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Unemployment Benefits Are Getting An Undeserved “Mugging”

July 7th, 2010 . by economistmom

Hey, let’s get real: extended unemployment benefits are an effective form of stimulus spending, and although they do add to the short-term deficit, they are not part of the longer-term deficit problem. Nowhere in CBO’s report on the long-term budget outlook will you find different assumptions about unemployment benefits. It’s all about what we do with the Bush tax cuts and how well health reform will work. (More on this soon, I promise.)

This open letter to Senator Scott Brown by the Boston Globe’s Scot Lehigh says it well. Scot even quotes two of the most vocal (and sincere) deficit hawks around:

…take it from David Walker, former US comptroller general and now, as president of the Peter G. Peterson Foundation, a leading deficit hawk. “While the current deficits are large, they don’t represent the real threat to the future of the country,’’ he said. “The real threat is the medium-to-longer term structural deficits that will be here after the economy has recovered.’’…

No fiscal falcon with a proper balance of economic and fiscal priorities is going to fault you for supporting that extended aid.

“As a deficit hawk, I wouldn’t worry about extending unemployment benefits,’’ said Bob Bixby, president of the Concord Coalition. “It is not going to add to the long-term structural deficit, and it does address a serious need. I just feel like unemployment benefits wandered onto the wrong street corner at the wrong time, and now they are getting mugged.’’

Let’s face it: those who use their “worry” about our longer-term fiscal outlook as a reason to oppose extended unemployment benefits don’t want to reduce the deficit as much as they want to get rid of unemployment benefits.  It is just a convenient excuse to “mug” those benefits and deny many American families that assistance they so badly need.

12 Responses to “Unemployment Benefits Are Getting An Undeserved “Mugging””

  1. comment number 1 by: SteveinCH

    And those who use “stimulus” as a reason not to offset the cost of extending UI benefits are just as guilty.

  2. comment number 2 by: AMTbuff

    The overhang of unsustainable stimulus and unsustainable fiscal policy is in my opinion primarily responsible for the lack of economic recovery. The private sector needs to see that the government is on a sustainable path before committing to major expansion.

    In my opinion, the economy would take off like a rocket if the government first cut all spending to sustainable levels then enacted a VAT to close the remaining gap. The credibility deficit is even more important than the fiscal deficit itself.

    Until fiscal credibility is restored, stimulus money is mostly wasted. It’s like feeding an unaffordable mortgage on an underwater house when what you really need is a modification that reduces the principal.

  3. comment number 3 by: B Davis

    Let’s face it: those who use their “worry” about our longer-term fiscal outlook as a reason to oppose extended unemployment benefits don’t want to reduce the deficit as much as they want to get rid of unemployment benefits. It is just a convenient excuse to “mug” those benefits and deny many American families that assistance they so badly need.

    I was interested to see that both Paul Krugman and David Brooks agreed that unemployment benefits need to be extended despite seeming to disagree somewhat on the stimulus. If some Congressmen are concerned about continued unemployment benefits serving as a disincentive, I don’t understand why they don’t simply add a few checks when unemployment benefits extend beyond a certain period of time. Those checks might include checking up on beneficiaries to make sure that they are applying for jobs and requiring attendance to short classes on searching for jobs. I could even require some public work for continued benefits. But simply cutting of benefits when there is a severe lack of jobs does seem like a mugging.

  4. comment number 4 by: B Davis

    Regarding the lack of jobs, I posted an updated look at long-term unemployment at this link. According to the nonfarm job survey, there has been no increase in total nonfarm jobs in the past ten and a half years.

  5. comment number 5 by: Mike Dohrn

    The problem with extending unemployment benefits is that they’ll never go back to their present term, and while the cost isn’t spectacularly prohibitive, I see in my peers a strong resistance to taking ANY job when they can get paid for doing nothing. Extending unemployment is not a budgetary issue as much as it is a labor issue.

    Let me say it plain: UNEMPLOYMENT BENEFITS ARE A NEGATIVE INCENTIVE TO GET A JOB, AND THIS EFFECT IS RELATIVELY INELASTIC ALONG THE WAGE SCALE.

    Naturally this is based purely on my anecdotal overhearings, but I strongly support a six-month limit on unemployment benefits, with an allowance to work while collecting them. Six months for everyone, even if you get a job. This lowers our maximum cost for an individual’s unemployment benefits as well as making the costs more predictable by using a more consistent term. The task of enforcement is also greatly simplified by a straight-up 6-month term. The recipient benefits in an ability to replenish lost savings, an incentive to get them off of unemployment. Current policy is such that you stop getting unemployment when you get a job, and that is probably where risk aversion takes over for most people.

    But what about highly-educated people who take much longer to get a job? Presumably their pay is commensurate with their education, or something like it, so I argue that they have a far greater ability to save than lesser-educated people. There is a point in wage where the costs of living will be covered for a reasonable person, and it is *below* that point that unemployment benefits are a public necessity. It’s not that I want to stick it to the middle class, but if you’re asking me if I want to pay for one family to live well or 10 families to make it through without telling me anything about the actual families, I’ll pick the 10 every time. It’s a perception of value thing.

    I see a very strong link between illegal immigration, unemployment, and our economy, but I don’t know what it is. Illegal immigration is, of course, driven by demand for cheap labor within the US. No quantity of Arizona SB 1070s will do anything to this fact: businesses want the same amount of labor for less money… duh. Why is it, then, that we have such an insatiable demand for this labor when we have so many unemployed people? They can’t afford to take this job, you say? Furthermore, we’re going to pay them most of their old wage until they find a job they like? This is why I’m a bit of an unemployment hawk - I read stories from the Depression and of immigrants from abroad today, and holding out for a better job isn’t an option. They need to work at what’s available for the wages available, and we need to incentivize them to do that using both honey and the stick. It is good for our borders, good for our citizens, and good for our businesses.

