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The Progressive Economics Forum

Worker Bargaining Power and the Crisis

Here is a keeper – an IMF study that argues that loss of working class bargaining power is an underlying cause of financial crises, and that retoration thereof is key to reducing debt.

The abstract –

“The paper studies how high leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of the rich, a large increase in leverage for the remainder, and an eventual financial and real crisis. The paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes. A financial crisis can reduce leverage if it is very large and not accompanied by a real contraction. But restoration of the lower income group’s bargaining power is more effective.”

Enjoy and share:


Comment from duncan cameron
Time: December 1, 2010, 7:02 am

This should be useful in talking to the opposition finance critics on the Hill who are constantly bombarded with arguments for public sector austerity and corporate tax breaks at a time when debt deflation prevails (as partially evidenced by the GDP numbers yesterday).
I wonder if they author(s) could be invited to Ottawa to do a presentation at a venue similar to the breakfast on the Hill series at the old Press Club. It would be nice if Barrie McKenna, and other reporters could hear about this first hand.

Comment from Travis Fast
Time: December 1, 2010, 9:55 am

Funny I argued something like that back at a conference in 2007 and a colleague accused me of presenting the good ol religion. Shame that a pretty standard “Keynesian” interpretation of neoliberalism should have seemed as though it were radical. But that is how far things got away from reality in 2007. As the US shows they are still far away from reality so I imagine a single IMF paper is not going to change much of the discourse; particularly given that is the exact opposite of what they (the IMF) are DOING in Ireland.

Comment from Sunszer
Time: December 1, 2010, 10:16 am

As revealing (though to most of us, unsurprising) as this report may be, we should not expect our government or business leaders to feel any sympathy with its findings. It is even more improbable that our they would find reason to enact any sort of progressive reform based on the reports conclusions.

Much more likely it is, that economic failures will continue to be attributed to the usual scapegoats: high taxes, execessive regulation, greedy unions, a lazy and undisciplined workforce, wasteful social spending and so-on. Same old mantra, same denial of responsibility, same mistakes, same unpleasant results.

There is ample historical precedent to suggest that the core of wealthy and powerful elite are simply incapable of learning from their past errors. They are ideologues, deeply entrenched in the economic superstition of the “free market”. Whithin the orthodoxy of the ruling class, to think or speak critically of their belief system is to become a heretic.
Economic policy is not a means but an end unto itself. The end is a simple one: the on-going concentration of wealth into the hands of the oligarchy. As such it is thus an unasailble “good”, not to be questioned or challenged by those who do not stand to benefit. Befittingly, the means chosen to achieve such an end must not be corrupted by considerations which do not conform to the pursuit of the divine vision…

Unfortunatley, denial of their own responsibility and the apportioning of blame to others will continue for as exactly as long as no-one holds them to account for the greed and poor decisions that bring about negative economic outcomes.

Comment from Travis Fast
Time: December 1, 2010, 12:07 pm

I should add however that the IMF has been pushing for a very different type of bailout for Ireland but that are not getting traction in the face of European and and German intransigence according to Eichengreen.

Comment from Purple Library Guy
Time: December 1, 2010, 1:55 pm

Nothing new there. Both the IMF and the World Bank often publish surprisingly enlightened/fact based studies which they inevitably blithely ignore at the policy-setting level, where class war from above remains the main objective.

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