The National Catholic Review

The Hostess collapse has attracted an extraordinary quantity of news coverage. Free-market apologists have blamed the union for the bankruptcy because workers struck the company rather than accept a second massive round of concessions (following on $110 million in givebacks in 2009). Unions in turn blame the two hedge funds who hold Hostess’ debt, and who quickly decided that they could get a better return for their investors by liquidating and selling off the company’s assets and brands than by negotiating further with the workforce.

Workers everywhere are being asked to tighten their belts, with the situation at Hostess illustrative. Kansas receiving clerk Mike Hummell laid out how the company’s demands affected him in concrete terms. Not only would he lose his pension and pay more for lower quality health insurance, but his salary was to be cut in half. Hummell, who earned a family-supporting $48,000 per year in 2005 – would see his hourly wage fall to $11.26 per hour, around $25,000 per year.

That’s below the poverty line for a family with a stay-at-home mom raising three children.

The company was indeed facing severe economic distress, due declining sales of established products. Although it’s hard to see how the Hummell shares responsibility for management’s failure to create new products that appealed to changing tastes – and it didn’t foster trust when the company asking for concessions from its bakers managed to find a $2 million raise for its CEO – I don’t blame the company or even the hedge funds entirely for the catastrophe.  They were acting according the market incentives in operation today. The CEO got the salary he was able to extract from the firm. If the hedge fund managers had chosen to forego higher returns out of a desire to do right by the Hostess workforce, they wouldn’t be hedge fund managers for long. Their investors hadn’t signed up for a charitable endeavor.

But all this is a reminder that while free markets are generally very good at generating economic efficiency and growth, without careful social regulation they cannot be relied on to produce outcomes that are right or just. Our economy is larger and wealthier overall than it was a decade ago. Yet a decade ago it offered Hummell and his co-workers a job at a family-supporting wage, and now it doesn’t. That can’t be good for stable families, and it can’t be good for America, really.

 

Comments

J Cosgrove | 11/26/2012 - 12:55pm
''Here we go again Cosgrove.''


I suggest you stop trying to make this personal.  That seems to be your favorite way or arguing and when used tends to undermine anything else said by you.  Why do it if what you have to offer is so devastating to my comments..  If you had legitimate arguments you wouldn't take such an approach but you try to make your point through ad hominem attacks.  Many of your points have nothing to do with what I said and in other cases support my points which I find ironic. 


For example, I didn't mention Murray's ''Coming Apart'' which I found one of the more insightful books in years.  Why bring up a different book to denigrate, one that I did not mention here?  But since you did and you also use an extremely inappropriate quote from a reviewer which has nothing to do with the book or the topic at hand.  I suggest people read the book if they are interested which is easily done as it is available on all the e-book formats.  It is an amazing book and Wilson's quote is a non sequitur since Murray on purpose refrains from assessing what caused the decline in white America.  He is merely pointing out the sharp decline in values, morals, economic position and education for a large number of the population and by design does not try to say what caused them.  It has nothing to do with unions or the issues with Hostess.


And as far as WWII you mentioned things that happened after the war as the cause for end of the Depression.  Citing full employment during WWII as the end of the Depression is a meaningless argument.  The large increase in GDP was in war materials so this concept is not a good measure of quality of life or even economic soundness.  I suggest you read Bastiat.  It was almost impossible to escape working during WWII because of the 11 million increase in the military and millions more in the armaments industry.  None of which would be useful after the war was over.  So to cite the decrease in unemployment and the increase in GDP because of war materials during this brief time does nothing to support a position that long term changes in economic health would follow.


The government was not confident at the time that the economy would bounce back to pre Depression levels.  Roosevelt was extremely worried about what to do with 11 million men soon to be made civilians and had a massive government plan for housing them and giving them make work jobs when they returned.  He never foresaw any economic up turn.  Fortunately he died and Truman could not get it approved with Congress which was dominated by Southern Democrats and Republicans who were business friendly.  It was a return to a business friendly environment that many said is the real cause for the end of the Depression and this led to business investment in non military areas.  


A bombed out Europe and Japan and our investment in both these geographic areas led to jobs in the US as the main place that could provide the materials and goods for the reconstruction and in previous times would have been produced there.  Eventually they recovered and started competing with us again.  And yes, the GI Bill was very instrumental.  I have mentioned this here as one of the causes of the prosperity after the war but it happened after the war.  So your scenario actually supports my position.  But again it is not the place to discuss it but you seem to want to put someone down in any way you can.


