If you increase unemployment benefits, it is reasonable to expect an increase in the rate of unemployment.
Ronald Reagan was no economist, but his economic logic was impeccable when he declared, "If you want more of something, subsidize it; if you want less of something, tax it."
So, as the current recession deepens and the rate of unemployment rises, we might have confidently predicted that Congress, in its infinite compassion for the little guy, would extend the period during which the unemployed may collect unemployment-insurance benefits. President Bush signed a bill last week that will provide as many as 13 weeks of additional benefits, on top of the additional 13 weeks of benefits approved last June, which was on top of the 26 weeks the basic program provides.
The Associated Press notes that "Congress has enacted federally funded extensions seven times in the past 50 years during economic slumps – in 1958, 1961, 1972, 1975, 1982, 1991 and 2002." Thus, this particular sort of counterproductive economic policy is almost as predictable as the sun's rising in the east.
The availability of unemployment benefits reduces the cost of remaining unemployed, and therefore increases the amount of unemployment that workers choose. They more readily turn down existing job offers, in hopes that with additional time to search, they will find better ones. Or they simply take life easy for a while, not searching seriously at all. More people are happy to do nothing if they can collect a payment for doing nothing.
The Associated Press report also states: "The measure is estimated to cost about $5.7 billion, although economists put the positive impact at $1.64 for every dollar spent on jobless benefits because the money helps sustain other jobs and restores consumer confidence." It's good that the economists responsible for this estimate remain anonymous, because the nonsense it expresses brings no credit to their professional reputation.
Think about it: according to this claim, every time the government takes a dollar from earners and hands it to someone for not working, there's a net gain of 64 cents. (In a spirit of professional generosity, I am ignoring the large costs of processing this transfer as well as the large deadweight cost associated with any tax.) So, why don't we insist that the government tax more and more money away from those who earn it, and hand the loot over to those who are not working – after all, that net gain of 64 cents per dollar continues to beckon, does it not?
In a word, no, because a nasty little consequence will certainly ensue. As the tax increases, fewer people will choose to earn income; and as the handouts increase, more people will choose to stop working and collect the dole. Before long – yes, you guessed it – nobody will be working and everybody will be collecting a government payment for not working. It's the paradise of which every social democrat has always dreamed.
Well, okay, maybe this scheme will run into some problems before it reaches nirvana. Maybe the problem will turn out to be the pesky fact that before the recipients can consume (which requires getting something of value in exchange for their unemployment-benefit dollars), somebody must have worked to produce those goods and services. Little things like the need to produce (hence the need to save, invest, and work) before consuming and the need to provide incentives to the savers, entrepreneurs, and workers tend to get lost in the shuffle of modern mainstream economics, especially macroeconomics, where the narrow focus on the short run leads analysts to take for granted the economy's potential to produce.
In any event, we may expect unemployment to increase as the recession grows worse, and we may confidently understand that a portion of the unemployment that exists at any particular time will be attributable to the availability of unemployment-insurance benefits. Congress will blame the market for the unemployment and take credit for, in effect, helping to increase and extend it.
Just curious, but I believe we've just created a permanent 'unemployed' class of people. My own experience with unemployment insurance had me out of a job and looking for work back in 1999. I had been laid off in August of that year and had 26 weeks of benefits.
You do not collect a check the first week. You collect a check each subesequent week by merely dialing a 1-800 number and answering a few questions. I personally collected 22 weeks worth during the balance of 1999. You also do not collect in the last week of the year; instead you are prompted to make an appointment with a person in the Employment Opportunity Dept. during January of next year.
I walked into that appointment thinking to myself; "Well you've only got four weeks left on your 26. Time to begin considering taking absolutely anything that comes along before we're completely out of options.
The person I was sent to asked me for some basic information, pulled my file up on the computer, and announced that my checks would increase from $304 per week to $316 per week, a 4% increase.
Awaiting the other shoe I asked "How many weeks of unemployment insurance do I have left?"
She said "Why, 26 weeks of course." She went on to explain that any account that did not draw the full 26 weeks during a calendar year was automatically reset for a new 26 weeks at the beginning of the next calendar year!
Now granted; it has been quite awhile since my last experience at the Employment Opportunity Office: But according to your opening statement an unemployment account that lasts an original 26 weeks has now captured two 13 week extensions. My calculations say that 26+13+13=52!
Unless some law regarding account renewals has changed in the last eight years, this now means that someone can literally go on unemployment in the middle of January of any calendar year and never exhaust his/her benefit, allowing for the automatic reset (for another 26+13+13) next calendar year!
Under those conditions, I expect the unemployment rate to be somewhere around 20% to 30% by 2010!
