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Thursday, March 7, 2019

Paid Leave: One Step Closer to Industrial Poverty

Never bark at the Big Dog. The Big Dog is always right.

Since my book Industrial Poverty in 2014, I have repeatedly explained that once a welfare state grows past a certain size, economic growth tanks permanently. The benchmark is that the welfare state spends 40 percent of GDP; it is not the size of spending per se that grinds the economy to a halt, but the invasive nature of a government of that size. At 40 percent, that invasion reaches a critical mass that the private sector simply cannot accommodate.

I have specifically pointed to Europe as providing ample evidence of this relationship between a big, redistributive government and economic stagnation. I have also used Europe as a warning example to people here in America, from ignorant leftists and naive Republicans to hawkish welfare-statist neoconservatives, that if we continue to grow our government we will end up right there, in the European economic quagmire.

Just yesterday I reinforced my warning about the European economy, pointing to its inability to generate inherent growth. Now, only a day later, CNBC reports:
The euro zone's central bank slashed its growth forecast for 2019 to 1.1 percent from an earlier forecast of 1.7 percent made in December. ECB President Mario Draghi said Thursday that there had been a "sizable moderation in economic expansion that will extend into the current year." 
Mr. Draghi, of course, would never admit that this chronic inability of the European economy to actually grow, has anything to do with the welfare state. Speculatively, he puts the blame on the rest of the world:
"The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment," Draghi told reporters.
A look back at euro-zone countries since the passage of the Maastricht (later Lisbon) Treaty shows that the European economy has been remarkably victimized by a long series of unfortunate, unpredictable circumstances. How else would Mr. Draghi explain the fact that the economy whose central bank he runs, has barely even reached two percent growth in the past ten years?

Figure 1
Source: Eurostat

In reality, the slow but inevitable decline of the euro zone is due entirely to the growth in government. Again, I present the evidence for this connection in my aforementioned book; what matters here is that U.S. lawmakers ought to learn from the European experience and avoid expanding our welfare state. 

Yet that is precisely what they want to do. On March 4, Roll Call reported:
Democrats have dominated discussions surrounding parental leave for decades. But Republicans are now poised to introduce a raft of new proposals in the coming weeks, reflecting the party’s effort to win back the suburban women it lost in the midterms. Lawmakers working on new legislation include Sens. Mike Lee of Utah, Joni Ernst of Iowa, Bill Cassidy of Louisiana and Rep. Ann Wagner of Missouri, Roll Call has confirmed. The bills are the first wave of what GOP pollsters, strategists and advocates of paid leave expect to be a surge of paid leave proposals from Republicans in the run-up to 2020.
A proposal by Lee and Ernst, and another by Wagner, would be similar to a plan put forth by Sen. Marcio Rubio last Congress, which would allow new parents to draw from future Social Security benefits to finance their leave. Cassidy’s office did not provide details of his plan. “The president has made it clear that paid family leave is a priority for his administration, that’s why I am all the more encouraged to continue working with my colleagues, and the administration, to create a path forward for a budget-neutral, child-focused paid leave program rather than impose a new entitlement or mandate,” Ernst said in a statement.
Let me be brief. There are four reasons why this idea is bad.

1. It will run Social Security dry faster than on the current track to bankruptcy. Instead of running out of money in 2034, the Rubio proposal would dry up the program in 2031. Unless, of course, Congress expands on the program after it has been created.

2. Which brings us to the second reason: once created, entitlement programs always expand. If Congress were to expand a paid-leave program to European proportions, it would cost American taxpayers $370-500 billion per year

3. As a paid-leave program expands and Congress adds a new, dedicated tax to pay for it, the U.S. economy will experience more of the growth drag that has engulfed the European economy. As growth slows down, so will tax revenue that is supposed to pay for the paid-leave program. What will Congress do then? Raise the tax? Cut benefits? Both?

4. A paid-leave program is an ideological "marker", rendering another victory to those who want to expand the American welfare state to full European proportions. Once paid leave is in place, what's next? Medicaid for all? Government-run child care? Free college? 

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