The Popular Lunacy of Blaming Those Lazy Unemployed

It's election season, and the economy is a mess. Sounds like a perfect time for accusations that are light on fact and heavy on folly.

Cue Harvard economist Robert Barro's recent op-ed in The Wall Street Journal, which boldly states that had President Barack Obama and his economic team not extended unemployment benefits to 99 weeks, today's unemployment rate would be just 6.8%, rather than 9.5%. (Although if we're going to make this a political matter, as Barro has, it's worth noting that the benefit-extension program passed 98-0 in the Senate). His reasoning: "the program subsidizes unemployment, causing insufficient job-search, job-acceptance and levels of employment."

Barro continues:

To begin with a historical perspective, in the 1982 recession the peak unemployment rate of 10.8% ... corresponded to a mean duration of unemployment of 17.6 weeks and a share of long-term unemployment (those unemployed more than 26 weeks) of 20.4%. ...

These numbers provide a stark contrast with joblessness today. The peak unemployment rate of 10.1% in October 2009 corresponded to a mean duration of unemployment of 27.2 weeks and a share of long-term unemployment of 36%. The duration of unemployment peaked (thus far) at 35.2 weeks in June 2010, when the share of long-term unemployment in the total reached a remarkable 46.2%. ... The dramatic expansion of unemployment-insurance eligibility to 99 weeks is almost surely the culprit.

That last little nugget, that extended benefits are "almost surely" the culprit, is pretty good proof that Barro isn't relying on analysis, but blind conjecture. Lucky for us, others have done the analysis on this issue, and the results are clear: Extended benefits almost surely are not to blame for long bouts of unemployment.

The Federal Reserve Bank of San Francisco, for example, crunched the numbers and found that those receiving unemployment benefits only remain unemployed for a bit over a week longer than those who do not. Its analysis shows that extended unemployment benefits have raised the unemployment rate by 0.4% -- a fraction of Barro's assumption of almost 3%.

Speaking of which, how did Barro calculate that 3-percentage-points higher figure? Here's how:

To get a rough quantitative estimate of the implications for the unemployment rate, suppose that the expansion of unemployment-insurance coverage to 99 weeks had not occurred and -- I assume -- the share of long-term unemployment had equaled the peak value of 24.5% observed in July 1983. Then, if the number of unemployed 26 weeks or less in June 2010 had still equaled the observed value of 7.9 million, the total number of unemployed would have been 10.4 million rather than 14.6 million. If the labor force still equaled the observed value (153.7 million), the unemployment rate would have been 6.8% rather than 9.5%.

It's simply pitiful that this passes muster as analysis from a Harvard economist in the nation's most prominent business newspaper.

First, there's the math. According to Barro's assumptions, the economy would employ 4.2 million more people if we ditched extended unemployment benefits (14.6 million that are currently jobless minus the 10.4 million he assumes would be otherwise.) That sounds nice. But the most recent data from the Bureau of Labor Statistics shows there are only 2.9 million job openings nationwide. So according to Barro's reasoning, if we just cut unemployment benefits, every single job opening in America would instantly be filled by 1.5 workers each. I hope you like sharing cubicles.

Then there's the logic. All Barro is saying here is that if you close your eyes and assume the economy hasn't changed since July 1983, then today's long-term unemployment rate should look exactly as it did in July 1983. This is almost inspiringly bad analysis, and reminds me of the joke about three economists stuck on an island with lots of canned food but no way to open the cans. One finally says, "Guys, this is so easy. Let's just assume we have a can opener!"

In reality, the differences between the 1980s and today are thick. The '80s downturn was cyclical; today's is structural. Back then, a brutal recession came about from inflation and sky-high interest rates. People were smacked silly as business investment plunged and purchasing power sank. But it was temporary. The underlying structure of the economy was still vibrant and viable. Once inflation was tamed, things bounced right back. Businesses that had slashed payrolls during the darkest days rehired with force during the recovery.

It's not like that today. The original driver of our recession was the financial crisis of 2008, which by almost any metric is long over. Yet the economy is still a mess. Why? Because the financial crisis wasn't a short-term illness, but a symptom of deep structural problems, namely too many businesses that relied on debt and leverage. From carpenters at KB Homes (NYSE: KBH  ) and Pulte (NYSE: PHM  ) to mortgage bankers at Wells Fargo (NYSE: WFC  ) and Citigroup (NYSE: C  ) , millions of jobs revolved around a credit Ponzi scheme that's no longer viable. Plenty of these jobs are dead. They're not coming back. Ever. What we're going through is not a classic downturn as much as it is a reconfiguration of the economy -- and that takes a long time to complete.

Paul Seabright, professor at University of Toulouse, does a great job explaining this:

In the same way as some of the passengers on a railway system will be waiting at the station, in between trains, any labor market will have a number of its active participants in between jobs even when it is working well. ... But this recession, more than most, seems likely to have produced a great increase in the mismatch, due to the unsustainable patterns of consumption and investment induced by the credit boom that preceded the financial crisis. It's as though the passengers on the rail network need a whole new pattern of travel to different combinations of destinations, for which the connections are no longer optimized and for which there are too many trains in some directions and too few in others.

David Leonhardt in The New York Times gets a little more technical: "The nation's pool of jobless workers has ... been relatively stable -- mostly because the hiring rate of new workers plunged in 2008 and still has not recovered. The drop in hiring has actually been steeper than the rise in layoffs."

Those whose marketable skills were mainly valuable only to the past bubble will have a very, very tough time finding new work, and will be stuck in the traps of long-term joblessness, extended benefits or not. That's what happens when a downturn is structural, not cyclical.

You know the saying: There are lies, damned lies, statistics, and really bad, politically driven inane accusations designed to scare people. Barro's op-ed is almost entirely the latter.

Check back every Tuesday and Wednesday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.


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  • Report this Comment On August 31, 2010, at 3:30 PM, lution wrote:

    Here in north Alabama, we had 129,000 people on unemployment last week. The unemployment office had roughly 8,000 job openings.

    Yeah, really cramped cubes....

  • Report this Comment On August 31, 2010, at 3:46 PM, whereaminow wrote:

    Morgan,

    I think Barro is making the assumption that reducing unemployment benefits, with part of the burden being paid out of corporate profits, would increase businesses ability to expand operations and hire more workers.

    That type of analysis would be sound. Delving into positivism and empirical analysis is fraught with difficulties, which is why neither Barro's nor the San Fran Fed's analysis is worth the paper it is printed on.

    Economics is about human behavior. Incentives matter. If you create an incentive to be unemployed, there will be more unemployment. This is uncontroversial economically, but very controversial politically, specifically because the One Party Republocrats in charge of America have spent the last 50 years giving away everyone else's money.

    Finally, as I have stated unequivocally, while charity is admirable and moral, forcing American citizens at gun point to provide benefits as much as 1 penny to the unemployed is immoral. I'm surprised that Americans are surprised that force and violence does not produce a better society.

    http://caps.fool.com/Blogs/say-it-with-me/422978

    David in Qatar

  • Report this Comment On August 31, 2010, at 5:16 PM, SocialRespInvest wrote:

    David in Qatar is ridiculous. Does he fantasize that unemployment benefits involve full salary or close to it? Actually, here in NY, the top benefit is $405/week. Just try paying NYC rent, feeding your family, and medical and other expenses, not to mention carfare to job fairs with lines around the block, on $405/week. There is no incentive whatsoever to be unemployed.

    My guess is that most of the people who think the unemployed are gaming the system are projecting their own desire to be rich without working hard for it onto hard working people who are unemployed through no fault of their own.

  • Report this Comment On August 31, 2010, at 8:47 PM, whereaminow wrote:

    Is $405 more than $0. Yes, it is Boy that math was hard.

    As for as projecting, I would never want to be a beggar to the State.

    Thanks for making yourself look ridiculous. I always enjoy a good laugh.

    David in Qatar

  • Report this Comment On August 31, 2010, at 9:00 PM, ragedmaximus wrote:

    try florida unemployment 225 bucks no jobs or industry. Why blame laid off taxpayers when Welfare lifers and SSI continue to have babies and mo moey for every new criminal birthed into the world.Taxpayers overburdened,police and courts tied up taken down by the welfare fraud that it is.This is crippling america on baby momma at a time.The trick is unknown on the birth certificate so states have nobody to go after then they claim a d d and asthma for even more money.scamscam scam.How about the high school drop out rate for these certain males and no future but impregnating women and prison

  • Report this Comment On August 31, 2010, at 9:09 PM, TMFKopp wrote:

    @whereaminow

    "Is $405 more than $0. Yes, it is Boy that math was hard."

    Nice try. The point was a very valid one -- it's silly to think of such a paltry check as an "incentive" to be unemployed.

    Here in Nevada, the unemployment rate is sadly the highest in the country, but I've yet to meet an unemployed person that's sitting around proclaiming, "Man, ain't this the life! I don't have to work and I get to eat Ramen for every meal!" And I've certainly never heard someone say, "You know what? Nuts to working, I'm going to find a way to become unemployed so I can collect that sweet, sweet $1,600/month."

