2:00 P.M. EDT
MODERATOR: Good afternoon, and thank you for joining us at the Foreign Press Center. Today, briefing on labor and the economy and jobs is the New York State AFL-CIO President Denis Hughes. Welcome.
MR. HUGHES: Thank you. Thank you very much. First, I want to say it’s a great honor for me to be here, and I really look forward to a dialogue and so you – I can understand – you can understand our considerations and I, in fact, can understand your positions and try to make what we do as a labor movement in this country a little more clear.
Let me give you my background. What I want to do is I’ll give you my background and then we’ll go to – I intend to talk about the last, I guess, four years, three or four years, start through the fiscal crisis, our feelings of the fiscal crisis, what happened, where we were when it happened, and so on and so forth, our positions; then go to the aftermath of the conditions that we face resulting from that; and then really the unusual, in my opinion, and somewhat overly acrimonious nature of the relationship between public sector and employees and public sector employers and the issue of collective bargaining generally and collective bargaining rights. So that’s what I’m here to do.
I started this work when I was a young man, as an apprentice electrician, some 41 years ago. I worked as an electrician for 16 years and then was recruited and went to work as a political director with the AFL-CIO in New York in 1985. I had been active in my union all of that time. I had been a member of a union since I was 16 as a part-time worker, retail clerk. So in 1985, I took the job as political director, and that entailed putting together labor’s interests in political campaigns, internal communication, get-out-the-vote operations, and so forth.
Five years later, I was appointed to the executive assistant to the president of the AFL-CIO, and my job there was to coordinate the lobbying and political operations of the state AFL-CIO and as well as the programmatic direction, our public policy statements and so forth.
And in 1999, I was elected to fill the unexpired term of the president. His name was Ed Cleary. And then in 2000, I was elected to my first full four-year term, and I’ve been reelected subsequently. The last time I ran was 2008. I’ve been the president for 12 years. That anniversary was, like, last week. So I’ve been here quite a while.
Now let me start by saying that the labor movement in this country is really going through a transitional phase. It’s a phase that really started in the 1980s with Ronald Reagan when Ronald Reagan departed from the traditional American public policy position on unions and collective bargaining. Up until 1980, the official – from the 1930s, from Roosevelt to 1980, the official position was to encourage the formation of unions and to encourage collective bargaining in a neutral way but not to stand in the way of unions becoming an important economic factor in the development of the middle class.
In 1980, that changed. With the conservative government here, the attitude was that unions, in effect, were problematic to the accumulation of capital and profit. And there has been a systematic – and this all my opinion – a systematic moving away from that tradition of supporting collective bargaining rights.
In the year 2008, of course, we started to see the meltdown of the – of our economy, based on the over-accumulation of risk, the deregulation of our banking system and finance system through the repeal of Glass-Steagall, and the – that was called Gramm-Leach in the Clinton – in the end of the Clinton Administration. And we saw an era of deregulation, an era of very laissez-faire financial safeguards. The hallmark of Glass-Steagall was the firewall between using investors’ money, bank deposit money that was insured by the FDIC, the – insured by the federal government, putting that money at risk in financial vehicles that were, up until that time, prohibited. And I’m sure you know that, but we started to see a change in what banks could do with insured capital.
Banks then were able to get into the investments of insurance vehicles, which led to credit swap derivatives and other derivatives that were risky in nature. It also allowed them get involved in the formation of and securitization of mortgage securities, mortgage being – mortgages usually being constructed with insured capital through deposits, right? Those of you who’ve followed finance know that. And then we saw the collapse of that market based on a real estate budget – bubble, low interest rates for long periods of time through the ‘90s and low interest rates, high prices of real estate, low underwriting standards, and no regulation. No reserves, no regulation, so it was like a recipe for disaster.
The AFL-CIO’s position on the – I guess what they call the bailout of the financial industry, but it wasn’t only the bailout; I would say the formation of the special purpose vehicles through the Federal Reserve System, of which at that time I was a member of the New York board. Right now, we’re talking about TALF and all of the other securities. The buying of these damaged securities by the federal government, the taking over of major brokerage houses, the collapse of Lehman Brothers, all those things, resulted in a downturn that affected working men and women in a particularly disastrous fashion. If you were on the margins, if you had purchased a house with those low underwriting standards, you were then subject to foreclosure based on a whole series of risky mortgage products that they put in place. You know all this.
