Strikes like UAW's John Deere are the last thing America needs right now: Stephen Moore, E.J. Antoni

After some four decades of relative peace between Big Labor and employers, some unions are feeling their oats and flexing their muscle again.

A prominent case in point is the 10,000 United Auto Workers union members who are now striking against John Deere for the first time in 35 years. The company offered the workers a five percent raise, but the union balked. 

With inflation running at closer to six percent, a five percent raise could mean a loss in purchasing power for the rank and file workers. John Deere will almost certainly have to pay more and those higher costs for wages and salaries are likely to get passed on to consumers—which then makes prices higher and the vicious cycle can lead to a snowball effect from inflation. 

In the 1970s, the UAW famously had a contract agreement with eight percent raises annually over three years—but nine and ten percent inflation wiped out any gains in real income for the workers.

UAW'S JOHN DEERE STRIKE THREATENS SUPPLY CHAIN, FOOD SUPPLY

Today’s inflation numbers are feeling reminiscent of the mid 1970s, when volatile price changes created unrest in the labor market and even economically bone-crushing strikes that hurt the whole economy. Real wages fell for working class Americans in the late 1970s and we don’t want to replay that vinyl record.

History proves that mismanagement of the money supply and a dollar that loses value causes convulsions in the labor market. Annual inflation spiked to 7.9 percent for 1951, and a record 470 strikes occurred the next year. In the late 1960s, inflation rose to 5.4 percent and the number of strikes rose above 400 in a single year.

SUPPLY CHAIN BOTTLENECKS WREAK HAVOC

But as price volatility moderated starting in the Reagan years, so did strikes. Not only did inflation decrease in the early 1980s, but it became more predictable too. A stable dollar that retained its value allowed labor and management to reach mutually agreeable contracts on wage increases. 

From 1947 to 1982, a period of lots of strikes, inflation rose and fell wildly, with the annual rate changing as much as 8.7 percentage points in a single year and having a 14.5 percentage point range from  negative 1.0 percent to 13.5 percent during that period.

Not so in recent years with inflation held at or below two percent. 

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Until now. Suddenly it feels as though we are in a "Back to the Future" sequel with Michael J Fox. We have rising prices with economists all over the map predicting where it is all headed. The Federal Reserve is sticking with its story of transitory inflation, but many market analysts worry about high inflation for at least another year.

For unions and managers to negotiate a fair contract for two or three years is guess work. The Fed should focus on its primary job of holding prices constant—or at its targeted rate of about two percent annual increases.

We predict, as do others, including the Wall Street Journal, that there will be many more strikes in the months ahead. Union bosses realize that they have leverage given the 11 million unfilled jobs and the booming stock market. Big Labor also realizes it has a president in the White House who will do its bidding. 

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We are for higher wages for workers when they can get them. But our concern is that as jobs openings sit unfilled, factories and store shelves will start to look empty. A supply chain that was tuned for maximum efficiency is now gasping for air, with bottlenecks at every turn. 

Industrial production has fallen for the last two months to the average level of 2017—no better off that it was four years ago. The latest forecast by the Atlanta Federal Reserve has growth for the third quarter of this year tracking at an anemic 1.2 percent. 

The best way for Washington to ensure long term worker gains—whether they are members of unions or not—is to get inflation, which is a de facto wage tax, under control. It would help if Congress would cease and desist from spending and borrowing trillions of dollars we don’t have because this could ignite even faster inflation.

Strikes can be a form of mutually assured destruction, and often times both sides lose in the end. With the economy finally climbing out of the pandemic hole, and a worsening supply shortage, this is the last thing America needs.

Stephen Moore is an economist at Freedom Works and author of Trumponomics: Inside the America First Plan to Revive our Economy.  E.J. Antoni is an economist at Texas Public Policy Foundation.