Free Markets, Free People

unemployment benefits

Observations: The QandO Podcast for 11 Dec 11

This week, Bruce Michael, and Dale record talk about China, illegal immigration, and Egypt.

The direct link to the podcast can be found here.

Observations

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Economic ignorance, thy name is Obama

I’m not sure how else to describe this statement from “the smartest man in the room” concerning the Keystone XL pipeline and unemployment benefits:

As Obama called for passage of those bills, he also responded to a recent Republican push to require him to approve the construction of the Keystone XL pipeline from Canada. "However many jobs might be generated by a Keystone pipeline," he said, "they’re going to be a lot fewer than the jobs that are created by extending the payroll tax cut and extending unemployment insurance."

It’s rather hard to even imagine someone thinking that’s true.  Yet here’s the guy who is supposed to be making jobs his focus and economic recovery his priority and he thinks he’s doing his job by trying to get unemployment insurance extended?  He believes that the extension of the payroll tax cut is job creator?   Note the word – create, as in what Obama said.  While it certainly can be argued that on some level it might save a few jobs, if there were any to be created from its extension, they’ve most likely already been created. 

The Keystone XL pipeline on the other hand, will create thousands and thousands of jobs.

TransCanada is poised to put 13,000 Americans to work to construct the pipeline – pipefitters, welders, mechanics, electricians, heavy equipment operators, among other jobs – in addition to 7,000 manufacturing jobs that would be created across the U.S.  Additionally, local businesses along the pipeline route will benefit from the 118,000 spin-off jobs Keystone XL will create through increased business for local goods and service providers.

Of course, besides the pure economic ignorance displayed by the statement, Mr. Obama offers nothing in terms of numbers to back his claim.  It’s another in a long line of claims made recently that just aren’t true.

~McQ

Twitter: @McQandO

And after that, let’s raise the minimum wage to $100/hr

It’s true that to be a progressive, one has to have the ability to believe nine impossible things before breakfast. But, surely even progressives have some limits to credulity. I’d like to think so, but then I see something like this, that even the barely literate should recognize as foolishness.

President Obama has lately been pushing a number of policies that he says will create jobs, including extending unemployment benefits. This is puzzling, since new benefits obviously will not create jobs for unemployed people, who after all are the ones who need work. But White House Press Secretary Jay Carney explained Thursday that paying out unemployment checks “is one of the most direct ways to infuse money directly into the economy because people who are unemployed and obviously aren’t running a paycheck are going to spend the money that they get. They’re not going to save it, they’re going to spend it.” True, they probably will spend the money, on their mortgages, on food, and other necessary expenses. But Mr. Carney attributed miraculous qualities to these government handouts, saying “every place that, that money is spent has added business and that creates growth and income for businesses that leads them to decisions about jobs, more hiring.”

Of course, unemployment benefits do none of those things.

Quite apart from anything else, unemployment benefits are usually far less than than, say, an actual paycheck from an actual job. The very best that might be said about unemployment benefits is that they cause job losses overall to be slightly less severe than they might otherwise be, as the distribution of said benefits ameliorates the chain reaction of job losses as unemployed workers receive some money, rather than no money at all. And, of course, it prevents the jobless from going completely under financially.

But to believe Mr. Carney, one must believe that larger numbers of people receiving and spending substantially less money creates more economic growth. This is magical thinking. If it were true, the obvious solution would be to completely shut down the productive economy, and provide every inhabitant with a government dole check. No doubt economic growth would explode if Mr. Carney were correct, although who would then be available to fill the millions of new jobs is quite beyond me.

Further, it could be argued that for low-skilled—hence, low-income—workers, extended unemployment benefits are a positive disincentive to get a job at all. After all, why work 30 hours a week delivering pizzas, if, in return for an abundance of leisure time, you can simply cash a government check every week? And, perhaps, do a little work under the table to help get by.

It also ignores the reality of where the money for these government benefits is actually coming from. It either has to be extracted from the productive economy in the form of taxes or it has to be borrowed. If it’s the former, it means less money is available in the private sector to, say, invest and create jobs. If the latter, then it adds more debt to the economy, which may not be the most practical solution if the problem is too much government debt in the first place, crowding out private investment and hindering growth.

Seriously, at what point does even the sheep-like herd of White House correspondents rise from their supine positions and tell Mr. Carney that some arguments are too stupid to be presented to their readers with a straight face?

