The “Buy Now” Campaign
In the early days of the Great Depression there were attempts to create a moral imperative against the bargain craze that led consumers to postpone purchasing.33 The Washington, DC, Chamber of Commerce launched a campaign in 1930 with the slogan “Buy Now for Prosperity.” A “Prosperity Committee” sought the participation of clergymen of all denominations to “preach prosperity through their pulpits” and thereby to “stimulate production, relieving the unemployment situation.”34 When he became president in 1933, Franklin Roosevelt launched his own “Buy Now Campaign,” describing patriotic citizens overcoming their impulse to wait for lower prices in order to support a stronger economy.35 In August 1933, a “Buy in August” campaign described patriotic people as making a special effort to buy retail products in August, the slowest month of the year for retailers. Consumers were reminded that August was “canning time” for many fruits and vegetables and so a good time to buy them. The campaign publicized the seasonality of consumer prices, implying that prices would rise for the rest of the year and that wise consumers should purchase now.36 Clearly, the “Buy Now” campaign was an attempt to counter the “prices will fall” narrative that had taken hold.
Later Boycott Narratives
After World War II, the United States experienced something akin to a repeat performance of the 1920–21 depression and its boycotts. But this time government authorities remembered the narrative of 1920–21 and used it to guide their response. After the war ended in 1945, the US authorities maintained the wartime price controls for a while to prevent the kind of inflation experienced in 1919 after World War I. From April to October 1945 there was a very brief but sharp recession linked to demobilization, a recession with stable prices as measured. But as the US government lifted the controls, prices began to rise rapidly, and by 1949 they were about 30% higher than they’d been in 1945. Once again there was talk of consumer boycotts and a buyers’ strike, and there was a recession in 1949 that resembled that of 1920. Newspapers again reported that buyers were waiting for prices to come down before buying postponable items.
The severe recession of 1973–75 is widely attributed to an embargo, the selling counterpart of the boycott. The Arab oil embargo began in October 1973 during the Arab-Israeli (Yom Kippur) War. The embargo took the form of limiting the supply of oil from the Organization of the Petroleum Exporting Countries (OPEC), which sympathized with the Arab nations that had attacked Israel and were about to be defeated, with US support of Israel. The embargo was a principle- or emotion-driven event, continuing long after the war ended in the same month it started. It was a statement of moral support for the Arab countries, even though only one of the eleven OPEC countries (Iraq) was among the five Arab countries that participated in the war.
Many of the narratives surrounding the recession of 1973–75 had a source in human anger. The most cited cause of this recession—the oil crisis generated by OPEC angrily protesting US support of Israel in the 1973 Yom Kippur War—was only part of the story. The price of oil suddenly quadrupled to unheard-of levels, generating anger among consumers and stories of difficulties dealing with oil rationing in the United States, such as odd-even rationing of gasoline. (Consumers could buy gasoline only on odd-numbered days if their license plate ended with an odd number, and only on even-numbered days if their license plate ended with an even number.) Higher oil prices caused higher electric bills, and anger at the perceived injustice was one of the reasons many people started keeping much of their homes in darkness, as a sort of protest.37 In the period of runaway US inflation of the 1970s, when many viewed inflation as the nation’s most important problem, one observer wrote in July 1974, “Fighting inflation is like fighting a forest fire, it requires courage, team play, and coordinated sacrifice.”38 At the time, US annual inflation was 12%, which was a record high excluding periods surrounding the world wars.
The firefighting metaphor has moral overtones that might have caused people to curtail spending. Indeed, at the very beginning of the severe 1973–75 recession, in April 1973, there had been a “meat boycott” in which consumers protested the high price of meat. That boycott reportedly put twenty thousand US meat industry workers out of their jobs.39 In August there was a one-day boycott, a “Don’t Buy Anything Day.”40 The next year, in January 1974, with the economy well into the recession, angry consumers renewed the meat boycott and extended it to a grain boycott.41 The boycott sentiment remained in consumer consciousness for some time, generating reduced purchases of a wide array of goods and services, leading to, or at least contributing to, the recession.
During the world financial crisis years 2007–9 thousands of boycotts were reported, including boycotts of mortgage lenders and of gasoline, but boycotts and profiteering did not appear to rise to the level of economic significance seen in earlier episodes. Still, narratives that stimulate angry boycotts will likely appear in the future, just as they have in the past. How emerging businesses and labor unions are perceived—as either good or evil—matters greatly for the future state of the economy, a topic to which we turn in the next chapter.
Chapter 18
The Wage-Price Spiral and Evil Labor Unions
The wage-price spiral narrative took hold in the United States and many other countries around the middle of the twentieth century. It described a labor movement, led by strong labor unions, demanding higher wages for themselves, which management accommodates without losing profits by pushing up the prices of final goods sold to consumers. Labor then uses the higher prices to justify even higher wage demands, and the process repeats itself again and again, leading to out-of-control inflation. The blame for inflation thus falls on both labor and management, and some may blame the monetary authority, which tolerates the inflation. This narrative is associated with the term cost-push inflation, where cost refers to the cost of labor and inputs to production. It contrasts with a different popular narrative, demand-pull inflation, a theory that blames inflation on consumers who demand more goods than can be produced.
