Labor Advocate Online

Labor Party Leaders Meet
by Bill Onasch

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‘Housing Bubble’
An aspect of the housing crisis was one of the topics addressed by guest speaker Dean Baker, co-director of the Center for Economic and Policy Research. Baker is an unusual economist. He attempts to explain rather than mystify and has chosen to be on the side of the working class rather than where the big bucks are to be found. He explained his concerns about what he thinks is a "housing bubble," an unwelcome companion to the burst stock market and dollar bubbles.

Dean Baker

"Homeownership," he says, " is widely promoted in the United States as both an end in itself and a good investment. The tax code has been deliberately tilted to favor homeowners over renters, through items like the mortgage interest deduction. In addition, there is a wide range of initiatives at all levels of government, and within the non-profit sector, which are intended to promote homeownership among low and moderate income families who might find it difficult or impossible to purchase a home without some assistance.

"While homeownership may be indeed be desirable in normal times, it is not clear that encouraging moderate income families to buy homes at present is a good strategy. There is good reason to believe that the nation is experiencing a housing bubble very similar to the stock bubble of the late nineties. Nationwide, the rise in home prices has exceeded the overall rate of inflation by more than 30 percentage points since 1995. This sort of run-up in home prices has no precedent in the post-war period. No economist has been able to put forward a plausible explanation for such a sudden run-up in home prices, apart from a speculative bubble.

"…This situation," he continued, " implies that the price of many of the homes that moderate income families may seek to buy at present are likely to tumble when the bubble collapses. It is entirely reasonable to believe that the price of some of these homes could fall 30 percent or more, when the housing market returns to a more sustainable path. This sort of price decline will leave many new homebuyers with negative equity and could imply enormous losses on the sale of a house. Such losses will be especially devastating for families who see homeownership as a key step in escaping poverty."

Pension Mismanagement
Baker also touched on the disastrous result of mismanaged investment policies by managers of union and public sector pension funds.
"With few exceptions, pension fund managers completely missed the stock bubble. As a result, they left the bulk of pension fund assets invested in the market, even when it was at levels where it was very clearly over-valued. The failure to recognize the bubble cost private sector funds $550 billion and public sector funds more than $560 billion compared with a strategy where they pulled all money out of the market at the peak of the bubble at the end of 1999. The strategy of holding large amounts of equity cost private and public sector funds $300 billion and $500 billion respectively, compared with a more reasonable alternative of getting out of the market at the end of 1998 at which point the bubble was already clearly visible to competent analysts."

His conclusion: "By almost any conceivable measure, the pension fund management industry has performed extremely poorly over the last five years. This record suggests that alternative strategies may serve the interests of workers better."

Of course these are the same "experts" that Bush, and many Democrats as well, would like to entrust our Social Security funds to.

Prescription Drugs
Prescription drug prices are a hot topic. They are the single biggest factor in runaway health insurance costs. Seniors are particularly hard hit as Medicare provides little help with drugs.

Few drugs cost much to produce. The drug companies justify high prices as needed to pay for research. In fact nearly half of biomedical research spending is done by public/nonprofit operations. Most of the companies’ expenses go toward clinical testing needed for FDA approval. Once a drug is approved the company usually gains a patent giving them exclusive control over marketing for years.

As Baker explains, "... patents effectively allow private firms to charge an excise tax--the mark-up allowed by the patent monopoly--on prescription drugs. The economic distortions associated with such a tax are proportional to the square of the mark-up. Therefore, if drug companies have to charge twice as high a mark-up in order to cover their research costs, then the size of the economic distortions will be multiplied fourfold. This means that even if patent supported research is somewhat more efficient than public/non-profit supported research on a dollar for dollar basis, at some point the distortions created by the patent mark-up must eventually offset this greater efficiency."

Baker offers an option: "...alternative methods--for example, direct contracting to develop drugs or vaccines (as some firms advocated in response to the Anthrax scare) may prove more efficient, given current and future economic considerations. In such an alternative system, research findings would be placed in the public domain, and firms would be able to compete in the same way as generic producers do at present."

The benefits would be enormous. Within a few years reduced drug prices could be equal to 2 percent of the GDP. "This decline in drug prices would also be expected to have substantial secondary impacts on the economy. In effect, it leads to a substantial increase in the real wage, which would create a large number of new jobs. It should lead to an increase in annual GDP of approximately 2.6 to 3.0 percent. This would be associated with an increase of between 3.8 and 4.5 million jobs. There are few possible economic policy changes that could potentially have an impact of a comparably magnitude."

This innovative plan will be incorporated into the Labor Party Just Health Care plan.

War and Occupation
When the Labor Party was launched there was an informal agreement among affiliated unions to mostly restrict the party’s program to "domestic" issues. It was felt there was no consensus around foreign policy questions and that debate about them could only be divisive. About the only exceptions were some declarations of international labor solidarity, especially in regard to trade and immigrant rights issues.

Donna Dewitt leads rally

But the Bush Doctrine and the threat of war on Iraq became a major exception to the rule. At the previous INC meeting last December this question was approached gingerly. To the surprise of some we found we had a consensus around opposition to both preemptive war in general and war on Iraq specifically. In February of this year an excellent statement on the war was issued by the party.

Mark Dudzic reported that there had been little negative feedback from affiliated unions or party ranks concerning our clear antiwar stance. He also relayed a request from US Labor Against War (USLAW) that the Labor Party endorse the upcoming National Labor Assembly for Peace. As a general rule the Labor Party does not endorse other organization’s actions. But, as a general rule, we had not previously opposed a war either so this question was put to the INC.

One of the Labor Party’s most active affiliates–Teamsters Local 705 in Chicago–had initiated the process that led to the founding of USLAW and was hosting the assembly. A number of INC members have been quite active in USLAW on both the national and local levels.

