It’s one of Washington’s worst kept secrets: President Barack Obama is likely to propose a new public works program in a post-Labor Day speech.
The idea is to stimulate an economy on the verge of another recession, upgrade the nation’s crumbling roads, bridges, schools and transit systems, and put unemployed Americans, especially the 6 million who have been jobless for six months or more, back to work.
It makes economic sense. The president should think big -- upward of $100 billion a year for at least two years. The temporary spending burst would increase short-term deficits, some of which the congressional supercommittee would have to offset to hit its $1.5 trillion, 10-year deficit-reduction target. But the program could ultimately lower deficits through reduced safety-net spending and higher tax revenue from the newly employed.
Economists have estimated that spending $1 billion on highways and mass transit increases gross domestic product by $1.6 billion. Only extensions of unemployment insurance and food stamp benefits are better at priming the pump, except they don’t create jobs that benefit the public.
Unfortunately, a major public works program doesn’t make political sense right now. Republicans have served notice that they intend to stand pat against new federal spending. After the painful debt-ceiling imbroglio that ended with a deal no one liked, least of all Standard & Poor’s, which lowered the country’s AAA rating, the president doesn’t need another debilitating fight this fall.
What he needs is a quid pro quo. He should offer to cut government red tape in exchange for Republican support for a public works initiative. Obama could start by using his authority to streamline the permitting process. He could limit, for example, environmental reviews to six months. Projects that federal and state officials agree won’t have an impact should be put on a fast track, similar to the Federal Communications Commission’s 150-day “shot clock” for construction of cell phone towers.
The biggest deregulatory bang would come from suspending the Davis-Bacon Act, which sets construction wages. The 1931 law requires contractors using federal money, whether gasoline-tax proceeds, stimulus grants or Department of Energy loan guarantees, to pay the local “prevailing wage,” as defined by the Department of Labor. The president could use his authority to suspend the law in a national emergency.
We realize this would anger labor unions and some workers. But Davis-Bacon is a Depression-era anachronism, left over from a time when it was considered bad form for contractors to bring in workers from low-paid states, undercutting rivals who hired locally.
The act also has racist origins. Its Republican co-sponsors, Representative Robert Bacon and Senator James Davis, and other members of Congress were concerned about constituents losing jobs to cheaper labor, with some lawmakers openly complaining of “colored” workers, barred from unions at the time, taking jobs from whites.
Today, Davis-Bacon protects higher-wage organized labor at the expense of those willing to perform the same tasks for less money. About a third of the $862 billion economic stimulus package Congress passed in 2009 went to projects governed by Davis-Bacon rules. If a job requires skilled electricians or plumbers, and only union workers are available or preferred, then employers have no choice but to pay their higher wages. But why should contractors pay more than the market bears for, say, a home weatherization worker?
What’s more, many Davis-Bacon wages rest on spurious data. Government auditors for more than a decade have complained that the Labor Department has made a mess of collecting the information needed to set prevailing wages. The agency relies on voluntary responses to forms it sends to unions, contractors, public officials and trade groups. Many employers ignore the surveys, which they rightly see as flawed and a waste of time. In 2004, the Labor Department inspector general found errors in almost 100 percent of wage surveys it sampled.
The Government Accountability Office in March chastised the Labor Department for failing to move faster to repair the system, including by consulting with survey design experts. It found that almost half of nonunion wage schedules were 10 or more years old and that a fourth of the pay schedules reviewed were based on six or fewer workers. Some job classifications reflected the wages of three employees from two contractors.
Obama should temporarily suspend Davis-Bacon, then ask Congress to repeal the act and let the market decide wage rates, as it does for every other industry. Such red-tape cutting could be the quid pro quo to get Republicans, who have long complained about Davis-Bacon, to the bargaining table.
Such a deal would stretch federal money, resulting in more jobs, especially for less-skilled workers who have been out of work for more than six months. And it would finally allow Obama to have a Works Progress Administration-style program that’s been missing from his recovery plans. Over the next several days, the editors will suggest more job-creation ideas.
To contact the Bloomberg View editorial board: firstname.lastname@example.org.