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Sunday, November 27, 2011

'The New Tammany Hall'

The historian of the American city on what Wall Street and the 'Occupy' movement have in common, and how government unions came to dominate state and local politics.

'What has the country so angry," says Fred Siegel, "is the sense that crony capitalism has produced a population that lives off the rest of us without contributing. They're right. It's not paranoid."

The economic historian of the American city has spent a lot of this autumn on Wall Street. He met many of the protesters who camped out at Zuccotti Park, before the city's finest cleared them out last week. He also knows the bankers and finds the theater of the Occupy movement ironic.

"They're on the same side of the street politically," he says. "They're both in favor of big government. The Wall Street people I talk to, they get it completely." What he means is that the Bush and Obama administrations bailed out the large banks, and that economic stimulus and near-zero interest rates kept them flush. "Obama's crony capitalism has been very good for New York's crony capitalism," he says. Over at Zuccotti Park, "there are a few people there who do get it, but very little of their animosity follows from this."

One can appreciate why the "we are the 99%" militants might resist Mr. Siegel's logic. He links the liberalism of the 1960s, not any excess of the free market, to today's crisis. The Great Society put the state on growth hormones. Less widely appreciated, the era gave birth to a powerful new political force, the public-sector union. For the first time in American history there was an interest dedicated wholly to lobbying for a larger government and the taxes and debt to pay for it.

A former editor of the left-leaning Dissent magazine, Mr. Siegel has written several well-received books on New York, including the 1997 "The Future Once Happened Here." He calls his hometown "the model for cross subsidies" in America. "Wall Street makes money off the bonds that have to be floated to pay the public sector workers in New York."

Thanks to union clout, he notes, salaries and benefits for teachers, bus drivers and city secretaries have outgained the private sector during this sluggish economy. "Spending is never ratcheted down. It's unconnected to productivity. That can only be sustained by a boom or these extraordinary subsidies we're getting now from the Federal Reserve. But that's gonna stop at some point. And then what happens?"

Other countries have managed to find a way out. During its own "lost decade" after 1993, Canada shaped up its finances and it has weathered the latest economic crises well. New Zealand's Roger Douglas in the 1980s and Germany's Gerhard Schröder in the early 2000s cut into expensive welfare states. In all these cases, Mr. Siegel notes, center-left parties carried out painful reform. "They did this out of necessity." Sooner or later, American politicians will face the "unavoidable" reckoning, he adds. "It's not the mean tea partiers who force this. It's the facts on the ground."

And the ground may already be moving. Many American localities are already at the crisis point. Rhode Island's legislature last week sharply cut retirement benefits for current and retired public workers. "A 300% Democratic state!" marvels Mr. Siegel, who was one of the first to sound the warning on the public pensions crisis.

While new Democratic Governors Dan Malloy of Connecticut and New York's Andrew Cuomo are tinkering with reforms, Mr. Siegel calls them "cosmetic" and argues that both men "are playing for time [and] counting on a recovery, which will solve their problems for them." California's Jerry Brown has dealt with his budget shortfalls by pushing the costs down to cities and counties. New Jersey governors used the same tactic before Republican Chris Christie came in. He has been able to persuade enough local Democratic politicians sensitive to the budget problem to win some concessions.

In Mr. Siegel's estimation, only Wisconsin Gov. Scott Walker has tried the needed fix after last year's elections. "Part of the reason Walker has become such a lightning rod" is that he pushed "straight up, unambiguous structural reform." His move to restrict collective bargaining for state employees isn't as important, says Mr. Siegel, as ending the requirement that state workers pay union dues. On his first day in the governor's mansion in 2005, Indiana's Mitch Daniels also stopped deducting dues automatically; most workers chose not to pay. "The union has a guaranteed flow of income, which they then use to lobby the government," says Mr. Siegel. This reform, he adds, "evens the playing field."

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