Your comment about a living wage did nothing to address my comments on it.  So I suggest that you refrain from the personal attacks and provide evidence for you position.  You actually supported my point when you said it helps plenty of people.  No one will deny that.  The problem is that it does not help all the people or even most of them.  It is a select few that get the benefits and that is the problem.  By giving these select few good wages it causes problems elsewhere in the economy and society.  Economics has laws that cannot be repealed just as one cannot repeal gravity. 


A personal example, the ex choir director from our parish who my wife knows very well was born at the beginning of the Depression.  She said they did not have any problems economically growing up in the Depression as her father was a union member and foreman on the railroads.  She said there were no problems.  At the same time non union workers and their families were starving in many places in the country and one of the reasons there were so few jobs were that high union wages made employing more impossible.  So yes, a good wage helps some but far from all.  That is the issue of the so called ''living wage.''
Vince Killoran | 11/26/2012 - 11:27am
Here we go again Cosgrove.

The living wage is not "useless" or "nebulous at best." It is a way to discuss inequality, poverty,  and citizenship. Beyond discussion, it improves the living standards of plenty of people. where it's established. Please do some reading by scholars and activists who support it (including the Church). You don't have to agree with it but, since you blog on the issue so much, at least know the basic facts about it.

Re. WWII and the Great Depression: The "free marketers" are in a jam since they claim that the New Deal did not end the Great Depression but they must, somehow, explain the rapid fall of unemployment and the upsurge in GDP and investment. Of course war is not the best way to grow an economic structure (or live), but government spending during the war resulted in a very low civilian unemployment rate, investment in new technologies (e.g., rubber, communications), and fat paychecks some of which peopel spent during the war but, with the end of rationing, spent in its aftermath.  Add the GI BIll (more government spending) and dominance over a battered European economy and the economy boomed. This is the documented and accepted scholarly consensus. 

As for Cosgrove's beloved Charles Murray, Harvard's William Julius Wilson nailed it in a review of Murray's latest book Coming Apart (sorry for the lengthy quote):

"Murray leans hard on a tone of authority that he hasn’t earned. For starters, he never presents any evidence directly linking the poor social outcomes of the white working class with its “crumbling” moral values. Indeed, it is impossible to verify or conclusively prove such causal relationships without conducting longitudinal studies based on direct interviews with randomly drawn samples of people from carefully defined geographic areas. In the absence of such rigorous research, Murray could at least have tried to make a plausible case for his arguments by attempting to engage studies or empirical arguments that present fundamentally different points of view." 
David Smith | 11/26/2012 - 6:40am
Thoughts on #8.

I suppose the idea of a minimum wage is based on the assumption that without it most employers will pay only as much money to low-skill workers as they have to in order to obtain the labor they need.  Seems sensible.  Why would an employer deliberately handicap himself in the market by making his product more costly than necessary?

If you leave religion out of the picture, no one is entitled to anything, including life. Entitlements are made up by societies out of whole cloth, in accordance with prevailing sentiments about fairness and justice.

Social Security is enough for some to live on and not enough for others. Obviously. Is that what you meant by the question, though?
Tom Maher | 11/25/2012 - 6:36pm
JR Cosgrove # 4

This article by Mr. Sinyai expresses some very fantastic expectations of a private company's,  such as Hostess,  ability to pay all its workers over time when the company's ability ot pay all its bills has chronically declined and finally becomes unable to pay all of its bills. Under the law a company can not choose to pay workers while not paying numerous other bills a company will owe such as interest on debt, and all kinds of supplies and services a company needs to be in busienss including paying managers and specialist who must be paid at very high market rates to have their services.  Who gets paid is not an arbitray decision that vcan be made to favor labor while others go unpaid.  If arragnements can not be made to have everyone paid than the company will be shut down to prevent addition non-payment of bills that are owed. 

