Obama Still Lacks Jobs Policy

Liz | 04/02 at 08:04 PM

Is the country going to the dogs? Who knows? What we do know is that it is going to the dogcatchers, transit workers, IRS agents, MTA cops, librarians, schoolteachers and all the others on the government payroll. Automatic Data Processing reported this week that non-farm payrolls shrank by another 23,000 people last month. This morning’s report from the Labor Department showed – finally – an increase in jobs, boosted by temporary hires of Census workers. Some of those lucky thousands will be working in the private sector, in a turnaround from recent periods. Mostly, new jobs have been added by Uncle Sam.

There is another divide emerging in this country, as though we didn’t have enough already. Carpenters, steelworkers, auto mechanics, barbers, shoe salesmen, bakers, bankers and advertisers are wondering: When do we go back to work? Moreover, as states and cities attempt to plug holes in their finances, taxpayers are increasingly incensed over the upward trajectory of wages and benefits paid out to public-sector employees. Hearing about Frank Cruthers, the New York Fire Department employee who retired with an annual pension of $242,000, gets people’s dander up. Especially when they read that most of that annual payment is tax-free. It turns out that Mr. Cruthers, an avid golfer, was judged to have hurt his knee in the line of duty.

These days, some 92% of public-sector employees receive pension benefits; 99% enjoy health-care coverage. In the private sector, less than 30% are awarded pensions and around 70% get health-care benefits. Moreover, according to the Bureau of Labor Statistics, public-sector wages outstrip those in the private sector. Total compensation is $39.66 per hour compared to $27.42 for private-sector workers. Hourly wages for government employees of $26.01 top those in private jobs of $19.39.

The ranks of government employees have increased merrily throughout the recession. At the same time, 15 million Americans are still out of work, and another nine million are “underemployed.” Partly, this is because the private sector is more likely to cut back during a downturn, while federal bosses gin up spending in hopes of buoying the economy. Add to this the Obama administration’s affection for government problem solving, and we have an inexorable divergence in the fortunes of private and public workers.

This is unsustainable; the number of taxpayers supporting all those workers is shrinking. We see it vividly in many cities and states, where revenues are crashing and which are therefore taxing everything that walks, crawls or swims in an effort to balance their books. Only recently have governors and mayors begun to weigh cutting back public-sector employment and wages. This brings predictable howls from public-sector workers, and their unions. Last year, public worker union membership of 7.9 million exceeded private-sector membership for the first time. As overall union ranks thin in the United States (in 1983 20% of workers were unionized as compared to only 12.3% last year), organizers have focused on that sector of the economy that is growing – government. They are not about to let their numbers shrink.

Most of us are indifferent to these trends in good times. These days, however, when we see cuts in our bus schedules, our local hospital closing or when our kids’ school day is shortened, all of us begin to notice that the only items not on the belt-tightening agenda are teacher wage hikes and cop pensions. New Jersey’s new governor, Chris Christie, took office pledging to rein in outlays to state workers. He started by taking on the teachers’ union, asking for a wage freeze. He has whipped up public support by citing the union director’s half-million-dollar annual compensation, and pointing to other union excesses. I wish him luck. Challenging teachers’ unions is akin to taking on a T-Rex with a nail file; the outcome is almost sure to be ugly.

Of course, all these issues take us back to the need to create jobs in the U.S. So far, the Obama administration has paid only lip service to this essential plank in our country’s foundation. We desperately need a policy to bolster manufacturing, and it can’t be just bashing China.  Stephen Roach, chairman of Morgan Stanley Asia, published a controversial report this week stating that pushing China to revalue its currency is not the answer to our country’s woes. He points out that China is only one of 90 countries with which we currently run a trade deficit. Admittedly, 39% of our merchandise trade deficit last year was with China. On the other hand, since the U.S. savings rate has been insufficient to fund our capital needs in recent years, China’s purchases of our government debt have been essential to our growth.

Interestingly, Jim O’Neill, Goldman Sach’s chief economist, picks up the argument in the Financial Times, concluding that, according to his (imperfect) models, the renminbi is currently valued about where it should be. O’Neill makes the case that this could not be a more inappropriate time for the Obama administration to ramp up its anti-China rhetoric. Chinese domestic consumption is growing at about 15% – i.e., much stronger than generally reported and exactly what we want to see – and its imports are rising rapidly. China’s current account surplus last year was 5.8% of GDP; it is expected to drop to 3% this year. As O’Neill points out, this is below the “equilibrium” level determined by the Peterson Institute, an organization that has long raised red flags about our trade deficits.

The bottom line is that distracting voters by becoming aggressive with our largest trading partner, at a time when that relationship is moving in a favorable direction, does not substitute for a policy to create jobs. It is especially stupid when the U.S. is looking to raise more than two trillion dollars this year, and China continues to be a pivotal buyer.

This week, President Obama agreed to allow some (future) drilling in offshore waters. That was a welcome first step toward allowing one of our country’s most dynamic and technologically advanced industries – oilfield – to get back to work. It was, however, almost certainly a quid pro quo for progress on his cherished cap-and-trade bill. This is without a doubt another piece of legislation that will prove harmful to industry, as was the health-care bill. 

At some point, the Obama team needs to face reality: We can’t afford to solve all the nation’s long-term problems today. If and when we get people back to work, we will have a fatter checkbook to work with. Speaking of checkbooks, and jobs, whatever happened to the Stimulus Program? Those stimulus projects are about as hidden as Easter eggs! 

 

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