Coronavirus and Subsidized Unemployment

Remember the “jobless recovery” of the Obama years?

Part of the problem was that President Obama kept extending unemployment benefits, which subsidized joblessness, as even Paul Krugman and Larry Summers had warned.

The good news was that Congress eventually said no in 2014 (actually one of the three best things to happen that year).

After that happened, the labor market improved.

But politicians apparently didn’t learn anything. As part of emergency coronavirus legislation, they turbo-charged unemployment benefits.

The Wall Street Journal‘s editorial from yesterday has a good summary.

Much of the harm from the coronavirus is unavoidable, but it would be nice if politicians didn’t compound the damage by ignoring the laws of economics. The worst blunder so far on that score is the $600 increase in federal jobless benefits… Why would anyone take a pay cut to go back to work? …Employees say they’ll take the unemployment check for as long as they can make more money by not working. …This does not mean these workers are lazy. Workers are making rational decisions based on the economic incentives the political class has created. …The question now is whether the Trump Administration will learn from its negotiating mistake. Democrats will try to extend the $600 for another few months, and then a few more after that, as they describe anyone who disagrees as heartless.

Tim Kane, in a piece for the Hill, explains why this doesn’t make sense.

The UI system is a case study in perverse incentives in the best of times, but the four-month “fix” in the Coronavirus Aid, Relief, and Economic Security Act (CARES) makes it far worse. …Existing UI provides a government payment to each worker who is involuntarily laid off, in essence paying people not to work. The amount varies slightly according to state-based formulas. But UI checks are generally set to replace 50 percent of the individual’s wages until they find a new job. …Pandemic UI jacks up the replacement rate with a supplemental $600 per unemployed worker for the next four months. That’s roughly an extra $2,400 each month that will go to you only if you are unemployed. …Now that the CARES Act is the law of the land, any American with an annual salary of $62,000 has no financial incentive to work, certainly not until August. …the federal government is going to pay non-working Americans way more than working Americans.

In a column for Bloomberg, Conor Sen explores the implications.

It’s also important to be mindful of how, once the economy is growing again, a $600 weekly benefit can distort the labor market. That works out to the equivalent of $15 an hour for a 40-hour work week, a level that substantially exceeds the minimum wage in most states. When restaurants are open for business again, they are likely to complain if they can’t hire dishwashers who understand that it’s not worth giving up unemployment benefits. One step to winding down the program might be reducing the benefit over time in response to labor-market conditions and monitoring the impact that’s having on workers accepting jobs.

Sam Hammond, writing for National Review, opines on the potential human cost.

…the new Pandemic Unemployment Assistance program…will…add an extra $600 per week to the base benefit (equal to half the state’s regular unemployment benefit) for up to four months. …This $600 per week add-on — equivalent to a $15-per-hour full-time income — means that many workers will soon be eligible to receive more in unemployment compensation than they would make on the job. …It should go without saying that no government in history has ever designed an unemployment-insurance program quite like this — one that virtually anyone can qualify for, and with benefits on par with the median weekly earnings of full-time workers. …a worst-case scenario is easy to imagine…once quarantines begin to lift, a fraction of Pandemic UI recipients will choose to stay on “extended benefits”… Temporary unemployment will become structural, and a jobless recovery will drag out for decades.

Veronique de Rugy of the Mercatus Center cites some of the academic literature.

The unintended consequences and moral hazard of UI during normal times and normal recessions are well known. Put briefly, generous UI benefits create an incentive for workers to delay looking for jobs until the expiration of the benefit. In 2010, Harvard University economist Robert Barro estimated that the Great Recession expansions in UI benefits raised the US unemployment rate by about 2.7 percentage points. …In addition, economists Lawrence F. Katz and Bruce D. Meyer observe that workers receiving unemployment benefits were likely to postpone their job searches until their benefits expired. This finding was confirmed by many other studies, including one by economist Alan Krueger,  who wrote in 2008 that “job search increases sharply in the weeks prior to benefit exhaustion.”

And she points out that there is a better approach.

…an old policy proposal that should receive new attention—a proposal that by design encourages people to go back to work as quickly as they can… Personal unemployment insurance savings accounts (PISAs) are designed to maintain a financial incentive to return to work as soon as possible. These accounts are individually owned by workers who, during spells of unemployment, can make orderly withdrawals to partially compensate for the loss to their income but can keep and build the balance during their regular times of employment. …This form of UI is not a mere theoretical proposition. The experience of Chile is worth noting, but other countries such as Austria and Colombia have adopted similar plans.

Making a related point, Congressman Justin Amash points out that it would be less harmful to simply give people money rather than giving them money on the condition that they don’t work.

The law also provides robust unemployment benefits, but this money would have been better spent on monthly payments to all Americans regardless of employment status. As structured, it perversely makes employment a financial liability for many. We shouldn’t discourage employment.

— Justin Amash (@justinamash) April 2, 2020

By the way, a study from the Bank for International Settlements, published well before coronavirus became an issue, notes other negative effects of unemployment benefits.

Many countries provide unemployment insurance (UI) to reduce individuals’ income risk and to moderate fluctuations in the economy. However, to the extent that these policies are successful, they would be expected to reduce precautionary savings and hence bank deposits–households’ main saving instrument. In this paper, we study this reduced incentive to save and uncover a novel distortionary mechanism through which UI policies affect the economy. In particular, we show that, when UI benefits become more generous, bank deposits fall. Since deposits are the main stable funding source for banks, this fall in deposits squeezes bank commercial lending, which in turn reduces corporate investment.

