Today’s Wall Street Journal features an opinion piece by someone named Robert Barro, who is “an economics professor at Harvard University and a senior fellow at Stanford University’s Hoover Institution” (one wonders if the Hoover fellows start every morning expressing their hatred for “that man in the White House“), and who thinks that extending unemployment benefits past the standard 26 weeks is the worst thing possible for getting the unemployment level down.
After several paragraphs of typical “Obama-is-a-socialist” boilerplate, including the administration’s “disturbing” desire to end the Bush tax cuts on the wealthy, which Barro considers “George W. Bush’s main economic achievement; unlike most of Mr. Bush’s policies, this one was well-conceived and effective(!),” Barro gets to his main point:
The unemployment-insurance program involves a balance between compassion—providing for persons temporarily without work—and efficiency. The loss in efficiency results partly because the program subsidizes unemployment, causing insufficient job-search, job-acceptance and levels of employment. A further inefficiency concerns the distortions from the increases in taxes required to pay for the program.
In a recession, it is more likely that individual unemployment reflects weak economic conditions, rather than individual decisions to choose leisure over work. Therefore, it is reasonable during a recession to adopt a more generous unemployment-insurance program. In the past, this change entailed extensions to perhaps 39 weeks of eligibility from 26 weeks, though sometimes a bit more and typically conditioned on the employment situation in a person’s state of residence. However, we have never experienced anything close to the blanket extension of eligibility to nearly two years. We have shifted toward a welfare program that resembles those in many Western European countries.
Horrors! Western European-style welfare! FSM knows we don’t want any of that soul-destroying socialism over here.
Barro then goes on to explain that things aren’t nearly as bad as they were under the glorious Age of Reagan, when even though unemployment maxed out at 10.8%, people were back at work, on average, after 21 weeks. Clearly, since people had to find work quickly during the double-dip ’80s, thanks to less-generous benefits, the more-generous benefits under Obama are just making people lazy, and willing to coast by on 1/4 to 1/3 of the income they were making when they were employed. Right?
Sadly, no! For one thing, a far greater number of people are experiencing long-term unemployment now – more than 40% – than did in 1982 – around 17%. Businesses just aren’t hiring right now, and “(t)he drop in hiring has actually been steeper than the rise in layoffs.” And there other factors which the unemployed did not have to deal with during the Reagan Recessions:
Americans have more than triple the debt they had in 1982 and less than half the savings. They spend 10 weeks longer off the job. And a bigger share of them have no health insurance, leaving them one medical emergency away from financial ruin.
For these reasons, the unemployed are more vulnerable today to foreclosure and bankruptcy than they were a generation ago.
In the manufacturing sector, strong unions were once able to negotiate subsidies from owners that supplemented the unemployment benefits received by their laid-off workers, up to 95% of their previous salary. Can you imagine that happening today? Today’s unemployed are deeply in debt, have no savings to speak of, and don’t have health-care coverage (or if they do, have to pay high deductibles or ridiculously expensive COBRA rates), and can’t fall back on the generous pensions of the past if their jobs go away permanently. All of that, combined with the unwillingness of employers to cut too deeply into their profit margins, have created a dismal outlook:
If you’re unemployed today, the odds are better that you’ll stay unemployed longer than a generation ago.
And government surveys suggest that if you get laid off, it’s more likely to be for good. Today’s unemployed have been out of work about half a year on average. In the early 1980s, they spent about four months without jobs.
One reason is that industries such as construction and finance may never bulk back up to pre-recession levels. Even before the economy went south, demand for their products was inflated by the housing bubble.
Another reason layoffs are more permanent: Manufacturers these days are more aggressive about using technology to boost productivity — or they hire cheaper workers overseas as the economy improves.
It’s gotten to the point that white-collar professionals are taking jobs that once were the domain of teenagers. Perhaps there are tons of white-collar and professional jobs out there, as Barro seems to think – if he knows of any, maybe he can drop me a line; I’ve been on exactly two interviews in a year and a half, and haven’t even gotten any offers for temporary or contract work – and people are just too coddled by the nanny-state benefits that they’re receiving to go out and get a job. But as part of a formerly two-income family that is currently a two-unemployment-compensation family, I think he’s full of shit.
Barro finishes up by pulling some numbers out of his ass:
To get a rough quantitative estimate of the implications for the unemployment rate, suppose that the expansion of unemployment-insurance coverage to 99 weeks had not occurred and—I assume—the share of long-term unemployment had equaled the peak value of 24.5% observed in July 1983. Then, if the number of unemployed 26 weeks or less in June 2010 had still equaled the observed value of 7.9 million, the total number of unemployed would have been 10.4 million rather than 14.6 million. If the labor force still equaled the observed value (153.7 million), the unemployment rate would have been 6.8% rather than 9.5%.
Again: Sadly, No!
But in an interview for the article, economist Heidi Shierholz of the Economic Policy Institute made an interesting further argument: The United States’ unemployment benefits are inadvertently lowering the unemployment rate. “When you’re in a downturn like this, the logic gets flipped on its head,” she explains. “To receive unemployment benefits, you need to be looking for work. You are actually required to be looking for a job, whereas if you aren’t getting unemployment insurance, and there aren’t any jobs, you might lose your incentive to look for work.”
So many people have stopped looking for work – have just given up – that any attempt to really look at the state of unemployment in this country has to factor that into account. The real total unemployment rate, or U6, was 16.6% in June, and is probably higher now.
Cutting off unemployment benefits at the traditional 26 weeks, or even the 39 weeks that Barro so generously suggests, when the economy is in its current dire straits would be catastrophic – not just to the people who need it to get by, but also to the overall economic climate, which would lose that bit of stimulus provided by people actually having money to spend. The oligarchy-enablers of the WSJ and the Hoover Institution, of course, don’t see things that way, and don’t really care about the problems of chronic, long-term unemployment, or how it affects people’s lives. They just want that man in the White House to keep their taxes low and their labor cheap. And to stop coddling those fucking out-of-work bums:
Some critics of the proposal to extend benefits argue that doing so gives jobless people less incentive to find work, adding to the problem of long-term unemployment. Some economic studies indicate that, in some cases, workers collecting benefits may hold out for a better offer longer than those with no other means of support.
But with five applicants for every job opening, there’s little evidence that jobless benefits are contributing to persistently high unemployment.
“When nearly one in 10 American is out of work, you’ve got to recognize that these people aren’t out of work just because they’re deadbeats,” said Robert Brusca, chief economist at Nomura Securities. “What happens if you don’t put these people back to work?”
Let ’em eat catfood?
UPDATE: The little cartoon used to illustrate the article is priceless:
UPDATE #2: They write letters – today (9/4) the WSJ publishes a response from Bob Porter of Lincoln, CA:
In order to buy into Prof. Robert Barro’s “calculations” (“The Folly of Subsidizing Unemployment,” op-ed, Aug. 30), a reader must assume that the majority of the unemployed (1) enjoy daily hours of boredom while sitting around watching Oprah and sitcom reruns, (2) are happy receiving far less money than they were earning prior to being let go, (3) look forward to depleting their savings and children’s college funds, (4) find paying Cobra rates for medical insurance a wonderful experience, (5) gleefully turn down employment offers in order to remain unemployed, (6) are excitedly anticipating endless hours of negotiations with faceless financial firms bent on foreclosing the house, (7) are proud to tell the kids that daddy (or mommy) just wants to sit around all day—you get the point.
One assumes that Prof. Barro enjoys tenure. From that secure and well-paying vantage point, he has apparently managed to calculate his way to a completely nonsensical thesis.