Flashback Commentary: Unemployment Benefits

As I slowly catch up on the things that happened while I was gone (what idiot decided to take The Brady Bunch off the air?!)  I am moved to do quick takes on things that happened, upon which I would have had an opinion, if my brand new husband had not insisted that we spend our honeymoon on a news fast.

First up:  unemployment benefits.  What the hell?



I love fiscal austerity as much as the next . . . well, as much as the next moderate libertarian whose primary issues aren't high taxes, or an obsessive hatred of even the smallest of fiscal deficits.  Even so . . . this is the hill upon which we chose to fight the spending battle?

During a normal economy most unemployment is frictional.  There are people who need to get new jobs.  They need to find those new jobs; some of them need to accept that their old jobs or industries are no longer good growth prospects, and either retrain, or brace themselves to accept a lower salary.  Generous unemployment benefits--particularly generous and lengthy unemployment benefits--can interfere with this process by encouraging people to hold out for an unrealistically great job (or simply take a little taxpayer-financed vacation), rather than accepting what's offered.  So it makes sense to keep them relatively lean, and short; unemployment benefits should not be a good alternative to work.

But these are not the circumstances in which we now find ourselves.  Job markets have collapsed in many areas.  We're not simply trying to move people into the ample supply of new jobs faster; there is no ample supply of new jobs.  Rather, we're shuffling a limited number of job openings between a much larger number of people.  In a game of musical chairs, there's no cost to letting the music play longer; you're still going to end up with the same number of people sitting on the floor.

If you'd rather hear it in jargon:  until the supply side improves, we don't need to worry much about demand-side disincentives.

Even if you are unmoved by the suffering of people who cannot find a job despite some fairly heroic efforts, it's worth noting that if their unemployment turns into penury, not only will this have knock on effects on various markets--housing, autos, etc--but also, they'll eventually end up needing funds from the public purse anyway, in the form of food stamps, housing assistance, and so forth.  It's probably cheaper, and certainly better, to keep them from losing everything in the process.

The worst part is, most politicians (or their staffs) know this.  And unemployment benefits aren't exactly unpopular.  Rather, the politics of the budget are now such that 1) nothing can be done without paying for it and 2) nothing is popular enough to pay for.  As someone who thinks the government should do a lot fewer things, I'm supposed to be glad.  Unfortunately, the casualties of the budget wars often seem to be the most blameless policies.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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