There Will Always Be Takers of Free Money
By Kevin Brekke
Well, Sunday was national election day in Germany (why can’t Americans vote on the weekend?), and although the results will produce a decided shift in German coalition government, they also mark the culmination of another story told by the voters that likely will go unnoticed. Bear with me here – this has relevance to an upcoming event in the U.S. Congress.
In 2002, a commission was formed to examine the German social safety net system of programs and make recommendations on how to reform them – kinda like the American Congress putting together a blue-ribbon commission for this or that study. The commission was headed by Peter Hartz, an executive at Volkswagen, and hence was known as the Hartz Commission, and the eventual legislation that was passed by parliament was named Hartz IV (there were four stages of changes phased in over a few years).
One impetus for the commission’s forming was to explore possible changes to the unemployment scheme in Germany. At the time, unemployment benefits were high, at about two-thirds of your previous wage, and lasted 18-24 months. However, there was no minimum benefit guarantee, and for those low-wage earners who lost their jobs the benefit was very small. The German government was under pressure to change the law and implement a lower benefit percentage, a “minimum livable benefit” floor, and to extend the term that benefits could be drawn. And, no surprise, the commission’s recommendations conformed to the government’s concern.
Changes were made to unemployment benefits that included a minimum monthly guarantee, a lowered monthly benefit percentage, and essentially extended the benefits to an unlimited term. Uh-oh.
Nationwide street protests took place in reaction to the lowering of the benefit amount.
Let’s now return to Sunday’s election. The party that pushed hard for the passage of the Hartz IV amendments was the SPD, the Social Democrat Party. And they have been losing voter support and political power since. The SPD’s support fell to 23% from 33% in the last national election, a phenomenal drop in a multi-party system, and they will be replaced by another, far smaller party in the ruling coalition government formed with the CDU/CSU, the biggest party in Deutschland. Voters always want smaller government, just don't touch my sacred benefit. The SPD is a fading party due to its backing of more restrictive government benefits.
And here’s a telling anecdote showing how the jobless game the system. After the last national elections, one of the TV stations was polling voters asking about their choices and their feelings about the elections. One gentleman, after sharing his thoughts, was asked by the interviewer about his personal situation, and his profession.
“I’m a Hartz IV man,” was his reply. My jaw went slack. His chosen profession was unemployed. And under the new rules, he had likely figured out how to work the system and stay on the dole for as long as the gravy flowed. A permanent underclass of long-term unemployed now exists in Germany. When governments opt to give away free money, there will always be takers.
Last week the House voted to pass a third extension in unemployment benefits, and the Senate is expected to do the same as early as this week.
Now, I’m as sensitive as the next guy to the hardship suffered when a job is lost. But the path being trodden by Congress is a dangerous one. The longer the unemployed are subsidized, the more likely it is that the “benefit” will come to be seen as an “entitlement,” and entitlements seldom come with expiration dates.
Like Social Security, the question of unemployment benefits is evolving into a parallel third-rail in politics, where neither party nor politician will touch them for fear of political suicide.
I hope that whatever decision is made by Congress, it comes with clear guidelines and a set term. I fear that neither of these is likely to be on the agenda.
By Kevin Brekke
Well, Sunday was national election day in Germany (why can’t Americans vote on the weekend?), and although the results will produce a decided shift in German coalition government, they also mark the culmination of another story told by the voters that likely will go unnoticed. Bear with me here – this has relevance to an upcoming event in the U.S. Congress.
In 2002, a commission was formed to examine the German social safety net system of programs and make recommendations on how to reform them – kinda like the American Congress putting together a blue-ribbon commission for this or that study. The commission was headed by Peter Hartz, an executive at Volkswagen, and hence was known as the Hartz Commission, and the eventual legislation that was passed by parliament was named Hartz IV (there were four stages of changes phased in over a few years).
One impetus for the commission’s forming was to explore possible changes to the unemployment scheme in Germany. At the time, unemployment benefits were high, at about two-thirds of your previous wage, and lasted 18-24 months. However, there was no minimum benefit guarantee, and for those low-wage earners who lost their jobs the benefit was very small. The German government was under pressure to change the law and implement a lower benefit percentage, a “minimum livable benefit” floor, and to extend the term that benefits could be drawn. And, no surprise, the commission’s recommendations conformed to the government’s concern.
Changes were made to unemployment benefits that included a minimum monthly guarantee, a lowered monthly benefit percentage, and essentially extended the benefits to an unlimited term. Uh-oh.
Nationwide street protests took place in reaction to the lowering of the benefit amount.
Let’s now return to Sunday’s election. The party that pushed hard for the passage of the Hartz IV amendments was the SPD, the Social Democrat Party. And they have been losing voter support and political power since. The SPD’s support fell to 23% from 33% in the last national election, a phenomenal drop in a multi-party system, and they will be replaced by another, far smaller party in the ruling coalition government formed with the CDU/CSU, the biggest party in Deutschland. Voters always want smaller government, just don't touch my sacred benefit. The SPD is a fading party due to its backing of more restrictive government benefits.
And here’s a telling anecdote showing how the jobless game the system. After the last national elections, one of the TV stations was polling voters asking about their choices and their feelings about the elections. One gentleman, after sharing his thoughts, was asked by the interviewer about his personal situation, and his profession.
“I’m a Hartz IV man,” was his reply. My jaw went slack. His chosen profession was unemployed. And under the new rules, he had likely figured out how to work the system and stay on the dole for as long as the gravy flowed. A permanent underclass of long-term unemployed now exists in Germany. When governments opt to give away free money, there will always be takers.
Last week the House voted to pass a third extension in unemployment benefits, and the Senate is expected to do the same as early as this week.
Now, I’m as sensitive as the next guy to the hardship suffered when a job is lost. But the path being trodden by Congress is a dangerous one. The longer the unemployed are subsidized, the more likely it is that the “benefit” will come to be seen as an “entitlement,” and entitlements seldom come with expiration dates.
Like Social Security, the question of unemployment benefits is evolving into a parallel third-rail in politics, where neither party nor politician will touch them for fear of political suicide.
I hope that whatever decision is made by Congress, it comes with clear guidelines and a set term. I fear that neither of these is likely to be on the agenda.
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