MONEY: WW2 Wage and Price control were disasterous and carry through today

On Apr 24, 2010, at 5:58 PM, LUDDITE wrote:

At a time when some firms have cut back on benefits, these employers offer notably generous plans. Fortune picks some of the best.

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Good for you. But bad for us as a society. Pensions and benefits are a result of the WW2 wage and price controls. Big companies bent the salary cap rules by giving these inducements to get good workers. This was a gooferment distortion of the employment marketplace which as usual has had disastrous side effects. I’m not a economist; nor a social scientist, but let see if I can enumerate the ones I know about.

(1) Medical insurance tied to employment had several bad effects. It locked up workers who couldn’t or wouldn’t change jobs due to losing their benefits or the “pre-existing conditions of going to a different insurer. Lose your job due to poor performance, bad economy (i.e., recession), or structural changes in the economy (i.e., rust belt) lose your benefits. It disconnected the link between the expense and the pain of paying thus inducing folks not shop around, negotiate, or even look at the bills.

(2) Pensions are in effect deferred compensation. It locks up capital in the company pension plan — with its risk in bankruptcy — from the individual. So, for example, an employee, if they had that money, could have used it as they saw fit to provide for their own retirement. In my own case, I could have had an extra X$/month to pay down my mortgage sooner and had that capital asset for my retirement. It’s about Freedom and liberty. I was FORCED to trade X$ per month at that time for a future cash flow at age 65 assuming I lived so long. If I didn’t, it was lost. Like “Social Security”!

(3) Pensions were such an expense that the Aircraft companies were firing “old” injineers just before their pensions vested to hire new graduates cheaper. (The fact that much of their work was for the military and the gooferment made it hurt even more.) Hence, having created the problem, the Gooferment gave us the solution — more gooferment — the ERISA laws. (Argh!)

(4) Pensions and benefits, due to it hidden sunken costs, makes the workforce less flexible and nimble. You had to have a much bigger opportunity in a new job in order to justify leaving the security, pension, and benefits in an old employer.

(5) Increased regulation of the workplace, such as OSHA, FALSA, and NLRB, all sprung out of that New Deal thinking. And, was as taxation and regulation, a drag on our economy.

So that’s why this is bad for us as a nation.

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