The Free Market 12, no. 7 (July 1994)
Did 12 years of Reagan-Bush corrupt the Right? “Whatever they might say in their after-dinner speeches or in their op-ed pieces,” writes former Wall Street Journal editorialist David Frum in his new book Dead Right, conservatives have “effectively thrown in the towel on government spending” and given up the war against big government.
All evidence suggests Mr. Frum is right. Consider a recent “welfare reform” proposal by Empower America, a Washington lobbying group headed by former drug czar William Bennett, former HUD secretary Jack Kemp, and former Congressman Vin Weber. It was supposed to be a tough-minded alternative to what they described as the “tepid” and “fraudulent” welfare reform of the House Republicans. (The House Republicans said the same of Clinton’s.)
Yet Empower America’s claim to ideological purity is highly suspect. Judging from a series of articles by Kemp, Bennett, and Weber, their proposal is neither as revolutionary nor as principled as their hoopla suggests. Far from scrapping substantial parts of the welfare state, the Empower America plan merely shuffles spending around, and in some cases makes things worse.
At the very least, common sense says welfare reform should cost less than the present system. One of many troubles with the Clinton administration’s approach is that it actually costs more. The same is true of the Empower America proposal. For every program EA would cut, it adds several new ones. And unlike the plan of the Republican leadership, the empowerment agenda proposes no caps on future spending increases.
EA wants to cut the amount of cash subsidies to women with illegitimate children, and end income aid altogether for such women under the age of 21. Great. As the most reformist aspect of the proposal, these cuts should help restrain the fatuous practice of pouring subsidies on fatherless households. For his part, Mr. Kemp has promised to retain all other benefits, which are high by historical standards.
But buyers beware: taxpayers will never see the money saved from FA’S limited cuts. Under the plan, they are to be distributed to local bureaucracies in the form of block grants for “parental training” centers for single mothers. Doubtless, the proviso is designed to protect EA against the “charge” that they are ignoring the well-being of single mothers. At the same time, it undermines their claim to be the taxpayers’ friend.
Neither does EA explain how group homes are supposed to end the poor’s “dependency” on government. Such homes might even increase it. Today single mothers are required to arrange their own housing. Under this proposal, the newly “empowered” poor will have room, board, and therapy provided for them courtesy of the taxpayer. Is it more expensive to give unwed mothers a monthly check or provide all their living expenses in new group homes complete with large resident staffs?
Empower America has also endorsed the idea of workfare, which it sees as the foundation of the “work ethic state.” The federal government would tell the states to enact work requirements of 35 to 40 hours per week for anyone on welfare. State governments would have to find jobs for an unskilled and undisciplined workforce, and increase taxes to pay for the program.
The problems will be legion. If the new jobs are in the government, bureaucracies will have to expand. Taxpayers at the state level will take the hit not only in salaries but also in pensions and benefits. The new employees will learn nothing of the real world because they will immediately enter the termination-proof public sector.
If the new jobs are in the private sector, subsidized through tax credits or direct benefits, new workers will compete with workers who hold entry level jobs but are not on welfare. Loot-seeking developers will begin projects solely to enjoy free labor, and their enterprises will compete with real capitalists. In addition, “workfare” programs introduce a perverse incentive for low-wage working people to sign up for welfare while keeping their jobs.
Empower America gotten the fist rule of work: in order for it to be truly productive, truly good for character, and truly socially beneficial, jobs should be created by the private economy in service of the consuming public.
EA also promises to “promote educational choice,” meaning direct government subsidies for poor students in private schools. The program has been ruled unconstitutional in Puerto Rico, it failed miserably at the polls in California last year, it went bust in Arizona this year, and it has been politically stillborn in every other state. No wonder: voters object to having their school districts manipulated by social engineers and their taxes increased to pay for private-school tuition.
Even with all this new spending, EA’s credibility as a government-slasher vanishes with its proposal to “promote job creation with pro-growth, asset-based, entrepreneurial strategies.” Strip away the rhetoric, and this turns out to mean new requirements that banks lend money to businesses and mortgage applicants who otherwise would be unqualified.
This is a much more invidious wealth transfer than direct cash payments. The voting public understands how taxing and spending lowers their personal income. But a subtle raid on loanable funds is less clearly confiscatory. It shifts the burden of the welfare state from the fiscal system, where it is observable, to the monetary and banking system, where it is not.
In requiring banks to give more affirmative-action loans, EA is reducing the role of merit to a farce. They are impeding the market’s built-in sanctions to work, save, and pay bills on time. In sum, Empower Arnerica’s “radical” welfare-reform plan only marginally cuts back the most objectionable part of the welfare state, and introduces three expensive new programs (group homes, workfare, and vouchers), and proposes the destruction of the credit allocation system as we know it.
Mr. Frurn proves himself an astute observer. Ask the average person what’s wrong with welfare, and he’ll say it takes too big of a bite out of his paycheck, and, besides, people should pay their own way. There’s a lot to say for this view, which has escaped politicians on both sides of the aisle.