As Figure 18.1 shows, the two epidemics, wage-price spiral and cost-push inflation, are roughly parallel. Both epidemics were especially strong sometime between 1950 and 1990. These epidemics reflected changes in moral values, indicating deep concerns about being cheated and a sense of fundamental corruption in society. According to the narratives, labor unions were deceitfully claiming to represent labor as a whole, when in fact they were representing only certain insiders.1 Meanwhile, politicians and central banks were selfishly perpetuating the upward spiral of inflation, which impoverished real working people not represented by powerful unions. There has been a long downtrend in public support in the United States for labor unions, from 72% in 1936 to 48% in 2009, as documented by the Gallup Poll.2
FIGURE 18.1. Frequency of Appearance of Wage-Price Spiral and Cost-Push Inflation in Books, 1900–2008
These two related epidemics helped bring about major changes in labor relations and government regulation of business. Source: Google Ngrams, no smoothing.
These narratives were enhanced by detailed stories that invited angry responses. For example, around 1950 an outrageous story went viral about labor unions’ reframing their wage in terms of miles traveled rather than hours worked. The New York Times described it thus in 1950:
One of the rule changes asked by these two unions is that the pay base for trainmen and conductors on passenger trains be lowered to 100 miles or five hours, from 150 miles or seven and a half hours. The railroads have countered by asking that the basic day’s work be increased to 200 miles.… Because of recent technological improvements, including the greater use of diesel locomotives, the speed of passenger trains has been increased, where many passenger train service employes now receive a day’s pay for two and a half to three hours of work. By reducing the number of miles in the basic day to 100, the mileage rate of pay of the passenger train employes would be increased by 50 per cent.3
So, the story went, the conductors w
ould have the opportunity to sit down as passengers after working only two and a half hours, long before the trip was over. Such an outrageous demand made the narrative highly contagious, and it is memorable enough to be remembered today.
Labor unions became associated in the public eye with organized crime. For example, Jimmy Hoffa took over the International Brotherhood of Teamsters union in 1957, despite corruption charges against him then, and led that union as an absolute dictator. There was for years an ongoing story of his investigation for gangster-like activities, in a probe led by Robert F. Kennedy. Hoffa was convicted of bribery and fraud and went to prison from 1967–71. In 1975 he disappeared after being last seen in the parking lot upon leaving the Red Fox Restaurant in Bloomfield Township. Rumors were that he was murdered by rival gangsters. Rumors were that his body “was entombed in concrete at Giants Stadium in New Jersey, ground up and thrown in a Florida swamp, or perished in a mob-owned fat-rendering plant.”4 These colorful theories, which suggest vivid visual mental images of Hoffa’s ignominious end, led to the contagion rate of the Hoffa epidemic that further discredited labor unions. The search for his body in a garbage dump, an empty field, and elsewhere created news stories until 2013. This was a viral story, part of a constellation of narratives that described labor unions in negative terms, and which impelled many people to see real evil in them.
The wage-price spiral narrative was reflected in actual inflation rates around the world, which tended to be unusually high when the narrative was strong. The World Bank’s Global Inflation Rate peaked in 1980, approximately at the peak of cost-push inflation in Figure 18.1, and it has been mostly on the decline ever since. These epidemics also saw high long-term interest rates, reflecting the inflation expectations engendered by the narrative. Today, inflation is down across much of the world, and long-term interest rates have fallen since the epidemic peaked. The dynamics of this worldwide narrative epidemic likely provide the best explanation for these epochal changes in trend of the two major economic variables, inflation and interest rates.
The end of the wage-price spiral narrative was marked by changes in monetary policy and the advent of newly popular ideas: the independent central bank5 and inflation targeting6 by central banks. The independent central bank was designed to be free from political pressures, which organized labor tries to exploit. Inflation targeting was designed to place controlling inflation on a higher moral ground than appeasing political forces.
