David Frum on the Death Knell of “Welfare Capitalism”, and Where We Should Go Next

Back in the 1920s Edward Filene–among other things, founder of what was the Twentieth Century Fund and is now the Century Foundation–argued that America did not need any variety of European “socialism”. Without bureaucratic rules to bind them, America’s large, efficient corporations would create lots of jobs. And because the large, efficient corporations of America would would find themselves in a labor-scarcity environment and so would provide for their workers as a result of market pressures better outcomes than what the workers of Europe had to gain through the ballot and the threat of the bullet–high wages, reasonable hours, pensions, sick days, health insurance (cough). Edward Filene’s vision did not rule America in the remainder of the twentieth century, but it did have a powerful influence on what America became.

Now David Frum is here to ring the curtain down on Edward Filene’s “Welfare Capitalism” and its impact:

David Frum: Out of jobs, out of benefits, out of luck: “The United States would provide only a very thin social-insurance cushion for people of working age, but jobs would always be available. Critics might deride the jobs as McJobs: often poorly paid, often offering scanty benefits. But better McJobs than No Jobs. To anyone who proposed tighter job protections or more generous social benefits workers came the crushing answer, ‘Do you want us to be like Europe?’ While American generated tens of millions of low-wage service jobs, the economies of Europe struggled hard not to lose jobs, even during good times. The tradeoff was patiently explained by free-market economists and is by now familiar to us all. More job rules mean less jobs; fewer rules will bring more jobs. And for a quarter-century, from 1982 until 2007, the old deal held true. Wages didn’t rise much, but demand for nurses’ aides, fast food servers and other low-wage service workers surged and surged….

Then, suddenly, the old deal broke down…. Mass and long-term joblessness characterize the U.S. economy of 2014 as surely as plentiful low-wage jobs characterized the U.S. economy of 15 years ago…. What are Americans to think of and do about their new economic dispensation? One answer is to deny that the dispensation is new at all. Republicans in Congress are working to repeal the emergency job benefits put in place in 2009, on the familiar theory that if we quit paying the unemployed, they’ll stop being unemployed…. Proposals to raise the minimum wage gain no hearing in the Republican-majority House of Representatives, whose members condemn such proposals as job-killers.

Yet these familiar arguments bump into an unfamiliar situation. Almost six years after the economic collapse of 2008, the ratio of job seekers to unfilled positions–which peaked at 5.5 to 1–has declined to 2.9 to 1, a ratio that would until now have indicated severe recession. The huge backlog of unemployed workers exerts downward pressure on the wages of those still working….

On the other hand, nobody seems to offer any credible new deal. Some cities and towns are experimenting with higher minimum wages. That may put money in the pockets of some workers at Wal-Mart and Starbucks. But people who can’t find work at $9 won’t find it easier to find work if their price is raised to $12. In a major economic address delivered in Osawatomie, Kansas, in 2011, President Obama speculated that more public-sector hiring might do the trick. But how many people can government employ?…

What we can at least do is refrain from further penalizing people whose problems nobody knows how to fix. People who can’t work still must eat. Americans in distress have a claim on the rest of the nation. Extend unemployment insurance. Sustain food stamps. While we’re looking for a new deal, at least quit deluding ourselves that the old deal is still operable. It’s not. It has passed on, from everywhere except our increasingly outdated memories.