How Labor Unions Are Reshaping Inflation Dynamics: A 1970s Parallel

During their recent episode, Taylor, Carlisle, and Brendan Hughes discussed How Labor Unions Are Reshaping Inflation Dynamics: A 1970s Parallel. Here’s an excerpt from the episode:

Tobias: JT, you took a look at the inflation through the 1970s, sort of reared its ugly head. Then, it looked like we had it under control and they dropped rates and then it came back again. Do you see any sort of parallels with today? Particularly, there’s some talk that the longshoremen are going to shut down the ports, and they seem pretty set. They understand that there’s going to be pain over several weeks, and that’s sort of what they’re counting on to get attention to what they’re asking for.

Jake: Yeah. Certainly, there are lots of cards in the deck that could potentially make inflation not as transitory. Like energy, let’s say Middle East devolves further. Supply chain issues with the ports are shut down with a strike. Even deglobalization that had been a really long-term trend for quite a while, and if that goes the other direction, we have to rebuild supply chains that are less Southeast Asian focused, it’s probably going to be more expensive for everything. You’re just not going to have– Each component all along the value chain is going to cost more to get to your front door. And if we have two redundant supply chains built at some point for kind of the world cracking up into different spheres, I think it’s hard to imagine it’s not going to be more expensive.

But on the other side of that, I remain a technological optimist over the long period and that we will figure out how to do more with less as a species. We’ve been pretty damn good at that, especially in the last couple 100 years. I think we’ll keep doing it and keep getting better. Try to stay positive, but also don’t fool yourself that it might be a rough ride to get there.

Tobias: What do you think, Brendan?

Brendan: Yeah. I would like to just note another parallel to the 1970s that people hadn’t thought about for a long time, and that’s the recent strength of labor unions. In the 1970s, you had that memorable moment where it was possibly symbolic, but Reagan fired the air traffic control people who were on strike, and that was what some people said was the beginning of the start of the long decline of labor unions. And just in the past few years, we’ve seen a resurgence in the power of unions and that structurally increases inflation. So, we’ll see to what extent that continues to be structurally higher than we’ve had in recent times.

But I would also like to bring up something that I’ve noticed in the last few years. And this is tied into what Jake was touching upon with deglobalization. But we’ve had ongoing supply chain disruptions every year, frequently since the COVID-19 pandemic. And I’ve come around to the view that this could be something structural, because I keep seeing companies every six months saying, “This is a one-time event.” But when you have increasing conflicts, higher strength of labor unions, things like that, it makes it more likely that these things will persist. And I think that does tend to favor companies that operate primarily on intangibles, because companies that produce physical products, they continue to see these problems. And I’ve just come around to the view that this could be a structural development.

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