Most Politicians Know Nothing About Economics

https://grantcoulson.files.wordpress.com/2014/04/incentiveseverywherepicturecorrect1.jpg?w=444&h=288

 

Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

Attention, San Fran Nan: Government dependency kills jobs

Michelle Malkin

Being a San Francisco liberal means never having to say you’re sorry. Or wrong. Take Nancy Pelosi, please.

Five years ago, California’s genius Bay Area Democrat declared that government unemployment checks generate job growth. Yes, really. “Let me say about unemployment insurance,” she told reporters, “this is one of the biggest stimuluses (sic) to our economy. Economists will tell you, this money is spent quickly. It injects demand into the economy and is job creating.”

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    The logical extension is–Give all the unemployed a government salary and watch the economy soar. If one wonders if this would work, one should ask the Greeks.

She babbled on: “It creates jobs faster than almost any other initiative you can name, because, again, it is money that is needed for families to survive, and it is spent. So it has a double benefit. It helps those who’ve lost their jobs, but it also is a job creator.”

What Crazy-Cakes Pelosi failed to mention, however, is the long-established conclusion of labor economists from all parts of the political spectrum that extending unemployment insurance benefits prolongs unemployment. While she heralded the short-term effects on consumer spending, she ignored the blindingly obvious: Outside the land of progressive make-believe, workers respond to incentives. Over the long term, subsidizing joblessness creates more of it.

<insert>

     Pay people for work, get more work. Pay them for not working, get less work.

I bring this all up because a new paper from the venerable, nonpartisan National Bureau of Economic Research concludes that the recent job gains Pelosi and the Democrats are now crowing about may be due to the very policy they fought so hard against: ending extended unemployment benefits.

“We find that a 1 percent drop in benefit duration leads to a statistically significant increase of employment by 0.0161 log points,” the NBER economists reported. In practical terms, it means that “1.8 million additional jobs were created in 2014 due to the benefit cut.” Take note: “Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.”

The jobs bump coincided with the expiration of the 99-week UI benefits extension passed as part of the Obama stimulus package. Remember: Laid-off workers were already collecting up to 79 weeks of unemployment in half of the states before the last extension. Democrats were pushing for yet another 13-week extension that would have cost tens of billions of dollars more. The cost of the joint federal-state program is borne by employers who pay state and federal taxes on a portion of wages paid to each employee in a calendar year.

Remarkably, the NBER analysis attributed “61 percent of the aggregate employment growth in 2014? to the congressional cutoff in unemployment benefits at the end of 2013. Here’s the NBER team’s bottom line for Pelosi and her fellow unemployment benefits cheerleaders: “The findings in this paper imply that the negative effects of unemployment benefit extensions on employment far outweigh the potential stimulative effects often ascribed to this policy.”

This vindication comes after a hyperbolic campaign by Democrats accusing Republicans of “meanness” and “obstruction” for opposing “temporary” unemployment benefits that have become enshrined permanently.

But it’s not just partisan hacks in Washington who’ve so falsely demonized those opposed to endless unemployment checks as a “job creation” vehicle. During the contentious debate over extending UI checks as part of the Obama stimulus in 2009, I argued on an ABC “This Week with George Stephanopoulos” panel, “If you put enough government cheese in front of people, they are just going to keep eating it.” Atlanta Journal-Constitution columnist Cynthia Tucker took offense, mischaracterizing standard economic arguments for moral judgment. “Does the right really believe the unemployed are lazy?” she wailed.

The left-leaning journalism outfit at PolitiFact jumped on board, rating my 100 percent-true reference to decades of labor economics literature on UI’s impact on joblessness “half-true.” And the George Soros-funded hitmen of Media Matters called me and several other conservatives “reality”-deniers for stating the bloody obvious about UI’s warped incentives — even though their favorite “progressive” economist Paul Krugman acknowledged that “everyone agrees that really generous unemployment benefits, by reducing the incentive to seek jobs, can raise the NAIRU” (the minimum rate of unemployment consistent with a stable inflation rate).

The politicians posing as economy-healers and the political operatives posing as journalists will no doubt find clever ways to slice, dice and explain away the latest NBER findings. But this simple truth endures: Government dependency doesn’t “create” jobs. It kills them.

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     One wonders where politicians get their economic information–reality is a place they never look.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Days of Songs and Mirrors: A Jacobite in the ‘45.”
Cui Bono–Cherchez les Contingencies

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