Californias Gov. Gray Davis has gotten himself some front-page headlines, not only in California but across the country, by signing into law the first mandated provision for paid leave from work (at half pay) for people who say that they have family problems to deal with. In one sense, this is something new but, in a deeper sense, it is something that is many centuries old.
Over a period of thousands of years, those with political power have used that power to confiscate part of the wealth of those who were not likely to support them and transfer it to those who were. This has happened in monarchies, democracies, and dictatorships, all around the world. It is a very old story.
Those who wrote the Constitution of the United States were well aware of this history, so they included in the Bill of Rights a provision that the government cannot take the property of private individuals without compensation.
For more than a century, this made the kind of game that Governor Davis is playing harder to get away with. But, especially within the past half century or so, judges have allowed this provision of the Constitution to be eroded away until property rights now seem almost quaint.
What this means is that politicians can play Robin Hood with impunity. And Robin Hood has always been more popular than Adam Smith.
What Gray Davis has done is impose costs on private companies, to carry out a policy that the state government wants-but is unwilling to pay for. He has confiscated private property without compensation, transferring it to those more likely to vote for him.
It is a short-sighted policy, but there is just a short time till the next election, and none of the long-run problems are likely to show up before then.
Moreover, this gets the publics mind off another short-sighted policy that created long-run problems for Californians-price controls on electricity that led to what price controls have led to for literally thousands of years, namely shortages. In this case, the shortages of electricity meant blackouts.
Money For Nothing
What are the long-run consequences of paid family leaves imposed by law? To businesses, it is just another cost put on them by California politicians and another reason not to do business in this state. But what are the existing businesses going to do about it? In the short run, little or nothing.
Businesses cannot immediately pick up their factories, offices, and employees and move out of the state. Some new businesses that were planning to set up shop in California may revise those plans and decide to locate in some other state-or overseas-where they will not have these additional costs to cope with. But most California businesses are trapped where they are, in the short run, so there are unlikely to be immediate repercussions that are noticeable by the general public.
Those businesses that have operations in several states or in several countries can begin to channel some of their work toward those other places, where the costs of getting the work done will be lower. When time comes for these businesses to expand their operations, they can expand elsewhere. In short, with the passage of more time, more and more economic activity can move out of California, in response to policies that treat businesses like cows to be milked for the benefit of politicians.
There are usually businesses going out of business all the time. The imposition of extra costs can speed up the process, while at the same time discouraging new businesses from coming into the state to replace them. That means a net loss of businesses over the years, with declining taxes and declining jobs available.
New York City and some other cities and states have already gone through this process, killing the goose that lays the golden egg. But this is a viable political strategy, so long as the goose doesnt die before the next election and the politicians fingerprints cant be traced to the murder weapon. That is undoubtedly what Gov. Gray Davis is counting on.
Is it good for people who have a family crisis to be able to take off to deal with it and still draw half-pay? Of course. Lots of things are good. The only question is how good and who should decide how much. There is no substitute for having to pay the price, in order to determine how much something is worth.