AP’s Taylor Relays Tired ‘Extending Unemployment Benefits Stimulates the Economy’ Fiction
The dictionary definition of “stimulate” relevant to a nation’s economy is “to rouse to action or effort.”
We still have journalists who gullibly relay the notion that extending unemployment benefits and increasing entitlement programs will “rouse” the economy “to action of effort,” despite almost three years of evidence that such is not the case. One of them is Andrew Taylor, a writer for the Associated Press, who, in his unprofessionally titled (“Deficit deal failure would pose crummy choice”) and painfully long writeup about the supercommittee’s lack of action or effort in Washington, wrote the following:
Letting extended jobless assistance expire would mean that more than 6 million people would lose benefits averaging $296 a week next year, with 1.8 million cut off within a month.
Economist say those jobless benefits – up to 99 weeks of them in high unemployment states – are among the most effective way to stimulate the economy because unemployed people generally spend the money right away.
Setting aside the garbled structure of the bolded sentence, and not minimizing the suffering of many of the unemployed and their families — exactly how does giving money to an unemployed person “rouse” him or her “to action and effort”? Sadly, in some cases, as will be shown shortly, it does the opposite by discouraging people from temporarily taking jobs they believe are supposedly beneath their dignity or outside of the chosen field.
Taylor, by not adding a qualifier like “some,” “most,” or even “almost all,” writes as if there is no dissent from the view of his unnamed “economists.”
Well, yes there is. One of many dissents came from Karen Campbell and James Sherk at Heritage in November 2008 (bolds are mine):
Extended Unemployment Insurance — No Economic Stimulus
… Unemployment Insurance Prolongs Unemployment. One of the most thoroughly established results in labor economics is the effect of unemployment benefits on unemployed workers’ behavior. Labor economists agree that extended unemployment benefits cause workers to remain unemployed longer than they otherwise would.
This occurs for obvious reasons: Workers respond to incentives. Unemployment benefits reduce the incentive and the pressure to find a new job by making it less costly to remain without work. Consequently workers with UI benefits look for new jobs less rigorously than do workers without them. The typical unemployed worker spends about 32 minutes a day looking for a new job. Workers eligible for UI benefits spend only 20 minutes a day looking for work during their 15th week of unemployment. They look much harder when their benefits are about to end, spending more than 70 minutes a day job hunting in the 26th week of unemployment.
… Since workers with unemployment benefits search less rigorously for work until their benefits are about to expire, it takes them longer to find new jobs. Labor economists estimate that extending the potential duration of unemployment benefits by 13 weeks increases the average amount of time workers on UI remain unemployed by two weeks.
This has economic consequences. Workers do not create economic wealth during the additional weeks they remain unemployed. They save and consume less because UI insurance replaces only a portion of their wages. Labor markets become less flexible because it takes more time for workers to transition from one industry or state to another. This hinders economic growth.
Of course continuously extending unemployment benefits hinders growth. The question which champions of the dependency state seek to avoid addressing is whether that hindrance and the direct cost of the benefits themselves are worth it when compared to other potential benefits which might include such things as keeping families from breaking apart or in some cases preventing homelessness. So they pretend that there really is no cost — and that’s even before getting into the extent to which those who are working become demoralized when they see their neighbors sliding by relatively effortlessly.
The authors go on to debunk the assumption that ever dollar of unemployment benefits equals an additional dollar cycling through the economy, noting that “For a large number of families, extended UI benefits do less to increase consumption than to provide alternative financing for consumption that would nonetheless take place.”
There may be justifications for extending benefits, but doing so because it’s good for the economy isn’t one of them. A reporter at the self-described Essential Global News Network shouldn’t be echoing the talking points of Nancy Pelosi and Sherrod Brown while pretending there isn’t another side to the story. But apparently that’s just another day at the office for Andrew Taylor and The Administration’s Press.
Cross-posted at NewsBusters.org.
I would argue their is no justification for extending such benefits. They make people unemployed for longer (which weakens their financial health and security both short and long term) and that is much more likely to break families apart and push someone to homelessness, especially as the unemployed individual becomes chronically unemployed.
Comment by zf — November 20, 2011 @ 11:47 am
Actually it is 80% of economists believe that things like unemployment benefits stimulate the economy. Anything that spurs demand is a stimulus. Putting money in the hands of people who have none all but ensures they will spend it right away. As opposed to putting money, via tax cuts and subsidies, in the hands of wealthy individuals and companies who are not likely to spend it doesn’t stimulate the economy. This is evident from our current status quo–companies and the wealthy have more money than ever and the economy is on the skids. Demand needs to increase. Demand comes from the mass market of consumers. Too many members of this mass market of consumers are on the sidelines, broke and unemployed. Put money in their hands with unemployment or new jobs created from government stimulus money and demand will increase, jobs created and a cycle of growth started that will feed on itself.
This is what the vast majority of economists say and it is supported by the vast majority of business people in multiple surveys say–it is the demand problem.
Comment by Jeff — November 20, 2011 @ 11:22 pm
Well, that makes sense in that 80% of economists are probably Keynesians — and wrong.
The whole demand-driven paradigm totally forgets that what it’s all about is what people and businesses produce. Demand-side stimulus’s track record doesn’t get potential producers to participate or those who are participating to consistently produce more. On top of that let’s also ask how stimulating demand for, say, electronics made overseas helps our economy; it largely doesn’t.
We’ve had three years of Keynesianism, well over $4 trillion in supposedly stimulating government deficits, and by far the worst post-World War II recovery on record.
Comment by TBlumer — November 21, 2011 @ 6:27 am
#2, The problem with demand side ideas is that it doesn’t matter how much demand there is, if the producers aren’t given the freedom and leeway to produce due to regulations and higher taxes and are punished for producing (as they are now), the demand can’t be met anyway and the economy won’t grow.
In regards to “80%” of economists, where did you get that figure from? Who are these 80%? And since when is truth decided by majority vote anyway?
Depressed demand is a _symptom_ of a recession/depression not the _cause_ of it. Artificially propping up demand is like stinking your finger in one little hole of the Hoover Dam to keep the water from coming through when the rest of the dam has been blown wide open.
http://www.heritage.org/Research/Reports/2010/01/Why-Government-Spending-Does-Not-Stimulate-Economic-Growth-Answering-the-Critics
Comment by zf — November 21, 2011 @ 10:01 am
#2,3,4, The problem with demand side stimulus can be illustrated this way:
If I go to the grocery story with $10 to buy goods at the store, the economy starts out with my $10 and the grocery store’s $10, hence the gross total is $20 of assets. When I give my $10 to the store in “trade” for their goods, the total gross assets are still $20.
HOWEVER (and this is where Keynes totally screws up), the $10 in goods I traded that for will be completely consumed and thus I will have $0 afterwards but the store will still have $10. Thus the gross total assets are $10, a 50% reduction. Any economy that solely focuses on wealth redistribution will inevitably spiral down to $0 total gross assets IF no wealth is created via investment because the means of production requires continual input (labor, fuel, raw material, etc) and machines eventually wear out.
Hence the only means to stimulate the economy is INVESTMENT. Take money from the wealth producers (the wealthy) and you have less investment and therefore diminishing wealth creation. There is a reason why the wealthy are so, they create more wealth than they consume. If this were not so, then how is it that the Federal government owes $15 trillion? The Federal government CONSUMES wealth, not invests to create wealth. This is why Socialism and Communism ALWAYS will fail, they are consumption based economies.
Comment by dscott — November 21, 2011 @ 3:29 pm
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