Tuesday, July 6, 2010

Relief for the Jobless

Standing in line marking time--
Waiting for the welfare dime
'Cause they can't buy a job
The man in the silk suit hurries by
As he catches the poor old ladies' eyes
Just for fun he says "Get a job."

Bruce Hornsby, "The Way It Is" (1986)

I am not an economist, but I play one in a high school classroom. During our 6-week Macroeconomics unit, we discuss how governments use the tools of fiscal policy during a recession (which we have been in since December 2007): decrease taxes or increase government spending or both. As unemployment continues to be a severe problem, many Americans have already come and are coming to the end of their 99-week benefits and the GOP is voting against extending those benefits for two reasons: unemployment insurance decreases the incentive for the jobless to apply for jobs and it adds to the national debt. The GOP is also voting against federal aid to state and local governments who desperately need to balance their budgets by July 1 (oops!) by either raising taxes (but not during a recession!) or laying off government workers (adding more to the jobless rolls).

In our current economic climate, there are 5 job applicants for every job. Brutal. In times like these, we can't just expect people to go out and "get a job." When jobless benefits are cut short, it threatens both the individual (where will they get money to survive?) and the system at large (it decreases aggregate demand and may cause our recession to dip even further south). Economist Dean Baker's column today accuses the GOP of intentionally attempting to further weaken our economic progress so they can win in November. His piece has a bite to it that makes one think about the nastiness and hypocrisy of the political process:

It is possible that Congressional Republicans, who were willing to vote for hundreds of billions of dollars of war expenditures without paying for them, or trillions of dollars of tax cuts without paying for them, are actually concerned about this sort of increase in the national debt. It is possible that this is true, but not very plausible.

Nobel prize winning economist Paul Krugman continues to write compelling pieces (like this) that argue for more federal stimulus (like jobless benefit extension and state/local rescue money) in order to jump start recession recovery. I also commend to the EasyYolk reader Pepperdine professor Todd Bouldin's blog post calling for Americans to wake up to our present economic reality.

None of us wants higher deficits or joblessness, but a true "politics of conviction" is about making tough decisions that follow priorities and economic wisdom. In our current context, we should not be fearmongered into believing that the US will become the next Greece, being plunged into riotous bankruptcy. Let's get out of the recession and lower the unemployment rate with drastic government action now. Then, just as we learned during our senior year in high school, during a time of expansion we can wisely pursue targeted tax raises and creative spending cuts that decrease the national debt and buttress the 30-year decline of the American middle class.

--Theological Autopilot


  1. "Let's get out of the recession and lower the unemployment rate with drastic government action now."

    How can we be sure drastic government action will not lengthen the recession as most economic historians believe the New Deal did for the Great Depression?

    "Priorities" and "economic wisdom" must conform to reality and not wishes. Do you have evidence that suggests otherwise?

  2. It seems rather unfair to characterize those who oppose extending UI benefits as nefariously scheming to prolong this recession. The fact is, regular benefits have already been extended 5 times. Except for the individual who thinks unemployment insurance should last for infinity, at some point everyone would agree to cut them off. Although in the current environment it is difficult to get a job, the truth is the average duration of unemployment is 35 weeks (about double from non-recessionary times). Is 99 weeks of benefits really that unfair?

  3. @Jon James - I wouldn't put it past any politician to try manipulating the recession for political gain. However, I would like to see the proof that the GOP are actually intentionally scheming to do so. Otherwise, accusations of this nature without evidence seems like the fear mongering Tom is scared we will fall victim to re: Greece.

    @Tom - What do you think about the moral hazard costs involved with indefinitely extending the UI that James mentioned? Your accounting of why extending UI only seems to account for the benefits and ignore the costs. If you play an economist in a high school classroom, then please present the entire cost-benefit analysis. In light of past government-sponsored moral hazard fiascos (like the S&L crisis, Fannie & Freddie, TARP, etc.) how do you weigh the benefits against the costs (like moral hazard)?