Wednesday, July 7, 2010

Wise Words from Economist Paul Krugman: Republicans Heartless & Clueless in Voting NO for Unemployment Extensions There was a time when everyone took it for granted that unemployment insurance, which normally terminates after 26 weeks, would be extended in times of persistent joblessness. It was, most people agreed, the decent thing to do. But that was then. Today, American workers face the worst job market since the Great Depression, with five job seekers for every job opening, with the average spell of unemployment now at 35 weeks. Yet the Senate went home for the holiday weekend without extending benefits. How was that possible? The answer is that we’re facing a coalition of the heartless, the clueless and the confused. Nothing can be done about the first group, and probably not much about the second. But maybe it’s possible to clear up some of the confusion.

By the heartless, I mean Republicans who have made the cynical calculation that blocking anything President Obama tries to do — including, or perhaps especially, anything that might alleviate the nation’s economic pain — improves their chances in the midterm elections. Don’t pretend to be shocked: you know they’re out there, and make up a large share of the G.O.P. caucus. By the clueless I mean people like Sharron Angle, the Republican candidate for senator from Nevada, who has repeatedly insisted that the unemployed are deliberately choosing to stay jobless, so that they can keep collecting benefits. A sample remark: “You can make more money on unemployment than you can going down and getting one of those jobs that is an honest job but it doesn’t pay as much. We’ve put in so much entitlement into our government that we really have spoiled our citizenry.” Now, I don’t have the impression that unemployed Americans are spoiled; desperate seems more like it. One doubts, however, that any amount of evidence could change Ms. Angle’s view of the world — and there are, unfortunately, a lot of people in our political class just like her.

But there are also, one hopes, at least a few political players who are honestly misinformed about what unemployment benefits do — who believe, for example, that Senator Jon Kyl, Republican of Arizona, was making sense when he declared that extending benefits would make unemployment worse, because “continuing to pay people unemployment compensation is a disincentive for them to seek new work.” So let’s talk about why that belief is dead wrong.

Do unemployment benefits reduce the incentive to seek work? Yes: workers receiving unemployment benefits aren’t quite as desperate as workers without benefits, and are likely to be slightly more choosy about accepting new jobs. The operative word here is “slightly”: recent economic research suggests that the effect of unemployment benefits on worker behavior is much weaker than was previously believed. Still, it’s a real effect when the economy is doing well. But it’s an effect that is completely irrelevant to our current situation. When the economy is booming, and lack of sufficient willing workers is limiting growth, generous unemployment benefits may keep employment lower than it would have been otherwise. But as you may have noticed, right now the economy isn’t booming — again, there are five unemployed workers for every job opening.
Cutting off benefits to the unemployed will make them even more desperate for work — but they can’t take jobs that aren’t there.

Wait: there’s more. One main reason there aren’t enough jobs right now is weak consumer demand. Helping the unemployed, by putting money in the pockets of people who badly need it, helps support consumer spending. That’s why the Congressional Budget Office rates aid to the unemployed as a highly cost-effective form of economic stimulus. And unlike, say, large infrastructure projects, aid to the unemployed creates jobs quickly — while allowing that aid to lapse, which is what is happening right now, is a recipe for even weaker job growth, not in the distant future but over the next few months.

But won’t extending unemployment benefits worsen the budget deficit? Yes, slightly — but as I and others have been arguing at length,
penny-pinching in the midst of a severely depressed economy is no way to deal with our long-run budget problems. And penny-pinching at the expense of the unemployed is cruel as well as misguided.

So, is there any chance that these arguments will get through? Not, I fear, to Republicans: “It is difficult to get a man to understand something,” said Upton Sinclair, “when his salary” — or, in this case, his hope of retaking Congress — “depends upon his not understanding it.” But there are also centrist Democrats who have bought into the arguments against helping the unemployed. It’s up to them to step back, realize that they have been misled — and do the right thing by passing extended benefits.


ultima said...

First of all in spite of all of Krugman's caterwauling, I believe there will be an extension of unemploynent benefits when the Congress gets back to work. Instead of the three categories Krugman suggested, I believe some on both sides of aisle simply wanted to make the point that, as the European countries suggested, someone ought to be paying attention to the deficit. Sen. Brown, R,Massachusetts, has suggested the any remaining TARP funds could be used for this purpose as one source of funds. If his suggestions were accepted, the unemployment payments would continue with a minimum interruption and the deficit would not have to be increased.

Improving one's chances in the midterm elections is not a party-unique idea. Both parties studiously pursue that policy as a standard political ploy. It just happens to be the GOP's turn this time.

I doubt that extended unemployment benefits will provide much of a stimulus. Even Krugman says we need to spend a lot more. If people are living hand to mouth, they will apply unemployment benefits to the necessities rather than anything that will get our factories humming again.

Maybe Krugman doesn't recall the days before unemployment compensation became the vogue. I think what Angle was suggesting is like the incident where a guy who is on Workman's Compensation but is seen carrying a sofa across the street on his back.

"...continuing to pay people unemployment compensation is a disincentive for them to seek new work." Krugman agrees with this but says that effect is minimal. It is like those on welfare. Why work if you can get by with foodstamps, public housing, etc. I accept Krugman's reference to the latest research but a citation would have been nice rather than hearsay.

He says "...recent economic research suggests that the effect of unemployment benefits on worker behavior is much weaker than was previously believed."

Maybe all the old countries have it wrong, and only Krugman is right.

Dee said...

LOL. You are so jealous of a brilliant nobel prize winning economist that your sarcasm & jealousy drip with your every word. Sad.

Krugman is right in his analysis. I've heard him on a number of talk shows with plenty of leading republicans left sputtering due to their inability to counter his logic.

Republicans continuing to VOTE NO for Americans in this time of economic crisis will be remembered in November!

ultima said...

In case you haven't noticed, Krugman can be insufferable. He is so full of himself that he doesn't want to listen to anyone except himself. He is a Nobel prize winner and should know something about stimulus and how much is needed. I doubt that he was suggest that an extension of unemployment benefits is enough.

Dee said...

I've watched him. Most intelligent, successful, charming men are constantly insufferable. (even you occassionally, my dear.)

ultima said...

True, all to true!

ultima said...

In fact, true of most bloggers!

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