    And that's not even to mention the moral/social judgments that come into play for someone that's unemployed and not bothering to look for work.

    Yes, David, incentives are very important in economics, but you're sadly mistaken if you really think that unemployment benefits are an incentive for any but a few citizens to be unemployed.

    Of course Austrian economics doesn't bother with silly things like math or numbers or anything like that (as Barbie would say, "Math class is tough!") so perhaps under that lens $1 is more than $0 and so any unemployment benefits at all are just encouraging our citizens to be lazy good-for-nothings that love being on the government payroll.

    Matt

  • Report this Comment On August 31, 2010, at 9:26 PM, BearishKW wrote:

    "On August 31, 2010, at 3:30 PM, lution wrote:

    Here in north Alabama, we had 129,000 people on unemployment last week. The unemployment office had roughly 8,000 job openings.

    Yeah, really cramped cubes...."

    How many job openings do you expect there to be in northern Alabama? If the 121,000 who can't fill those positions need work, they will have to move. But they don't need work, because there is unemployment benefits. So they sit. Don't know what point you were trying to prove.

    "On August 31, 2010, at 5:16 PM, SocialRespInvest wrote:

    David in Qatar is ridiculous. Does he fantasize that unemployment benefits involve full salary or close to it? Actually, here in NY, the top benefit is $405/week."

    And rightfully so, unemployment isn't meant to be a free pass. It's supposed to buy you a little time. NYC is an exception, but unemployment bene's in many areas offer BETTER compensation than having a job...that is just plain wrong. Do you think David in Quatar is really from Quatar? I don't know him, but my bet is that he moved to where there is opportunity.

    Tell me this, pre-bubble burst the unemployment benefit applications were at 5% of the workforce. You're telling me, looking back now at the biggest bull market and best supposed economy in history, that all of the unemployed really couldn't find a job? Wrong, they were sitting out and enjoying the free ride.

    Life isn't fair. Man up and get a job that makes you work a little harder and pays you less. How unfortunate do you think you look through the eyes of somebody coming back from Iraq and Afghanistan.

    They made $8/hour and a typical workday for them involved wondering if they would make it home. And now they have to come home to this...a bunch of babies whining about the gravy train not being as good as it used to be.

  • Report this Comment On August 31, 2010, at 10:07 PM, TMFKopp wrote:

    @BearishKW

    "but unemployment bene's in many areas offer BETTER compensation than having a job..."

    Please site a source for this. That's a ridiculous statement. Unemployment benefits are based on prior wages and typically pay out less than half of what the worker was earning previously. The $400 in NY is a cap, so if you were earning above, say, $3,200/mo tough beans -- you're still just getting $400/week.

    "Tell me this, pre-bubble burst the unemployment benefit applications were at 5% of the workforce. You're telling me, looking back now at the biggest bull market and best supposed economy in history, that all of the unemployed really couldn't find a job? Wrong, they were sitting out and enjoying the free ride."

    This strikes me as the kind of uninformed, reactionary statement that prevents anyone from having real discussions about issues like these.

    Frictional unemployment -- the challenge of matching applicants to jobs -- will always create some amount of unemployment. Are there those that would prefer to be on unemployment rather than work? Possibly, but I've yet to ever meet a single one of them and if I did I'm going to bet that they're not of sound mind anyway.

    "Life isn't fair. Man up and get a job that makes you work a little harder and pays you less. How unfortunate do you think you look through the eyes of somebody coming back from Iraq and Afghanistan."

    This sounds like something right out of a Fox and Friends playbook.

    Bottom line, I think you all are absolutely nuts if you really think that the level of unemployment benefits strikes any significant portion of the population as an unemployment "incentive."

    Matt

  • Report this Comment On August 31, 2010, at 10:43 PM, starbucks4ever wrote:

    Remove unemployment benefits, and the rate will drop to 6.8%. Then remove Medicaid, and unemployment will drop to 4%. Then remove Medicare and it will drop to 1%. Then remove Social Security and it will drop to 0%. Finally, remove education and highways and police and fundamental science and whatever else, and everybody will have two jobs. Or better yet, embrace complete anarchy, and there will be a triple employment for everyone. :)

  • Report this Comment On August 31, 2010, at 10:51 PM, whereaminow wrote:

    TMFKopp,

    The point was not a valid one. This is basic subjective evaluation. You either get paid $405/wk to do nothing or you get paid $0/wk to do nothing. You can't compare the utility of receiving $405/wk to do nothing against $???/week to perform labor.

    The person receiving $405/wk to do nothing will have a greater level of economic satisfaction than the person receiving $0/wk to do nothing. And since all human economic action is performed to replace a less satisfactory state with a more satisfactory state, the person making $405/wk is less likely to get off his couch and find a job than the person making $0/wk.

    Why is this so hard to understand? I don't know.

    Can I break this down any easier for you? I don't know.

    David in Qatar

  • Report this Comment On August 31, 2010, at 10:53 PM, whereaminow wrote:

    zloj,

    Nice strawman. You're having a tough week argumentatively. Perhaps I was wrong about you.

    David in Qatar

  • Report this Comment On August 31, 2010, at 11:08 PM, BearishKW wrote:

    Matt,

    You're right about me in that you did pick up a little bit of emotion in my argument. I don't have a source to cite on the 5% unemployment rate pre-crisis. But I didn't hear it from Fox or pick it up at the latest Tea Party rally either. It is something I have repeatedly read in newspapers and heard on CNBC regarding unemployment history.

    Also, call me a lunatic all you want, but I have been on the front lines of this "unemployment: good or bad" debate. I worked in Arizona in the copper and mining industry pre-crash. When things went sour, I saw the writing on the wall and left before getting the axe to start my own consulting company. I struggled and lived in my car and cheap hotels for almost a year. I lost my girlfriend, my dog, and almost lost my home to the bank.

    When it comes to unemployment here is my experience...My company has done well. I have two employees, need four, and post my positions online. I have interviewed three people so far and two of them had absolutely no interest in accepting a job. I could tell right away in the interview. But you can't call me uninformed or reactionary for thinking that...because I received a call afterward from AZ unemployment offices afterward asking if "so and so showed up for the interview". What a waste of time.

    I believe unemployment benefits are necessary but are more often abused, and I know enough about statistics to say that data can be massaged or interpreted to fit any argument. In the successful circles you get used to hanging in, it is easy to say that $1600/month is nothing to sit around for. But there are other circles.

    Call me whatever you want...insensitive, nuts, a lunatic, etc. I don't care. I actually have skin in the game. I pay unemployment tax for myself and my employees. It's no small amount. I go back to my old office to network and notice what is going on. I see the key players and performers are still there, working harder for less...while the 10 to 4ers and internet surfers are gone. Sorry if I can't put a number on that.

  • Report this Comment On August 31, 2010, at 11:28 PM, maiday2000 wrote:

    Matt - anyone who doesn't think that $405 a week isn't incentive to stay home instead of taking a job doesn't know many people doing this. That $405 can expand greatly when you consider two income households. Now all of a sudden you don't pay for childcare, gasoline, an up to date wardrobe, lunches out...the list goes on an on. Plus, we are taking from people who are working and giving to those who are not. Its deadweight loss to the economy. I could always bust out my labor economics book to start talking about the Beveridge Curve and labor force participation rates, but a little bit of critical thinking is all that is necessary...

  • Report this Comment On September 01, 2010, at 12:44 AM, AlexanderAkhavan wrote:

    I work as a physician in a hospital and I deal with literally hundreds of different people per month. I can state with ABSOLUTE certainty that a LARGE percentage of people on unemployment insurance as well as Social Security disability are fully capable of working, but that both programs act as a HUGE disincentive to work.

    Unfortunately, I cannot give you an exact percentage for unemployment insurance, but I can reasonably estimate 75% of those on Social Security disability do not work that are capable of it.

  • Report this Comment On September 01, 2010, at 1:06 AM, pkluck wrote:

    Matt you are truly showing your ignorance. If you don't think a certain % of people on unemployment aren't perfectly content to do nothing and collect $1,600/mo you are out of touch. Not all people on unemployment are gamers of the system but some are. Some have working spouses, some live with working boyfriends/girlfriends, some live with their parents, some live in apartments on the cheap, some work part time on the side for cash. My brother in law was thrilled when he was laid off last month he's 62 and has absolutely no intention of getting or even looking for a job. He gets two years of unemployment, which will put him close to retirement age, in the mean time my sister (his wife) puts a roof over his head and he has $1,600 a month for beer. Wise up fool unemployment and welfare benes absolutely incentivize some people to not work.

  • Report this Comment On September 01, 2010, at 3:46 AM, BearishKW wrote:

    On September 01, 2010, at 3:05 AM, oZoNo wrote:

    "Actually, here in NY, the top benefit is $405/week."