Just another chapter in the government’s book on how to discourage savings.

Let’s close with some real world illustrations of how Washington’s approach is backfiring.

A story from National Public Radio shows how workers respond logically to perverse incentives.

…the extra money can create some awkward situations. Some businesses that want to keep their doors open say it’s hard to do so when employees can make more money by staying home. “We basically have this situation where it would be a logical choice for a lot of people to be unemployed,” said Sky Marietta, who opened a coffee shop along with her husband, Geoff, last year in Harlan, Ky. …The shop had been up and running for only a few months when the coronavirus hit. …Marietta was determined to stay open. …But even though she had customers, Marietta reluctantly decided to close the coffee shop just over a week ago. “The very people we hired have now asked us to be laid off,” Marietta wrote… “Not because they did not like their jobs or because they did not want to work, but because it would cost them literally hundreds of dollars per week to be employed.” …the $10 to $15 an hour they’d make serving coffee is no match for the new jobless benefits.

Maxim Lott also wrote about another tragic example.

An additional $600 per week in unemployment benefits…causing concern that some workers could be in a position to actually make more money by leaving their jobs. . …That angers some essential workers on the front lines on the crisis. “I can tell you as a worker who barely makes over minimum wage, at $12 an hour, the whole thing is complete BS,” Otis Mitchell Jr., who works in West Virginia transporting hospital patients to get medical tests, told Fox News. Mitchell Jr. added that he has unemployed friends who already are getting the extra $600, and that “I prefer to work, but sadly I’d make more staying home.” …generous payments are…scheduled to last for four months, ending July 31.

A report from CNBC also found perverse consequences.

Jamie Black-Lewis felt like she won the lottery after getting two forgivable loans through the Paycheck Protection Program. …When Black-Lewis convened a virtual employee meeting to explain her good fortune, she expected jubilation and relief that paychecks would resume in full even though the staff — primarily hourly employees — couldn’t work. She got a different reaction. “It was a firestorm of hatred about the situation,” Black-Lewis said. …The anger came from employees who’d determined they’d make more money by collecting unemployment benefits than their normal paychecks. …“I couldn’t believe it,” she added. “On what planet am I competing with unemployment?”

If you want to see why people are choosing unemployment, here’s a chart from the CNBC story. Using examples from three states, it shows the normal generosity of unemployment benefits on the left and the new approach on the right.

Needless to say, it’s economic malpractice to make unemployment more attractive than jobs paying $20-$30 per hour.

It’s the real-world version of this satirical Wizard-of-Id cartoon.

P.S. Speaking of satire, Nancy Pelosi actually argued that paying people not to work was a form of stimulus.

P.P.S. Here are a couple of anecdotes, one from Ohio and one from Michigan, about the perverse impact of excessive unemployment benefits during the last downturn.

P.P.P.S. If you want more academic literature on the relationship between government benefits and joblessness, click here and here.

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Very Bad News for Europe’s Young People

If young people in Europe were a company, I would be telling you to sell the stock.

Why? Well, because politicians want to help them. And, as perfectly illustrated by this Eric Allie cartoon (as well as the cartoon he has at the bottom of this post), government at best unintentionally harms those it tries to help.

To see what I’m talking about, here’s some of what the EU Observer is reporting today.

EU leaders gathering in Brussels on Thursday (27 June) for a two-day summit will again turn to measures aimed at helping young people to get jobs, as unemployment figures soar in southern countries. The summit kicks off at 4.30pm local time with a meeting between leaders, trade unions and employers’ associations, to hear what actions they are taking to boost youth employment. …The European Commission has already drafted a paper on how the EIB could boost its lending powers. Its loans are used mostly by small and medium enterprises, which could hire more young people if they get the money to fund expansion. Under the most ambitious scenario, EIB lending could exceed €100 billion.

How stereotypical. Big business, big labor, and big government are getting together and considering a €100 billion slush fund that will line their pockets.

They want us to believe this will lead to more jobs for young people, but they overlook (and hope we’re unaware of) Bastiat’s warning about the seen and the unseen.

Expanding the EIB will simply divert resources from more productive uses.

So what’s the answer? Here’s what I recommended as part of some speeches earlier this month in Europe.

I began with what should be a common-sense observation that businesses won’t create jobs unless they think new workers will add to the bottom line.

I then outlined some of the ways big government undermines incentives to create jobs by making workers more expensive.

I also explained that Keynesian spending schemes won’t create jobs.

Last but not least, I warned that workers will be less likely to seek jobs if government handouts alter the tradeoff between work and leisure.

Regarding this final slide, I shared in my speeches this amazing chart about the anti-work incentives created by the safety net in the United States, as well as some similar startling data from the United Kingdom.

Sadly, none of my audiences included senior European officials. And even if they were in the audience, I doubt they would have learned anything.

After all, why support an agenda of free markets and small government when that would reduce their power and influence?

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Jobless Rate Climbs to 8.3 Percent, Creating More Anxiety for Obama and the Left

Can we finally all agree that Keynesian economics is a flop? The politicians in Washington flushed about $800 billion down the toilet and we got nothing in exchange except for anemic growth and lots of people out of work.