The system you describe is something people love to believe in. Not just stupid ignorant people believe in such nonsense. I had an accountant describe a system to me once and I thought about it for a moment and said, “That’s a perpetual motion machine!” He replied, “Yes, I suppose it is. Isn’t it cool!”
Some other perpetual motion machines we like are double portions of diet food, hydrogen powered cars from water, clean coal, corn ethanol, hybrid SUV’s, imports, congresspersons, peace in our time, utopia, and the list goes on.
Milbrat,
You should be aware your unemployment claims are not without cost to your most recent employer and, incrementally to all employers paying unemployment insurance. Your claims are drawn against an account established when you are first hired. When you lose your job, your last employer has to keep paying in to keep the account balance up until you are hired by someone else. This not only punishes your former employer, it may discourage new hiring weighed against the risk of hiring less than serious workers. You may be surprised at how many there are who will work the minimum number of weeks to qualify, only to 'engineer' a firing. Employers can, of course, contest these firings as "for cause" (misconduct), but most employers don't want the headache of paperwork and hearings that go with that. These scam artists learn to work the system to optimize benefits without any scrupple for the harm they do to both employers and fellow workers. So, the longer they 'soak it to unemployment', the longer they actually 'soak it to the very folks that had the decency take a chance on them and might have been an asset to them in getting that next job. Ultimately, frivolous unemployment claims cost all of us in the form of costs passed along to consumers.
PS – Unemployment abuse hits small businesses disproportionately harder than it does big corporations equipped to deal with it. Many small operators refuse to take on any help because of the risk it represents and many have failed precisely because they did. These operators often operate on margins so small a single hire is all they can afford. There is a point in every business where they must hire to grow or get stuck, and making this transition is tough if you can't find someone you know won't stick you with an unemployment claim. Yet, these are the very people the savvy scammer goes after first knowing he/she will be the easiest to manipulate.
Mr. Ross writes “… my conservative friend's position on universal health care was based on emotion, stereotypes and ideology rather than reality. When I tried to tell him this, he just got angrier.”
First, all you’ve related here is your friend’s reaction to your proposition. You told us nothing of his arguments contrary to yours.
Second, the thing you insist is a ‘must have’ or a ‘right’ is, to a great many people, little short of theft and, therefore, enough to make any reasonable person seethe in frustration at one more liberal soaking the rest of us with the latest fad/scheme. You (effectively) told your friend you see nothing wrong in putting your hand deep in his pocket to take whatever it is you need to satisfy your wants; justifying this theft on the flimsy basis you can ill afford it. Suppose for a moment that, instead of healthcare, this is a decent car for you to commute to/from work because you regard the old clunker you now own risky and cars have become 'unreasonably expensive' (who says?). You demand a better car for yourself at taxpayer expense on the basis you have a ‘right to work, fetch home groceries and see to personal matters only a car can satisfy’, and see no reason you should either be a) forced to drive a car so old parts may fall off, b) ride public transit (which, of course, you liberals insisted we must have in order to eliminate cars, but which you now find undignified), or c) defer your wants until you can better afford them. You want 'decent' (not just adequate) stuff for yourselves, but expect the rest of us to pay for it and keep coming back for more and more. You want Cadillac care because the kind of care your parents got is no longer deemed good enough. Please tell me you don’t see there is, at least, a problem from our side of things as the ones footing the bill (Yes, I know you are also paying for it, but you demand this – not us).
Third, the fact our Constitution was written 221-years ago in no way supports your argument. The Constitution remains the pact (contract) we made with government granting it certain powers, but very deliberately denying it others. Therefore, anything ‘extra’ it takes away from us in the way of power is a usurpation and a breech-of-contract. Breech-of-contract means the deal is off and we go back to ‘every man for himself’, not ‘license-to-alter-the-deal-at-will’. If the Constitution no longer means what it is written in it (because “times have changed”), then it doesn’t mean anything and we are slaves to an arbitrary misrule.
Ross then wrote “… my conservative friend's position on universal health care was based on emotion, stereotypes and ideology rather than reality. When I tried to tell him this, he just got angrier.” Since we never got his friend’s position on UHC, we have only Ross’ word for that. However, knowing the weak argument he has so far presented in defense of UHC, we can say Ross’ whole proposition is based on “emotion” (I want/need/deserve), stereotypes (angry conservatives, most conservatives), and ideology (UHC has been a major plank of liberalism for decades). It is liberals who introduced the question of socialized- healthcare, so this is their ‘ideology’, not ours. The negative of an ideology is not, itself an ideology – it is an objection to it.
Bob
Although I think I agree with you, I'm wondering where Mr. Ross comes into this. I don't see his name anywhere in this thread.
Sorry, wrong thread. I reposted this in "Nothing but the Truth".