Profits for All: Flexible Wages in a Free Economy

By Michael Watson and Grattan Brown

Creative destruction is a long-recognized and accepted feature of a dynamic market economy. But can this destruction go too far? Should there be no limit to the number of jobs, families, and even entire communities that are sacrificed for the sake of greater economic production and efficiency? Could it be, as some critics claim, that a drastic fettering of markets is the only solution?

Michael Watson and Grattan Brown acknowledge the collateral damage of markets and seek a solution that will temper negative effects without constricting the economic vitality needed for the continued amelioration of material deprivation in our world. Placing remunerative work at the center of their analysis, they identify a promising reform: flexible wage rates. They make the case that permitting compensation to mirror the market more closely will preserve employment, empower workers, and minimize the impact of economic volatility. Understanding that the common good is served by both economic dynamism and family and community stability founded on stable employment, Watson and Brown recommend flexible-wage policies as the best way forward.

• Language: English
• Publisher: Acton Institute
• Release date: Jan 29, 2020
• ISBN: 9781938948206

Michael Watson

I live in Orange County, California. I was adopted at three days old in Indianapolis and grew up in New Albany, Indiana. I loved my adoptive mother, who convinced me I could become anything. Since I was always fascinated with beautiful diamonds and gems, I chose to be the CEO of Gallery of Diamonds jewelers in Newport Beach. In honor of my adoptive mother and the birth mother I have never known, I established the Why Mom Deserves a Diamond® essay contest. Every year, thousands of kids submit words of love and appreciation for the chance to win a grand prize diamond to give to their mothers. Today the contest is in honor of all moms, and is the largest mothers appreciation contest in the US. (maybe the world!)

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Introduction*

That even more copious and richer benefits may accrue to the family of mankind, two things are especially necessary: reform of institutions and correction of morals.¹

— Pius XI, Quadragesimo Anno (1931)

In the summer of 2009, a camping trip brought me close to Elizabethtown, a river town located in Hardin County, southern Illinois. Although my grandma was born in Missouri, her parents returned to Elizabethtown—known as E’town to the locals—when she was about ten years old. After earning her teaching certificate, she taught in several Hardin County schools before moving to the Chicago area in her thirties. As a retrophile and romantic for personal histories (and also the one in charge of driving), I coerced my camping troupe to take the ferried route through Elizabethtown. We dropped in on the E’town River Restaurant, a floating eatery on the Ohio River specializing in fried catfish and traditional southern side dishes. For E’town we were exotic: Polish-speaking Americans and immigrants. Curiosity led to conversation with the waitresses. Expecting to find a long-lost relative, I mentioned my grandmother’s maiden name, Young. No one that I spoke with had ever heard of the Young family. The waitresses asked some of the older locals, but no one recalled my grandmother’s family name.

My lifelong summer experiences of the Polish countryside in the Voivodeship of Subcarpathia colored my expectations of Elizabethtown. There are just over four hundred people in Laskówka—a comparable size to Elizabethtown. If I were to mention my Babcia’s (grandmother on mother’s side) maiden name or my Dziadzia’s surname there, I would doubtless find a relative or local who could point me in the direction of the log cabin in which my Babcia grew up. There was an obvious contrast between the American small town and the Polish one.

Not wanting to give up too easily, I visited my grandpa, who—just before his sudden death—connected me to my relatives in southern Illinois. I scheduled a trip back to southern Illinois to meet the side of my family I had never known.

I arrived at Walter and Carolyn (Young) Lee’s home. Carolyn had been my grandma’s favorite niece and maid-of-honor. They lived in Marion, approximately fifty miles northwest of Elizabethtown. In 1955, Walter’s work moved them away from Hardin County, and, like most of the family, they never returned. Only the Youngs’ extended family still remain around the Hardin County area. Nonetheless, Walter and Carolyn visited often to attend festivals and reunions and eat catfish. Walter was an only child, and the members of his family are buried in Hardin County or have moved elsewhere: Georgia, Idaho, and California. I wondered why my family left Hardin County. I knew why my mother’s family had left communist Poland: economic opportunity and their staunchly anticommunist patriotic political attitudes. But what was wrong with Hardin County?