    Assuming 40 hrs/week, you are being paid $10.13/hr to not work. Compare that to the $7.25/hr minimum wage. Why would anyone take the minimum wage job?

    ...maybe because you can? That would be the most responsible choice. But no, people run those same numbers and stay on unemployment as a career move.

    In other words, they are LAZY!

    /article

  • Report this Comment On September 01, 2010, at 3:48 AM, hawkise wrote:

    All those suits who recommend dropping unemployment

    I want them to look for a job where their financial or mathematical skills are worthless

    I want them to loose their house, watch their kid's options and opportunities shrink

    All for a couple of points on a chart

    Then I want to hear their talking heads

    From an former unemployed factory worker in the 80s who got a CS degree and joined the military and had their house foreclosed on in 85.

  • Report this Comment On September 01, 2010, at 4:42 AM, TMFKopp wrote:

    I obviously touched a nerve :)

    Are there people that game the system? Yes, of course there are. But claiming that extending unemployment benefits is suddenly encouraging vast numbers among us to hang up their cleats and decide that couch surfing on a poverty-level income is the way to go is just wrong. If you need numbers behind it, look at the SF Fed report that Morgan sites in the article. (of course David does not believe in any sort of numerical analysis when it comes to economics so he's exempt from this comment).

    And as to:

    "Assuming 40 hrs/week, you are being paid $10.13/hr to not work. Compare that to the $7.25/hr minimum wage. Why would anyone take the minimum wage job?"

    Ok, I'll bite. Let's say a computer programmer that was making $80k gets laid off. He will actually get the full top-end unemployment b/c of his prior salary.

    Will he opt for the unemployment check over a 40-hour-a-week minimum wage job? I'm going to guess "yes" every time. But, 1) is someone that was making $80k going to be cool sitting on their butt collecting $19k/yr and 2) do we really want our skilled workers flipping burgers?

    Now let's look at it another way, with the sort of lazy lout I believe many of the commenters seem to be picturing. Let's say this guy was working at a minimum wage job flipping burgers for that $7.25/hr and got laid off. Will he prefer to find another minimum wage job or collect that $10.13/hr from unemployment?

    Well, obviously the latter, but unfortunately he won't get the $400/wk because he wasn't earning that much before. Based on what he was earning (~$290/wk), he'll probably get around $145/wk. Ouch. If we want to keep this hourly, that works out to about $3.63/hr.

    So now, does this guy want $2.90/hr for sitting on the couch listening to his stomach grumble or will he go find another minimum wage job?

    Incentives.... right?

    Matt

  • Report this Comment On September 01, 2010, at 4:43 AM, TMFKopp wrote:

    Oops:

    "So now, does this guy want $2.90/hr for sitting on the couch listening to his stomach grumble or will he go find another minimum wage job?"

    Should be $3.63/hr

  • Report this Comment On September 01, 2010, at 5:16 AM, ragedmaximus wrote:

    When the going gets tough tards from harvard who never worked a real job in their life think they really know what's going on and they do not.We Americans are lied to every day by our govt,the media and every other person that wants to take your dollars.

    If you fools are long in the market right now then you are a fool and deserve to lose every penny you have because you suck as an investor and can't see the collapse about to happen.So when reality hits hard and soon and your long in this market I want you to remember that ragedmaximus told you to get out but you didn't listen.

    So the blame game in the media is not worth talking about anymore but the big picture that is unfolding in all the paid, unpaid, workers, unemployed americans there is no more stimulus to prevent the impending market crash that IS going to happen soon .Obama and his economic team along with the fed crooks know what is about to happen in the market and how it will look as the election nears but there is noting they can do about it.Obama knows but he is not telling you fools either! I am sell all your stock today and sit on the sidelines and when you watch the crash unfold you will be in cash so when we hit rock bottom you can enter again and make 5 times what you have now.Do not listen and say bye bye to at least 50% gone! This concludes my fool public broadcast.This is my last post as a fool until the market crash!

  • Report this Comment On September 01, 2010, at 5:32 AM, BearishKW wrote:

    Gotcha, Matt! haha

    You do prove a point. On the high and low end of the wage spectrum, maybe unemployment does serve it's intentions pretty well. At 80k/year and at $7.25/hr you can't afford to make less and want employment ASAP.

    There are a lot of jobs out there that pay in the middle range though, and maybe that's where we enter into the gray area where people slip through the cracks and take advantage. While on unemployment you will make less than what you did at $10-15/hr, but maybe you can still squeak out rent, food, etc. and ride it out without having to wake up early. Especially with health benefits being taken care of, making some money on the side, taking care of the kids instead of daycare, etc.

    Of course it's all speculation, but it seems to me like more people than not know of at least somebody who is taking advantage. I think that is what people here are arguing with you over...it's a fundamental issue that doesn't mesh well with the numbers...People can afford to wait it out at the taxpayers expense, instead of getting their foot in the door somewhere now...but probably for less money.

  • Report this Comment On September 01, 2010, at 5:43 AM, BearishKW wrote:

    Ok and ragedmaximus,

    I will take us Ivy League types over a guy named "ragedmaimus" referring to himself in the third person.

  • Report this Comment On September 01, 2010, at 6:04 AM, cupocoffee wrote:

    DITTO to Bearish KW's remarks

  • Report this Comment On September 01, 2010, at 7:36 AM, decbutt wrote:

    Excellent Article.

    I cannot stand when people use highly flawed maths to "prove" a point.

    Re: David From Qatar's statements -

    If someone is getting $0 per week in benefit then by within a week of running out of money you'll have induced a criminal.

    And criminals eat-up tax-payer money like you would not believe.

    Benefit money is not a pass to EZ street. It makes sure that you have enough food and sufficient clean water to (hopefully) last until such time as you find someone willing to hire you to do a job that you have some chance of staying at. And all the time the clock is ticking.

    Their primary needs are being met, so they can focus on getting a job.

    The paltry amount on offer is enough to prevent the receiver from becoming desperate enough to channel their time and energy (the resources they have) into theft, burglary, mugging etc.

    Because in a world full of incentives, few burn quite so bright as real hunger.

    The level of benefit received is sufficient, to paraphrase WB, "enough so that they can pursue any job; not enough so that they can pursue nothing".

    In terms of incentive I am much happier to pay a small amount of tax to "give a guy a break" to ease their transition between jobs, than a large amount of tax to police, prosecute and criminalize people that suddenly have nothing except a large and burning hole in their stomach, and a bitter taste of resentment towards people who's homes are empty during the day.

    Benefits ensure that the unemployed do not need to spend time and effort on criminality to satisfy some very basic needs. Needs that would end-up getting expressed, one way or the other.

  • Report this Comment On September 01, 2010, at 10:14 AM, whereaminow wrote:

    decbutt,

    "And criminals eat-up tax-payer money like you would not believe."

    They sure can. They also counterfeit money and start pre-emptive wars that kill hundreds of thousands of people.

    Oh wait, you probably weren't talking about the same people I was.

    Your analysis assumes that anyone who is broke becomes a criminal, so we should protect them from themselves and us from them? First, that's not economics. You clearly reject economics and would prefer to replace it with psychology. Second, it's simply not true that everyone who is broke becomes a criminal. It doesn't require a lot of thought to know this is nonsense. You watch too much TV.

    If someone commits a crime, they should be arrested. I don't know why you believe unemployment benefits, as opposed to charity or hard work, reduce crime. I'm quite sure the opposite is more likely.

    David in Qatar

  • Report this Comment On September 01, 2010, at 11:32 AM, slpmn wrote:

    If you really want to deepen and extend a recession, the quickest way to do it will be to cut off unemployment payments. We live in a nation in which many people, unfortunately, live check to check. Without unemployment, upon losing their jobs, they and their families would instantly drop into poverty. You might say, "Too bad for them, they should have lived within their means and saved a few bucks!" and I wouldn't even disagree with that sentiment. However, you don't even have to care about them to understand the importance of unemployment payments. Without stimulus to pick of the demand slack, recessions turn into depressions. By providing unemployment, you are giving people money to spend on goods and services, which keeps those businesses in business. Unemployment is among the most efficient kinds of stimulus because it puts the money in the hands of people who have no other choice but to spend it. Tax cuts are effective too, but less so, because much of the extra money goes to people who just park it in investment and savings accounts. That's not bad, obvisously, it just isn't very helpful to solve the problem at hand. And, yes, lazy slackers abuse the system - surprise! Its unfortunate, but the fact that slackers and leeches take advantage of a system is not an indictment of the system. Its an indictment of the pigs that abuse it.

  • Report this Comment On September 01, 2010, at 12:37 PM, decbutt wrote:

    David in Qatar

    "Your analysis assumes that anyone who is broke becomes a criminal"

    No, it assumes that many people who have no access to food become either criminals or involved in criminal activity (facilitators, customers, etc. - enablers of all types).

    If people cannot feed themselves (and their families) legitimately, they will still feed themselves. It is a *need* in the true sense.

    Crime takes up the slack. The need will be met.

    And that's not psychological.

