New York Times Op Ed | September 7, 2011
How to Bring the Jobs Back: Freeze Public Wages
By Barry Bluestone
IN the face of this economic crisis, the federal government has all but declared unilateral disarmament. The Federal Reserve chairman, Ben S. Bernanke, has vowed to keep real interest rates near zero, but even at that level few are borrowing. Over at the White House and on Capitol Hill, the pursuit of deficit reduction has taken on a religious fervor just when the economy needs a stimulus.
What can President Obama do? Many are suggesting another try at increasing infrastructure investment, but that would do little to provide a quick boost. Here is a wildly conservative, yet refreshingly liberal, alternative. Mr. Obama should first call together the leaders of all public- sector unions and ask them to pledge to a two-year freeze on federal, state and local public employee wages and benefits in return for a commitment to no government layoffs.
The White House and Congress should then create a two-year, $100 billion program of federal aid to state governments to help them and their municipalities weather this economic storm. All of the money would be spent on keeping services from disappearing and providing new infrastructure and public goods, rather than increasing employee compensation.
To pay for the federal aid program, the White House and Congress should levy a two-year, 5.5 percent “profits tax” on corporations operating in the United States that earned more than $1 million in profits in 2010. Profits have rebounded nicely from the Great Recession and now stand at close to $1.8 trillion, but very little of that is going into producing jobs. If half those profits were made at companies with $1 million or more in corporate earnings, this tax would raise the $100 billion we need to pay for the aid to states.
Finally, even with the economy in vast disarray, there are millions of credit-worthy families who might buy a home if they were not so worried about seeing their new homes lose value. So the Department of Housing and Urban Development should create a “home price insurance” program that would insure home buyers against catastrophic loss if home prices were to fall. For a $500 processing fee, the two-year program would allow applicants to purchase an insurance plan covering 80 percent of any loss in home value. To benefit from the program, a homeowner would have to keep the home for a minimum of three years and maintain it in good order. The cost to the government is likely to be minimal.
These steps will not bring full employment back by next Labor Day. But at least we’d be putting up a fight.
Barry Bluestone is the dean of the School of Public Policy and Urban Affairs and director of the Dukakis Center at Northeastern University.