Tuesday, August 09, 2011

Will politicians ever stop lying to the public?

People, maybe we should extend unemployment benefits yet again. The job outlook is bleak, unemployment is high, and lots of people are hurting bad. Maybe it's the civilized thing to do.

But could we please just stop yapping out the bald faced lie that unemployment benefits create jobs?


Obama and Pelosi were again claiming that yesterday. The closest thing to any analysis of why was Nancy's "it injects demand".

Today, Mark Thoma has found an economist to parrot the company line as well. He offers absolutely no analysis or evidence for the proposition.

You know why there's no analysis or evidence given? Because, even on the crudest of Keynesian grounds, its horse-hockey!

The proposed bill would affect around 1,000,000 workers and we'd be giving them a few hundred bucks a month for what, another year? so thats, say $300 x 12 x 1,000,000 or $3.6 billion passed out in 12 "doses" of $300 million each in a geographically diffuse pattern.

Yeah, I can see entrepreneurs all over the country rushing to hire new workers to handle the massive increase in demand created by this program.

It never seems to enter their heads that at the margin, subsidizing unemployment tends to create more unemployment. There are a lot of studies in economics showing that employment spikes at the time when unemployment benefits run out.

Yes, I know the benefits are small compared to a job. No I am not calling unemployed people lazy. I am perfectly willing to concede that the humanitarian case for extending benefits may trump the marginal incentives they create to postpone taking a job.

What I won't concede, what I'm very very tired of hearing asserted as if it was obvious, is that extending unemployment benefits will create jobs.

Obama and Pelosi remind me of that movie about the bus. It's like if they stop spending money at a certain high rate, they will explode.


David M. Shor said...

You're seriously underestimating the amount of money that we spend on unemployment.


The number is 13 billion per month, not 300 million.

From a Keynsian perspective, Zandi estimates the multiplier for UI to be at 1.65, so that's 272 billion dollars of demand a year. Nothing to sneeze at.

John Thacker said...

The thing about unemployment that gets me is that it's supposedly insurance paid for at your previous job, so you get benefits that are based on a fraction of your previous salary. That makes sense in some ways, as I can see why we don't want people to lose their house, and supposedly they paid for it.

However, if you keep lengthening the time of coverage, you break that relationship. It's no longer "paid for," it becomes welfare. And at some point, I have to wonder why someone who had a better job two years ago deserves a lot more unemployment benefits than someone who had a crappier job. At some point, insurance premiums paid from the better job expire, and then you're just subsidizing the better off.

John Thacker said...

@David M. Shor:

As far as I can tell, you're the one confusing the numbers. Angus is clearly referring to the marginal amount of money from workers who would be specifically affected by another extension in a specific bill. The numbers you present is the total spending. Angus isn't talking about eliminating UI entirely, just stopping the extensions.

Michael said...

My view on unemployment was shaken after spending two years on it. I used to assume people on it are lazy, then I learned the hard way they are just being smart.

Because the opportunity cost of working includes the loss of unemployment checks, it is irrational to work unless you make a good deal more than unemployment pays. There were long term consequences, like when I found work this Spring and had trouble getting finance for a used car, but the health care benefits I got were amazing and better than my previous job.

Gerardo said...

Is it lying if the politician believes it? You think Pelosi has anything close to a clue on this one?

Gerardo said...

Pelosi, after all, suggested we end our dependence on fossil fuels by using more natural gas.

Anonymous said...

I am on it now after getting out of the army. That's 1600 bucks a month for beer and women. Let's keep that train running!

Tom said...

Gerardo: Pelosi's ignorance is willful. She is capable of understanding; she just refuses. The idea that people respond to incentives is cruel.

Pelsmin said...

I saw the effects extended unemployment checks have on job creation, first hand at a small company in Raleigh. We tried to hire a machinist at $18/hr. I listened in stunned silence as he declined, saying it wasn't worth coming off unemployment for, especially since we could only guarantee four weeks. He said he didn't want to have to complete all the paperwork to get back on unemployment afterwards. He passed on the job, we had to pass on the assignment. The work probably went to Mexico or China.

Les Cargill said...

John Thacker: That's a distinction without a difference, isn't it? Anything with a multiplier above 1 is, I would think, to be done right now.

Pelsmin: So there's only one machinist left in Raleigh? Might be worth finding out if UI works like it does in Texas: you can "pause" unemployment applications online ( you do that weekly) while you do a few weeks' work. It would push eligibility out four more weeks.

The people who think this is some opportunity to enforce the Efficient Markets Hypothesis seem shortsighted to me - if labor drops to its clearing price, the whole ship sinks.

Pelsmin said...

You're missing the point. First, it ain't a hypothesis, it's called supply and demand.

Second, you need to know the reality of how people and businesses make choices. We don't pay more than $18 because we can't do so profitably. We don't pay less than $18 because we can't get the right talent for less -- good machinists can command that much. So if someone is getting $5/hour to not work, our pay looks like $13/hr to him. He won't do it. If they didn't pay UI, he would say, "I don't want to work for $13/hr, but I have to. Gotta eat." He gets real work, we produce value for a customer, and you get a REAL multiplier, not the government's lies.