Everyone must be paid as a matter of legal equity. Narrower "social justice" concerns aimed at at workers having "living wage" or even a job does not take priority over the company's overall fianancial survival nor can it without creating injustices and disorders.  Debts are very real moral and legal obligations.  "Doing the right thing" turns out to be subjective  preference of favoring one group or class over others, where everyone is harmed..  But for a business to exist all debts and bills must be paid.  Unionized workers are not a privledged class under the law and will be impacted along with everyone else when a company goes bankrupt. 
Stanley Kopacz | 11/25/2012 - 5:39pm
It seems that the country got out of the depression in the 1940's.  The war seemed to get us out of the depression. Economically, what was the war? The government spending unbelievable amounts of money.
Marie Rehbein | 11/25/2012 - 12:54pm
I find it very interesting that in the midst of economic problems, Hostess's CEO got a $2 million raise.  It's like he ate the goose that laid the golden eggs.  So much for the Randian economic thing working out.

Meanwhile, JR says that Hoover pressured states to do public works projects to keep people employed.  To whatever degree this was done, it's clear that leaving things up to the states does nothing.  I would disagree with JR that Roosevelt's projects were job killers.  It looks like much of what was contructed in those days has served us well for generations while it put food on the tables of those workers and their families while not  bankrupting the country.  Many businesses have profited in the years since then because these projects were done.
Matthew Pettigrew | 11/25/2012 - 12:19pm
It would be helpful for me, and perhaps for others, if Mr. Cosgrove could answer some of the questions suggested by his comment at No. 7:

What is your definition of a living wage?

Is everyone entitled to be paid enough to purchase the food, clothing, shelter, and medical care that he or she needs to survive?

Is social security alone enough to live on?



 
J Cosgrove | 11/25/2012 - 12:35am
''Unlike Cosgrove, I don't find a ''living wage'' an ''overreach.''''


Are you trying to say you are caring and I am not, implying that you are a better person than those you disagree with.   Maybe it is just the opposite.


If one is going to bring up wages why stop with a living wage whatever that is?  Why not pay them more than a living wage?  Why not twice a living wage?  That should create a huge demand for goods and employ everyone.

Has anybody ever defined a ''living wage'' that isn't wishful thinking? If they have, then maybe we should debate the definition and its feasibility based on economics.  And what if a living wage cannot be paid to everyone?  Who gets it?  Who are the privileged? 


Is social security not enough for a pension?  Just what is enough?  We are breaking the bank now with government spending and future pension obligations are incredibly underfunded so where is all the money supposed to come from.  Taxing the rich will not even begin to pay these obligations.  Right now we are borrowing a lot of the government debt from extremely poor Chinese workers who save 40% of their small salaries in hope of having a better future.  Will we pay them back so they will have $100 a month to live on in their old age?  Do they deserve a living wage too or is it just privileged Americans?


The living wage ignores basic economics.  It is just pablum that sounds good.  We should be concentrating on economic growth so we maximize the total worth of the country and the world so that more workers will be employed and improve their life because their services will be in demand.


By the way both Hoover and Roosevelt tried to pay a living wage during the Great Depression and it made things worse.  Hoover strong armed businesses into continue paying workers high wages and wrote to every state to fund works projects that would pay workers good wages.  It did not work and the few that got the high wages were very grateful but it essentially made the businesses they worked for unprofitable and forced them to close or lay off workers.  So living wages are job killers and creaters of poor.
David Smith | 11/24/2012 - 12:38am
As I understand it, the company failed to innovate and the unions preferred that their members go on welfare rather than accept less than they felt was just. Both sides, in the end, living as they do in the real world, have to face the consequences of their decisions.

Perhaps in a perfect society, the government would nationalize the Twinkie factories, subsidize the sweets, pay the workers what the government computers deemed they deserved, and raise everyone's taxes just a tiny bit.  Alas, we do not yet live in a perfect world. Come the revolution, Clayton.
Marie Rehbein | 11/26/2012 - 12:34pm
JR,

What are the dysfunctional programs to which you refer?

I think a lot of people have been helped by the programs of which I am aware.  Children are fed, clothed, housed, educated, and a lot of them step out of dependence upon charity and government programs.  That there are always new people eligible for government assistance does not mean that the programs don't work.
J Cosgrove | 11/26/2012 - 10:19am
I am sorrly.  I meant to press the edit button but pressed the post button instead.  It is ''Losing Ground'' by Charles Murray.  Both books are available as used for a low price and both are available for the Kindle for immediate reading if one is interested.
J Cosgrove | 11/26/2012 - 10:16am
''which leads inevitably to a discussion of what's wrong with the poor? And also of what's totally misguided in people who care about them?''