Both Elizabethtown and Hardin County have lost about 50 percent of their population since 1950.² Much of the vacant land has been bought by the Shawnee National Forest and will remain vacant as federal lands are rarely privatized. The region is beautiful in its natural endowment, but the beauty of which I was to hear from Walter, Carolyn, and some of their friends was not one focused on nature but on their lived experience when life was good.

Hardin is the least populated county in Illinois and one of its poorest. Albeit culturally and politically southern, it is located in a midwestern and arguably Rust Belt state. Hardin County is more West Virginia than Ohio. The fluorspar mines still operate but they are not thriving. Although Carolyn’s father had worked in the mines, he later became a lineman for the Rural Electric Authority (REA). With the decline of the region’s mining industry came the downsizing of Hardin County REA. Rather than accepting unemployment and staying near E’town, he moved to Marion, Illinois.

Carolyn and Walter, along with some of their longtime friends, showed me the remains of the house where my grandma had lived and the one-hundred-sixty-acre homestead they once had, which is now mostly owned by the Shawnee National Forest. Near my grandma’s childhood home, I met Vernon, a former kindergarten student of my grandmother. He told stories of the old days. From Carolyn, Walter, Vernon, and others I heard of the dire times during the Great Depression and of the good times in the forties and fifties. Hardin County once had good jobs, economically strong families, and a thriving society. Vernon worked in the mines and was quick to mention how trade with Mexico brought cheaper fluorspar into the United States. Carolyn also recounted how the declining mining operations directly affected the REA downsizing and her father’s transfer to a stronger economic environment.

In 1950 Elizabethtown and the surrounding countryside was a place where children played unsupervised and roamed freely. It was safe, fun, a bit wild, and a true society. In 2009, however, I was repeatedly told by locals that if I were to hike on my great-grandparents’ property I should carry a gun because there were a number of drug dealers in the area.

I am a proponent of the free and unhampered market as a means of discovering solutions to the omnipresent problem of scarcity, and at the same time profoundly disturbed by the damage to community that often comes with the creative destruction of the market. When Poland joined the European Union almost everyone in their twenties and thirties left Laskówka for jobs in Western Europe. With trade from Mexico and East Asia came the boarded-up Main Streets and abandoned factories of the Rust Belt. At Belmont Abbey College in North Carolina, my evening introductory economics courses are attended primarily by students over thirty years of age; many of them are from the Rust Belt. They do not want to leave their families and communities behind, but they want jobs and the jobs have moved south—particularly to business-friendly North Carolina.

Why did the jobs disappear? Why did the jobs move to the Sunbelt? We could avoid all the upheaval of creative destruction, but that would mean a static existence with little to no growth and innovation. We could abolish free trade by hiking tariffs and establishing quotas to protect inefficient producers, protect an inefficient regulatory regime, and have American consumers foot the bill. But, apart from serious national security concerns, it is unclear why we should prefer inefficient domestic producers over domestic consumers and foreign producers. Even more, should we protect an inefficient regulatory regime in Pennsylvania from North Carolinian competition? Is there no solution to the upheavals of capitalism?

Grattan and I do not offer a comprehensive solution. We do not attempt to solve every problem with one policy or a package of policies, nor do we believe that market forces provide perfect solutions. Rather we apply sound economic reasoning in a world of second-bests to identify the flexible-wage policy as a means of allowing creative destruction to continue at a human pace without inefficient distortions to the market process that other fiscal and monetary policies incur. Perhaps the Rust Belt need not rust, Ohioans need not leave for North Carolina, and Carolyn’s dad need not leave Hardin County.

— Michael V. Szpindor Watson

* * *

Like Michael, I have learned much from my family’s history. I have come to appreciate the opportunities provided by four centuries of capitalism in the United States. I can name a relatively few people—my ancestors—who worked in various professions and industries during each of those centuries. In the lives of their families, I recognize the pitfalls as well as the benefits of work, wealth, and poverty. The Catholic intellectual tradition helps