The grim state of the states Pt. 3


Paul Jay speaks with James Heintz about solutions to current unemployment crisis.

Story Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Washington, DC. And joining us again is James Heintz. He teaches at the University of Massachusetts Amherst, and he is at the PERI Institute, which is an economic think tank there. Thanks for joining us, James.


JAY: So in the first segment of this interview we went over the problem: state and local governments on the verge of what amounts to practically a kind of bankruptcy, I guess. Essentially, the deficits are rising so high; they don’t have tax base that’s growing—in fact, it’s decreasing as the economic crisis gets worse. So let’s talk about solutions. So what are your solutions to this?

HEINTZ: I think we have to look at the structure of state finances and how they’ve been managed. So as we spoke about in the first segment, one of the problems that we encountered with the current shortfall in state revenues is that during good times, states cut taxes and they reduce their ability to collect revenues, so that when the crisis hit, they were left short. One solution would be to put in place some safeguards to prevent these types of structural deficits from reoccurring. And by "structural deficits" what I mean is: can the tax structure that’s in place survive an economic downturn? If the answer is no, then that tax structure probably needs to be reformed so that it can actually survive a downturn. So we could think of states being subject to various stress tests. People talk about financial institutions being subject to stress tests in the wake of the crisis. We can think of the same thing applied to state governments. Another option along the same lines is to have states project their budgets for many years in the future, not just go from year to year, but shift to a multiyear budgeting process, again, incorporating some kind of stress tests so that any type of a reduction in taxes this year has to be accounted for in subsequent years.

JAY: If we’re looking at what some economists are saying could be many more years of high unemployment, continuing low wages, there’s simply nothing in the horizon right now that points to American wages going up. If anything, if you look at the current crisis with such high unemployment, there’s an even additional downward pressure on wages. Profits have gone up in the midst of all of this unemployment, which means productivity has gone up, and some of that productivity is companies are finding in this crisis more ways to wring more out of each person that is working, which leads, again, to more unemployment. So the underlying issue of high unemployment and low wages, if that doesn’t get addressed, what other structural changes are going to matter?

HEINTZ: There’s a number of structural changes that could matter. But I take your point. And, again, it’s unclear that states acting alone can do much about the systemic crisis that we’re currently facing. Again, it requires federal response at a macroeconomic level, because the federal government in the short run is the only entity, government entity that has the ability to mobilize the massive amount of resources that could finance a stimulus to reduce the unemployment that we’re currently facing. Again, it’s done that once. It did it with the American Recovery and Reinvestment Act back in February. But it’s not going to go away. And so there’s going to need to be consideration of a second stimulus package to reduce unemployment. And that stimulus package should be channeled not through tax cuts, as a large portion of the stimulus package this past time had been, but it should be used to fund the shortfalls that state and local governments are experiencing. And then, by doing so, it can inject money, inject resources right where they can do the most good.

JAY: Now, is there anything that can be done at a state level on the issue of low wages? Like, one of the issues that the labor movement’s been raising in Washington was on the back burner, and now it’s not clear it’s even on the stove, is the Employee Free Choice Act that would make it easier for workers to get into unions. If that does get stalled in Washington or doesn’t come out of Congress with much teeth, is there anything similar to that that can be done at a state level and/or other things that could be done to raise wages, generally speaking, in a state?

HEINTZ: One thing is is that the current crisis, because it’s filtering through and is hitting hardest at the state level, has actually done the reverse of what you’re talking about. So a lot of states are renegotiating with their unions to have the state workers to actually take either an explicit pay cut or work fewer days per week and thereby reducing the payroll, so reducing the total amount of employment in a way. In some states, such as in Massachusetts, what we’re seeing here is that it’s the benefits, it’s increasing the employee contribution to state benefit packages. And the vast majority nowadays of unionized workers are actually in the public sector. So we’re seeing with these budget cuts and the stress on the state budgets that that’s really hitting unionized workers hard. Again, it gets back to this really difficult position that the states do not necessarily have, in terms of their budgets, a lot of policy space within which they can maneuver [inaudible]

JAY: And they can’t do what the federal government can do, which is simply print more money. What I was asking was actually, at the state level, is there anything that could be done to raise wages in the private sector within states? In other words, to make unionization a simpler process? Or is that so much in the federal domain?

HEINTZ: States could change their unionization policies. The states have very different policies in terms of unionization. So, for instance, some states prohibit public-sector collective bargaining entirely, while other states have public-sector collective bargaining. We also have states that are called the "right to work" states, which make unionization actually more difficult. A lot of the southern states are "right to work" states, which basically means that if a union is organizing in your workplace, you can opt out of that union structure, that you don’t have to necessarily join the union, even though you would benefit from the collective bargaining agreements that the union strikes with the employers.

JAY: Which in effect has led to most of these states being practically nonunionized.

HEINTZ: Exactly. So, yes, there are things that the states could do. Whether there’s a lot of political movement at the state level in those states that make it very difficult to unionize, I don’t see a lot of encouraging signs there.

JAY: Well, it would have to come from people who are unemployed and working. It’s not going to come from anywhere else.

HEINTZ: Absolutely.

JAY: Thanks very much for joining us, James.

HEINTZ: Okay. Thank you.

JAY: And thank you for joining us on The Real News Network. And speaking of fiscal crisis, don’t forget our donate button.