An interesting tidbit from the Wall Street Journal last week:

The Government Pay Boom

America’s most privileged class are public union workers.

It turns out there really is growing inequality in America. It’s the 45% premium in pay and benefits that government workers receive over the poor saps who create wealth in the private economy.

And the gap is growing. According to the U.S. Bureau of Labor Statistics (BLS), from 1998 to 2008 public employee compensation grew by 28.6%, compared with 19.3% for private workers. In the recession year of 2009, with almost no inflation and record budget deficits, more than half the states awarded pay raises to their employees. Even as deficits in state capitals widen and are forcing cuts in services, few politicians are willing to eliminate these pay inequities that enrich the few who wield political power.

Now, I know there are some conventional explanations for why this might be happening, but let’s leave those aside for a moment. (We’ll come back to them, I promise.) Let’s hypothesize a thoroughly unconventional explanation.

For example, what if public payrolls are going up in response to a dying private sector job market?

Wow, I can actually feel the knees jerking from here.

WHAT? The private sector job market can’t die. It can be damaged by government meddling / greedy globalizing corporations (take your pick) but ultimately it’s a constant. There can be no economy without a private-sector job market, therefore we will always have one

Okay, sure. Leaving that logic alone and assuming that we will always have a private job market, is there any guarantee as to what size it will be? Is there any reason to think that it might shrink in size? We have to consider what is implied by all this talk about a jobless recovery. (If you have an hour to spare, this particular gloom fest is pretty eye-opening.) We are currently looking at about 10% unemployment; we know that that figure is actually low, because it doesn’t include all those who have given up looking altogether; and of the folks who actually do have jobs, 1 in 5 claim to be underemployed.

So what do we mean by a jobless recovery? We mean that the economy begins growing again, but we have no new jobs. (The recent upward turn is encouraging, but still roughly 8 million jobs shy of getting us back to where we were 2-3 years ago — and btw, a lot of what was created are temporary government jobs.) From a strict standpoint of efficiency, a jobless recovery is the best way to go. Look at it from the standpoint of an individual business: supposing you realize your business can achieve the same revenue with a headcount of 90 or a headcount of 100. Which would you do? If you say you would go with the headcount of 100 because you’re so nice, you better hope your competitors are equally nice. But even if they are, the overall economy is not nice — it’s a heartless bastard.

The efficiencies that can allow a company to get by with 10% fewer staff or an economy to get by with a 10% smaller employment base are many — better management practices, longer work hours, more highly motivated or better trained staff. But the big one has got to be automation. Historically, automation boosts productivity and reduces the need for human workers. Over the past four decades, our economy has made a massive shift to a highly automated, digitized substrate. As recently as a decade and a half or so ago, economists were still scratching their heads over when the big productivity gains would emerge from this shift. Then about five or six years ago, those productivity numbers started showing up. Some of us took this to be unambiguously good news. And, in fact, I still think it’s excellent news. But it may have something to say about the future of employment, and the need for our thinking around employment to change.

One of the models for our future economy that we’ve bandied about on this site over the years is what John Smart calls “taxing the machines.” The idea is that once virtually all economically productive work is taken over by automation, government is funded directly by the remaining productive entities and becomes the distribution channel by which the public gets paid, jobs having all been swallowed up by the machines. This is more or less the scenario that Martin Ford laid out for us our interview with him a few weeks ago.

In Ford’s model, the whole notion of “employment” as we have known it disappears.

Now, this idea strikes most of us as being fairly radical. And there are alternatives. One would be to provide massive incentives for businesses to create jobs even though they don’t really need people working for them. In other words, ask the private sector to create non-productive jobs. Another alternative is to have the government provide the payouts, but only in the form of wages. In other words, ask the government to create non-productive jobs. This could be one area –the creation of non-productive jobs — where the government has an advantage over the private sector. After all, they’ve been excelling at that for decades.

And, in fact, it’s possible that the rise in public sector wages noted above reflects the early stages of this kind of shift — although the creation of more jobs, rather than higher-paying jobs, would be a stronger indicator.

Unfortunately, our current mainstream political and economic ideologies have no room for dealing with this kind of possibility. It’s not part of anybody’s template. If we observe that public employee wages are going up, the responses will fall along the following lines:

The Libertarian / Conservative take: This is a shocking example of statists feathering their nests. All these excessive public salaries show the undue influence of public worker’s unions and reflect nothing more than waste — which diminishes or even prevents more productive economic activity.

The Liberal / Progressive take: What you see here is a necessary rationalization of the labor market. Public service positions often have higher value than private-sector jobs and therefore should demand higher pay. As an added bonus, these higher salaries help to offset the absurdly high salaries that CEOs and other corporate execs make!

Neither group is likely to see what’s happening as a defensive measure against a shrinking private sector job base, even if that is part of the actual explanation. Such an observation doesn’t support anyone’s main line of argument. It isn’t part of anyone’s template.

So the problem is that — whomever you happen to agree with — if jobs are inherently disappearing, it might not matter all that much who wins out. The left can continue to be in charge and carry on with various stimuli and programs that create more public sector jobs, or the right can take over and start to slash taxes and spending. Whatever changes they bring about will be only temporary if the underlying reality is that going forward, whether the economy grows, shrinks, or stays the same, the number of private sector jobs is going to drop — especially if that reality is nowhere on either group’s radar.

Most of us would prefer to believe that what’s really happening is a shift in what we mean by “productive,” and that human beings will continue to have something to offer to the private sector both in the short term and the longer term. I certainly hope so. But hope, as it has been pointed out in recent years, is not a strategy. And if automation is going to come closer and closer to achieving human-level performance (intellectually as well as physically) we need to be ready to do some serious rethinking of how our economy works.

And we might, might, just need some new templates.