So the federal government through the Federal Reserve System went in and bailed out this economy. In our opinion, even though it was criticized by a number of labor leaders, but generally speaking, it is something that we supported and something that worked. The economy recovered much quicker, to the extent that it did – and I’ll speak to you about that in a minute – much quicker than we had expected. I remember in March of 2008 having conversations with people that were on the board, and we thought this was a – the type of meltdown that would take years and years to right and it would have the effect of the last Great Depression of the 1930s. It didn’t happen that way, but it had a tremendous cost, both financial and social.
Now let me go to the financial cost. The financial cost was that, in the short term, we lost lots and lots of revenue to state and local government and federal governments. The social cost of that was not only the foreclosure aspects of it – was the tremendous job loss that was associated with it. The other aspects of social cost was the inability to build those jobs back up. And the total consequence of the social cost was the moves against established rates of pay, established areas of worker rights, established positions of contractual agreements through collective bargaining and others that were the focus of that particular downturn and the effects of that downturn.
In my opinion, working men and women disproportionately – and when I say working men and women, wage earners that are in that maybe 40 to $80,000 strata – took the brunt of this through job insecurity in their workplace, layoffs, pay cuts, and so forth. At the same time, to stimulate the economy, they gave the most prosperous Americans a continuation of a tax cut. The deficits that we see here are not of the making of working men and women. A teacher that makes $70,000 a year is certainly not the cause of the great deficit that we see nationally. However, when those deficits are placed on the burden of the states’ economies – you know, our 50-state system here – we start to see that there is no – in the absence of federal support for the operations of state government, we started to see that there was nowhere else to go but to move against those people that work for state government and deal with that downturn. Hence the problem that we see in Wisconsin, Ohio, the political fallout that came of that, the political opportunism that we see operating in this climate.
Now, you realize these are my opinions, but I’ll lay this out for you in a direct way. What we saw in Wisconsin was that once, in fact, the financial conditions were established, once, in fact, the governors’ positions for retraction of wages, benefits, and conditions of employment were agreed to by the public employee unions in Wisconsin, the move to take away their rights to bargain became less of a economic point but more of a political point. The supporters of the governor were generally not members of the trade union movement, particularly not members of the public employee sector of the movement.
So we see this really as a unfortunate attempt to right, as the governor thinks, a political wrong and move away from the rights of working men and women not only to bargain collectively with their employer at this point but their rights, really, to assemble together and to engage on a political action strategy that gives them some degree of strength in the political – in the general political discourse.
We feel that this particular episode in American politics, although we don’t know how it’s going to come out, but we feel that – and I think some of the polls will back me up on this – that in the Midwest, the governor of Wisconsin and the governor of Ohio and some – and to many degrees, the governor of Indiana, have overreached, that the public sentiment, Americans are generally moderates. They understand the concept of rights. They understand the concept of economic rights. They understand their position in this debate very clearly, whether you’re union or not. They understand the contraction of their ability to feed their families and move the whole thing forward.
And I’ll just stop here with one more comment. Although the federal government did well, I think, the end of the Bush Administration and the beginning of the Obama Administration in intervening in the economy, not only in the financial aspects of it but also in the automobile industry, the insurance industry through AIG, and they did right in doing that. The second phase of that where they were denied for political considerations the opportunity to intervene in more of a public works program in a way that would bolster the economic security of working men and women through some degree of subsidy and pensions and other aspects of – that make these jobs secure, we are now seeing a terrible – terribly steep incline upon which we have to get out of to put this economy back on its feet.
So with that, I gave you what I thought. What do you think?
MODERATOR: Thank you. So we’ll go into questions now. For transcription purposes, if you could just state your name and your media organization, and I will bring you the mike.
QUESTION: Hi, my name is Fernanda Godoy. I’m from Brazil, with O Globo newspaper. There was a story in The New York Times, I think, this week about the pressure on the union workers in the construction sector – section here in New York, that many people are – many companies are hiring non-union employees. So I’d like to ask you about this, about in this economy, how hard is it for the unions to keep their position in the work market here?
MR. HUGHES: It’s very difficult, and there’s so many factors that contribute to it. There’s the international economy, where a high standard of living country like the United States or Western Europe or any other of the developed democracies and economies, is very hard for wages to stay at a level that has sustained that development over time, so that being said.
Here in New York, the argument is a little more complex. Where we are here in Manhattan, we look across the street and we see the UN being renovated and all those things. Those are totally union jobs. These large skyscrapers, generally speaking, are union jobs. Why? Because of the high rate of skill. These men and women – and I came from that sector – it took me six years to become from being an apprentice to a journeyman. Today, you need an associate’s degree in – a two-year college degree in these things. So the rate of training and the rate of skill for the union workers is much higher, which generates a higher wage.