    And crime costs a lot more tax dollars than the pittance it takes to exist - not live, just exist.

    The unemployment benefit pay-outs are for a limited time. Not in perpetuity.

    Some people resent any such payout, seeing it as "something for nothing" or a "waste of money".

    I see it very much as a stitch-in-time.

    But back your original post and the logic thereof -

    if benefit payout of $x dollars can be categorized as sufficient incentive to stay out of work (when compared to benefits of $0) then surely getting back to work with payments many-times $x per week should incentivize a return to work?

    Following your logic - that a larger $ payout creates a larger incentive - means that people will go back to work anyway, due to the pull of significantly more money.

    Funnily enough this is what happens in the real world, so you are correct.

    W.E. Demming was right - people are, generally speaking, "willing workers."

  • Report this Comment On September 01, 2010, at 12:46 PM, whereaminow wrote:

    decbutt,

    So people out-of-work might commit a crime to take something by force from others that does not belong to them?

    Very simple question:

    How is that different than asking the government to take something by force that doesn't belong to them, on their behalf?

    Your speculations about the possible criminal intent of the unemployed is meaningless if your solution is to commit a crime on their behalf.

    "Following your logic - that a larger $ payout creates a larger incentive - means that people will go back to work anyway, due to the pull of significantly more money."

    Nope. As I explained above, basic subjective economics explaines why this is not so. You can't compare $x in benefits for doing nothing to an unknown quantity of money to perform an unknown type of labor. You can only make a direct comparison of $x in benefits to do nothing to $0 in benefits to do nothing. One is clearly a superior satsifactory economic state to another.

    Do you dispute the basic premise that all economic action is performed to replace a less satisfactory state with a more satisfactory state?

    David in Qatar

  • Report this Comment On September 01, 2010, at 1:31 PM, slpmn wrote:

    "How is that different than asking the government to take something by force that doesn't belong to them, on their behalf?"

    Qatar - are you proposing we ditch the fundamental concept of democratic government to return to a utopian "state of nature"? Many people agree with your position, a vast majority do not. If Housel's research is correct, the bill passed 98-0. It was the product of a democracy, not something "forced at gunpoint." Not perfect, but its what we have. Keep looking for your tax-free utopia, though. I sincerely hope you find it, and I would join you on the first plane there.

  • Report this Comment On September 01, 2010, at 2:16 PM, locustgoofy wrote:

    I agree 100% with David. If you pay someone each week for not working, well guess what? THEY WON'T WORK!

    My daughter drew unemployment for almost a year, and one week before it ran out, she got a job.

    My solution to the unemployment situation would be to send the illegals back home and that would free-up enough jobs to eliminate our unemployment problem.

  • Report this Comment On September 01, 2010, at 2:25 PM, whereaminow wrote:

    slpmn,

    "Qatar - are you proposing we ditch the fundamental concept of democratic government to return to a utopian "state of nature"?"

    No, I'm not proposing anything. I'm telling you very simply that if you analyze the policy of giving people unemployment benefits, you see that it only increases unemployment.

    I don't tell you what to do with that information. That's your decision.

    David in Qatar

  • Report this Comment On September 01, 2010, at 2:37 PM, SpaceVegetable wrote:

    Unemployment extensions may come out of taxpayer's pockets, but unemployment insurance itself is employer-paid. I have no problem collecting a benefit that's been paid on my behalf, when needed. I count myself fortunate to live in Massachusetts, which has the highest unemployment benefit payout in the country. Of course, this goes hand-in-hand with some of the highest costs of living. And the maximum payout (high $600 or low $700 per week, if I recall) is not even enough to pay my mortgage, health insurance (I'm a contract software engineer and must buy my own), and car payment, let alone any other bills.

    Fortunately, my skills are in high demand and we're actually adding jobs here in MA, so I have no lack of work. In fact, I get around 5-10 emails and calls per day from recruiters with available work. If you have technical skills, the work is there. If you expect to get work in manufacturing or other downtrodden fields, you're in for a harder time.

  • Report this Comment On September 01, 2010, at 2:51 PM, outoffocus wrote:

    I think theres one thought missing from this debate. Whether or not unemployment incentivizes people not to work is debatable. But our biggest issue is we don't even have enough open jobs for these unemployed people to return to. Who creates job? Businesses. Its certainly possible that unemploment compensation is preventing people from finding jobs. But whats even worse, I think UC may be preventing people from starting businesses that would create jobs. "If you give a man a fish, he eats for a day. If you teach a man to fish, he eats for life".

  • Report this Comment On September 01, 2010, at 3:43 PM, lh100 wrote:

    The only moment where unemployment becomes counter-productive is when you turn down jobs in order to collect that check.

    That of course has happened probably many times, but are those the jobs we want to have filled for the sake of lowering the unemployment rate? Like the author pointed out in the comments section, just the social incentive to go work is sufficient to justify working at the same rate, not to mention how harder it becomes to get the job the longer you stay unemployed.

    This is a special situation where jobs are full-time permanent jobs are not there. Hence the special extended benefits. Should it be extended even more? I don't think so, but it should not be an absolute no.

    I personally am for starting loans from now on instead of benefits(when it expires). Current interest rates are low, and it gives more incentives to get a job, + it's money the government does not have to just give away.

  • Report this Comment On September 01, 2010, at 4:17 PM, bigcat1969 wrote:

    Fun argument, thanks. Another factor is that people hitting food banks is now huge, some people make the rounds every week. Combine that with food stamps and you can eat free. If you get your cost for food to zero you are miles ahead. Libraries are swamped with people using the internet, so another free thing. Also they have free to rent videos, so no need for Netflix. Clothes are near free at some used shops. There are some scary places I've seen people buy clothes by the bag for a couple bucks. Still have to cover the rent of course, though certainly some folks seem to be packed in with family. Two bedroom apartments with a couple in each bedroom, the kids on the floor and the sister-in-law on the couch.

    Not an ideal life, but say 12 people in an apartment, with 7 of them kids you can get a lot of government help, esp if none of the women are married. Toss in some unemployment and some off the record jobs and hey there is enough for lots of beer.

  • Report this Comment On September 01, 2010, at 4:34 PM, MADACASTO wrote:

    I know a fella gaming the system - George Castanza! Going as far as having the U/E office phone Jerry Seinfeld's apt. to verify employment application and dating the daughter of his hideous caseworker's daughter....in New York City, no less!!! You wanted proof, there you have it!

  • Report this Comment On September 01, 2010, at 4:55 PM, TMFKopp wrote:

    @MADACASTO

    Too true! Good one. Just wait, pretty soon everyone is going to be claiming they're interviewing with Vandalay Industries!!!

    Matt

  • Report this Comment On September 01, 2010, at 5:05 PM, decbutt wrote:

    Qatari Dave -

    "Your speculations about the possible criminal intent of the unemployed is meaningless if your solution is to commit a crime on their behalf."

    I don't understand what you mean by that.

    Unless what you're getting at is: that the taxation of the employed to give enough cash to those with no income to exist is, itself, somehow a "crime". Equivalent, in fact, to burglary.

    That would seem to fit the tone of your other posts.

    The premise that giving people unemployment benefit actively increases unemployment may have SOME small facet of truth, in the it may increase the length of time spent unemployed.

    With each person spending more time unemployed, that would lead to more people being unemployed at the same time.

    However, as noted by many commentators, the effect is limited. Small.

    "You can't compare $x in benefits for doing nothing to an unknown quantity of money to perform an unknown type of labor."

    Well, these things are not truly unknowable. The quantity of money would probably be similar to the quantity of money paid in the last job, and the type of labor would most likely be broadly similar to the type of work in the last job since most career paths follow a kind of feedback-loop.

    I would be surprised to see lots of people that were brick-layers, for example, move to a jobs as pilots from one job to the next, or vice-versa.

    "You can only make a direct comparison of $x in benefits to do nothing to $0 in benefits to do nothing. One is clearly a superior satsifactory economic state to another."

    The idea that unemployment has been truly incentivized is belied by the fact that, if what you suggested was true, then unemployment would *always* rise.

    The fact of the matter, as you have hinted at all along, is that there is a much greater incentive in the form of higher monetary reward (and job satisfaction - something that is almost universally absent for non-workers) in having a job.

    If you say that only unemployment +0 or unemployment +$x are directly comparable - perhaps you are right if you are talking in purely scientific-terms and you wish to measure which of those is a preferable state for most people to live in.

    Of those two, obviously the +x state is better.

    But that by itself does not support the claim that this has incentivized unemployment as an option.

    The choice is NOT unemployment +0 OR unemployment +x.

    Under those conditions you'd be absolutely correct. But that is obviously not the case.

    The options are unemployment +x or employment + y(x)

    Despite the fact that more than one variable is different, we all know that people would much rather work for significantly more money.

    Since if your premise were true, that unemployment was truly incentivized, we'd ALL aspire to being unemployed, and once we'd achieved that state, we'd fight to keep it, only breaking out of it (in a job) for long enough to ensure we could have another good long run at unemployment benefit.

