the public works) and not the economy overall. Though, the more he "stimulates" the economy, the more this will tend to affect overall wages and employment.


Greg Ransom writes:

Both Hoover and FDR had been taken in by the ideas of Foster & Catchings on underconsumption and deficiency of aggregate demand in the 1920s -- as was Sen. Wagner and a great many economists.

Many of the mistakes of Hoover and FDR came straight out of the economic playbook of Foster and Catchings and the economists take in by this general outlook -- and you wouldn't be far to wrong to say that John Maynard Keynes was one of them.

Larry writes:

Isn't the real conclusion that we don't actually need 1m construction workers? If we're to return to sustainable full employment, a significant fraction of that group (and finance workers and auto workers) are going to have to find new careers. If only the stimulus focused on that...

Don the libertarian Democrat writes:

"The executive order "has the unfortunate potential to limit contractors' ability to compete for projects"

I'm puzzled by this. If everyone has the same minimum wage constraint, it means that the bids will have to rely on other factors than wages.I can see that this costs the taxpayers more, but it only rules out a bidder using lower wages to win his bid.

Now, if an employer has a union contract, he might not be able to lower his wages in such a competition. If that's true, we can at least see politically why this is anathema to President Obama.

By the way, since we are in a recession and ought to be able to get materials and other services cheaper now, we should probably want long term contracts on current projects.

Lee Kelly writes:

I prefer the term 'obstructionist' or 'trade obstructionism'. Easier to say than 'barrierist'.

Devil's Advocate writes:

Don - Wages are a significant component of the competitive market for the construction industry just like any other. If someone is capable of performing the work, and can do so at a lower cost because of their lower wage wates, why should they not be rewarded with the job? Such an award would presumably allocate the resources to their most efficient use and would permit the funding of additional projects. Of course any talk of efficiency requires you to ignore the fact that project is the result of confiscation and reallocation of resources based on political rather than economic calculations.

Elimination of wage competition as a component of bid competition will prevent the job (and wages in general) from being bid down to market value. If an unrestricted bidding process disadvantages unions then isn't that just one of the consequences that a union member suffers in turning over their services to an entity whose primary purpose is to increase wages above their market rate? Why would we as taxpayers want less bang for our buck?

Bob Murphy writes:

I don't understand the spokesman's reference to "waste." I thought with idle resources, the only way to waste tax dollars was by cutting taxes?

Don the libertarian Democrat writes:

Devil's Advocate, I agree. That's why I said it will cost the taxpayers more. But the alternative,namely, President Obama agreeing to rules that will adversely impact on unions, seems politically unreal.

I simply want us to remember that Political Economy trumps Economics. That doesn't necessarily mean that you have to give up, even if you're a Democrat, but it does mean that you're going to have to find some way to allow unions to not be at a disadvantage. Some way of splitting the difference might work. A perfect solution, probably not. But I'll take saving real money anyway I can everyday.

Lew Brown writes:

Hasn't anyone in Congress or the White Office other than the opposition party read about the Great Depression? Transfer payments, only U.S. companies, labor wages for contractors....a great start on repeating mistakes of the '30s. It appears to be more "Smoke and Mirrors" from the President to House to Senate to Treasury....what is going on up there. Don't we have anyone who has met a payroll or has everyone been on the government payroll all their life?

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