Indeed, we’re getting to the point where the monthly employment reports from the Labor Department must be akin to Chinese water torture for the Obama Administration. Even when the unemployment rate falls, it gives critics an opportunity to recycle the chart below showing how bad the economy is doing compared to what the White House said would happen if the so-called stimulus was enacted.

But for the past few months, the joblessness rate has been rising, making the chart look even worse.

I never watch TV, so I’m not in a position to know for sure, but I haven’t seen any articles indicating that the Romney campaign is using this data in commercials to criticize Obama.

This seems like a missed opportunity.

But since it’s not clear to me that Romney would actually do anything different than Obama (check out this post if that seems like an odd assertion), I don’t focus on the political implications.

Instead, I’m hoping the American people will learn an important long-run lesson. If you want more growth and prosperity, the recipe is smaller government and free markets.

In other words, our economic policy should be more like Hong Kong and Singapore, but Obama has been making us more like France.

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Another Month of Data Re-Confirms Obama’s Horrible Record on Jobs

Remember back in 2009, when President Obama and his team told us that we needed to squander $800 billion on a so-called stimulus package.

The crowd in Washington was quite confident that Keynesian spending was going to save the day, even though similar efforts had failed for Hoover and Roosevelt in the 1930s, for Japan in the 1990s, and for Bush in 2008.

Nonetheless, we were assured that Obama’s stimulus was needed to keep unemployment from rising above 8 percent.

Well, that claim turned out to be quite hollow. Not that we needed additional evidence, but the new numbers from the Labor Department re-confirm that the White House prediction was wildly inaccurate. The 8.2 percent unemployment rate is 2.5 percentage points above the Administration’s prediction.

Defenders of the Obama Administration sometimes respond by saying that the downturn was more serious than anyone predicted. That’s a legitimate assertion, so I don’t put too much blame the White House for the initial spike in joblessness.

But I do blame them for the fact that the labor market has remained weak for a lengthy period. This chart, which I just generated this morning on the Minneapolis Fed’s interactive website, shows employment data for all the post-World War II recessions.

The current business cycle is the red line. As you can see, some recessions were deeper in the beginning and some were more mild. But the one thing that is unambiguous is that we’ve never had a jobs recovery as anemic as the one we’re experiencing today.

Job creation has been extraordinarily weak. Indeed, the 8.2 percent unemployment rate actually masks the bad news since it doesn’t capture all the people who have given up and dropped out of the labor force.

By the way, I don’t think the so-called stimulus is the main cause of today’s poor employment data. The vast majority of that money was pissed away in 2009, 2010, and 2011.

Today’s weak job market is affected by things such as the threat of higher taxes in 2013 (when the 2001 and 2003 tax cuts are scheduled to expire), the costly impact of Obamacare, and the harsh regulatory environment. This cartoon shows, in an amusing fashion, the impact of these policies on entrepreneurs and investors.

P.S. Click on this link if you want to compare Obamanomics and Reaganomics. The difference is astounding.

P.P.S. Obama will probably continue to blame “headwinds” for the dismal job numbers, so this cartoon is definitely worth sharing.

P.P.P.S. Since I’m sharing cartoons, I can’t resist recycling this classic about Keynesian stimulus.

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What’s Better for the Unemployed, a Government Handout or a Private-Sector Job?

The continuing weakness in the job market, which I wrote about this morning, means that the debate over unemployment benefits will get more heated.

I’ve already noted that even left-wing academics like Paul Krugman and Larry Summers have admitted that you get more unemployment when you subsidize joblessness.

And I’ve cited some good research on the topic from the San Francisco Federal Reserve Bank, as well as other studies by academic economists.

But none of this evidence seems to matter, as I discovered in this debate with a former Obama Labor Department official.

To better understand the points I was making, here are two good anecdotes from Ohio and Michigan.

Last but not least, this cartoon does a very good who of teaching about the economics of unemployment insurance. And if you want to understand the absurdity of the left, this post shows Nancy Pelosi is a train wreck of economic illiteracy.

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More Sub-Par Employment Numbers

The Labor Department just released its monthly employment report and the White House is probably not happy.

There are several key bits of data in the report, such as the unemployment rate, net job creation, and employment-population ratio.

At best, the results are mediocre. The unemployment rate generally gets the most attention, and that was bad news since the joblessness rate jumped to 8.2 percent.

What makes that number particularly painful is that the Obama Administration claimed that the unemployment rate today would be less than 6 percent if the so-called stimulus was adopted. But as you can see from the chart, squandering $800 billion on a Keynesian package hasn’t worked.

While that chart is probably embarrassing to the White House, I think the most revealing numbers come from the Minneapolis Federal Reserve Bank’s interactive website, which allows users to compare employment data and GDP data for different business cycles.

I looked at those numbers a couple of months ago, so I could compare Reaganomics and Obamanomics, and the difference is startling. The Reagan policies of lower tax rates, spending restraint, deregulation, and tight money generated much better results than the statist policies of Obama.

The most recent numbers, shown below, aren’t any better for the Obama Administration.

But I suppose the good news is that the United States is not Europe. Government is even bigger on the other side of the Atlantic and many of those nations are in the middle of a fiscal crisis and the unemployment rate averages 11 percent.

