Wednesday, August 12, 2009

UI Benefits Help the Unemployed, not the Employed

I have said pretty clearly that unemployment benefits are nice for the unemployed. I won't argue with anyone who says just that.

The commentary out there goes wrong in three ways:
  1. claims that unemployment benefits do little or nothing to raise unemployment (reduce employment). Those claims are not based on economics.
  2. claims that unemployment benefits are good for people who are EMPLOYED. This is the "trickle down fraud" I referenced on Kudlow.
  3. characterizes the incentives created by today's fiscal policy as merely those of a "few hundred dollars a week of UI." Today we are talking about tens of thousands of loan foregiveness, not to mention a host of other bad incentives. If UI, narrowly defined, were the only bad incentive, you wouldn't be hearing from me on this issue.

Defenders of current fiscal policy have no reply based in economic analysis, so the best they can do is claim that I say something else (eg., that I claim that unemployment benefits are themselves a fraud).

1 comment:

Donald Pretari said...

I agree that you have a point about disincentives to work. But, in the mess of incentives and disincentives that our govt and just surviving in the US put out, there are reasons for each of the programs that you reference, and countervailing incentives and disincentives. Still, it's fair for you to make the points that you are, especially if you feel that they're being ignored. As well, this post answered many of the criticisms:

Of course, in CA, UI necessitates that you look for a job, and give reasons if you turn a job down. Also, we pay for it. I'm not sure, but I might well have been paying for UI for 31 years before getting a pittance for 6 months.

I'll be honest. I don't care if some people sit on their ass waiting for a better job, in which they might well be more productive, or for any other reason. Truth be told, I find this obsession a disaster. That's because I support a Guaranteed Income, as put forth in Milton Friedman's "The Case for a Negative Income Tax", and Charles Murray's "In Our Hands". Some of the points that you make about incentives and work are addressed in these works.

If you want to know about what I think we should be doing, then you can read Milton Friedman's "A Monetary and Fiscal Framework for Economic Stability", where you'll note that Friedman makes the point that a GI is the best automatic stabilizer.

As for the stimulus, my view of it follows the reasoning of the Chicago Plan of 1933, put forward by my heroes Fisher, Simons, and Knight, among others. I don't think that it's empirically possible to verify the use of the stimulus, even if we had used the plan that I liked, which was a Sales Tax Holiday. But, in conjunction with QE, it seems to me that it can help defeat Debt-Deflation, which we've been fighting. And, in the trial and error real world that we live in, defeating Debt-Deflation was a good enough reason to try the stimulus. That's it.

You'll notice that none of my heroes qualify as socialists. This obsession also helps keep us from adopting my version of Milton Friedman's health care plan:

"A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance (i.e., a major medical policy with a high deductible). Second, it would end tax exemption of employer-provided medical care. And, third, it would remove the restrictive regulations that are now imposed on medical insurance—hard to justify with universal catastrophic insurance.

This reform would solve the problem of the currently medically uninsured, eliminate most of the bureaucratic structure, free medical practitioners from an increasingly heavy burden of paperwork and regulation, and lead many employers and employees to convert employer-provided medical care into a higher cash wage. The taxpayer would save money because total government costs would plummet. The family would be relieved of one of its major concerns—the possibility of being impoverished by a major medical catastrophe—and most could readily finance the remaining medical costs. Families would once again have an incentive to monitor the providers of medical care and to establish the kind of personal relations with them that were once customary. The demonstrated efficiency of private enterprise would have a chance to improve the quality and lower the cost of medical care. The first question asked of a patient entering a hospital might once again become "What’s wrong?" not "What’s your insurance?"

Or Charles Murray's solution in the above mentioned book. Whether the claims and views put forward by my heroes qualify as based in economics, I'll leave that up to you to decide.

By the way, it might help if you answered a few people. I know that it's time consuming, but it would help you clarify your points to critics.

Don the libertarian Democrat