 The problem is not with the poor per se but is definitely with the dysfunctional programs implemented to help them by those who supposedly care about them.  Read


''Losing G'' by Charles Murray and ''''The Dream and the Nightmare'' by Myron Magnet to get an insight into what has produced the underclass in the US.


The problem is not with the econoically, spiritually and educationally poor but with those so called enlighten ones that have created the policies and implemented them that have led a very high percentage of the country into these various forms of poverty.  And material poverty is the lesser of the poverty problems. 
T BLACKBURN | 11/26/2012 - 10:02am
"The author introduced it when he brought up poverty."

... which leads inevitably to a discussion of what's wrong with the poor? And also of what's totally misguided in people who care about them?

Oh, I know your answer to those questions. See #3. The economy (rightly understood) was  not made for man; man was made for the economy.
J Cosgrove | 11/26/2012 - 9:09am
''It would be helpful for me, and perhaps for others, if Mr. Cosgrove could answer some of the questions suggested by his comment at No. 7:''
 
 ''What is your definition of a living wage?''
It is a useless concept since it is so vague.  I am sure one can make up some definition but then if it is to be a definition for a moral standard then it has to apply at any place in the world and it should not vary over time unless what is immoral today was moral in the past.  And if it is subjective, that is it is relative to the current local culture then it hard to apply it as a moral concept anywhere.
 
There was always the concept that to live all one needed was food, clothing and shelter but this had varied widely over time.  Food intake has not changed much over time in the sense of what is necessary to live a healthy existence.  Of course we have much better knowledge of nutrition now but a lot of people lived into their 80's or longer throughout history.  People used to wear one or two changes of clothes a year for centuries and after visiting Ireland, I saw how a family of 10 could live in what we would call a small one room house.  And this was in a village just over a hundred years ago.   I am not suggesting that is how we want to live or ought to live but just what does it mean to be able to live, some times to an old age.  I am only suggesting that the concept of a ''living wage'' is more a political concept than a moral one. 
 
We now want to add health care to this basic three but what level of health care?  A level available to all even the fabulously rich just 100 years ago, 50 years ago, 20 years ago, 10 years ago or state of the art available today.  If one chooses the latter for the standard where does one cut off its availability, at the borders or the world.  After all this is a moral question so why should someone in the US deserve better health care then some one in the poorest sections of Africa, Asia or Latin America.  We obviously can not deliver the same level of health care to all.  That doesn't mean we don't want to try to improve health care and living conditions everywhere.
 
So the concept of a living wage is nebulous at best and something we just throw around when we are trying to make a political point (it is really a political concept used for income redistribution) or make some one else look bad.  The old idea of poverty is just as nebulous as the following article indicates.
 
http://dailycaller.com/2012/11/16/msm-falls-for-new-coke-poverty-con/
 
Another comment: ''the country got out of the depression in the 1940's.  The war seemed to get us out of the depression.''
 
What ended the Great Depression?  There is a big debate on that and if one uses unemployment as the criteria, then WWII certainly employed everyone but using 11 million jobs in the military and another 5-6 million more in war production is hardly a prescription for good economic policy.  These people produce nothing of value for the average person.  If anyone is interested, then read the writings of a French economic reporter/writer of the 1840's, Frédéric Bastiat, especially his short essay on the ''Broken Window'' which is available on the internet.
 
http://en.wikipedia.org/wiki/Parable_of_the_broken_window
 
Most people lived during the war at no better level than they did during the Depression so that type of measure fails as a measure of the end of the Depression .  Everyone had food on their plates but at a cost that could not have been sustained for very long.  Some argue that the real depression did not end till 1946-47 as business expanded after the war. What caused that is being continually studied and the conventional wisdom that the WWII ended it is not really part of this thread.
 
''How did this thread degenerate into counting the ways people should  be happy to work at a wage that won't keep a roof over their heads?''
 
The author introduced it when he brought up poverty.

T BLACKBURN | 11/26/2012 - 7:25am
How did this thread degenerate into counting the ways people should  be happy to work at a wage that won't keep a roof over their heads?
Matthew Pettigrew | 11/25/2012 - 7:24pm
Actually, employees are a kind of privileged class in bankruptcy law. Claims for wages and salaries of employees who continue to work for an employer after a bankruptcy petition is filed are known as administrative expenses and will be paid ahead of almost all other claims. Similarly, unpaid wages and salaries (up to I think $10,000) earned up to 180 days before the filing of the bankruptcy petition as well as unpaid contributions owed by an employer to an employee benefit plan (such as health plan or a pension plan) are entitled to a higher priority than general unsecured claims.

