The Publicly Employed and the Under-Employed

Here’s a Rooseveltian way to address unemployment now at 1930s levels: Let’s create a National Infrastructure Corps to make urgently-needed repairs to roads and bridges, and put to work the disproportionately blue-collar army of unemployed. According to Shadow Government Statistics , a website that constructs alternate data measures, 22 percent of the workforce is under- or unemployed, right up there with the worst of the Great Depression.

Instead of sending out unemployment checks forever, offer people the option of working for, say, minimum-wage-and-a-half, or about $12 an hour. That’s not great, but it beats the dole, and it’s better than sitting at home. A voluntary program, I venture, would attract millions.

Before I get my expulsion notice from the conservative movement for proposing a government employment program, I should emphasize that the key to economic recovery is not government spending but supply-side tax cuts, especially cuts on taxation of capital income. But the unemployed are not a homogeneous mass of people ready to go to work in the sort of jobs that the private sector, even one invigorated by tax cuts, is likely to create.

In an earlier column, Americans Who’ll Never Work Again , I parsed the unemployment data, which show that unemployment falls overwhelmingly on the less-educated, and on minorities. The global economy has changed and less-skilled American labor has been priced out of the world market. That doesn’t mean we can leave people on the scrap-heap.

Of course, the Democrats will never propose something like this, because the purpose of the Obama administration’s deficit is to keep public employee unions happy, along with their overly generous and underfunded pension plans. Most of the $700 billion “stimulus” plan simply bailed out state and local governments. Unionized labor building public infrastructure earns well over $40 an hour, and doesn’t want competition from the modern version of a Civilian Conservation Corps.

It seems ironic that the first African-American president is pursuing an economic policy that keeps about a third of African-American out of economic life. No government program can correct the social pathologies that keep many people out of the economy, but that is no excuse for not doing what we can.

Propping up the state and local employment monopoly is a hopeless cause in any case. Too much of state and local government spending depended on the property bubble. During the 1990s, the Census Bureau reports, property tax collection barely changed. State and local governments took in $55 billion in the fourth quarter of 1990 and $61 billion in the fourth quarter of 2000. But between that and the last quarter of 2009, property tax revenues nearly tripled, to $170 billion. As assessments reflect the property market crash, these will shrink, perhaps by half.

But that is only half the story. The other half is that public employees’ pension funds face a $3 trillion funding gap , according to a recent study, because the income they are earning at the prevailing low interest rates are much lower than the ones they (unrealistically and unwisely) expected to earn. Taxpayers are supposed to make up the difference, but taxpayers are tapped out.

The only difference between a public employee expecting to receive a pension paid by property taxes that won’t be collected and a homeowner who expected to retire on the sale of a home whose price has now collapsed, is that the public employee has a legal claim on the pension. But where is the money to come from?

In short, the core of the Democratic Party’s political base, the public employee unions, turns out to be the most endangered debtor class in the United States. President Obama got Congress to put up another $26 billion for an emergency patch for state and local governments. That is a trivial amount compared to their coming requirements.

In order to maintain the privileged position of a small number of public employees, the Obama administration has put the rest of the economy at risk, and left a fifth of the workforce in danger of permanent unemployment. The best way to create jobs is to let business startups create jobs, and the best way to encourage that is to eliminate taxes on capital income and cut back regulatory requirements, but the hard-to-employ, less-educated workers need something more drastic, like the National Infrastructure Corps I’ve proposed.

Such a program would also provide a needed counterweight to the public employee unions who are going to have to face reality sooner or later. Getting them to that point might take the bankruptcy of a major state, and that is now a growing possibility”which is why credit protection on Obama’s home state of Illinois costs twice as much as protection on Russia.

The political market for public goods works reasonably well some of the time, but the public employees’ unions have gamed the system particularly well. They managed to take their cut from the real estate bubble in the form of long-term state obligations. But the political system should be able to correct this: the trick is to find the right wedge to drive between union-supported politicians like President Obama and ordinary people who, one way or another, are stuck with the tab.

David P. Goldman is a senior editor of First Things .