    Which, simply put, does not happen in the real world, save in a very small minority of people.

  • Report this Comment On September 01, 2010, at 5:20 PM, theHedgehog wrote:

    There are two favorite positions in popular unemployment punditry: One is that people are just too lazy to find a job. The other is that the minimum wage level is too high for employers to be motivated to hire the unskilled. Clearly these two positions are incompatible. If people aren't willing to get off unemployment at current wage levels (as proposed by Barro and others) then I'm confused as to how lowering wages further will motivate them to go back to work.

    When the banks start lending to business again, there will be jobs. Until that happens, the pundits will continue to blame the unemployed.

  • Report this Comment On September 01, 2010, at 5:30 PM, Melaschasm wrote:

    One of the questions that seems to be ignored in this thread is "who are the unemployed?"

    From what I have read over the past year, people with college degrees have about a 3% unemployment rate. Those without any college are 12% or so. Those people under the age of 25 have are well over 20%.

    Basically the unemployed tend to be people who did not go to college, and young people. These are likely to be people who are lower middle class from an income standpoint.

    The idea that someone making a six figure income is going to not look for work because of unemployment benefits is not going to represent a significant part of the population.

    However, for many people who don't earn much when they work, the difference between taking a lower paid job and collecting unemployment is small enough that the value of not working is bigger than the money they can make on a job. If you consider people who can cut costs because they are not working by firing the babysitter or taking over mild nursing of their parents, many people are better off without a job than when they were working.

    What portion of the unemployed are not looking for work? I don't know, but Barro's estimate of 1/3 is not impossible.

    Personally I am not all that worried about unemployment benefits. It represents a tiny portion of government tax and spend policies, and tends to be very popular. It is better to fight to fix the big spending programs and to cut the unpopular stuff than to expend so much effort fighting against something that does not make a big difference.

  • Report this Comment On September 01, 2010, at 6:10 PM, TMFKopp wrote:

    "for many people who don't earn much when they work, the difference between taking a lower paid job and collecting unemployment is small enough that the value of not working is bigger than the money they can make on a job."

    From everything I've seen, this is just not true. Unless you consider a ~50% drop in income small enough to not be worrisome.

    Matt

  • Report this Comment On September 01, 2010, at 6:10 PM, whereaminow wrote:

    decbutt,

    I fail to grasp why this is so difficult to understand. If you pay someone more than $0 to do nothing, that payment increases their economic satisfaction. This is not controversial.

    My point isn't that working for more money than unemployment benefits provides does not provide an even higher utility for some. I totally agree that it does provide more utility for some. My point is that it is not measurable.

    And yes, I am stating unequivocally that there is no difference between taking what does not belong to you and asking someone else to take it for you - except that it is a bit more cowardly.

    There is no social justice in providing unemployment benefits. By forcibly redistributing wealth, collectivists reduce the overall wealth of the nation. Providing these benefits is merely giving back scraps from the table the government feasts at. It turns otherwise good, productive people into unwitting parasites and beggars. It causes class conflict by creating resentment between those work and those who collect.

    So yes, your original line of argumentation - that unemployment benefits reduce crime - is silly. It is committing a crime to stop a crime. It is bombing a village to save it.

    Charity is not only a morally superior solution to unemployment benefits, it is more effective. Just as F.A. Hayek explained that local knowledge is superior to non-local knowledge in economic affairs, local charities are more adept at delivering funds where they are needed than bureaucrats in the Lootway of DC. This is why historical studies of welfare funds show that money is always directed for political considerations rather than economic considerations.

    I do challenge you to find one historical account of a charity allowing a person to starve in America. I do know that the government allowed thousands of Americans to perish in the dust bowl while paying farmers to burn crops. It's the same old adage: government creates the problem and then steps to offer the solution. That rings familiar.... Who else does that? Ah yes, organized crime syndicates, which is exactly what a government is: a comparative advantage in force and violence within a given geographical territory.

    I am surprised that Americans are surprised that a Ruling Class of arrogant sociopaths elected to redistribute wealth would ignore American's wishes when it came time to divvy up the loot. Why would they give it to those in need? The Ruling Class has always assumed they knew better in the first place. After all, Americans elected them for that very reason, right?

    The fact is they don't know any better. They are born losers, which is why they go into government service in the first place. This is why they can't win a war, maintain a currency, maintain a real job in the private sector, properly fill out tax returns, manage a budget.... I could go on.

    Now, I don't care what you do with this information. I just want to be clear that when you advocate increased or extended unemployment benefits, just as when you advocate raising the minimum wage, it takes us further from your goal of social justice, not closer. Advocate, away. Just don't crap on our twinkie and tell us it's frosting.

    David in Qatar

  • Report this Comment On September 01, 2010, at 7:25 PM, decbutt wrote:

    David -

    "If you pay someone more than $0 to do nothing, that payment increases their economic satisfaction. This is not controversial. "

    Nope, it is not controversial.

    It is also not the option, as I stated previously. It is not a case of no work = $0 OR no work = $x.

    Therefore, it does not follow that paying people more than zero to do nothing truly incentivizes that as a choice, when the other option is NOT do nothing for zero.

    That is not the option, so your conclusion has, unfortunately, no real basis. Furthermore, it is not borne out by reality: people do not aspire to unemployment.

    "My point isn't that working for more money than unemployment benefits provides does not provide an even higher utility for some. I totally agree that it does provide more utility for some."

    By "some" you mean the VAST majority - let's be clear about that. Otherwise reality would agree with your conclusions and people would aspire to be unemployed, and achieving that status would be a goal.

    "My point is that it is not measurable." Well, you may not have devised a cunning model that proves your theory correct, but we could always use plan b and look at the real world data of employed vs unemployed. Everyone that is employed has the choice. No one but prisoners are forced to work. How many choose, instead, to be unemployed?

    Answer: Not many.

    As before, if the choice were do nothing, get 0, or do nothing get $x then your argument would have a leg.

    But that is not the choice.

    As for your insistence that tax is theft - lol.

    But since you live in Qatar, why worry?

    Your mind is already set. I was fairly sure of that before I explored your position.

    The unemployed are bad; the gvt is worse, and the only people that are worse than the gvt are the unemployed*

    "Now, I don't care what you do with this information."

    Strictly speaking, it is not really information. It is, like most of the rest of your input, just your-opinion.

    I'll leave you to have the last word.

    * Except for the gvt

  • Report this Comment On September 01, 2010, at 7:53 PM, whereaminow wrote:

    decbutt,

    I didn't respond to your analysis because it doesn't contradict anything I've said. The vast majority of people prefer to work. I never claimed otherwise. It's a classic strawman argument.

    This goes back to the basics. The first thing I said is that people engage in economic activity because they wish to replace a less satisfactory state with a more satisfactory state. One way to do that is to get off the couch and get a job.

    I don't see how repeating what I said refutes what I said.

    We agree that unemployment benefits make people less likely to look for work. We agree that despite this, people would still prefer to work, assuming they can find job that increases their satisfaction.

    So why are you arguing with me on the issue of unemployment benefits when you agree with me?

    Tax is theft and in Qatar I still have to pay taxes to the US government because, unfortunately I am a US slave, er, citizen. Benevolent America is one of the few countries on Earth that taxes its citizens that work overseas.

    "The unemployed are bad; the gvt is worse, and the only people that are worse than the gvt are the unemployed*"

    Again, another strawman. The unemployed are not bad, but they have a greater economic satisfaction than they otherwise would through guaranteed benefits. The policy of social justice actually makes social justice less attainable. I notice you did not dispute this statement, nor my contention that charity is morally and economically superior.

    So, why don't you have the last word and tell us why and how unemployment benefits provide value to the people who receive them greater than charity would provide, and value greater to the wealth of the nation as a whole greater than charity provides.

    To do this you must also contend that using force to redistribute wealth is better economically and morally than using voluntary means. You must also overturn the economic theory that shows how local knowledge is superior in determing the most efficient economic activity compared to non-local knowledge.

    This is not my opinion. This is economic and political theory that dates back centuries. Dismissing it as "opinion" does not defeat it. You must show this theory is untenable and yours is superior.

    David in Qatar

  • Report this Comment On September 02, 2010, at 6:25 AM, decbutt wrote:

    David

    "The vast majority of people prefer to work. I never claimed otherwise. It's a classic strawman argument."

    Hardly.

    I was picking you up on your ambiguous (and repeated) use of the word "some" in a specific paragraph, as was completely clear for my post. That is nothing like a strawman argument - not even in the same ball park. Although, ironically your claim that it is a strawman argument, is itself a strawman argument.

    Thanks for the giggles.

    The rest of your post is equally hamstrung, although it is clear that I will never be able to make you consider the idea that *you* may be wrong.

    Certainty is the bane of education, and I don't think you have any doubts about any of the theories you enjoy.

    As such, discussions would not be an interaction whereby we each put forward ideas and argue the case. On your side you'd simply be using my posts as a jump-off-point to broadcast your daft ideals. And I would be adding a veneer of legitimacy by seeming to provide a counter-point.