    Great post, lots of food for thought!

  6. comment number 6 by: rjs

    something ive been convinced of looking at this for a year & a half is that the job situation isnt gonna fix easily…just google “structural unemployment”

    in light of that to use the debt as an excuse to screw the victims is pretty heartless…& im getting tired of the emails from friends who despite their best efforts cant find a job, have to cut off the internet, face eviction, starve themselves so their kids can eat, or even wish that her suicide could pay for her daughter’s education….

  7. comment number 7 by: Jason Seligman

    I agree with B Davis in that I thought the last paragraph of yesterdays David Brooks piece was very thoughtful. It goes along with some of the advice I have been fining on State and Local Borrowing being attached to legislative increases in so call rainy Fay funds, to assure that short term needs and long term fiscal responsibilty are both addressed in approaches.

    The first comment on today’s list seems misguided to me. As the economy improves so too should tax collection, given the magnitudes we’re talking about I do not think you have to do anything to directly address the unemployment expansion, but in case others would disagree, let me also point out that unemployment has it’s own state by stye trustfund, and that historically, if and when these have run dry (80’s) the states have borrowed from the Feds and repaid the loans over time.

    So I think all of this chatter is misinformed, and I note that all of us engaging in it have no perspecite on what it means to be unemployed right now.

    Vacation in Greece anyone?

  8. comment number 8 by: Jim Glass

    It is possible to favor renewal of the extended unemployment benefit period at 99 weeks, and yet still believe that one’s getting paid by other people for not working for merely 70 weeks or so is qualitatively differrent from being “mugged”.

    Talk about the rhetoric of entitlement! It’s especially surprising to see such rhetoric from the head of Concord.

    How does this help? Where does it stop?

    Remember when the Bush people were proposing the Pozen idea of reducing SS benefits for the top earners but not low earners, and the resulting howls fromt he left that the Repubs wanted to reduce pooer seniors to “eating cat food”?

    When the inevitable day comes that govt medical payments for the sick (the healthy don’t get govt medical payments) must be cut back to save the govt’s solvency, and we are all still wed to this rhetoric of entitlement, how are we going to stop the howling about throwing old people on the garbage heap and Soylent Green?

    Perhaps it would help the policy debate if we first jettisoned all this rhetoric of entitlement and brought back ye olde idea of “public charity”.

    E.g.: To the extent your Social Seurity benefits exceed the value of your contributions to SS (plus interest) you are receiving “public charity” … even if you use it to sail off on your yacht.

    To the extent you receive Medicare benefits in excess of your Medicare taxes paid, you are receiving charity from the public.

    And to the extent you receive unemployment benefits well in excess of your total unemployment taxes paid, such as by being paid 99 weeks for not working, you are receiving charity from the public.

    This doesn’t mean anyone would have to be opposed to such things — after all, public charity is a *good* thing, we’d all agree I’m sure. One could certainly support 99 weeks of unemployment benefits on “public charity” grounds during the period of highest unemployment in 28 years.

    Yet describing unearned transfers from others as “public charity” instead of “entitlements” would surely change the politics of the coming fiscal debate — in a very beneficial way for those who want to protect the fisc by focusing that spending goes where it actually is needed and does the most good … and not to pay for, oh, sailing yachts.

    The framing benefits would be *huge*. I mean, it’s one thing to take money from other taxpayers that you are entitled to and use it to buy a yacht, but it is something entirely different to take public charity and use it to sail off on your new yacht.

    Maybe groups with such concerns would take the lead in changing the debate this way? Groups like Concord?

    I doubt it though. Because first there would be howling to the moon from all the spending defenders, for obvious reasons. But beyond that, even the groups and persons dedicated to protecting the fisc and making spending as efficient and worthy as possible today find the concept of “public charity”, in our sophisticated modern world, rather … distasteful? embarassing? obsolete? Don’t they?

    Which is odd, because — if we are truthful about it — if everyone getting together to pay the unfortunate unemployed for up to 99 weeks of not working isn’t “public charity”, then what is?

    And if the public’s paying for the medical bills and retirements of those who can’t afford them isn’t …

    Ok, I’ll stop, I know I’m delusional. :-)

    Sorry.

  9. comment number 9 by: VAT Brat

    Jim,

    Oh my, Jim. Don’t you know it’s insurance, not charity? All those folks aren’t on the dole, they’re entitled to their “insurance benefits.” You’re too harsh!

    Anyway, the Republicans are acting like Brer Rabbit protesting about being thrown into the briar patch as they debate this UI extension. Because the Democrats don’t understand microeconomic theory, they don’t get that the combination of the increase in the minimum wage a few years ago and the extension of UI will prevent the unemployment rate from falling very quickly. This will help Republicans in the mid-terms so I’m content to let the Democrats screw themselves on this debate.

    Let Krugman, the CBO, and the other macroeconomic numbskulls tinker with their IS-LM curves and consumption multiplier models and other Keynesian nonsense. They own this recession now. That’s right. Their smart-ass models predicted that the stimulus package would prevent unemployment rates exceeding 8%, and now they’re asking us to believe that they still know what they’re doing. The stimulus wasn’t big enough. We need more?

    How do they know that? Well, they simply consult the same models the failed to predict the persistence of our current malaise. We’re beyond empirical honesty in social science. We’ve entered the twilight zone of political-theology dogmatism.

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