By the mid-1930s, the U.S. economy appeared to be climbing out of the Great Depression. The Dow Jones Industrial Average (DJIA), which had bottomed out at 41 in 1932, was advancing. It increased 73% from the beginning of 1935 through the end of 1936, when it hit 180. The number of unemployed, 13 million in 1933, dropped to 9.5 million in 1935 and 7.6 million in 1936.
Then, in 1937, the DJIA plunged 33% in what is often called “a depression within a depression.” Joblessness skyrocketed.
A principal factor in the meltdown that year was the U.S. Supreme Court’s surprise 5-4 decision in early April to uphold the constitutionality of the Wagner Act, which had passed two years earlier. This measure, which is still the basis of our labor relations regime, authorized union officials to seek and obtain the power to act as the “exclusive” (that is, the monopoly) bargaining agent over all the front-line employees, including union nonmembers as well as members, in a unionized workplace.
As Amity Shlaes observed in her recent history of the Great Depression, “The Forgotten Man,” within a few months after the Wagner Act was upheld, industrial production began to plummet and “the jobs started to disappear, with unemployment moving back to 1931 levels,” even as the number of workers under union control was “growing astoundingly.”
Given the reality of unions in the workplace, the law meant that efficiency and profitability were compromised, by forcing employers to equally reward their most productive and least productive employees. Therefore subsequent wage increases for some workers led to widespread job losses.
Pre-Depression-era growth and prosperity did not return to the private sector until the early 1950s, when the spread of state right-to-work laws prohibiting forced union membership and dues greatly reduced the detrimental effects of the Wagner Act.
The U.S. has just experienced another stock market crash, and Barack Obama, the candidate now favored to be the next president, is in favor of what amounts to a new Wagner Act.
“I owe those unions,” Mr. Obama explained in his 2006 political memoir, “The Audacity of Hope.” “When their leaders call, I do my best to call them back right away. I don’t consider this corrupting in any way . . .”
John McCain voted against card-check legislation in 2007, and has pledged to veto such legislation as president. He also supports a national right-to-work law that would repeal all current federal labor law provisions authorizing forced union dues and fees. Unfortunately, his campaign has done little to alert the nation to the dangers of the card-check bill.
Before they cast their votes, the American people ought to be aware of Mr. Obama’s commitment to the passage of a new Wagner Act, and of what the economic consequences of such a law are almost certain to be.