Sort of makes you wonder whether there’s a lesson to be learned. Maybe, just maybe, bigger government means weaker economic performance.

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Using Labor Department Data to Indict Obama’s Dismal Performance on Jobs

The new unemployment numbers have been released and the White House must be somewhat happy. The joblessness rate is down to 8.2 percent, which means the number that gets the most publicity continues to move in the right direction.

I’ve been predicting that Obama will win reelection if the unemployment rate falls to 8.0 percent or below, so my prognostication ability will be put to the test if this trend continues.

But let’s set aside the politics and take a dispassionate look at the U.S. job market. How are we doing?

Well, total employment is estimated to be a bit above 142 million.

The good news is that we have about 4.1 million more jobs than we had in December of 2009.

The bad news is that we still have fewer jobs than when Obama took office, and about 4.5 million fewer jobs than we had in November 2007.

Last September, I put together four charts to assess Obama’s performance on jobs.

Let’s update those charts to get a more complete look at the labor market.

First, let’s begin by comparing where we are now to where the White House said we would be if Congress enacted the President’s so-called stimulus. As you can see, the actual joblessness rate is about 2-percentage points higher. That’s not a good performance.

If Republicans want to highlight a number that favors them, they could point out that the unemployment rate began to fall once they took control of the House. It was near its peak, at 9.8 percent, in November of 2010, and now it’s dropped by more than 1.5 percentage points.

Of course, they really shouldn’t brag since a lot of the bad news is a lingering consequence of the statist policies of the Bush Administration.

Nonetheless, I think the economy has reacted positively to the 2010 elections since gridlock makes it harder for politicians of either party to impose new burdens.

Let’s look at another chart that was in my September post. As you can see, the unemployment rate for African Americans is especially dismal.

I’ve already made the point that Obama’s policies are bad news for Black Americans, particularly policies such as higher minimum wage requirements that cut off the bottom rungs of the economic ladder.

Another bit of bad news can be found in the data on long-term unemployment. This chart shows the share of the unemployed that have been without a job for at least six months. Very damning.

Part of the problem, as even Democrat economists have admitted, is that Obama’s policy of extended unemployment insurance benefits has been subsidizing joblessness.

Last but not least, we have the chart that should be the most troubling of all. It shows a sustained drop in the labor force.

Economic growth and output are the result of labor and capital being mixed together by entrepreneurs and investors. If there is a permanent reduction in the availability of one of the ingredients, that obviously doesn’t bode well for American prosperity.

And this is why Obama deserves a poor grade. Not because his policies caused the weak job market. Those problems existed before he took office. Instead, he gets a bad grade because he continued the statist policies of his predecessor.

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Why Won’t Washington Understand that Paying People to Be Unemployed Means More Unemployment?

I’ve written periodically about the perverse incentives of the unemployment insurance system. Simply stated, there will be fewer jobs if the government subsidizes joblessness, and I even showed that this is a consensus position by citing the academic writings of left-leaning economists such as Larry Summers and Paul Krugman.

The San Francisco Federal Reserve also has produced research measuring the negative impact of unemployment insurance on the job market.

Now we have some additional academic research on the topic, and the results once again show that the unemployment insurance program causes a significant increase in unemployment.

The Emergency Unemployment Compensation program created in the summer of 2008 provided for unprecedented extensions in the duration of unemployment insurance (UI) benefits. Combined with persistent high unemployment and historically long durations of unemployment during the 2008 and 2009 recession, this extension of UI has prompted renewed interest in the impact of UI benefits on job search, the duration of unemployment, and the unemployment rate. …This paper uses multiple regression analysis to estimate the impact of extended UI benefits on the unemployment rate after controlling for the severity of the recent recession. The extension of UI is found to have a positive and significant impact on the national unemployment rate… The UI benefit extensions that have occurred between the summer of 2008 and the end of 2010 are estimated to have had a cumulative effect of raising the unemployment rate by .77 to 1.54 percentage points.

If you’re trying to educate a statist friend or colleague about the relationship between unemployment insurance and joblessness, this research should help. But you may also want to share this real-world story. And here’s another powerful anecdote.

Last but not least, this cartoon does a very effective job of showing the consequences of paying people not to work.

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Why Does Mitt Romney Want Low-Skilled Workers to Be Unemployed?

Earlier this week, I explained why Mitt Romney is a Republican version of Barack Obama. His transgressions include being open to a value-added tax, a less-than-stellar record on healthcare, weakness on Social Security reform, an anemic list of proposed budget savings, and support for reprehensible ethanol subsidies.

Now we can add something else to the list. He wants to cut off the bottom rungs of the economic ladder and hurt low-skilled workers.

Here are a couple of passages from a report in the Oregonian.

Mitt Romney…continues to be a supporter of indexing the minimum wage for inflation. Oregon and Washington were among the first states to index their own minimum wages to inflation — nine states now do so — and it’s a favorite of liberals… Romney campaigned in favor of indexing the minimum wage when he ran for governor in 2002.  However, ABC News noted in 2007 that he wasn’t sure he supported indexing the federalminimum wage (which is lower than the minimum wage in several states).  In this new video, you could quibble that he doesn’t explicitly say he’s talking about the federal minimum — but that sure seems to be the tenor of his comments.

In other words, Romney is willing to condemn lower-skilled workers to unemployment, in hopes that he will gain some sort of short-term political advantage. In this regard, he will be just like Bush.