The non-union work is the less skilled. It’s the housing – in other words, you’re just putting in basic housing, single-family, multiple-family housing, but not the systems – the alarm systems, the high-end – the energy systems, all the things that go into it. So we do have a non-union sector that operates in the lower-skilled aspects of it. That is growing to a certain extent for a whole bunch of reasons.
But that’s not at play here. What is at play here is the willingness – again, my opinion – the willingness of those employers, the large employers here, to push down the wages of those skilled workers, which is always a fight and always a benefit; is this economy that allowed them to get some leverage over those skilled workers, and I’ll tell you why. When there is less money for investment, when there’s less money around for financial investment both in commercial and residential properties on the high end like this, right, when there’s less money for – due to higher underwriting standards – in other words, you could get a loan years ago, but you can’t get it today – when there’s – when the companies – all of the corporations have declined to the point where they don’t need as many office workers or maybe have gone offshore and there’s a high vacancy rate in commercial real estate, there isn’t that much work for these construction workers. So the employers are using this to change the balance that they had for many years. They needed these guys, these men and women, skilled, high-skilled, more than now, and they’re using that to push that down. They’re also using the fact that there’s all that acrimony in Wisconsin in the center of the country, and I think that that’s going to work to their benefit.
But I want to submit that New York is not – is unique in that we are the largest AFL-CIO in the country. We’re the largest collection of union members in the United States. We’re not the largest state. California is the largest state. But we have the highest density. And what I mean by that, for the amount of people that by law can join a union, they are – the highest amount is here in New York. And that’s really --
QUESTION: (Off-mike.)
MR. HUGHES: Well we’re about 27 or 28 percent. That’s public and private. And the national average is about 12, isn’t it? Yeah. So it’s almost twice the national average. And that is because New York has more of a – this is again my opinion, but sort of a European sensibility. We are used to the benefits of working collectively and dealing with our employers and our government in a very direct way, similar to the European experience, much more towards the European experience than it is to the middle American experience.
QUESTION: Stephan Alsman from Danish Economics Weekly. Going back to this Wisconsin situation, I’m a little bit interested in hearing your views on – well, first of all, where is this going? If we look, it seems like they have wind in their sails in that --
MR. HUGHES: Yes, it does.
QUESTION: And where will this be in two year’s time or something – your estimate? And secondly, if they really succeed in some of their goals here in curbing the union rights, what’s at stake here?
MR. HUGHES: Okay, I’ll start. I’ll start by saying that it’s hard to say where it will go, but I could give you the trends, the trends that I see. Polling says that, first of all, the governor of Wisconsin, his polling numbers dropped precipitously, like fell off the table. And that had to do with the – like I said earlier, about how Americans feel generally about the establishments of their rights. Whether you’re conservative or not, rights – your rights as an American are a big thing here, and your right to join a union and bargain with your employer is a big thing. It’s something that people cherish and something that people would like to see continue.
There is a provision in the constitution of Wisconsin that allows recall. Recall is you’re allowed to have a vote on whether or not certain members of government can continue in their capacity. The governor has to be in office for a full year before that occurs, half of his term, so they need to wait two years to run a recall election against the governor. They don’t have to wait two years for the legislature. It could be one year. That process is starting now. So we’ll get a chance to see whether that process takes off or is thwarted as we move forward. That’s that point of view.
For the – the reason why it’s so devastating, and I think this is the second half of your question, is because what the governor of Wisconsin did was he took away the institutional stability of those unions. And this is what I mean by that. He took away their ability to get to collect dues or membership monies, dues money as we call it, but it’s the membership fees. He’s taken that away by outlawing a blanket collection. He has – you now have to go to every individual and ask them if they want to be part of this process, and they could opt out at any time. So you understand that. So he injured the financial stability.
Then what he did was he said that the union must establish themselves every year. And I’ll explain this. In our process, you have – there’s a democratic process and you become a union. You stay as a union for – there’s no term limit. You can stay as a union for as long as possible. But if someone – if the majority of the workers want to get rid of you, they can. What the governor of Wisconsin did was every year they have to recertify themselves. Now, that makes this a very unstable situation, and it gives the opportunity to him.
So why did he do it? It’s very hard to say that he did it for economic reasons. I think it’s obvious that it’s for political reasons. And he has made statements and been taped in candid conversations in a way that would illustrate that’s the case.
