Incoherence on the Left

Unemployment benefits look like a pretty good idea if you have lost or fear losing your job. They are what we call a cushion, which means something soft to fall on. It looks to me like unemployment insurance is a good idea, but it costs something. You have to put aside wealth that might be used for something else, like investment. There is also the problem that by making unemployment less uncomfortable, it reduces the incentives to find more work. That keeps productive workers out of the workplace. For these reasons, unemployment insurance doesn't promote economic growth.

Patron Saint of left wing economists, Paul Krugman, has another view, and he doesn't. Krugman comments on Senator Jim Bunning (R-Kentucky), who blocked a one month extension of unemployment benefits to people whose time had run out. Bunning insisted that Congress actually find a way to pay for the extension of benefits. Krugman thinks this is bad economics:

Today, Democrats and Republicans live in different universes, both intellectually and morally.

Take the question of helping the unemployed in the middle of a deep slump. What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment. That's because the economy's problem right now is lack of sufficient demand, and cash-strapped unemployed workers are likely to spend their benefits. In fact, the Congressional Budget Office says that aid to the unemployed is one of the most effective forms of economic stimulus, as measured by jobs created per dollar of outlay.

But that's not how Republicans see it. Here's what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning's position (although not joining his blockade): unemployment relief "doesn't create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work."

Okay, so Republicans are ignoring "textbook economics." But what do the textbooks actually say about this?

James Taranto at the Wall Street Journal Online finds this passage in a standard text entitled Macroeconomics:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of "Eurosclerosis," the persistent high unemployment that affects a number of European countries.

Well, maybe Krugman didn't read Macroeconomics. But in fact, he wrote it (with his wife).

Krugman blasts Senator Kyl for saying what he himself said in his own textbook. Did he forget what he wrote? Krugman vehemently disagrees with Republicans, who vehemently agree with Krugman's textbook. That is incoherence.

Comments

[Tom]

I agree that Krugman's column and the passage from that book seem to contradict each other (though that passage is out of context).

But it doesn't change the point Krugman made in his column. Conservatives seem to think that giving unemployed people benefits will not motivate them to find work. But how much time will they be spending looking for work when they have to figure out how they and their family can survive with no benefits?

Liberals don't see this in the same way Conservatives do. We believe that if we provide benefits to the unemployed it will give them a level of comfort in their lives to be able to find work. If the economy was better, they might not be out of work for long since their other needs are taken care of for the moment.

From what I've seen, some Conservatives have this notion that unemployed people are just lazy and that's why they can't find work. But I don't think that reflects reality at all.

[George Mason]

Tom; The problem with the liberal approach is that it moves toward the type of stagnant economy that ails the European countries that provide perpetual unemployment payouts. This is why even in good times they have double digit unemployment and a chronic drain on both private and public finances. The corollary in our country is California. California has the most generous welfare payouts in the U.S. This is why they have 12% of the U.S. population and 33% of the welfare recipients. The California answer is to continuously increase taxes on the productive segment of their population to the benefit of the non-productive segments (government and welfare recipients). As we have seen with socialist countries they are headed for collapse.

[KB]

Tom: Thanks for the comment. "Conservatives seem to think that giving unemployed people benefits will not motivate them to find work." Yes, and as the quoted material shows, that's exactly what liberals seem to think when they are writing honest economic textbooks and not columns for the New York Times.

My point was that Krugman is not being honest, which is obvious here. As for the substance of the questions that you raise: over the long term unemployment insurance surely has the effect Krugman's textbook mentions. The more generous the benefits, the more costly the policy to the larger society. That doesn't mean that the policy is bad, just that the costs have to be honestly recognized. To pretend that unemployment benefits actually help the economy is almost certainly nonsense, and Krugman should know it.

[Erik]

KB: Some interesting points here. Do you know when Krugman and his wife wrote the textbook? People change.

[KB]

Erik: Good question. February, 2009. It's a year old. Maybe the field has changed its mind since then. But that wouldn't exactly help. Krugman's point was the Republicans and Democrats live in different "different intellectual and moral universes," and he offered Senator Kyl's remark as evidence. Was Krugman living in a different universe a year ago when he and his wife authored that book? I don't think so. I think he is a partisan hack.

[Jack]

You don't need unemployment when you can get credit cards in your child's name.
First Premier Bank has issued what appears to be a credit card to an id thief in December of 2009. Again she put it in her daughter's name. Experian report on link for your perusal. Since the minor could not get a credit card and there is no co-signer Occam's razor would apply.Reported to the Yankton Sheriff last year of the id theft and just keeps on committing id theft. What this is off topic? She never collected unemployment although unemployed yet can get by easily. She has been doing this for over 10 years now. Talk about a liberal state.

[Stan Gibilisco]

I'm witnessing a situation right now in which a good friend awaits unemployment money with "bated breath and growling guts," even though there seems to exist plenty of demand for his type of skill around here. He has received considerable financial help from people around him, yet this aid only seems to enable him, to actually cause him to sink ever deeper into his inertia and depression. I hate to bring back the notion of "compassionate conservatism"; I would however suggest that "tough love" might work wonders in somewhat larger doses in today's America.

[Guard]

America is already in full economic decline and has been since 2007. Our economy is in the stages of a full economic collapse and there is nothing either side can do to stop it now. We must now accept that.

[Stan Gibilisco]

Guard:

You might be right, but I must operate on the assumption that our economy will recover. If I assume that the Cosmos will collapse, and if one too many others do the same, then the prophecy will fulfill itself.

[Guard]

Stan, the thing you forget is that there is no such thing as self fulfilling prophecies...we do not control the cosmos...you overestimate our power. Only God does and you have no control over these unfolding events no matter what you believe.

[Stan Gibilisco]

Guard:

We could spend hours over coffee discussing these matters. Some years ago, I did in fact manage to "prove," using what appeared to me then (and still appears to me now) flawless logic: The future is "written in stone," every bit as much as the past -- and mortal humans have no control over it whatsoever, God or no God.

But here's the catch: The fact (which others on this blog may debate with us) that we have +no control+ over the future does not logically imply that we can +foretell+ the future. Thus, we humans may live under the happy delusion that we in fact do have some control.

Of course, nothing would make me happier than to have someone shoot a hole in my "proof" that "whatever will be, will be." However, I suspect that would take this whole post off on a tangent, and a hyperbolic tangent, at that; so I shall delude myself into optimism, if only to allow myself to carry on, to do good work, and to keep my mind and spirit from spiraling into a black hole of depression.

[Guard]

Still does not change anything. See, and I did not have to write an entire paragraph to explain myself. No depression here because I accept things for the way they are instead of being frustrated because they do not fit my world view. You must put your faith in the Lord, Stan and then you will be at peace.

[KB]

I have enjoyed the exchange by Stan and Guard here. I think the view that we are doomed is not implausible; there is just no reason to believe it. Whether we are in control or not, happy surprises are no less likely for being happy.