    Frankly I'd rather not give you the platform. If you want to continue the discussion by yourself, be my guest. It will lack some of the credibility it would have had with a 'foil' to work offa, but since my input wasn't going to effect your output anyway, I am largely superfluous.

    The USA already has more than enough harebrained models and beliefs as it is, and I have no wish to assist you in perpetuation or dissemination of any more where "externality is the answer."

    The final arbiter of all theory is reality.

    And reality is not a great fan of your conclusions.

  • Report this Comment On September 02, 2010, at 7:38 AM, dsnbuild wrote:

    Nice work, David in Qatar!

  • Report this Comment On September 02, 2010, at 10:09 AM, bizarroportfolio wrote:

    @ decbutt,

    Reality is in total agreement with whereaminow. Despite decades of unemployment insurance, unemployment is at record levels, particularly among young adults. This is the product of utopian promises of socialists, not down-to-earth liberatians like whereaminow.

    While I don't agree with his political conclusions, his economic analysis is without flaw. You can quibble over his use of "some" instead of "most", but to think that is some kind of refutation of economic theory is arrogant and well, retarded. Besides, the only counter theory you offered - some rambling nonsense about increased crime - was easily refuted.

    I notice you didn't take up his offer to explain your position. I don't think you can. You'd rather try to poke holes in his ideas through rhetorical tricks. He didn't fall for it, and neither did anyone else. You've been exposed, as they say.

  • Report this Comment On September 02, 2010, at 10:27 AM, starbucks4ever wrote:

    Reality is in total agreement with yours truly. Despite decades of market rhetoric and glorification of multimillionaires (most of whom would be begging for Salvation Army's free soup if they did not have the initial capital to start with), these multimillionaires are not very good at creating jobs. They can't even create 100 vacancies for 100 adult job-seekers! What a pathetic performance! And now the free-market fundamentalists want you to believe the nonsense that capitalists failed to create jobs because the laid-off workers did not starve enough. Let's say it out loud: by providing UE/welfare benefits, the state is just cleaning after employers to remove the pile they laid.

  • Report this Comment On September 02, 2010, at 10:50 AM, decbutt wrote:

    bizzarro

    Retarded?

    Hmm.

    So, to follow your premise to its conclusion:

    Unemployment is rising and *has risen* as a direct result of unemployment benefit?

    I see.

    Unemployment will, in that case, always be accretive (i.e. never really decline) ...

    Let's see how reality judges that hypothesis over the next decade.

    "Despite decades of unemployment insurance, unemployment is at record levels,"

    I am not sure if you are aware, but the purpose of unemployment benefit is not to PREVENT unemployment.

    That was never what it was for, nor how it is supposed to work.

    Pointing out that unemployment levels are high now, is similar to pointing out that insurance claims were higher after hurricane Katrina, while noting that 'all that insurance' did nothing to prevent the hurricane - indeed, judging by the high levels of claims, the hurricane itself was probably induced by the incentive provided by insurance claims ...

    The comments about crime MIGHT have been refuted ... with, for example, data.

    Let me explore spontaneous outbursts of crime for you a little: People commonly cite the cause of looting as the breakdown of law and order. A much more simple explanation is that it is due to the breakdown of commerce. After-all, I do not see the army patrolling the streets when I go to buy my groceries. Do you? How then is law and order maintained? The threat of police arrival?

    How about in a crisis? In a crisis, shops close. Suddenly, you cannot buy the bread and milk. Worse, you cannot buy gas to travel further afield.

    Is the reason people start looting because they know that the cops won't come? That is what most people would say, but there are plenty of well documented incidents of police joining in the looting. Looting almost always ends up being valuable goods.

    Once the shop window is broken, the genie is out of the bottle.

    But it almost always starts off with (semi)daily-purchase items: food, drink, diapers and cigarettes.

    If a family is lucky enough to have a charity feed them, they'll probably get one big meal a day. This means that they won't starve. It does not mean that they will not be hungry for 17 of the other 23hrs where they have no legitimate access to food.

  • Report this Comment On September 02, 2010, at 10:55 AM, starbucks4ever wrote:

    whereaminow: "Heh, Z., i just heard you said something nasty about free-market fundamentalists. Whom did you have in mind?"

    me: 'why, Rush Limbaugh, of course. Who else could it possibly be?"

    whereaminow: "...umm...well...in that case...perhaps it's all right"

    me: 'sure, but I have one question for you"

    whereaminow: "ok, what's the question?"

    me: "i was just wondering who did YOU have in mind?"

    :):):)

  • Report this Comment On September 02, 2010, at 11:03 AM, starbucks4ever wrote:

    OK, and now on a more serious note. It's really very simple. UE benefits are there for a reason. The reason is that the free market that is supposed to solve all problems does not do that. If business could provide full employment, then government would not have to interfere. Or if private charity could pick up the slack, again the government could let philanthropists take care of it. History has shown that these expectations are unrealistic.

  • Report this Comment On September 02, 2010, at 11:59 AM, whereaminow wrote:

    zloj,

    It's intentionally facetious to refer to a warmongering phony like Rush Limbaugh as a free market fundamentalist. He's way more socialist than even you are.

    David in Qatar

  • Report this Comment On September 02, 2010, at 12:20 PM, whereaminow wrote:

    decbutt,

    Perhaps you are not aware of how argumentation works When you make a claim, you must support the claim.

    So I request the following data:

    1. One single example of a charity allowing a person to starve.

    2. Evidence that crime rises when unemployment benefits drop, or that crime falls when unemployement benefits rise.

    David in Qatar

  • Report this Comment On September 02, 2010, at 8:50 PM, whitejd wrote:

    Hi Guys,

    I don't think you should lump Unemployment Insurance and Social Security together. They are different

    On the one hand, I have know people who brag about collecting Social Security checks or Workman's Compensation (for bad backs) while pocketing a nice informal income. On the other hand, I have never met anyone on unemployment insurance who was not upset about losing their job (loss of self-esteeme) and not hoping to land another job.

    Jonathon in Taiwan

  • Report this Comment On September 03, 2010, at 3:29 AM, justinvestor wrote:

    um.. David in Qatar,

    I don't think you are the person you think you are.

    I read your comment on another article going on about how local knowledge always bests non-local knowledge as the basis for why local government/decisions are always better than federal decisions, thus justifying 'less federal government'.

    Your thesis does not account for Walmart beating the local pharmacies into extinction, or how McDonalds has a better understanding it's customers than virtually all (perhaps all) of its local competitors.

    The claim you made was a grand claim, and you put it forth as the foundation of the TP/GOP 'less federal government thesis', but the thesis isn't supported by the reality that big multi-national businesses have beaten small local businesses. According to your claim, this should not have happened. Yet it did, does, and will continue to do so.

    Your basic understanding of business is flawed in the extreme and I think that folks like yourself are dangerous when you attempt to influence the public debate.

    As I read the posts here that start with a conclusion and then try to argue for it, I'll remind you that it's a sign of a very poor investor. Don't start with a thesis that X company is a buy( or sell, hold, short etc.) and then cherry pick numbers (most of the posts here are numbers, not even statistics as they lack meaning) to support your position. That absurdly poor investment judgement.

    So, back to thesis that small business (and it's local knowledge) always beats non local business (and it's giant corporate structure). If you think a small pharmacy is going to outsmart Walmart because it has 100% local knowledge, well invest in that local corner pharmacy. It would be less than honest to invest in big businesses like GE, IBM, Intel, etc. while trying to argue that small businesses with their local knowledge always outperform the non-local ones.

    Your theory flies in the face of mega-mergers and effeciencies through combined operations. Sure it's true that large business has information that small business has, and can look at it locally even better than a small business. It's also true a small local company just doesn't have the resources to study the data the way McDonalds does. Your contention just doesn't address why it's any different than the large federal government vs small local government.

    You can talk numbers and fancy talk, but unless you make IBM, GE, Intel, Walmart and others disappear, your theory simply doesn't hold water.

    It's very hard to take you, or the TP/GOP seriously when your theories deny the existence of companies such as IBM and Walmart.

    There simply IS NO debate, these companies DO exist. So enough already. Stop while you are behind.

    So david, you talk fancy, but it ain't reality, dude. If you believe what you are saying you are definately not the person you think you are. Your posts to this story are troubling on a personal level. Are there many like you who advocate suffering and a depression? Do you do so because you hate American capitalism or because you love human suffering? You raise some very interesting questions on when we should declare capitalism doesn't work because it creates monsters like David in Qatar. I think that point arrives when there are enough of you to enact the horrific plans you have.

    Since it's about employment, I'll say that I would hire someone that was a good human being yet had differences with, but I would never hire anyone that displays such moral bankruptcy as I've seen in your posts.

    This is my first and last comment on MF.

  • Report this Comment On September 03, 2010, at 5:49 AM, decbutt wrote:

    DIQ

    As I said, I will not be engaging with you any further for the reasons already given.

