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  • Memo to White House: Unemployment Benefits Aren't So Stimulating

     

    You might think that a White House press briefing would be the one place where it’s safe to ask the Obama Administration a question about its economic policy. Well, think again, especially if you’re questioning the underlying premise of the Administration’s economic philosophy.

    Yesterday, The Wall Street Journal’s Laura Meckler asked White House press secretary Jay Carney, “I understand why extending unemployment insurance provides relief to people who need it, but how does that create jobs?”

    Meckler’s question was met with a condescending response, as well as a flawed lesson on the supposed effects of unemployment benefits, which Carney says will help create up to 1 million jobs.

    Oh, uh, it is by, uh, I would expect a reporter from the Wall Street Journal would know this as part of the entrance exam. (laughter)

    But the—no, seriously. It is one of the most direct ways to infuse money into the economy because people who are unemployed and obviously aren’t earning a paycheck are going to spend the money that they get. They’re not going to save it; they’re going to spend it. And unemployment insurance, that money goes directly back into the economy dollar for dollar virtually.

    So it is—and when it goes back in the economy, it means that everywhere that those people—everyplace that that money is spent has added business. And that creates growth and income for businesses that then lead them to making decisions about job—more hiring.

    But according to a report by Heritage’s James Sherk and Karen A. Campbell, unemployment insurance leads to longer periods of unemployment and do not provide the promised stimulative effect:

    Extended unemployment insurance benefits provide little economic stimulus. The models that claim that unemployment benefits strongly stimulate the economy ignore the effect of UI [unemployment insurance] in increasing unemployment and overestimate the amount that finances new consumption. Consequently, they overstate the economic stimulus that extended UI benefits provide.

    People respond to incentives. Paying workers not to work does not stimulate the economy. Because the increased benefits will most likely be financed by debt, they simply transfer resources from future taxpayers to UI recipients. The lost production resulting from increased unemployment diminishes the effect of this spending, resulting in a negative return. Receiving less GDP than is spent cannot sustain economic growth.

    That’s not to say there aren’t other reasons for extending unemployment benefits. As Sherk and Rea Hederman, Jr., explain in a new paper, the average duration of unemployment hit a new record last month, surpassing 40 weeks for the first time ever. Undoubtedly, the weak economy and the prolonged unemployment is causing significant hardship on American families, and Congress has many humanitarian justifications for extending unemployment benefits. But, Sherk and Campbell write, policymakers should not expect extended UI benefits to improve the economy.

    Read Sherk and Campbell’s paper Extended Unemployment Insurance—No Economic Stimulus at Heritage.org.

    Posted in Economics [slideshow_deploy]

    11 Responses to Memo to White House: Unemployment Benefits Aren't So Stimulating

    1. bdonny1 says:

      Just another Liberal with no common sense. The scary part is many in this Take care of me New American order will fall for this non-fact. Meanwhile the country is burning and the liberals are adding fuel. I understand many people are being forced into government programs and any of us could be next. Many others have not been forced but instead seek anything free.

    2. Bobbie says:

      when unemployment is ridden by uncertainties and government mandates and regulations all within government control paid by unsuspecting now seeing tax payers, it's done by design. Government design. if businesses are paying these costs, how dare the president add unsustainable cost burden. and if their not, how dare the president continue to burden the tax payers with costs that are avoidable. The government keeps America on this road that continues to stifle employment!!!! wheels do go round in circles and that seems to be the only course of this administration, looking forward to a pothole!

    3. Bobbie says:

      mine reads a bit confusing. My comment is referring to the costs of unemployment and unemployment being avoidable. any questions? no need to hesitate. Thank you…

    4. DonK31 says:

      If extending unemployment insurance stimulates the economy, then the the way to stimulate the economy even faster is to cause more people to be unemployed. At least that's what I see if I follow the argument to its logical conclusion.

    5. guest says:

      There are several tiers for UI. The last seems to be borne by the state – tier 4. Once that is gone the next level is TEARS

    6. Alan says:

      My personal experience with people on unemployment is that they will not take a new job that pays less than their previous job until the checks stop coming. The one case where a guy I know took a lower paying job ended up being laid off again a month later. His new unemployment check was based on the lower wage. He was penalized for taking the lower paying job. The other experience I have seen is that the unemployed work cash-only type jobs (no income or payroll taxes either) and continue to collect the unemployment checks. They also have plenty of time and money to play golf (i met one such person on the golf course).

      • Matthew says:

        Worked 25 years before laid off and had FICA deducted from every check….I'm collecting unemployment INSURANCE….Which unlike most private insurance, actually pays when needed….Alan, you may think you're
        too smart and self reliant to ever get help from our government and you got it all figured out, but maybe someday you'll need that lazy friend to help you out…..Life has countless ways to humble us and if your're a self righteous prick, no one will be there for you in a time of need. I was laid off for two years and finally have a steady job, but I still have compassion for people who are still struggling, actually more compassion for them than ever before….So good luck Alan, you may always have money, but humility will make you a more noble human being.

    7. Bobbie says:

      jay carney "well, when we take all the private sector money away, you won't have to wonder who's got it and who to depend on!"

    8. Dano says:

      Working people stimulate the economy by giving something back in return for their paycheck – productive labor, which is a necessary ingredient to growing the economy. This give-back does not exist with folks on unemployment. Sure, they spend the money they get – but the net effect does not offset the loss in production and the debt burden that is created and passed on to others. To suggest otherwise is silly.

    9. Bobbie says:

      Mr. Carney was so certain to say "THEY WILL SPEND THE MONEY!" How degrading of a trap! Of course rational people will spend money that is their only means to exist. Just like everyone will eventually depend on government for a loaf of bread. Because according to Carney "THEY WILL EAT BREAD!" "THEY WILL USE FLORESCENT BULBS!" THEY WILL DRIVE ELECTRIC CARS!" the clowns in government, namely carney in this case, keeps feeding until we're fed up! because Carneys clowns likes to condescend to say "THEY WILL CHOOSE WHAT GOVERNMENT MAKES AVAILABLE…"

    10. Mary says:

      My daughter, a lawyer, was recently laid off and is on unemployment. Her student loan payments eat up most of her unemployment income right off the top. She relies on family for her food and housing. She is looking for work and is very concerned that if the benefits aren't extended she will be in a dire situation. Bankruptcy won't be an option because student loans aren't for given in bankruptcy. She is such an intelligent woman with a strong character. It is hard to see her go through this. Perhaps one of our Congressmen who are against extending the unemployment insurance benefits again would be willing to hire her.

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