There may not be enough money to pay all the claimants, but if there is money, employees stand in a little bit better position than some other creditors. 
Vince Killoran | 11/24/2012 - 10:32pm
Unlike Cosgrove, I don't find a "living wage" an "overreach."

Secure and reasonable pension plans are feasible-we should be a society that looks after our seniors, not tossing them to the tender mercies of vulture capitalism.
T BLACKBURN | 11/24/2012 - 12:18pm
As predicted, "soon ...  expounded at tedious length by a contributor near you."
J Cosgrove | 11/24/2012 - 11:00am
What hit me when I read the OP was the change in attitude in Mr. Sinyai.  Had he found religion?  For example, this quote


 ''and it didn’t foster trust when the company asking for concessions from its bakers managed to find a $2 million raise for its CEO – I don’t blame the company or even the hedge funds entirely for the catastrophe.  They were acting according the market incentives in operation today.  The CEO got the salary he was able to extract from the firm. If the hedge fund managers had chosen to forego higher returns out of a desire to do right by the Hostess workforce, they wouldn’t be hedge fund managers for long. Their investors hadn’t signed up for a charitable endeavor.''


Why all of a sudden the understanding of what might be necessary to save the situation at Hostess.  Then I read the long Forbes article and after reading it I still didn't know what were all the things at stake in this bankruptcy but I did find out it was Democrats running the show in the bankruptcies.  So then I understood the sympathetic tone for private equity and hedge funds.


Hostess aside, the real problem is that the pension plans of old were never feasible except for a minority and in today's financial climate, all the problems are coming to a head.   Those few who got them were privileged but they were never available for all and we are now finding out that a lot of the privileged few that were awarded them may also loose what they say is their right, a right to live better than others who were not so fortunate.


Interesting dilemma that the Church has gotten itself in by backing unions and all their generous benefits.  The conventional wisdom was  that it was the rich that were inconvenienced by the union wages and work rules.  But it is not that at all as economics wins out in the end.  It is at the expense of others mainly the poor that union member's benefits are extracted.  And now a few of these union members will get to join the poor as the results of past over reach that is coming back to haunt the present.  Is the ''Ghost of Union Past'' undoing the ''Reality of Union Present.''
T BLACKBURN | 11/24/2012 - 6:56am
The regnant economic theorists of this country try to give me to understand that what happens to places like Hostess is creative destruction at capitalism's best. A company is destroyed so that the money tied up in it can be freed for more productive uses and the workers tied up in it can be freed to find better jobs. (Doesn't happen? Please do not quibble with the reigning theory. It is eagerly and mindlessly embraced by one party, subconsciously and hypocritically embraced by the other, and soon to be expounded at tedious length by a contributor near you.)

The brands presumably will go on under other auspices if there is any value remaining to consumers in them, and the architects of the creative destruction will get their cleaning-up money including a sizeable cut. Everybody should be happy. If they are not, it must be something wrong with them. :)
Tom Maher | 11/23/2012 - 11:07pm
Let's not kid ourselves. Hostess was bankrupt  for the second time in five years.  Hostess was in real finiancial trouble.   Hostess was not gnerating enough money to pay all its bills including pay all of its employees their full salary and benefits.   The choice was to either liquidate the company to stop the accumulation of unpaid bills or to get concessions from all employees to less the amount the company had to pay.  One samll union of several hundred workers out of the 18,500 employees at  Hostess would not agree to consessions so the deal to allow the company to pay all its bill fcollapsed . The company was forced to liguidate to stop all payments including furhter payments of all workers salary and benfiits. 

Realistically Hostess had lost the ability to pay all its bills.  Hostess' only chance was to cut back on labor costs.   What the union did was to chose the worse possible outcome that destroyed the company as a viable enterprise including make themselves immeadiately unemployed as well as all of the other 18,500 workers at Hostess.  Unions with Collective Bargaining power can and do all too frequently chose to destroy the enterprises that employ them and thereby do serious and immeadiate financial harm to themselves and everyone else involved with the enterprise. This power to destroy companies in financial trouble is one of the reasons union memebership in the private sector continues to decline sharply nationwide.  Unions irrationally can and do harm their own memebership and their fellow unions all the time as the Hostess bankruptcy and liquidation demonstrates.