:LPE:

This month (on August 8th) the Court of Appeal for the 9th Circuit in San Francisco heard one of the procedural motions in the largest class action lawsuit in US history. It is a lawsuit against Walmart, alleging pay discrimination, that is, that Walmart systematically pays women less than men. It looks like a pretty darn good case. The lawyers who started it have apparently since heard enough that they could start cases in several other countries - and are looking for ways to do so. It is becoming a minor cause célèbre in the labour world.

The UFCW has been trying to organize Walmarts in Canada with fairly little success - you may have heard about the Jonquiere, Quebec attempt. Walmart closed down the store as soon as employees voted to unionize, which has been a standard tactic for Walmarts everywhere.

The US case will wind its way up on procedural motions, but it appears to be a winner. Expect an 11th hour settlement offer before it goes to trial, because good lord, we don’t want a precedent.

The Chairman of the Federal Reserve in the US, Alan Greenspan, is soon to retire after about 18 years on the job. The NYT is giving him some pretty laudatory commentary. The article glosses his fairly serious errors, as is customary in a retirement send-off. Not being nostalgiac for the Greenspan years, I don’t mind telling you what I think his biggest errors were.

1. Perhaps his most significant failure was missing the stock market bubble in 1998-2001. After initially warning of “irrational exuberance” in the equity markets, he then went on to justify them as warranted by technological change. His policy during this time was to let it happen (to the extent he was aware at all) and try to mop it up afterwards. He doesn’t take the same attitude toward rising wages, which he attempts to “dampen” at the earliest possible moment.

2. My favourtite “error” was his rapid increase of interest rates in 1994. He did so with almost no warning (back then the Fed was more secretive and did not transmit its intentions as clearly) and as a result caught most of the major investment banks in the US with their pants down and over-exposed, especially in Mexico. With the devalutation of the peso, this move triggered a small financial crisis that required the state (the United States) to move in a bail out the bankers with bad judgement. Poor sods.

3. Marginally less worrisome but more inexplicable is Greenspan’s attitude toward the real estate asset bubble. Low rates have fed a massive retail real estate re-financing binge, which is in part relying on the increase in assets values of homes to pay for the borrowing-and-improvement to them. This has shifted, in a sense, the asset bubble from U.S. equities into real estate, which has a far broader and more direct impact on the real productive economy, if and when it bursts. Most expect it to burst, and if you read the financial pages for a week you’ll get 10 versions of when and why. Again, Greenspan has sat by and watched this happen as if he were unable to do anything about it: all he was doing was setting interest rates according to inflationary priorities. Inflation was low. But those people borrowing at artificially low rates live in homes, cities and a country. They don’t live on a balance sheet or in an “economy”.

Which is in a sense, one of the lessons of his tenure: monetary policy is sometimes thought of as the sine quae non of economic planning. But it is just one lever in the economic machine, it has a powerful effect far beyond the overnight lending rate to commercial banks, and there are plenty of reasons to bring it under direct democratic control; not to leave it to a tenured banker with no interest or mandate to think about the country instead of the economy.

UPDATE 27/8/05: Today’s Globe reports that Greenspan has warned that people should not count on realizing the increase in their homes’ values, that their wealth could evaporate if economic conditions change. Remember that more than any other person in the world, Alan Greenspan has created this housing asset bubble. He’s clearly worried he’s going to be remembered for missing the second bubble of his career. Mr. Sinai, who is quoted in the article as saying Greenspan is “giving ample warning” is also wholly incorrect: economists and home buyers have been fretting about this issue for over two years, and perhaps longer. For he and Greenspan to say they are giving timely warning is pure negligence: wilful blindness.

Think back over the past five years, and you may notice a pattern with the CBC strikes. One theory runs that as soon as Rob Rabinovitch, the head of the CBC, needs some money for a pet project or to look good to his funders, he locks out his employees. Scuttlebut around the watercooler is that the sole point of this year’s lockout is to save money while the employees are on strike pay (paid by the union). Why not just build a six week holiday into the collective agreements, Euro-style?

While some have enjoyed the increased volume of BBC World Service content on the normal CBC channels (mea culpa), for those who miss the familiar CBC voices, or those who think Rabinovitch is a dink, try this: the locked-out employees have started their own programming. It might be interesting.

An item today in the Globe reports on the dwindling number of defined benefit pension plans in Canada. The report it quotes was prepared for the Association of Canadian Pension Managers, a management lobby group (inaccurately reported as a “a group representing the pension industry”). It would be appropriate to note the ACPM lobbies for employers, not employees. That factoid might clue you in to the agenda behind this report, which is timed to co-incide with a federal task force and a provincial task force seeking to change the rules by which defined benefit pension plans are funded. “Industry” is looking for “incentives”to fund pension plans more robustly. Your friend who is not a lawyer could be forgiven if she thought that making a promise and not paying for it was against the law, and that complying with the law would be enough incentive. It turns out not: employers want to be given more tax breaks, and permission to take surpluses from pension plan funds if they are going to be incented to meet their obligations under the existing law. (Surpluses occur then your investments perform so well you have more money than you need, any a specific point in time, to pay for your pension promise). It is a useful rule of thumb to beware of “incentives” arguments, most especially where they rely on financial incentives to take a course of action. They are a staple of a particular brand of supply-side economics, and they can be spurious. I am curious as to the empirical evidence behind the claims. And there are further ironies: employers are already permitted to withdraw surpluses, or take “contribution holidays” if a plan is doing exceptionally well in its investments. In short, there are already incentives to fund plans robustly: will more of the same help?

It is true that pension plans are underfunded. It is also true that employers who promise pensions are obligated by law to pay for them. The “incentives”‘ agument is somewhat disingenuous: it is an attempt to roll back current rights of employees to surpluses in pension funds (now that so many are nowhere near surplus) under the guise of assisting employees and employers in properly funding their pension plans.