Did I answer your question with that?
QUESTION: Idoya Noain from El Periodico from Spain. I want to go deeper a little bit on Wisconsin.
MR. HUGHES: Yes.
QUESTION: First the political aspect, like from the ten main donors to campaigns, seven are for Republicans and I think unions are the – on the top ten, only unions are there. And if unions lose this power, it’s a very big loss for the Democrats in elections.
MR. HUGHES: It is.
QUESTION: And I want you to analyze a little bit what can happen and also if the people going out on the street in Madison, and Wisconsin has a long history of activism and of labor.
MR. HUGHES: Yes.
QUESTION: But are unions looking at that with optimism? Is it something working on a national level on unions to fight against some of that look – conservative look on unions has?
MR. HUGHES: Yes, it has been a catalyst for action. It really has been a catalyst. People who had thought that their rights as union members or their rights to continue as a union was not in jeopardy now feel they are. They feel it here in New York, which is – we’re very secure, but they do feel it. And I think that’s a good thing to feel vulnerable in that regard.
But it is a catalyst for working men and women, not only union members but working men and women generally, because the way that we choose to be members of a union, unlike the European system or other systems, is a very highly litigated system. The employer has a right to stop it. The employer has the right to interfere with it. They can break the law by firing people that want to be part of a union, and the fines are insignificant but the effect on the rest of the union members are very significant. And so this is part of a – as I said, from 1980 from Ronald Reagan to the present, this is like the – this is as far as they have ever wanted to go before for political reasons. And I think it’ll backfire on them, as I had mentioned before. And it did, in fact, energize our movement.
So I just want to stop and just say that just about every president, including Richard Nixon – not so much Jimmy Carter, believe it or not, but even – and Bill Clinton too, to a certain extent, they’ve all said that unions are part of the fabric, economic fabric, of America until we got to the Bush – Reagan, Bush, those guys that felt that, no, unions are not part of the fabric for overtly political reasons. And here in my state, we support a lot of Republicans because they’re moderate Republicans and they work with us. In the rest of the country, the Republicans have lost that moderate element.
Yes, sir.
QUESTION: Hi, good afternoon, I’m Hajime Matsuura, senior columnist of Sankei News, Japan. I have two question (inaudible). So proxy season here, labor union – proxy season, shareholders meeting.
MR. HUGHES: Yes.
QUESTION: So labor unions in the U.S. is known for being very active shareholders at the same time.
MR. HUGHES: Yes.
QUESTION: Could you tell us how it is effectuating the labor unions to regain the bargaining power, or is it a separate story? It’s – you are running that campaign as a pension fund manager on behalf of the investor side of the membership.
And the second question would be: I’m interested in how you handled the crisis three years ago when everybody on the street thought that the whole nation will melt down, just like my country is suffering from right now.
MR. HUGHES: (Inaudible.)
QUESTION: Yes, it’s an analogy, and I am asking this question exactly because I’m interested in the role of labor unions in the situation crisis, and of course, just – it’s not a zero-sum game. You have to enlarge the pie. And how did you manage to put everything together and eventually complete a happy ending story like you’re experiencing right now?
MR. HUGHES: Let me start by saying that I can’t imagine the – how you feel about what happened in Japan. It’s terrible, and you have our thoughts and prayers as this moves forward.
Let me start by talking about the shareholders. The shareholder meetings have like, many, many capacities or involvement has many capacities. We have a lot of participation in the operation of this economy through our pension investments and otherwise, but particularly, our pension investment, profit sharing, and things like that. So when we get involved in shareholder actions, it has to do with a lot of different things. Ethical considerations, as we did with the Enron – I don't know if you remember that – the Enron thing. We didn’t have any union members at Enron to speak of. In some of the more developed – California, they brought powerhouses and stuff, but generally speaking, they were a Texas energy company that didn’t have a lot of interest in unions. But we were – we had invested – there were many unions invested in them and they were interested in their ethical practices. So that’s one aspect of it.
The other is sometimes, people get involved in things that – unfair competition, or they’ll get involved in environmental groups, environmental reasons. They’ll get involved for a whole host of reasons, sometimes collective bargaining, sometimes not. But what it’s useful to understand is that it’s part of the economic democracy that has to exist. If you have a political democracy, you have to have economic democracy. And that’s the whole concept of shareholders generally, is that people – even if you have one share or two shares, you can be part of this process. I don't know how far you would get, but you can be part of this process, and that’s something that we hold very dear.