    For the record, I never brought up anyone starving to death. You did. What I brought up was hunger. And hunger and starvation may be related, just as, say, hypermetropia and blindness. But, similarly, they are not fully-interchangeable, since it is possible to be maddeningly-hungry every single day without ever starving to death.

  • Report this Comment On September 03, 2010, at 3:42 PM, truman1987 wrote:

    I strongly disagree with the author's assertion that the Wall St Journal is the "nation's most prominent business newspaper." Nearly every article is poorly researched with distorted facts and bizarre conclusions. The editorial staff has lost all credibility and serve as little more than cheerleaders for the Republican party.

  • Report this Comment On September 03, 2010, at 4:54 PM, athensguy wrote:

    I wonder if some of the people here are failing to realize a few things.

    1) You don't get unemployment benefits if you quit. Voluntary unemployment is generally not insured.

    2) You don't get unemployment benefits if you never had a job.

    3) A large portion of the unemployed are recent grads. Unless they were laid off from a job, it's unlikely they are receiving unemployment benefits.

    4) Regular unemployment is funded by states for 26 weeks using premiums collected from employers. The extended unemployment compensation is funded, temporarily, by the federal government. It is not fully available in all states. It is only fully offered in states with the highest existing unemployment.

    5) You don't get your full pay from unemployment benefits, and there are low caps. The caps may be even lower on EUC.

    6) Letting people starve is not an indication of a civilized country.

    7) Once someone has passed into "long-term" unemployment, they are increasingly unlikely to be able to find a job that will come close to supporting their former lifestyle. Even low end employers such as restaurants may be reluctant to hire them.

  • Report this Comment On September 05, 2010, at 12:20 AM, TomBooker wrote:

    You at it again, Housel? How do you expect to get op-ed columns next to David Brooks, Tom Friedman et al, if you keep writing outliers to the general editorial consensus?

    I was mostly on the road today, listening to Phila's news radio. The (I thought) last bastion of of Joe Friday-like "Just the facts, Ma'am" reporting. I'm goin' nuts, because they keep repeating "the private sector created more jobs this month".

    Holy spit.

    At MDP, we have 2 alerts on now, one to buy, one to sell. I'm thinking consensus was -100K jobs, and they came up with a + number. The market must be going ballistic. My phone is in the other family car, and I need to unload the one position. I finally get on-line and the Dow is up only 90 pts.

    "Hunh?".

    There should be a parade in NYC, with everybody in Washington doing victory laps, around the particular Swamp where they work. The Dow should be at 16,000.

    Then I figure out how widespread the Ministry of Truth groupthink has become. WSJ site is doing the same thing...

    Front page tag and article Headliner:

    "Private Sector Adds 67,000 Jobs"

    Article Headliner subtext:

    "U.S. Economy Lost 54,000 Jobs in August; Unemployment Rate Rises to 9.6%"

    OK. Clinically, it can sometimes be difficult to distinguish between an urgent denial and a delusion. But this is more frightening, because it is becoming pervasive.

    IMHO, jukes like Barro have cognitive dissonance out the wazoo. All of the pieces to his ideology have fallen into place, except for unemployment, and its annoying visible manifestation.. the people who are the unemployed. They are messing up his theoretical dreamworld.

    It's also the Katrina Syndrome. The victims are the bad guys. They are slovenly and watch TV on the couch, while using a remote. If you convict some of them as an intentional drag on the economy, then the precept is easily generalized.

    Pracks like Barro are the ones who pompom cheerleaded the economic belief system which dealt this mess.

    Barro's argument, to the point of irresponsible conceit, reflects an anger and intolerance to have to look at the unemployed. In addition to being philosophically bankrupt, he's proving to be morally bankrupt, because he's not willing to, at least, pay to ignore them.

    Math works whether you understand it or not. When you put everything into the supply side, the demand side doesn't have a hope for traction in the near-term.

    Leonhardt, Seabright and you have nailed it. It's not a nor'easter. This is a nuclear winter for a minimum of 25 million families.

    When your financial system is leveraged to the armpits, and Household debt is running at 133% of available income, you create an illusionary economy, where a good chunk of your labor force is working on borrowed time.

    When the music stops, the ones left standing don't get put out to rotate into the next game, they get put on a barge.

    Now Barro and his fellow thugs want to cut the ropes to that barge and give it a push. Because a quarter of their spiffy economy vaporized, and when their type of economy goes, the jobs depart permanently. Then they regrow another bubblefest for the next set of victims.

    Wash, rinse, repeat... until you have hordes of ex-middle/working class and poor wandering America like Visigoths in the Roman empire.

    Anyway...

    Best irony bullet of the past few months... the Dallas Fed coughed up a piece on the Stimulus. Reading it critically, IMHO, you have to say their insinuation is in conflict with their conclusion. They are wrong that it didn't help, but they are right that you can't put numbers on any help it provided.

    My simpleminded thesis is that it didn't have the effect it could have, because it was first siphoned off through the gross margins of the corporations who grabbed the cash and sat on it. Not leaving quite so much to trickle and stimulate Main Street. In the '30s, the re-employed workers got their paychecks directly from Uncle Sam.

    So the Dallas Fed piece includes a graph of the relative monetary base multiplier effects of various programs/policies.

    The winner is the extended employment benefits with the highest/$ multiplier, second was state aid. Extended Bush tax cuts and business depreciation barely show on the radar.

    http://www.dallasfed.org/research/eclett/2010/el1008.html

    The easy version of this is that money flowing directly to the people who need it, gets spent. While the trickle down money doesn't trickle. Its descent is interrupted into vaults and the bond markets.

    So how do we get Barro and his cronies to reconcile their ideology to the practical reality that the demand side of the famous equation needs some of the same lavish treatment, he and his buddies have gotten so far.

    The Consumer needs some breathing room while he's deleveraging and/or getting kicked out of his job and home.

    It's either that, or cut the ropes and give the barge a shove out to sea.

    The way I see it, come November, the unemployed better have their passports ready and a big supply of suntan lotion.

    It's going to be a long, long, long time before they see land again.

    Simon Johnson said this chit continues to go on in emerging economies until the riots start..

  • Report this Comment On September 05, 2010, at 10:32 PM, georcole wrote:

    I firmly believe that if you lose a 40 hour a week job and desire another 40 hour a week job, then your new intermediate job is spending at least 40 hours a week trying to find that 40 hour a week job. That is what you are getting that unemployment check for; so you can continue to put food on the table WHILE you look for another job.

    I also know someone that uses an injury to stay on unemployment without having to fill out applications. He also has turned down jobs because his medical insurance would go up if he took a job that doesn't pay as much as unemployment. He is currently 28 years old and has always lived at home with Mommy and Daddy. He doesn't pay anything towards the household bills. He cannot do any heavy lifting or other such work due to the injury sustained to his finger when he put his hand in a snowblower to get it unstuck. He refuses to pick up a job doing light labor such as driving. He has no desire to start up an internet business. He is just a lazy bum and a mooch. He has already said to me that he is going to live with his parents as long as he can. Shame on his parents for raising such a leech and continuing to allow it to go on. His father is a retired NYC police officer, so he did his part of working for what he has. He hasn't done a good job with his son though.

    I do not believe that he is the only person out there who does not have enough pride to go out in the world and make their own way. There are many other people out there milking the system. As to what percent of the unemployed are cut from this cloth and are only bums because they have their benefits extended, I have no idea.

  • Report this Comment On September 07, 2010, at 2:41 PM, rfaramir wrote:

    To clarify David in Qatar's argument on comparisons, here's the situation:

    A) For the newly unemployed without UE: "Do I starve at $0/week; or take what I can at $y/week?"

    B) For the newly unemployed WITH UE: "Do I scrape by at $x/week; or take what I can at $y/week?"

    It's obvious that situation A provides a lower unemployment rate at the cost of possible starvation. Situation B is incentivized unemployment at the cost of taxing employers (reducing employment opportunities).

    How much incentive is not calculable. That depends on subjectively evaluating $x/week (UE) plus total leisure versus $y/week minus having to work. This is an individual subjective call that we cannot know beforehand. What is knowable is OUR decision of policy on what x should be. X > 0 incentivizes unemployment every time, though by an unknowable amount.

    The choice for policy makers (and therefore for US who choose them politically), do we refrain from taxing employers to provide situation A, or tax them to provide situation B. Situation B is provable worse AND taxing is morally wrong. Easy answer now, isn't it?

  • Report this Comment On September 20, 2010, at 4:55 AM, thidmark wrote:

    "This sounds like something right out of a Fox and Friends playbook."

    Oh, good Lord ...

  • Report this Comment On September 24, 2010, at 1:57 PM, Arctific wrote:

    "An economist is a professional who can spend his or her entire career being wrong and still get paid for it." -- Louis Rukeyser

    I would like to refocus all this brimming economics talent in price switching between benefits and a real job, or game theory based options analysis to creating real jobs. Even if a trivial percentage of job seekers will hold out a few extra days for a better paying job with these benefits than they will without them, I think that change is controllably small.