For a good explanation of why the government should not try to dictate wages, here’s a video narrated by one of my former interns.

It’s also worth noting that the minimum wage imposes disproportionate damage on the African-American community, as Walter Williams has explained.

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New Unemployment Numbers Are Good News for the White House, but the Silver Cloud Has a Dark Lining

The White House doubtlessly is happy that the unemployment rate has dropped to 8.5 percent, in part because the President is much more likely to get reelected if voters think the economy is heading in the right direction.

My political predictions have a mixed track record, so take this for what it’s worth, but I’ve been telling audiences for quite some time that Obama will definitely win reelection if the joblessness rate drops to 8 percent or below by next November.

But the latest drop in the unemployment is not unambiguous good new for the Obama Administration.

Before explaining why, let’s take a brief detour and look at how the unemployment rate is calculated. The key thing to understand is that there are two moving parts. First, the government estimates the number of unemployed people. That’s the obvious part of the calculation.

But in order to calculate the unemployment rate, the government has to estimate the size of the labor force. But this is not a simple number to calculate because many people who could work – such as women with young children, students, people approaching retirement age – sometimes decide that their time could be better spent doing other things.

So the government has to look at all the people who don’t have jobs and guess how many of them would like to work.

With this in mind, let’s look at the unemployment rate. The simple way to think about unemployment numbers is that the joblessness rate can rise or fall for good reasons and bad reasons.

If the unemployment rate drops because hundreds of thousands of jobs are being created each month, that’s obviously good news.

But if the jobless rate falls because the government estimates that lots of people have become discouraged and dropped out of the labor force, then that’s not good news.

In other words, sometimes the unemployment rate, by itself, doesn’t tell the full story.

That’s why one of the best statistics to look at is the employment-population ratio, which measures the number of people who have jobs and compares it to the number of people who could have jobs.

And by this measure, the Obama White House can’t be very happy. As illustrated in the chart, the job numbers have barely begun to recover.

This is a woefully under-reported piece of data. A few news outlets do mention the phenomenon of “discouraged workers” dropping out of the labor market, but only policy geeks like me seem to pay attention.

But the employment-population ratio does have real-world implications. The economy’s overall level of output (i.e., national income, gross domestic product, etc) depends on how many people are working. And that is what determines whether living standards are rising, falling, or stagnating.

This is why the Obama Administration can’t rely of a falling unemployment rate. As I’ve explained elsewhere, the American economy appears to have suffered a permanent loss of output in recent years.

So what does this mean, for those of you who care about political implications of economic statistics? The honest answer is that I have no idea. But since living standards are still stagnant, a falling joblessness rate won’t necessarily translate into a victory for the incumbent party.

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Real-World Evidence Showing that Unemployment Insurance Benefits Increase Unemployment

I’ve written before about the perverse impact of the unemployment insurance program, and I’ve even cited how left-wing economists such as Paul Krugman and Larry Summers admit that you get more joblessness when you pay people for not working.

I’ve even shared a very good cartoon making the same point. And who can forget Nancy Pelosi’s mindless comments about unemployment benefits being a great way to stimulate job creation.

But sometimes it helps to have real-world anecdotes, and this letter-to-the-editor from a newspaper in Ohio is very educational. Here are key excerpts.

Little did I know that attempting to hire the employees needed, which I had thought to be the easiest part, would turn out to be a nightmare if not impossible. …Before 2009 if our company advertised for an open position, on average we would get 20 to 30 applications, interview six to eight of the applicants, and hire one or two, based on the quality and potential of the candidates. This process has been deteriorating dramatically since 2009 and now at the end of 2011 it has completely hit bottom. Of all the applications that we have received this year, when asked why they were seeking a job with us, one out of three answered: my unemployment is running out and I have to go back to work. Earlier this year after I hired two new full-time employees, went through our company’s orientation process, fitted them with our work clothing and booked them to start within a week, they both quit. One called ahead of the start date to apologize but wanted to inform us he would not be coming in because the government had just extended unemployment benefits again. The second one just did not show on his first day and when I called him he said he couldn’t come in now because unemployment had been extended and he was making almost as much as we were planning to start him out with.  …Our government is considering extending unemployment benefits again soon. The final absurdity might be that extending unemployment is the only thing that both the Democratic and Republican majorities both agree on.

By the way, here’s a post with a similar real-world story from Detroit.

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A Simple Lesson about Job Creation for Barack Obama

Even though leftist economists such as Paul Krugman and Larry Summers have admitted that unemployment insurance benefits are a recipe for more joblessness, the White House is arguing that Congress should enact legislation to further subsidize unemployment.

It’s understandable that the Obama Administration is concerned about the issue. These four charts show that the labor market is in terrible shape.

But how can we convince the President that more government is just making a bad situation even worse? What will it take to educate him about the need to reduce government-imposed barriers to job creation?

Perhaps this cartoon will do the trick

And if statists learn from this cartoon, then maybe we should show them another cartoon showing the link between unemployment insurance benefits and joblessness.

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The Obama Presidency: From Tragedy to Farce

Herman Cain probably had the best reaction to the President’s speech: “We waited 30 months for this?”

My reaction yesterday was mixed. In some sense, I was almost embarrassed for the President. He demanded a speech to a joint session of Congress and then produced a list of recycled (regurgitated might be a better word) Keynesian gimmicks.