Now the second part of your question is how did we put it together, and what – the labor movement’s position on this was really to support the actions of Congress as they were drawing up this – the enabling legislation that let it happen. I don’t want to be – mislead you. There was a lot of difference of opinions on how this thing should have been done within the labor movement. I was on more of the conservative end of it because I realized that a median intervention was necessary or else we would have lost the whole thing, and that’s what a government does. What a government does is really sustain the economy and that’s what a central bank does; when there’s hills and valleys, the idea of a central bank is to keep it going in a straight way.
So I was more on the pro-intervention side, particularly on the General Motors automobile industry piece and the AIG piece and others because I was able to see the effects of a unlimited collapse. And if that meltdown or unlimited collapse would have occurred, it would have been very hard to rebuild these institutions. And also, we are an economy that is very much plugged into the international economy. If you look at the British experience here, Lehman Brothers had more of a portfolio and as much of a risk in the UK as they did here, which people don’t really pick up on and which we saw in the Barclay Bank – that brief period of time where Barclay Bank was considering buying the Lehman Brothers assets and wound up taking some of their underwriting things as a result.
So a lot of people felt that there should have been more conditions, there should have been – if you put money into, let’s say, Chase Bank, Morgan Chase or any of these banks that – Citibank, that you should have – there should be a commitment to put money into the states or bolster the pension plans that lost money as a result of this, or some of those other things that they didn’t do, which I felt they should have done. And then there was also the inability to put together a genuine public works program as we were coming out of this as a financial stimulus. If you look at this from a real point of view here, most of that stimulus money that everybody spoke about went to tax incentives and not very much money into real jobs.
So the real story here is that American Government – in my opinion, the American Government thinks of the solutions here as eliminating debt, but not creating jobs. So they’re going to cut down on debt. We started in my state, New York state; we’re going to reduce the debt; we’re going to cut the deficits. But we haven’t created jobs. And as a matter of fact, we’re losing jobs as a result of this contraction and this elimination of debt. I don't know if that answered your question.
Yes, sir.
QUESTION: Hi, my name is Robert Poredos, Slovenian Press Agency. You were talking about the crisis, right, so that it’s kind of enabling the employers or the politicians to increase the pressure on the unions. But after the crisis, do you see the situation changing? I mean, can the unions return to the former glory?
MR. HUGHES: Well, former glory is – we had – our former glory was in the period of time from, I guess, the Second World War to the early ‘70s, right, and then when our economies became more international and more competition for wages, that dropped. So former glory is going to be hard to get to, but I think that we’re going to have some degree of political stability. I think we’re going to have some degree of political recognition as to the benevolence of collective bargaining generally, as to the benefit of having the right to assemble freedom of association, freedom of assembly, so that you could right the wrongs that you deal with. Organization, social organization is always useful.
So I think we’re going to – I think this will come out of it with more of a recognition of the necessary nature of employee organizations, unions generally. I don’t think that they’ll be successful in this route of unions that they’re trying to put in place, and I think that we’ll be stronger, but former glory is a hard thing to do.
QUESTION: Yeah, I just want to go a little around this thing about 2008, the crisis. I’m really interested in your role at the peak of this, being at the Federal Reserve, having to somehow balance the thing of – are we going to curb inflation here, are we going to – what are we going to do, are we going to be very activist? And at the same time, you have the – your interest coming to the union side, obviously --
MR. HUGHES: Right. Well --
QUESTION: So I’m interested in your --
MR. HUGHES: My end of it?
QUESTION: Your end of it, your personal victories and defeats and experiences.
MR. HUGHES: Well, let me just say that I was the – I was on the board of directors of the New York Bank of the Federal Reserve System, one of 12 regional banks. If you know the system, there’s the Board of Governors in Washington, of which Ben Bernanke is the chairman of, and they set monetary policy. Monetary policy has many forms, but basically, interest rates and discount rates and functional – functions of the central bank and banking system.
We didn’t do any of that. What we did – and we didn’t make – the board of directors of the bank did not make the decisions for TARP and all the special purchase vehicles. We didn’t make those decisions. They were made by Treasury and the Federal Reserve System. What we did was oversee the operations of these things, the competent nature of these things. We – I was on the audit committee as well as being the vice chairman at that point and then the chairman later on. And we saw that our job was really to make sure that these things were done in a way that made sense, that were – met all the standards, standard banking regulations, and also were able to get to that public purpose that they’re willing – that they were set up to do.