    The real lesson from my experience is that our personal savings rate should be larger than the national trend suggests that it is. To me, a simple metric informs my planning. I call it, the "Mean Time To Starvation." I personally compute this as follows.

    Mean Time to Starvation =

    (Current Liquid Savings + Income/mo * Average Time to Re-Employment) / (Average Expenses/mo)

    So, extending unemployment benefits may encourage me to set aside less savings for my Mean Time to Starvation. But, extended times to re-employment statistics would encourage me to put aside more savings.

    Thus, in my case, If my liquid savings were huge and the mean time to re-employment were short, Employment benefits could make me a more picky job seeker.

    Let us put it to a vote. Which of you has a fully funded Mean Time to Starvation savings plan? If you do, what do you do for a living and how can I join your profession?

    For those that do not have a fully funded Mean Time to Starvation plan. You realize that a short term turn in your employment could destroy your investing portfolio by forcing an unwanted sale?

    In my view, a Mean Time to Starvation savings plan is the first move of a good investor. If any of you can figure out how I can get a higher rate of return at low risk while stimulating the economy at the same time, then I will be impressed. Perhaps your economics experience can do us good after all.

  • Report this Comment On September 24, 2010, at 2:08 PM, Arctific wrote:

    For hard deck analys.

    I prefer a simple computation.

    MTTS = (Current Savings)/(Ave Expense/mo)

    This is more useful for planning my current savings.

    If one assumes the Mean Time to Starvation should equal the Mean Time to Re-Employment. Then,

    Current Savings = (Ave Expense/mo) * (Mean Time to Re-Employment).

    But this would lead to only a 50% chance of getting re-employed before a debt spiral sets in.

    If we could get variance information, we might be able to build out a Confidence Interval in savings. Which is an area where we can be just as wrong as an other Economist, but the planning exercise might be helpful.

  • Report this Comment On October 05, 2010, at 7:03 PM, Glycomix wrote:

    Something smells in San Francisco and it's not just the wharves: Valletta and Kuang's just-in-time for elections 15 April 2010 "San Francisco Fed paper" has problems in both logic and evidence. Valletta and Kuang's logic says two years of unemployment payments couldn't have caused record lengths of unemployment. Competent employees who were laid off took only 1.6 weeks longer to find a job than those who were fired! In what parallel universe does this make sense?

    Valletta and Kuang said that the "eligible for unemployment payments" laid-off (competent) employees took only 18.6 weeks to find employment compared to the 17.1 weeks for "ineligible for payments" (incompetent) employees who were fired or quit. Logic compels me to ask, "Wouldn't the competent employee typically find a job in half the time that the incompetent employee who was fired? Their former employer would want skilled, productive employees back as soon as possible. If they didn't have enough work for them, their former boss would give a good reference to any employer to whom they applied.

    If this logic is valid, how would it affect the time it takes the competent employee to get a job? Competent workers without unemployment insurance would find work in 8.5 weeks (50% of 17.1 weeks), compared to the 18.6 weeks to they take when they’re given unemployment payments with health-insurance attached. That's a 10 week, 218% increase in the length of time that extending unemployment payments cause the ‘eligible unemployed’ to find a job. (The calculation for the “Percent increase in time to find a job” =18.6 wk/8.5wk x 100) Does extending unemployment insurance increase the length of unemployment and decrease American productivity? What is your conclusion?

    Read Valletta and Kuang's "evidence" and see if I've misquoted them: "the expected duration of unemployment had risen about 18.7 weeks for job losers and about 17.1 weeks for leavers and entrants [fired employees], using the years 2006-2007 as a baseline. The differential increase of 1.6 weeks for job losers is the presumed impact of extended UI benefits on unemployment duration."

    http://www.frbsf.org/publications/economics/letter/2010/el20...

    The problem with Valletta and Kuang's evidence is that didn't prove or disprove anything. They used the "Current Population Survey" (CPS), an opinion survey that doesn’t give us any direct data on unemployment insurance applicants. It isn't possible to tell which "eligible worker" applied for unemployment insurance and which didn't, or how long they were on unemployment insurance. No assumptions can be proven or disproven by their data.

    If they wished to determine the effect of being paid to avoid work, they should have compared apples with apples. Use the CPS to identify workers who were eligible for Unemployment insurance. By linking this data with the unemployment insurance payment rolls, an investigator can discover who received unemployment insurance and who didn’t. Now that you can tell which of the eligible employees received unemployment payments, cross-check this with the employment tax rolls. This will show when an employer hired them. This comparison can tell us how much longer did the unemployment insurance cause good workers to stay unemployed. Or asked another way “how much productivity and tax payments was the US robbed by extending unemployment insurance?”

    In 2009 OBama and Congress spent $793 Billion on deluxe unemployment insurance that has health coverage, that's almost as much as the $1 trillion tax revenue flow for the entire US government (http://www.irs.gov/pub/irs-soi/08fallbulintax.pdf ). The same amount was borrowed to provide more unemployment insurance in 2010. To pay for this borrowing alone, taxes will have to increase at least 400% their current rates.

    Valletta and Kuang did a quick-and-dirty analysis from the Current Population Study data to score political points with those in power. This information is instantly available from the Bureau of Labor statistics. Whoever else wishes to obtain the CPS data and use it for further "studies" will find it on the following website. http://www.bls.gov/cps/.

    If Valletta and Kuang study makes misleading conclusions using inappropriate data, why do you the SF Fed to get away with it? Shouldn’t the Federal Reserve require VALID data be provided If they commission studies that could be used to advocate programs that will more than double our taxes and contribute exponentially to the loss of more jobs?

    Could Harvard’s Dr. Barro be right? Did extending unemployment insurance provide workers with incentives to avoid looking for work?

    To answer that question let’s look at another. Was there employment elsewhere that well-qualified workers might have taken in other states than Michigan? The CNN ‘State-by-State’ unemployment guide for September 2009 shows that Unemployment varied from 9.6% in Michigan to 3.2% for Wyoming. The Median unemployment number was 6.1%.

    If unemployment payments hadn’t have been extended, workers in Michigan with 9.6% unemployment might have tried to find employment in Wisconsin which had 5.6% unemployment. Workers in Rhode Island which had 9.3% unemployment might have gone to Massachusetts which had 5.9% unemployment. If they didn’t mind travelling, the unemployed worker may have gone as far as New Hampshire which had 4.3% unemployment in September 2009.

    In addition to increasing unemployment benefits Democrats also repealed the Section 179 investment deduction. The Section 179 investment tax deduction accelerates deductions for first-time investment. It encourages small businesses to make investments, expand their businesses and possibly hire new employees.

    Which is more detrimental to employment and to our economy?

    Increasing our taxes 400% to pay for two years of deluxe unemployment benefits and destroying job creating incentives by repealing the section 179 investment deductions for small businesses in 2009?

    or

    Outlawing further deficit spending for any purpose unless a formal declaration of war is made. Spending only what we can pay for in taxes, and restoring the Section 179 investment tax deduction that allowing small businesses to expand their businesses and possibly hire new employees?

  • Report this Comment On October 20, 2010, at 3:44 PM, dlomax77 wrote:

    Glycomix,

    The great thing about unskilled workers is that they can perform an amazing array of menial tasks. Skilled workers, on the other hand, are looking for specific positions with acceptable salaries, which can take a little longer to find.

  • Report this Comment On October 20, 2010, at 6:28 PM, jamieei wrote:

    a flaw in comparing "eligible for unemployment payments" to "ineligible for payments"

    The "eligible" were content enough to stay in their jobs had they not been laid off.

    The "ineligible" are made up of not just the incompetent fired employee but those who quit as well. May be some of those who quit did so because they realized they could do much better some place else and had enough sense and ambition to shove the job and get a better one some where else. That ambition leading to finding a job or creating their own much faster than if they had been "eligible"

    What percentage of "ineligible" are these? Don't know but having been there, done that, and seen others do the same, suspect it may be enough to skew the "ineligible" find jobs faster theory.

  • Report this Comment On October 21, 2010, at 2:34 PM, varney wrote:

    I wish I'd seen this when it first came out!

    David is right, unemployment benefits reduce the incentive to find a job. That's undeniable. Consider ($x = potential wages, $y = unemployment benefits, $z = external costs of working such as transportation, clothes, babysitting):

    By taking a job, I improve my economic standing by $(x-y-z) while reducing my free time by ~45hrs/wk (assuming 1/2 hr. commute time).

    If y=0, I am have more incentive to seek for / take the job than if y=430 (the ACTUAL max for NY given the $25/wk increase in the Stimulus Bill).

    The close y is to (x-z), and the more highly I value 45hrs, the more likely I am to stay home rather than work.

    And that's ignoring other government assistance. If I have no savings, I may also be eligible for food stamps and housing assistance. When you add these (nontaxable) benefits to unemployment compensation, the incentive to work is reduced even further.

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