Extending Unemployment Benefits Is Not Such A Good Idea

I have to admit that when I heard the Obama Administration was considering extending unemployment benefits again, I thought it was someone pulling my leg. But then I read it in the WSJ I knew a bad idea was about to be compounded.

Maybe it's time to consider whether the big expansion of unemployment insurance has increased joblessness. In 2009 the Obama Administration and Congress extended jobless benefits for up to 99 weeks. The point was to help people through the recession, but now the jobless rate is 7%, down from 10%, and the White House still wants another extension.

There are two side effects to consider should the White House get its way: a higher U3 unemployment rate because more people would have their unemployment benefits restored and they would once again be counted among the unemployed; and less incentive to actually go out and look for work. Once those extended benefits expire the U3 rate would again drop, but the U6 rate would remain the same.

Another downside: a bigger deficit.

That would add some $25 billion to the deficit with no compensating economic benefit. The Administration claims that every $1 of jobless benefits creates $1.80 in economic growth, based on the notorious "multiplier" in Keynesian economic models. This is the theory that you can increase employment by paying more people not to work, and that you can take money out of the private economy by taxes or borrowing without cost. If that theory worked, the government should pay everyone not to work.

One factor that a lot of modern day Keynesians ignore is that the multiplier has little effect when applied over a long term. The multiplier effect has shrunk and is now on the negative side, meaning we get less back for the money the government spends. Doubling down on a loser means we lose even more money that we don't have which in turn adds even more stress to the economy.

Instead the Obama Administration should be trying to stimulate the economy by getting the hell out of the way. For the past 5 years it's been trying to regulate and tax the economy back to health even though anyone with a lick of sense knows such actions have just the opposite effect. Ronald Reagan knew this and once he and Congress get the government out of the way the economy boomed and we saw the biggest sustained expansion of the American economy in history.

Instead the current system provides as much as two years of benefits for not working and raises payroll taxes on employers even as some 20 million Americans are still unemployed, underemployed or discouraged from looking for work. None of this will help the economy create more jobs, which is what the jobless need far more than another government check.

True, but then the government would have no control over their lives and the Democrat's built in constituency would shrink because they would no longer be dependent upon government largess, and the Democrats can't have that.