Why A Civil Society Extends Unemployment Benefits

I have the questionable distinction of appearing on Larry Kudlow’s CNBC program several times a week, arguing with people whose positions under normal circumstances would get no serious attention, and defending policies I would have thought so clearly and obviously defensible they should need no justification. But we are living through strange times. The economy is so bad that the social fabric is coming undone, and what used to be merely weird economic theories have become debatable public policies.

Tonight it was Harvard Professor Robert Barro, who recently opined in the Wall Street Journal that America’s high rate of long-term unemployment is the consequence rather than the cause of today’s extended unemployment insurance benefits.

In theory, Barro is correct. If people who lose their jobs receive generous unemployment benefits they might stay unemployed longer than if they got nothing. But that’s hardly a reason to jettison unemployment benefits or turn our backs on millions of Americans who through no fault of their own remain jobless in the worst economy since the Great Depression.

Yet moral hazard lurks in every conservative brain. It’s also true that if we got rid of lifeguards and let more swimmers drown, fewer people would venture into the water. And if we got rid of fire departments and more houses burnt to the ground, fewer people would use stoves. A civil society is not based on the principle of tough love.

In point of fact, most states provide unemployment benefits that are only a fraction of the wages and benefits people lost when their jobs disappeared. Indeed, fewer than 40 percent of the unemployed in most states are even eligible for benefits, because states require applicants have been in a full-time job longer than most jobless had one. A majority of the jobless typically have moved from job to job before they failed to find a new one, or have held a number of part-time jobs.

So it’s hard to make the case that many of the unemployed have chosen to remain jobless and collect unemployment benefits rather than work.

Anyone who bothered to step into the real world would see the absurdity of Barro’s position. Right now, there are roughly five applicants for every job opening in America. If the job requires relatively few skills, hundreds of applicants line up for it. The Bureau of Labor Statistics says 15 percent of people without college degrees are jobless today; that’s not counting large numbers too discouraged even to look for work.

Barro argues the rate of unemployment in this Great Jobs Recession is comparable to what it was in the 1981-82 recession, but the rate of long-term unemployed then was nowhere as high as it is now. He concludes this is because unemployment benefits didn’t last nearly as long in 1981 and 82 as it they do now.

He fails to see – or disclose – that the 81-82 recession was far more benign than this one, and over far sooner. It was caused by Paul Volcker and the Fed yanking up interest rates to break the back of inflation – and overshooting. When they pulled interest rates down again, the economy shot back to life.

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The Great Jobs Recession is far more severe. It’s continuing far longer. It was caused by the bursting of a giant housing bubble, abetted by the excesses of Wall Street. Home values are still 20 to 30 percent below where they were in 1997. The Fed is powerless because consumers cannot and will not buy enough to bring the economy back to life.

A record number of Americans is unemployed for a record length of time. This is a national tragedy. It is to the nation’s credit that many are receiving unemployment benefits. This is good not only for them and their families but also for the economy as a whole, because it allows them to spend and thereby keep others in jobs. That a noted professor would argue against this is obscene.

Robert Reich

This article first appeared on Robert Reich’s Blog. Republished with permission

Comments

  1. Ryder says

    Reich is out to lunch on this one.

    His theory is that if we take money from productive people, and give it to people that don’t work but love to go shopping, that the shopping they do with the money they took, will allow the taxed worker to have their job!

    What IF we didn’t take that money from the worker in the FIRST place, so that THEY could spend it shopping instead of the unemployed liberal voter?

    The money is still spent… But by the people that earned it, not the looser that is milking the system for as long as they can (literally everyone I know that took benefits like this carefully delayed their entry into the productive job market to coincide with the monent the benefits ran out).

    I will make a wager with Mr. Reich: if the government requires 3 hours of community service every day in order to collect benefits, unemployment will fall sharply, and the unemployment rolls will shrink almost overnight.

    I would wager all I have against that.

  2. Roger says

    It is a good point to understand that without unemployment payments the US economy might be in far worse conditions. It is also a good understanding that the consumption that is on going is allowing many to keep their jobs. What we have failed to understand is the macro economics of various parts of the economy.

    Let us be honest. The money used to pay those Unemployment benefits are not coming form the reserves that our governments have developed over the years to cover such activities. In effect we are causing our governments to be more fiscally unstable. That is to say our expenses are not being balanced (and they have not been for a while)with the revenue. To continue to advocate such ideals would place us in a ponzy scheme where once the revenue is reduced the organization begins to fall apart. I make this point because people do not like to see their organization under different perspectives.

    The basic fact is that the average consumer has retreated from consumption because many gambled their money away on speculative
    real estate purchases (money that could have been used in other “investment” vehicles of revenue generation). Speculations that they had minimal understand of and a poor understanding of what asset means. Consumers will begin consuming again when the product is seen as an asset,that is, an object that will help increase their micro economics revenue.

    Point of fact is that the Government depends on two things Taxes and fees. Income tax revenues have been reduced, and so have sales revenues due to low consumption. Yet we expect to continue the same living standards by borrowing and reducing funding for everything else (unless it is my pet project. This is how business fail and governments loose credibility. By keeping everything and short changing everything all you accomplish is loss of revenue. Until our legislators stop trading favors with industry and labor lobbies they will be unable to make decisions that are truly meant to prepare and improve service.

    In the short if we cannot produce anything of value then we should not complain that there is no revenue.

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