Browsing the blog archives for June, 2014.

Government-Mandated Paid Medical Leave?

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On Monday the President hosted a Summit on Working Families, arguing that the business community is squeezing its workers and is not smart enough to adopt progressive policies without government mandates. One of the prominent issues is paid medical leave. “Many women can’t even get a paid day off to give birth—now that’s a pretty low bar…That, we should be able to take care of.”

I vigorously appose the President on this issue, which makes me “anti-family” to some. I’m all for family leave; I just don’t think others should be required to pay for it.

Life is difficult and people need time off for lots of reasons. A newborn is certainly one of them. But if companies are required to pay someone who is not working, then that cost must be paid for somewhere else. They could pay everyone less to begin with, cut other benefits, or just raise prices. Regardless, there is no free lunch. The companies are paying for it, so they should be free to create the set of benefits appropriate for their own industries and workers without government intrusion.

The President claims that paid maternity leave, increased job flexibility, and on-site child care help companies attract and retain the best workers, and ultimately outperform their competitors. This is partially true, but misleading. While there is research suggesting that many companies adopting such programs perform well financially, it depends on the type of company, its workforce, its strategy, and its operating environment. Smart companies consider offering extra benefits to get an competitive edge. One size does not fit all, however, which is precisely why some offer such benefits and others do not.

If businesses can benefit financially by offering paid leave, flex time, and on-site child care, they will do so without a summit or prodding from the President.

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Learning from Latin America

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The economic meltdown in many parts of Latin America is not receiving much attention in the mainstream media, except as the scapegoat for the influx of kids at the U.S. southern border. While gang and drug activity are big problems in some countries and have contributed to the crisis, it’s only part of the story in Latin America. Countries like Venezuela and Argentina have shifted to the political hard left. Their economies are wilting and should serve as sober warnings for the U.S.

Perhaps you think that economic problems in countries like Venezuela and Argentina can be attributed to a shortage of natural resources. Think again. Argentina has a rich agricultural base, outgrew Australia and Canada in GDP and per capita income in the early 1900s, and was actually ranked #10 in per capita income 100 years ago. Venezuela is blessed with massive oil reserves, currently ranked first in the world by some estimates. These nations should be strong economically today, but they are struggling. Both are currently ruled by hard socialists, Maduro in Venezuela and Kirchner in Argentina.

Life is not easy in Venezuela. Food and power are rationed in Caracas. There are even water shortages because the government lacks needed capital to fund a water-distribution network. Government regulations are so burdensome that many investors have left the country. The central planners have implemented a tiered foreign-exchange system that subsidizes dollars to some sectors of the economy at the expense of others. The exchange rate can range from 6.3 to 50 bolivares per U.S. dollar. In a word, it’s chaos.

Some industries are in total disarray. For example, the Venezuelan government has delayed $4 billion in payments to international airlines that serve the country. The government wants airlines to take their funds in bolivares, a currency inflating at 60-80% annually and virtually useless outside of the country. Some airlines like Air Canada have left altogether, while others like American and Lufthansa have cut back flights. The government is currently “negotiating” with a host of airlines for payment of past debts.

Of course, the U.S. has had for some time what is desperately needed in South America. Capitalism thrives where there is a stable monetary system, courts to enforce contracts, and respect for the rule of law. This foundation is eroding, however. Our monetary system continues to weaken with Fed meddling and a $17 trillion debt. The GM bailout demonstrated that courts are not always objective arbiters of private contracts. The ongoing illegal immigration fiasco undermines the rule of law. All of this breeds crony socialism, which is commonplace in Latin America. The U.S. is moving down the same path.

Perhaps you are one of those who thinks that what is happening in the emerging economies of South America can’t happen here. It’s already underway to some extent.

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Obama Tinkers with Student Loans Again

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As a member of the higher education community, I am supposed to support any and every effort made by the feds to increase funding to college students. I do not, and I have explained my opposition to much of what Washington does in detail in previous posts. Of interest in this post is Obama’s recent executive order to cap student repayment at 10% of the borrower’s monthly income, and a bill promoted by Senate Democrats to allow 25 million borrowers to refinance their loans at lower interest rates.

College debt is a $1 trillion-plus problem, and I certainly don’t wish ill on any college students, past or present. It’s not easy facing a pile of student debt when you don’t have a job. But the federal government should not be tinkering with interest rates and payment schedules. College loans are serious business and should be enforced like any other contract. With Washington in complete charge of the student loan program, however, tossing out favors will continue to be a substantial part of the political process.

The President and his party have conditioned those with student loans to expect a constant renegotiation of terms. Many of my students tell me that they don’t actually expect to pay back everything they borrowed. If they are right, the obligation will be transferred to other taxpayers, including those who made different educational choices. While this is unfair to taxpayers, it’s not fair to students either. The lure of easy money entices some to overextend without realistic expectations for job prospects.

Senator Lamar Alexander rightly called the executive order a political stunt. Concerning the Senate bill, it’s not surprising that they Democrats propose to pay for the refinancing with a tax hike on top earners. It’s also not surprising that we’re in an election cycle.

What we’re witnessing is a dubious political cycle. The government takes over something (e.g., student loans, healthcare, etc.) because the private sector is deemed to be either incapable or unwilling to appropriately support the common good. Once politicians are in control, goodies are tossed out for political favors and ostensibly paid for by “the rich.” Anyone opposed to these favors are accused of penalizing the less fortunate. One American is pitted against another–class warfare at its finest. Taxpayers always pay for this charade in the end, but the process seems to keep the progressives in power.

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