~
Dale Franks
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Krugman and Pelosi – two peas in an economic pod

Remember a few days ago I pointed out how Nancy Pelosi was out and about claiming that unemployment benefits was the greatest job creator in the world?

Well guess where she probably got it from – Paul Krugman?

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.

I won’t bother you with the reasoning that says this is absolute nonsense – that was covered in the Pelosi post.  What’s surprising is how desperate Krugman is to have his way with increased deficit spending – to stoop to this level of argument.  Suffice it to say, this doesn’t increase “consumer demand” or support “consumer spending”.  Unemployment benefits are a fraction of what the household was making before so what it goes toward is the maintenance of necessities and not much else.

To see a Nobel prize winning economist reduced to this  – a political hack – is rather revealing.  It certainly, at least in my mind, makes everything he writes that is purportedly about his specialty suspect.  If this is his argument, then he hasn’t got an argument, and if you read the rest of his screed you’ll discover it is only an excuse to attack the GOP – falsely, of course.

Krugman has all but ruined his reputation as an economist with nonsense like this. Of course when a person becomes identified with the clueless, like Nancy Pelosi, and their arguments, the decent into full “hackery” is complete.

~McQ

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Basic economic ignorance

If ever there was an indicator – an example – of the appalling level of economic ignorance to be found among our national legislators, this from Nancy Pelosi is perfect:

Talking to reporters, the House speaker was defending a jobless benefits extension against those who say it gives recipients little incentive to work. By her reasoning, those checks are helping give somebody a job. "It injects demand into the economy," Pelosi said, arguing that when families have money to spend it keeps the economy churning. "It creates jobs faster than almost any other initiative you can name."

Pelosi said the aid has the "double benefit" of helping those who lost their jobs and acting as a "job creator" on the side.

Demand is not created or "injected" by jobless benefits. At best may be, at some level, maintained. But it also could be argued that if the drop in income in an area is wide enough (former salary income v. jobless benefit income) it could cost jobs.

For instance the store clerk in a grocery store can be economically justified if the average grocery bill in the area is X. But if it falls to Y, which is likely with belt tightening by those receiving lesser unemployment benefits, then the clerk’s salary is no longer economically justifiable.

Jobless benefits rarely lend themselves to purchases outside the necessities because they’re usually not a great amount of money. The benefits are a maintenance income. What they mostly do is allow the recipient to pay for food, clothing, shelter and transportation, or some combination of those necessities.

Employers don’t create businesses and jobs in anticipation of receiving some of a person’s unemployment check. So unemployment checks are not out there creating jobs "faster than almost any other initiative you can name". In fact, their extension most likely inhibits job seeking (as the person and/or family adjust their lifestyle to the income until all necessities are covered).

This is an amazing example of the appalling economic ignorance that has gotten this country in the financial hole it is in and seems bound and determined to dig it deeper. And she’s 3 heartbeats away, folks.

~McQ

[MICHAEL ADDS:] The left has been pushing this idea for awhile. I tackled it back in January:

If you look closely at the chart you will be unsurprised to find that government spending is calculated to provide substantially more “bang for the buck” in creating wealth and jobs. That’s unsurprising because this chart is intended to support a progressive prescription for the economy. Of course it will show government as the answer.

Without arguing the statistical or modeling specifics behind the chart, there is one glaring item that reveals how much magical thinking went into its creation. By far the most “stimulating” actions set forth are “Temporary Increase in Food Stamps”(calculated to create 9,803,333 jobs), “Extending Unemployment Insurance” (9,236,667 jobs), and “Increased infrastructure Spending” (9,010,000 jobs). The closest tax-cutting measure, according to this analysis, in job creation is a “Payroll Tax Holiday” which is estimated to create 7,253,333 jobs. Do you see the problem?

How, exactly, do food stamps and unemployment benefits create jobs? Arguably, spending on infrastructure could create construction jobs on a temporary basis, although that hasn’t proven to be the case with the stimulus bill that was passed. But there is simply no logic to the idea that providing government benefits to the poor and unemployed will serve to create jobs, much less 9 to 10 million of them. That’s just magical thinking.

And again in February. Based on whatever studies they’ve compiled to prove their point, the Democrats are going to simply go with this economic model sans examination.

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