But I was also angry. Tens of millions of Americans are suffering, but Obama is unwilling to admit big government isn’t working. I don’t know whether it’s because of ideological blindness or short-term politics, but it’s a tragedy that ordinary people are hurting because of his mistakes.

The Wall Street Journal this morning offered a similar response, but said it in a nicer way.

This is not to say that Mr. Obama hasn’t made any intellectual progress across his 32 months in office. He now admits the damage that overregulation can do, though he can’t do much to stop it without repealing his own legislative achievements. He now acts as if he believes that taxes matter to investment and hiring, at least for the next year. And he now sees the wisdom of fiscal discipline, albeit starting only in 2013. Yet the underlying theory and practice of the familiar ideas that the President proposed last night are those of the government conjurer. More targeted, temporary tax cuts; more spending now with promises of restraint later; the fifth (or is it sixth?) plan to reduce housing foreclosures; and more public works spending, though this time we’re told the projects really will be shovel-ready.

And let’s also note that Obama had the gall to demand that Congress immediately enact his plan – even though he hasn’t actually produced anything on paper!

And then, for the cherry on the ice cream sundae, he says he wants the so-called supercommittee to impose a bunch of class-warfare taxes to finance his latest scheme.

What began as tragedy has now become farce.

If you didn’t see it when I posted it a month or so ago, here’s the video I did last year when Obama was proposing a second faux stimulus. Now that he’s on his fourth of fifth jobs-bill/stimulus/growth-package/whatever, it’s worth another look.

Though I must confess that I made a mistake when I put together this video. I mistakenly assumed the economy would have at least managed to get back to a semi-decent level of growth. More confirmation that economists are lousy forecasters.

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Obama’s Failure on Jobs: Four Damning Charts

President Obama may have a buddy-buddy relationship with big labor, but he’s no friend to ordinary workers. Here are four damning pieces of evidence.

1. The unemployment rate remains above 9 percent according to the Labor Department data released on Friday.

This is about 2-1/2 percentage points higher than Obama promised if would be at this stage if we adopted the failed stimulus.

This is a spectacular failure.

2. Black unemployment has jumped to 16.7 percent.

I’ve already commented on how Obama has produced bad results for the African-American community, and the joblessness numbers are rather conclusive.

What makes that figure especially remarkable is that the black unemployment rate during the Obama years is more than 50 percent higher than it was during the Bush years.

3. More than 40 percent of the unemployed have been out of work for more than six months.

These bad numbers almost certainly are caused, at least in part, by the unemployment insurance program – as even senior Democrat economists have acknowledged.

4. Millions of people have dropped out of the labor force, dropping the employment-population ratio to the lowest level in decades.

Here’s the chart I posted last month. It hasn’t changed, and it’s perhaps the clearest evidence that Obama’s policies are crippling America’s long-run economic outlook.

All four of these charts are bad news. But the economy periodically hits a speed bump. The real problem is not bad numbers, but the fact that bad numbers have persisted for several years.

And the really bad news is that there is little reason to expect a turnaround given the current Administration’s affinity for bigger and more burdensome government.

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The Two Obama Job Disasters

We all know about the wretched failure of Obama’s stimulus, and we can update the chart showing that the joblessness rate is two-and-one-half percentage points higher than the White House claimed it would be at this point if we flushed $800 billion down the Washington rat-hole.

But we also should pay attention to the second Obama jobs disaster. This chart shows the employment-population ratio from the Department of Labor, and it reveals that the number of people participating in the labor force has fallen off a cliff since 2008.

The decline began during the big-government Bush years, so Obama does not deserve all the blame. But we can say that his policies have hindered the economy’s natural tendency to bounce back from a downturn.

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With Terrible New Job Numbers, Can We Finally Say Obamanomics Has Failed?

Actually, Obamanomics already has failed. It didn’t work for Hoover and Roosevelt. It didn’t work for Bush. It isn’t working in Europe. And now it’s failing for Obama.

It doesn’t matter what you call it or when the policies are imposed, expanding the size and scope of government is bad for prosperity. So the real question is when will the establishment press finally admit that Obamanomics has failed?

The unemployment numbers released today certainly will not be easy to spin. Here’s the chart I periodically update, showing the actual unemployment rate compared to what the White House claimed would happen if we flushed $800 billion down the Washington rathole.

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Who Needs Krugman, Summers, and the San Francisco Fed When You Have a Ramirez Cartoon?

I don’t now why I bothered spending all that time perusing the writings of Paul Krugman and Larry Summers in order to produce my previous blog post when this Michael Ramirez cartoon makes the same point in a much simpler way.

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Why Do Democrats (and Republicans) Want More Unemployment?

The two main political parties are sniping at each other about the just-concluded tax deal, largely because Republicans are happy and Democrats are displeased that all of the 2001/2003 tax cuts are being extended for all taxpayers.

Almost nobody is paying attention to the new spending that is in the agreement, however, most notably the 13-month extension of unemployment benefits. And to the extent anybody is paying attention, a small handful of fiscal conservatives wanted to offset that new spending by reducing spending someplace else.

That sentiment is laudable, but somebody should be pointing out that this policy actually is bad news for workers. Here are some excerpts from a Wall Street Journal story, which reports on a study from the San Francisco Federal Reserve Bank.