The image “” cannot be displayed, because it contains errors.I was able to report that KCLAW activities in the Kansas City antiwar movement had rejuvenated our LP chapter somewhat. We distributed thousands of copies of the Labor Party war statement and participated in teach-ins and rallies.

While some were critical that the assembly conflicted with ANSWER’s March on Washington (the assembly date was set before the ANSWER march was called), there was general agreement that the assembly was worthy of our endorsement.

Immigrant Rights
The Labor Party position on immigrant worker rights
 The image “” cannot be displayed, because it contains errors. flows logically from our general demand for basic human rights for workers everywhere. One of our founding affiliates–the Farm Labor Organizing Committee –is largely involved with immigrant workers. Immigrants are now a large and growing percentage of many industrial and craft unions as well. Recognizing this some "international" unions, and the AFL-CIO, have taken up immigrant issues and support actions such as the current Immigrant Worker Freedom Rides.

While this progress made in official positions of at least some unions is encouraging it is still just a modest beginning. As the job and wage situation worsens you can bet that the bosses will once more turn to the time honored incitement of bigotry as a way to keep workers divided and weak.

The INC was presented with a substantial policy briefing paper to help us sort through the challenges and develop future responses.

The 2004 Elections
Included in our INC kits were two items relating to the election.

One was a Labor Day column by Bob Mattingly on the widely respected Labor Tuesday web site. Mattingly cites several unions affiliated to the Labor Party that are openly supporting Democrats–a party he rightly believes serves the bosses. He also quotes a couple of prominent LP leaders espousing their union’s endorsements of Dems and notes these actions have drawn no rebuke from the Labor Party. Mattingly concludes that the Labor Party is at best confused, if not deceitful. He dismisses LP "Sadly, the Labor Party is confused, at best, about what it must do [about the election]. Perhaps, that’s because now it’s no less confused about its aims, its reason for being."

A different concern was expressed by a woman who wrote: "I agree with all your ideas and statements. ... I am worried, however, that votes going to the Labor Party will deplete, to a significant amount, the votes going to the Democratic Party... As you probably recall, the votes that went to Ralph Nader would have been enough to put Gore in the presidency."

The only thing these divergent views share in common is a misunderstanding of the Labor Party electoral policy –which, admittedly can at times be complex in its application. It’s worth reviewing the introduction to that policy:

"I. Introduction
The Labor Party is unlike any other party in the United States. We stand independent of the corporations and their political representatives in the Democratic and Republican parties. Our overall strategy is for the majority of American people — working class people — to take political power. Within this framework of class independence, with the ultimate goal of achieving power, we accept the electoral tactic of running candidates. The Labor Party will run candidates for public office in order to elect representatives to positions where they can help enact and enforce laws and policies to benefit the working class. We will run at governmental levels where we can best advance the goals and priorities of the Labor Party. Unlike other political parties, public officials elected by the Labor Party will be accountable to the party membership and required to follow the positions outlined in the party platform. Although we accept electoral politics as an important tactic, we do not see it as the only tool needed to achieve working class power.

"Unlike other political parties, the Labor Party will be active before, during and between elections, building solidarity in our communities, workplaces and unions. Labor Party candidates will be run only where our basic organizational criteria are met. The Labor Party will build into its electoral campaigns, and the periods between them, procedures to ensure political education and mobilization of the working class, further development of the party structure and growth in membership, and strengthened relationships to community and labor allies."

A party that is not primarily an electoral machine is an unfamiliar concept in this country. We can hardly fault the woman who naturally assumed that we would be running candidates against the Democrats.

The real source of working class power is the fact that we do the work of society. Our class creates all the wealth, heals the sick, teaches our kids, and fights the wars. We develop our program, and mount our actions, primarily in our workplaces and the streets of our communities. The Labor Party sees our electoral activity evolving from these struggles as we win over the majority of the labor movement and recruit large numbers of individual members in the community. Election victories will follow, and register, victories won in other struggles.

Today the Labor Party is not leading mass struggles, has not yet won over the majority of organized labor, and counts our membership in the thousands, not the millions we ultimately strive for. We’re a long way off from being able to run credible election campaigns.

The same electoral policy that mandates only credible campaigns of our own also prohibits the Labor Party from endorsing any other candidates.

So what do we do at election time? Should we call on the working class to boycott the elections and then proclaim a victory when the majority follow our lead?

That wouldn’t be taken very seriously by anyone. And we have the problem of affiliated unions who, while supporting our long term perspective, feel the pressure of their ranks, and other unions, to take a stand in this election. In 2004 that means "anybody but Bush."

Bob Mattingly, with whom I find myself in agreement on most labor issues, thinks we should rebuke such unions, and Labor Party leaders who carry out the decisions of their unions, that publicly support the Democrats. While this might guarantee some "purity" it would also guarantee becoming a shrinking sect, a "labor" party cutting itself off from those in labor who are making a good faith effort to find some way to advance working class political action.

As in 1996 and 2000 most Labor Party affiliates will grit their teeth and join the rest of the labor movement in endorsing Democrats. That’s a reality that reflects our organizational weakness, our inability at the present to project ourselves as a credible alternative.

Like Brother Mattingly I think this is a mistake. I have never voted for a Democrat or Republican and never will.

But I don't view mistaken trade unionists as the enemy.  The indicated answer to this problem is to intensify our dialog and common activity with those willing to listen to us–not to rebuke them.

What we will do as the Labor Party in this election is to work to get our issue campaigns on the agenda of public debate. We won’t be asking those who agree with us for their vote; we will ask them to join the Labor Party to build a better future.


Bill Onasch is chair of the  Kansas City LP Local Organizing Committee and represents Midwest chapters on the LP Interim National Council.

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