What did that entail on my end? Well, my opinions on how we dealt with some of these risky investments were heard, but I wasn’t an opinion maker. I wasn’t a decision maker. The board is a board made up of many of the larger financial – heads of larger financial institutions, and there was, again, a firewall between some of these decisions based on potential conflicts of interest, and we didn’t take any of those conflicts of interest. So what was going on in my head when this was happening? Well, I was thinking about how this affected the people that I was there to represent.
I was also thinking about what was the best way – what are the most important and most focused ways to administer these things so that we were able to get past it, particularly on AIG, which is the big insurance company that went down. They had a lot of holdings that if they weren’t managed correctly would affect the economic security of working men and women through insurance annuities and all the things that went with it, the underwriting the type of risk that allowed certain industries to continue. There were a lot of things involved in that, so we had to make sure that we were supervising the operation of that insurance company in an equitable way. And with the help of an extraordinary staff of the Federal Reserve System, we were able to do that and hold that together.
On the special purpose vehicles, when it came to buying some of the debt that they had, our only responsibility was to see that that debt was being managed correctly, were they trying to sell it, were they trying to establish financial values for that, was it being – and I had to learn a lot of business procedure, but was it being put – managed and operated in a way that would do two things: get us out of the crisis and make money for the bank – for the Federal Reserve System and hence the United States Government.
And if you look it up, they made a lot of money on this. One year we made – one year the New York Bank turned something like $40 billion back to the Treasury. The next year even more so, because the nature of this stuff is that they were considered bad assets, and they were bad assets, and the underwriting was shabby, but they were still being serviced. Some people were still paying it. And they bought this debt – the Federal Reserve System bought this debt in some cases – I’m not going to get into details here – at 30 percent of their value. Right, so you have an asset that is 70 percent more than you paid for it, and you’re still getting the money back on a monthly basis because of the service on the loan. And if other loans went other, it was offset by the smart purchase of this bad debt.
So a lot went into this that people don’t realize. I mean, it wasn’t just opening a pocketbook and buying this. They bought some of this – some of these liabilities at some pretty favorable terms, particularly the AIG piece.
QUESTION: Okay. I’d like to ask you about how you view the role of the unions instead of trying to protect the middle – the American middle class from being compressed in a way, because a lot of inequality has been mounting up in the way the last years, not only the crisis. And this week I saw Michael Moore on TV, and he said that the unions were the last line of defense for the American middle class, so I’d to ask you how you see that.
And particularly in the – within the public sector, how do you see the situation of teachers’ unions, because there is a lot of talk also about changing the school systems and laying off teachers, reducing salaries, a lot of stuff going special in – for that category. I’d like to ask your views on that.
MR. HUGHES: Let’s go to the first half of that first. We didn’t have a middle class per say in this country until the mid 1930s. We had episodes of it, we had experiences of it through the boom of the 20s. But if you look at American history to that point, it was not – we didn’t have that type of expansive economy. That limped along until the Second World War, and after the Second World War the American economy blossomed to – in ways that no other economy ever had. Along that line, if you could draw a graph and you draw a union membership and you draw a graph that would mark prosperity, earning power, real wages, and so forth, they go together. If you plot that same type of thing and you see that union membership and earning power – they go together again. They are related, symbiotic relationship that many people – so there’s no doubt that collective bargaining as an economic policy in this country from the 30s to the 70s was an extraordinarily effective way of raising the middle class.
And I want to say quick, 1930s the strategy was to get more earning power into the American workers’ pocket. They did that by giving them the right to organize and be part of a union; they did it by establishing minimum wages; they did it by establishing wage and hour, in other words you couldn’t work more than 40 hours a week, you couldn’t work on Saturday and Sunday unless you were paid overtime for it, all these things that wanted to raise wages. We want to raise wages so you can buy the car, the refrigerator, or whatever it is, the house.
We changed – we created a secondary mortgage market. I don't know if you know what I mean by that, but you could – up until that point if you bought a house in America before the Second World War you’d get like a 10-year mortgage. They wouldn’t give you a 30-year mortgage because of the fluctuation of interest rates. When they established the secondary mortgage federally guaranteed Fannie Mae and all that type of thing, when they did they established a mechanism that would allow people to pay 30 years to own a home, which they didn’t have before. So all those things were based on raising wages.
