I don’t often comment on current political issues on this site, but one has such clear and serious economic implications that I can’t let it pass unremarked.
Recall that back in March as lockdowns were being imposed and the American economy was in free fall, Congress passed trillions worth of legislation in an attempt to mitigate the fallout. This was not done deliberately and thoughtfully, but in a rush. For good reason – it was a genuinely urgent economic emergency. The measures would be mostly short term and could be revisited and refined later.
One of those programs included a provision for an extra $600 weekly benefit on top of the already existing state unemployment benefits. A few objected at the time that sweeping application would result in some unemployed actually being paid more than they earned in their jobs. But again, this was a rush job.
It now turns out that as the program is set to expire, revising the terms to correct the excess has become a matter of political controversy. The benefits are popular, even with some erstwhile conservatives I know. Of course. When has apparently free money ever been unpopular?
Put the accent on “apparently”. While an excellent case for extending the benefits at a lower level exists, extending them without modification would be foolhardy. It’s literally attempting to fight unemployment by buying more of it.
What do you suppose would happen if this were extended indefinitely? If farmers were paid more not to raise crops than they can make by raising them? If doctors were paid more not to treat people than to treat them? If the people who get the food to market, generate the electricity, keep the water running, and pick up the trash all were paid more not to do it?
Everybody might have bucketloads of cash, but nothing to buy with it. Nominally rich but actually starving. We’re conditioned to associate money with buying power, but the average Venezuelan could tell you otherwise.
It’s not an all or nothing proposition. I have no beef with extending the benefits at a lower level or with a cap. Another round of Economic Impact Payments (those $1200 checks) is on the table … even make them recurring for a while. Whatever you do, individual people have to be better off being productive than not, because that’s the way it works for the whole of the economy.
Why do you suppose some want eliminate the excess? Is it because they’re mean? Lack human empathy? That’s what the many in the media might lead you to believe, but I think it’s because they understand the difference between a safety net and a road to ruin.
The rest are laboring under a fallacy of composition. There’s no doubt that you can make one person better off by handing them free money. But as you scale it up it does the opposite … making a national policy of it doesn’t work that way. Exhibit A is weekly unemployment claims. This is already the nineteenth straight week of unemployment claims in the millions. That’s per week.
32 Million People on State & Federal Unemployment, 2nd Highest Ever: Week 17 of U.S. Labor Market Collapse
And they’re not going down; they’re going up. This week alone there were 1.434 million new claims:
U.S. weekly jobless claims rise for a second straight week, total 1.434 million
You remember the old definition of insanity; keep doing the same thing over again, expecting a different result. Face it; not only is it not working to decrease unemployment; it’s working to increase it. Just as common sense would expect.
There’s another, subtler, problem as well. If you give one group a free money handout, you’re making everyone not in that group worse off. Because it’s not increasing the production of goods and services, there can be no net gain in purchasing power. Whatever purchasing power is gained by the favored group is lost to everyone else. What’s worse, it’s actually decreasing the production of goods and services, so it’s a double whammy.
People suffering hardship don’t always fall neatly into groups. The example of gig workers is just one of many that highlight the problems of trying to target groups. What about students? Part timers? Retireds? Semiretireds? Social Security on average pays far less than just the $600 weekly extra under this program, and seniors have been slammed with interest rates cut to near zero and plunging dividends.
Why not send everybody the same assistance? Since that would include the employed, it would avoid not only the problem of people falling through the cracks but also that of making many better off unemployed. We could of course find things in that to criticize as well, but it would be by far the lesser of the evils. This is why the much broader, UBI-like Economic Impact Payments deserve more attention.
To extend the lopsided unemployment bonuses in their current form would be insane. It would not only result in one group of people gaining at the expense of everyone else, but ultimately a loss to the economy as a whole. It is already. We have depression-level unemployment, civil unrest, and empty store shelves. Expect more empty shelves. Work is not just a benefit to those who do it, but it’s how the stuff we all buy is made available for us to buy in the first place. If you want people to have things, incentivizing millions not to produce them is the last thing you want to do.
2 thoughts on “Buying Unemployment”
i thought it amusing that the $600/wk top-up was the equivalent of the much sought $15/hr minimum wage. of course the federal minimum wage has been $7.25/hr since the middle of 2009. using a handy cpi-based inflation calculator, one discovers that had that 7.25/hr been indexed for officially calculated inflation, it would now be $26.04/hr. imagine that world!
so another “solution” to the 600/wk “problem,” if it still existed, would be to actually pay workers at a higher rate, perhaps at the expense of executive compensation and buy backs. foolish thought, i know.
but of course the federal top-up is now zero, instead of 600/wk, leaving unemployed people left with their meager state programs, and scrambling to pay for food, rent, utilities and so on.
today mike posted at itulip an interview with gore vidal about the depression- vidal was a brilliant raconteur and was well-placed as the young grandson of okla sen. gore to see the goings on in the 1930’s. he describes being driven with his grandfather in a long packard. the sides of the road were lined with bonus marchers who had come to washington seeking help as extra compensation for fighting in wwi. they looked like skeletons.
“so another “solution” to the 600/wk “problem,” if it still existed, would be to actually pay workers at a higher rate, perhaps at the expense of executive compensation and buy backs. foolish thought, i know.”
Not such a foolish thought … an excellent case can be made that something in our politico-financial system has artificially enriched the wealthy at the expense of ordinary Americans. As you know we’ve just been discussing that on iTulip. The knee-jerk political reaction of course is to try and legislate equity directly, but that would be solving a hypothetical problem of inequity caused by lack of government action. Not clear one even exists. Better to first look at where government action is actively causing inequity, and remove that.
Since this format isn’t well suited to long form discussion, I’ll refer to my remarks on iTulip earlier today fingering the imposition of artificially low interest rates by the Federal Reserve as the biggest source of American economic inequity. To expand on that bit, ultralow interest rates herd investors away from traditional income producing assets into equities. This gives corporate boards and executives a huge cohort of captive buyers of their stock. The ordinary investor has little choice, so corporate insiders can get away with just about anything they want. Executive comp plans with stock options leveraged to stock prices, along with essentially unfettered buyback restrictions, are like an all-you-can-eat buffet of help-yourself-to-shareholder-capital.
This is just a sliver of the channels through which government plays reverse Robin Hood. To complement the mechanism we just outlined, let’s look at some empirical evidence showing how interest rates correlate with wealth equality. Clear as daylight. As rates rose into circa 1980, the wealth gap fell. As rates fell from there, the wealth gap rose.
Chart by Ray Dalio, Bridgewater