A recent study by the Federal Reserve Bank of San Francisco found the unemployment rate at the end of 2009 would have been nearly half a percentage point lower—9.6%, instead of 10%—if jobless benefits hadn’t been extended beyond their usual 26 weeks to as much as 99 weeks. …The extension of jobless benefits is likely to worsen that trend for at least several months. For one, individuals not actively searching for work or willing to take available jobs may claim they are unemployed in order to receive benefits. That could artificially boost the size of the labor force, which is used to determine the unemployment rate. Another concern, as the San Francisco Fed notes, is that the extension of jobless benefits may “reduce the intensity” with which the unemployed search for work. Longer term, this could lead to a higher level of structural unemployment in the economy as workers’ skills erode.

Some leftists may think this is propaganda from free-market purists, yet the San Francisco Fed certainly does not have a reputation for libertarian views. Nonetheless, perhaps it would be a good idea to see what some other people have to say. Here’s what one well-known economist wrote in a textbook.

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.

Was this Milton Friedman? Ludwig von Mises? Nope, the author of this mean-spirited right-wing bile is Paul Krugman. And here’s something else written by an economist about the impact of unemployment benefits.

Empirical evidence shows that two causes are welfare payments and unemployment insurance. …unemployment insurance increases the measure of unemployment by inducing people to say that they are job hunting in order to collect benefits. The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a “reservation wage”—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer. …Unemployment insurance also extends the time a person stays off the job. Clark and I estimated that the existence of unemployment insurance almost doubles the number of unemployment spells lasting more than three months. If unemployment insurance were eliminated, the unemployment rate would drop by more than half a percentage point, which means that the number of unemployed people would fall by about 750,000. This is all the more significant in light of the fact that less than half of the unemployed receive insurance benefits, largely because many have not worked enough to qualify.

Who wrote this? A Tea Party fanatic? A knuckle-dragging GOP Congressman? Hardly, this passage was penned by Larry Summers, the outgoing Chairman of Barack Obama’s National Economic Council.

Given their partisan leanings, you won’t be surprised that Krugman and Summers now semi-disavow their academic writings on this issue, claiming that somehow their analysis does not apply in the current situation. But the bottom line is that incentives matter. If you pay people to remain unemployed, they will have less reason to find a job. The only real issue is the degree to which unemployment benefits increase joblessness.

This doesn’t imply that lawmakers should do nothing about unemployment, but it does suggest that their focus should be on pro-growth policies that will facilitate job creation. Permanently lower tax rates would help, as would reduction in government spending so that more resources would be available for the economy’s productive sector. Trade liberalization and deregulation also would be a good idea.

Unfortunately, all these ideas reduce the power of the political elite, so they are not nearly as popular in Washington as unemployment benefits.

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How’s that Stimulus Working, Mr. President?

The Bureau of Labor Statistics announced this morning that the unemployment rate jumped to 9.8 percent last month. As you can see from the chart, the White House claimed that if we enacted the so-called stimulus, the unemployment rate today would be about 7 percent.

It’s never wise to over-interpret the meaning on a single month’s data, and it’s also a mistake to credit or blame any one policy for the economy’s performance, but it certainly does seem that the combination of bigger government and more intervention is not a recipe for growth.

Maybe the President should reverse course and try free markets and smaller government. Here’s a helpful six-minute tutorial.

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Obama’s Job-Killing Policies: A Picture Says a Thousand Words

The new unemployment data has been released and it’s not a pretty picture. Literally and figuratively. This image is all we need to know about the success of President Obama’s big-government policies. The lower line is from a White House report in early 2009 and it shows the level of unemployment the Administration said we would have if the so-called stimulus was adopted. The darker dots show the actual monthly unemployment rate. At what point will the beltway politicians concede that making government bigger is not a recipe for prosperity?

They say the definition of insanity is doing the same thing over and over again while expecting a different result. The Obama White House imposed an $800-billion plus faux stimulus on the economy (actually more than $1 trillion if additional interest costs are included). They’ve also passed all sorts of additional legislation, most of which have been referred to as jobs bills. Yet the unemployment situation is stagnant and the economy is far weaker than is normally the case when pulling out of a downturn.

But don’t worry, Nancy Pelosi said that unemployment benefits are stimulative!

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A Slam-Dunk Comparison

Both Ronald Reagan and Barack Obama entered office during periods of economic misery. But they adopted dramatically different solutions. Reagan reduced the burden of government and Obama increased the burden of government. So which approach worked best? In his Washington Times column, Richard Rahn compares the economy’s “recovery” performance under both Presidents. As you can see, Reaganomics is much better than Obamanomics.

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Bush, Pelosi, and Reid Deserve Scorn for Destroying Jobs for Teenagers

Anybody with an IQ above room temperature understands that companies only hire workers when they expect to generate net revenue (i.e., the total receipts associated with a new worker are expected to be higher than the total costs). That’s why it was so reprehensible for Congress to approve a 40-percent hike in the minimum wage – a step that was guaranteed to kill jobs. The Wall Street Journal’s editorial page reports on new research showing 100,000-plus jobs were wiped out. This awful legislation was approved in 2007, and all politicians associated with that choice should be ashamed of themselves.

