On December 11, 2013, The Wall Street Journal an article stating another 99 week of jobless insurance won’t create more jobs.
Maybe it’s time to consider whether the big expansion of unemployment insurance has increased joblessness. In 2009 the Obama Administration and Congress extended jobless benefits for up to 99 weeks. The point was to help people through the recession, but now the jobless rate is 7%, down from 10%, and the White House still wants another extension.
That would add some $25 billion to the deficit with no compensating economic benefit. The Administration claims that every $1 of jobless benefits creates $1.80 in economic growth, based on the notorious “multiplier” in Keynesian economic models. This is the theory that you can increase employment by paying more people not to work, and that you can take money out of the private economy by taxes or borrowing without cost. If that theory worked, the government should pay everyone not to work.
Some economists believe the unemployment insurance tax is too low to discourage firms from hiring. But if that is the case, why did Mr. Obama enact a payroll tax holiday in 2011 and 2012 as incentive to increase hiring? If lower payroll taxes increase employment, then higher payroll taxes must curtail it. Economist Casey Mulligan of the University of Chicago has found that payroll taxes have a “persistent negative impact” on hiring and real GDP.
Alan Krueger, President Obama’s former chief economist, coauthored a 2008 study reviewing the amount of time that unemployed individuals in different states and countries spent looking for a new job and found, among other things, that “job search is inversely related to the generosity of unemployment benefits.” Other studies have found that laid-off workers ineligible for unemployment benefits spend more time looking for a new job than those who get checks.
My colleague at the Center for Economic and Social Justice (www.cesj.org) comments:
The editors pointed out that reducing purchasing power for one set of persons for the benefit of another set of persons does nothing to “create jobs.”
According to the figures quoted, the theory is that every dollar of tax revenue used to pay jobless benefits creates $1.80 in economic growth. How this is done is a mystery — unless the powers-that-be are looking at the hidden tax of inflation and considering the rise in the price level as “economic growth.”
Inflation, however, is not economic growth. Inflation decreases individual consumption because each dollar buys less than it did before. If the new, inflated money is distributed to people who use it for consumption, the whole thing is a wash, i.e., robbing Peter to pay Paul, because aggregate consumption doesn’t change — just the identity of the consumers.
Direct taxation does exactly the same thing. One dollar taken away from Citizen A and given to Citizen B results in no increase in aggregate demand — and consumption demand drives the demand for new capital, which in turn drives the demand for new jobs.
The result is that jobs are lost in some sectors due to decrease in demand, but jobs are created elsewhere in response to the increase in demand elsewhere — another wash. Of course, the overall effect is to decrease jobs, because the administrative costs associated with both inflation and direct taxation always diverts a measure of the demand to government.
Job creation in this manner actually results in a net decrease in jobs in the economy. Add in the effect of increasing wage costs as the price level continues to inflate, and jobs disappear at a faster rate as technology becomes a cheaper alternative to human labor, or lower wage costs overseas accelerate both capital flight and job transfer.
Harold Moulton described the effect of decreasing demand in order to finance economic growth in detail in his 1935 monograph, The Formation of Capital. It’s an eye-opener.
Of course, if you really want a solution instead of just hearing what’s wrong, read CapitalHomesteading for Every Citizen.
http://online.wsj.com/news/articles/SB10001424052702303670804579233913327613176