This downturn is based on reducing wages, which is really interesting. It has to do with the political realities, the prominence of the conservatives, all that stuff. But their solution to this is to lower wages. In the 1930s, it was to raise wages. That theory, in my opinion again, started this giant projection towards the middle class we didn’t have before. And what they’re doing now is starting a downhill thing. And if you read – and I’m sure you have – Keynesian economic theory and all these things, you’ll see that it was a deliberate set of values and goals that got us to that point. So Moore is right in that respect.
And what was the second part of your question?
QUESTION: About the teachers’ unions.
MR. HUGHES: Teachers union – this whole thing with the teachers is a mechanism really to privatize the education system here. Yeah, we have a lot of problems with our economic system, and it has to do with predominately wealth inequality. If you look at the operations of an inner city and where there’s – where poverty levels are high, schools are not functioning the way they should. Why? Because there’s social problems that children bring into the classroom. They’re hungry, they have problems with their family, they live in sub-adequate conditions, they may get beat up on the way to school, all these things that make it tough to live through that.
So – but in the attempt to try to straighten that out there’s been this recognition that somebody can make – this is, again, my opinion – make money on these things. The charter school movement is in many places a profit-making operation. So it’s a privatization of the public school system to what reward. And I do think that on the federal government a lot of this theory is well intentioned. That is really what the flex is on teachers. Also paying a teacher adequately requires some degree of increasing taxation or moderation of taxation over time. It’s obvious that if you look at the political direction of conservatives in federal government, their whole thing is to reduce taxes, so you got to reduce the wages of the teacher to reduce the taxes.
So a lot of it is really being done by the fact that people with means are not being asked to pay their fair share of supporting this country. Look, we have two wars going on at the same time. It’s the first time in American history we ever cut taxes during a combat situation – first time. It’s not good economic sense.
QUESTION: I have two more questions.
MR. HUGHES: Yes.
QUESTION: One is public sector unions have like, I think, an average 30 something percent are union members. It’s 30 --
MR. HUGHES: They’ve fallen. Yeah.
QUESTION: And private sector it’s only 6.9 or 7 percent.
MR. HUGHES: About 8 percent. Yes. That’s correct.
QUESTION: So a lot has been said and talk about especially from the conservative side trying to, I think, make a war between private sector and --
MR. HUGHES: Private and public. That’s right.
QUESTION: And I don't know if you see with those percentages that the war – they are winning that war. Is there something that can be done? And --
MR. HUGHES: There is.
QUESTION: And the second part is in Ohio, in Wisconsin, even if Wisconsin has court challenges and everything – but Ohio, the law is passed. What is next? Like wait for Democrats to regain the state legislature and pass laws reinstating collective bargaining? Or what is next?
MR. HUGHES: All right. First part, we’re talking about --
QUESTION: Public and --
MR. HUGHES: -- the difference between public and private. Here in New York, we have – what we do on that is we have specific meetings of public and private unions and we sit down and we talk about each other’s problems. If you don’t – it’s all a leadership thing. Leadership of unions, both public and private, have to talk to each other, get to know each other, and we’ve done that here, and I’m very proud of that. I have a really smart leadership in this state, in this city, and they understand that the divisions will kill them. Although the news media tries very hard to say that we’re splitting up, news media is – you know who runs the news media here. I’m not going to get into that. So it – but it’s not really the case in my experience here.
Now, let me point out that that 7 percent is not – or 8 percent – is not a condition of people saying, “I don't want to be a part of a union anymore.” This country went through a severe, severe deindustrialization, a deindustrialization that had no planning at all. They didn’t plan for it. I can take you in a car, we get in a car together and I drive, we’ll drive like two hours to Schenectady, New York and we’ll see what devastation occurred when General Motors became – General Electric became more of an international company than it is today. So what we’re talking about, the consequences of a change in the international economy, the world economy, and how that affected working men and women. And most of those major jobs in auto, steel, rubber, glass, all those large employers here in the United States have left. Our industrial base has been eroded.
So a lot of those jobs that were organized in that period of time when America encouraged people to be a part of a union have been replaced by low wage jobs in a climate where America encourages people never to go near a union. So you have that problem. And this is not – I use this analogy, and I hope it works here, but it’s not like playing golf, organizing people, it’s you against the course. It’s more like playing football. They’re playing football and you’re playing golf. I mean, it’s like – it’s a whole different analogy. So it’s – that is a major problem with that.
