Jim Plays Chicken with Unemployment Benefits

Image by dbking via Flickr

I'm glad that Jim Bunning wants to be fiscally responsible. But the extension of unemployment benefits is really not the right place to start. His cunning plan to put a hold on the reauthorization of unemployment benefits until the Democrats agree to fund them out of existing stimulus dollars will not do much good, and it could do great harm.

The United States has basically the right idea about unemployment benefits. Giving people unemployment assistance has a negative effect on work: the easier it is to stay out of the workforce, the more people will do it. Not only does this up the cost to the public fisc; it also destroys human capital, as skills stagnate. This is a lot of the reason that Europe has historically had high unemployment compared to the U.S. (though there are other issues, and the insurance system is much worse in some countries than others.)

In my opinion, unemployment benefits should be more generous financially--the worst effects seem to come from letting people linger on the rolls, rather than the size of the checks. Given how much disruption a generous benefit could prevent, I think we could (and should) help out families in temporary need more than we do. But on the duration of benefits, we get it right: it's temporary assistance, not a way of life. In a normal economy, when just about anyone can find some kind of job, shorter term benefits are sound policy.

However, in recessions, the length of time for which people need "temporary" assistance stretches out. That means that the government has to respond with temporary benefit extensions. These aren't just good for the people who are unemployed; it's also good for us. Unemployment assistance is one of the "automatic fiscal stabilizers" that all but the most hard-nosed conservative economists agree help smooth the business cycle in modern industrial countries. Indeed, it's one of the most effective forms of stimulus we have.

Even if you think the government needs a plan to get its house in order, why on earth is Bunning making a stand on this issue? It's political poison--even the Republican base knows people who are out of work. It's terrible economic policy--suddenly cutting off the taps would have nasty knock-on effects on the economy. And while it's a lot of money, it's one of the few government programs that pretty much unequivocally improve the net welfare of the American people. If Bunning wants to hold up something, how about finding some useless defense appropriations to complain about?

Source: http://www.theatlantic.com/business/archive/2010/03/jim-bunning-plays-chicken-with-unemployment-benefits/36815/