Economic slowdowns are tough on many job-seekers, but they’re especially hard on the young and inexperienced, whose job prospects have suffered tremendously from Washington’s ill-advised attempts to put a floor under wages. In a new paper published by the Employment Policies Institute, labor economists William Even of Miami University in Ohio and David Macpherson of Trinity University in Texas find a significant drop in teen employment as a direct result of the minimum wage hikes. The wage hikes were implemented in three stages between 2007 and 2009, and not all states were affected because some already mandated a minimum wage above the federal requirement. But for the 19 states affected by all three stages of the federal wage increase, “there was a 6.9% decline in employment for teens aged 16 to 19,” write the authors. And for those who had not completed high school, “we estimated that the hikes reduced employment by 12.4%,” which translates to about 98,000 fewer teens in the work force. After isolating for other economic factors and broadening their analysis to include all 32 states affected by any stage of the federal wage increase, the authors conclude that “the federal minimum-wage hikes reduced teen employment by 2.5% translating to approximately 114,400 fewer employed teens.”

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Federally-Funded Job-Training Programs Don’t Work

Kudos to the New York Times for actually looking at the evidence and publishing a story exposing the costly failure of job-training programs financed by the federal government. I also couldn’t help but note that the Obama Administration is claiming that the programs are a success. Not because lots of people are getting jobs, but because many more people are signed up for the program. That kind of upside-down thinking is typical of Washington, where success is defined by the number of people lured into government dependency.

Hundreds of thousands of Americans have enrolled in federally financed training programs in recent years, only to remain out of work. That has intensified skepticism about training as a cure for unemployment. Even before the recession created the bleakest job market in more than a quarter-century, job training was already producing disappointing results. A study conducted for the Labor Department tracking the experience of 160,000 laid-off workers in 12 states from mid-2003 to mid-2005 — a time of economic expansion — found that those who went through training wound up earning little more than those who did not, even three and four years later. “Over all, it appears possible that ultimate gains from participation are small or nonexistent,” the study concluded. …Labor economists and work force development experts say the frustration that frequently results from job training reflects the dubious quality of many programs. Most last only a few months, providing general skills without conferring useful credentials in specialized fields. Programs rarely involve potential employers and are typically too modest to enable cast-off workers to begin new careers. Most job training is financed through the federal Workforce Investment Act, which was written in 1998 — a time when hiring was extraordinarily robust. …The Obama administration argues that expanded job training has already delivered success. …Last year, the number of laid-off workers in job training reached 241,000, up from about 124,000 the year before, according to the Labor Department. …Experts harbor doubts about the reliability of Labor Department numbers, which are derived from reports by state agencies that collect data from community colleges and employment offices whose training funds are dependent upon reaching benchmarks. Twice the Labor Department had to correct the data it supplied for this article.

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Karl Rove Has No Shame

The fault line in American politics is not really between Republicans and Democrats, but rather between taxpayers and the Washington political elite. Here is a perfect example that symbolizes why economic policy is such a mess. President Bush’s former top aide, Karl Rove, makes the case in the Wall Street Journal that the Obama Administration has been fiscally irresponsible. That’s certainly true, but as I’ve pointed out on previous occasions (here and here), Rove has zero credibility on these issues. In the excerpt below, Rove attacks Obama for earmarks, but this corrupt form of pork-barrel spending skyrocketed during the Bush years. He attacks Obama for government-run healthcare, but Rove helped push through Congress a reckless new entitlement for prescription drugs. He attacks Obama for misusing TARP, but the Bush Administration created that no-strings-attached bailout program. These are examples of hypocrisy, but Rove also is willing to prevaricate. He blames Obama for boosting the burden of government spending to 24 percent of GDP, but it was the Bush Administration that boosted the federal government from 18.2 percent of GDP in 2001 to 24.7 percent of GDP in 2009. Obama is guilty of following similar policies and maintaining a bloated budget, but it was Bush (with Rove’s guidance) that drove the economy into a fiscal ditch.

The president’s problem is largely a mess of his own making. Deficit spending did not begin when Mr. Obama took office. But he and his Democratic allies have supported, proposed, passed or signed and then spent every dime that’s gone out the door since Jan. 20, 2009. Voters know it is Mr. Obama and Democratic leaders who approved a $410 billion supplemental (complete with 8,500 earmarks) in the middle of the last fiscal year, and then passed a record-spending budget for this one. Mr. Obama and Democrats approved an $862 billion stimulus and a $1 trillion health-care overhaul, and they now are trying to add $266 billion in “temporary” stimulus spending to permanently raise the budget baseline. It is the president and Congressional allies who refuse to return the $447 billion unspent stimulus dollars and want to use repayments of TARP loans for more spending rather than reducing the deficit. It is the president who gave Fannie and Freddie carte blanche to draw hundreds of billions from the Treasury. It is the Democrats’ profligacy that raised the share of the GDP taken by the federal government to 24% this fiscal year. This is indeed the road to fiscal hell, and it’s been paved by the president and his party. 

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More Unemployment Is the Key to Stimulus!

Nancy Pelosi is being appropriately mocked for her strange assertion that subsidizing unemployment is a great way to “stimulate” the economy, but keep in mind that this she is just mindlessly regurgitating standard Keynesian theory. Here are two videos. The first is Pelosi’s ramblings and the second is my analysis of Keynesian economics. I hope my words are more convincing.

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