Now, the second part of your question about what will come of this, I think I answered it a bit, but you don’t really have to – and the Democrats will probably be – anybody that’s really a part of some politician wouldn’t dislike this next comment, but Republicans can be moderate too. There’s no like – we have a tradition of moderate Republicans here in this country that goes back all the way back before the 1980s. We’ve always had a moderate Republican movement on the East Coast. The Republican Party goes back to – was a party of reform, it stood up against slavery, it stood up against – when Teddy Roosevelt stood up against the larger corporations, the monopolies. So the Republican Party is now in the throes of a very extreme right wing, and they’re doing these things.
Here in my state, I am proud to say by a large the Republicans I deal with are moderate and understand – they’re from the working class. They understand the needs of the working class and needs of working Americans, and I would say I have a friendship with the state party chairman, Ed Cox, who was well aware of the fact that a lot of his members – a lot of the Republicans here are union members. A large percentage of my membership are union members, I would say – are Republicans. I would say somewhere 35 percent or so, maybe has high as 40 percent in some instances our members are Republicans, but they’re union members as well, and they push back. They’re Republicans for traditional reasons, for fiscal reasons, for opportunity reasons, but yet they support the rights of working men and women through collective bargaining.
So it doesn’t have to – Democrats don’t have to be the saviors here. Moderate, smart-minded, fair-minded Republicans can help us through this as well.
MODERATOR: All right. We’re going to take one last question.
QUESTION: Hajime Matsuura, News Sankei again. I would like to bring you back to the Wall Street debate again. So three years have passed, and but unlike other post-crisis in our countries, including Japan, I haven’t seen any Wall Street CEOs or big shots going to jail.
MR. HUGHES: Right.
QUESTION: Nor – I haven’t seen anybody – any investors or plaintiffs winning over – even the civil cases, to my knowledge. Do you think the fact that still – those people – those wealth are – and their high living standards are safe in and intact, do you think the fact that nobody is being punished, well, even specifically, is encouraging the working middle class in U.S.?
MR. HUGHES: Yes, I do. There’s one thing you got to realize here. Well, there has been some. I mean, the Madoff scandal, that resulted in convictions, and there’s been a number of others. But you’re right, by and large very few people were held accountable or went to jail. And the reason for that is that most of those risky activities were not against the law. It’s useful to understand that. They – with the repeal of Glass-Steagall, with certain other changes in regulatory law and emphasis and so forth, these things – the use of insured capital in risky investments was allowed and somewhat encouraged by a repeal of Glass-Steagall. That’s my opinion, again, but I think I could back up. You have that piece.
The whole issue of reserves, reserving money, if I was going to make a – let’s say – well, without going through it, the derivatives, the whole derivative market, where you were insuring against collapse of a security, a securitized mortgage obligation, you didn’t have to reserve for that. I mean, it used to be you had to have – it was a 10 to 1. You couldn’t – you’d have to have the mechanism of – you had to have 10 times the amount – if you left – let – you lent money you had to have like one – you had to have enough money to cover that in a 10 to 1 ratio. They allowed it to go to 30 to 1, so you didn’t have to have any money – this is the SEC – you didn’t have – you have to have a very little amount of money on reserve to cover your debt if those investments collapsed or if those investments were called. So it’s hard to explain all that stuff.
But, I mean, there was a lot of – there’s a lot of deregulation, there was a lot of faith in the natural breaks, natural good intentions of the market. In other words, people would say, “Well, why would an investor only reserve that small amount of money when he knows that if it went down quickly he’d lose all his money?” Well, because he intended to get out of the investment in a short period of time, and there was nobody that said, “No, you’ve got to reserve more money for that.” So I know this is over simplification, but most of those things that caused this downturn were sort of encouraged by a lack of scrutiny and regulation.
And I have to say this. The way that the financial industry is incentivized allowed for that or encouraged risk taking. It was sort of a cultural thing. It was within the law, although maybe it was – there was some moral, lots of moral conflict in taking somebody’s money and putting it at risk, but it wasn’t against the law. There were times in this country where that was strictly prohibited, but not today. And we went through a large financial reform, the Dodd-Frank bill, and there’s a lot of things in that that helped, that really helped, but we still have like loopholes that you could drive a truck through in that law. So it’s a different attitude.
Again, let me leave you with this. At the end of the last financial crisis there was this willingness and this understanding that we have to make strict safeguards so that this doesn’t happen again. After a while, people lost the memory of that downturn. They forgot how bad it was, and I mean, I wasn’t even – I wasn’t born. I wasn’t born when that happened. So there was no institutional memory, and if it was, it was like discredited. They took the brakes away, and this is what happened.
MODERATOR: Thank you so much.
MR. HUGHES: Thank you for your intelligent questions.
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