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Press Release

Kerry is Slow to Learn Lessons Taught by Europe

08/13/2004

As this year’s election rolls ever closer Democratic Presidential nominee John Kerry has established a platform on major issues. The implications of his stance on economic questions are daunting at best. Mr. Kerry has proposed raising the minimum wage and increasing publicly funded health care. He refuses to recognize the problem of unfunded liabilities in our Social Security system and promises to repeal Bush’s tax cuts. Yet just as Kerry is promoting policies that expand the government’s reach and control of the economy, European nations are desperately searching for ways to revive their failing welfare states. The current European quagmire should provide an important cautionary tale for proponents of big government.

Wage controls and other inflexibilities in the labor market have left many western EU countries plagued with high unemployment and slow economic growth. The EU’s heavy-handed labor policies are not working and many nations are scrambling to keep pace with the global economy. Policies reducing the mobility of workers in western European countries have made it difficult for firms to react to technological change and international competition, particularly with some of the newly liberalized eastern European nations. Kerry’s policies, such as raising the minimum wage, threaten to import the EU’s woes back to the United States.

Poor economic policies have contributed to slow growth and high unemployment in France, Germany, and Italy, to name a few. And now national European governments, as well as the EU governing body are attempting to reverse this self-inflicted dilemma. Economic growth is only 2 percent in France, 1.1 percent in Germany, and less than 1 percent in Italy—all well below the U.S. growth rate of 4.7 percent. Unemployment in the three EU countries averages 9.2 percent compared to a 5.6 percent rate in the United States. Kerry’s proposal to raise minimum wage ignores the trap of European policy and pushes the United States in the direction of a less dynamic labor market, higher unemployment, and lower economic growth.

Further lessons in economic policy can be learned by looking at the European pension crisis. With the aging populations of most western European countries, the pay-as-you-go pension systems are in major need of reform. The systems in almost every continental country are unsustainable, as more people are retiring and receiving benefits while fewer workers are paying into the systems. National policies have been slow to react to the demographic changes in Europe and EU workers now face the certainty of working longer, paying more, and getting less.

Americans have an obvious interest in this crisis, as it mirrors our own impending Social Security disaster if policy measures aren’t taken to mend this broken system. The inevitable bust remains just around the corner. It is estimated that in 2018, less than fifteen years, Social Security will run deficits—it will be paying out more than it takes in with payroll taxes.

Kerry refuses to acknowledge this. He has taken a stance against personal retirement accounts (PRAs), which would give American workers ownership of their pensions allowing them to invest their money as they see fit. Kerry has made clear that he will not defuse this ticking time bomb, which will put Americans in the same boat as most Europeans—working longer, paying more, and getting less.

Sen. Kerry’s platform also includes a push for expanding government provided healthcare. In his acceptance speech at the Democratic National Convention, he argued that good health care was not a privilege, but "a right for all Americans." Most of us sympathize with the senator's sentiments. Sure, we should all have access to healthcare. But the senator fails to acknowledge the fact that there is no such thing as a free lunch.

According to his campaign the plan will have a direct cost of $650 billion; the actual cost would turn out to be much higher as people tend to over consume when a good is paid for by a third party, which in this case is Johnny Taxpayer. Government provided healthcare also changes the incentives of healthcare professionals leading to a lower quality of service and rationing schemes. For illustration we can again look across the Atlantic to our European friends where socialized medicine is the norm. Problems have been widespread throughout Europe and have led policy makers to look for ways to improve competition and create more market solutions—all the while Sen. Kerry looks to reduce them.

The European Union looks is struggling to make a change to a more market-oriented economy and shake the shackles of statism. There has been an immense backlash in France to the 35 hour workweek. Private pension systems are being put in place in many EU countries. And in Germany there is even talk of a flat tax. All the while John Kerry is flirting with the danger of drastically increasing the size of our government at the cost of freedom, higher taxes, higher unemployment, and less growth. Europe provides a clear insight into the dangers of big government, welfare state economies; apparently some of us haven’t taken notice.