The moral imperative here was strong. On its face, the wage-price spiral may seem purely mechanical. However, many believed it was caused by the greedy (immoral) behavior of both management and labor. President Dwight Eisenhower referred to the spiral in his 1957 State of the Union address:
The national interest must take precedence over temporary advantages which may be secured by particular groups at the expense of all the people.… Business in its pricing policies should avoid unnecessary price increases especially at a time like the present when demand in so many areas presses hard on short supplies. A reasonable profit is essential to the new investments that provide more jobs in an expanding economy. But business leaders must, in the national interest, studiously avoid those price rises that are possible only because of vital or unusual needs of the whole nation.… Wage negotiations should also take cognizance of the right of the public generally to share in the benefits of improvements in technology.7
Even though 1957 saw only a moderate burst of inflation, from less than zero in 1956 to a peak of 3.7% in 1957 and far smaller than the 23.6% in 1920, it stirred emotions because of the moralizing narrative that attended it. A 1957 editorial in the Los Angeles Times exemplifies the reaction:
What is wrong with our country? A creeping inflation is like a small crack in a dam or dike as it grows menacingly larger by the force of the seeping water. The crack in our national economy is being widened by greed—greed of some leaders of big business and labor as they continue to boost prices and wages, each blaming the other, and neither pausing to realize that the economy of our country is at the breaking point with a crash being inevitable if we do not level off now and hold prices and wages. It may even be too late.8
The moralizing in these narratives, spoken by presidents and prime ministers and published and commented on by journalists, gave the US Federal Reserve and other nations’ central banks the moral authority to step hard on the brakes, risking a recession. They did just that, tightening money gradually until the discount rate rose to a peak in October 1957. Allan Sproul, the recently retired president of the Federal Reserve Bank of New York, in 1957 lamented the difficult role of the Fed as the “economic policeman for the entire community.” He noted the blame the Fed gets for the expansion before a crackdown:
As it is, there are times when your Federal Reserve System finds itself in the position of having to validate, however reluctantly, public folly and private greed by supporting increased costs and prices.9
Inflation in a Constellation of Injustice and Immorality Narratives
When inflation has been high, many commentators have regarded it as the most important problem facing the nation. Starting in 1935, the Gallup Poll has repeatedly asked its US respondents, “What do you think is the most important problem facing this country [or this section of the country] today?” During the era of highest US inflation, from 1973 to 1981, generally more than 50% of respondents responded by saying either “inflation” or “the high cost of living.” This perception appears to have been common across much of the world. Reflecting this view, economist Irving S. Friedman wrote in his 1973 book Inflation: A World-Wide Disaster that the increasing inflation was sending “panic signals throughout the world,” opining that the inflation crisis was as serious a problem as the Great Depression of the 1930s.10 Inflation was “eroding the fabric of modern societies” and “threatens all efforts to keep the international monetary system from fragmenting into hostile forces.”11
The discourse seemed to want to fix blame on some segment of society, either labor or business, for the inflation. Popular syndicated columnist Sydney J. Harris wrote in 1975:
WHAT IS SO frustrating about this kind of thing is the difficulty in pinning down the culprits, if any …
Either somebody is lying, or the whole economic process doesn’t make sense.
If labor is getting “too much,” why are most working families struggling to make ends meet?
If grocers are “profiteering,” why do they get glummer as prices go higher?
Where does the buck stop? Nobody knows. And so each segment blames another for the vicious spiral, and each justifies its own increases by pointing to its own rising cost of doing business.
THE MARKET NO longer seems to control prices when they keep escalating despite reduced consumption.
Some strange new twisted law appears to be operating in place of the classical formula of the “free market.”
I am not versed enough in economics to understand what is going on; neither are most people.12
In contrast to the 1920s and the preceding chapter, there were now multiple possible sources of evil behind inflation, not so focused on evil businesses of various kinds, but now also on evil labor.
In my 1997 study of public views of the inflation crisis in the United States, Germany, and Brazil, conducted after the worst of the inflation had subsided but during a period in which people remained concerned about inflation, I surveyed both the general public and, for comparison, university economists. My research uncovered differences in narratives across countries, across age groups, and, particularly, between economists and the general public.
For the most part, the economists did not think that inflation was such a big deal, unlike Irving Friedman, who was writing for the general public. Meanwhile, although US consumers did not agree on the causes of the inflation, they were nonetheless angry about it. When asked to identify the cause of the inflation, their most common response was “greed,” followed by “people borrow or lend too much.” In specif
ying the targets of their anger, the US respondents listed, in order of frequency, “the government,” “manufacturers,” “store owners,” “business in general,” “wholesalers,” “executives,” “U.S. Congress,” “greedy people,” “institutions,” “economists” “retailers” “distributors,” “middlemen, “conglomerates, “the President of the United States,” “the Democratic party,” “big money people,” “store employees” (for wage demands that forced price increases), their “employer” (for not raising their salary), and “themselves” (for being ignorant of matters).13
In addition, unlike economists, the general public believed in a wage lag hypothesis: the idea that wage increases would forever lag behind price increases, and therefore that inflation had a direct and long-term negative impact on living standards. In short, the wage-price spiral offered a geometrical mental image of one’s economic status spiraling down for as long as strong aggressive demands of labor kept it happening.
In some ways the 1957–58 recession differed substantially from earlier recessions. It did not have the character of a buyers’ strike, as the Great Depression did. In fact, sales of luxury items remained very strong. Anger was not so much directed against “profiteers,” and there was little shame in living extravagantly. The alarmist talk about the wage-price spiral did not focus anger onto the rich. Rather, sales of postponable everyday purchases suffered more.14
At the same time, the public sensed that no feasible government policy could stop the wage price-spiral. The earlier recessions of 1949, 1953, and 1957 had left inflation a little lower, but only temporarily. The lingering narrative of the Great Depression suggested to the general public that it was perhaps too great a risk to try to control inflation by starting a bigger recession. That idea was part of the popular conception of the wage-price spiral model, that the nation should base all of its economic decisions on the assumption that inflation will get worse and worse.
Narrative Economics Page 29