Posted by Joseph Y. Calhoun, III

Invictus at The Big Picture gets all upset about Republicans pointing out the obvious:

Paul Krugman, last Friday:

But that’s not how Republicans see it [unemployment benefits]. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position (although not joining his blockade): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

Dancing DeLay agreed:

Crowley pointed out that saying “people are unemployed because they want to be” is a “hard sell.”

DeLay responded: “Well, it is the truth.”

Without trotting out all manner of charts and graphs [BR: Ok, one chart] to demonstrate how absurd this position is, I’ll make one comment and ask a few questions:

Comment:  This position — at its core — essentially labels Americans as lazy ne’er-do-wells who’d just as soon live off society’s largesse than earn a living. Is that really a position any politician would want to take?  Does anyone else find that as offensive as I do?  Anyone know someone who’s living on UI and lovin’ it?

Question for Senater Kyl and Dancing DeLay:  How would you explain the epidemic laziness that apparently afflicts Americans exactly at business cycle peaks, which is then somehow miraculously cured at business cycle troughs?

Interestingly, the JOLTS data was released just yesterday, and we see that there are still well over five unemployed for every job opening (near the recent record of over six, though there was an improvement in the number of job openings).  The un- and under- employment rates speak for themselves.  Comments like these should really be beneath any reasonable level of civil discourse.  It is pathetic that they’re not.

Anyone who reads this blog or my weekly updates knows that I defer to no one when it comes to my contempt for politicians (especially assholes like Tom Delay) but this is a tempest in a teapot. Here’s the comment I left on the Big Picture website:

Invictus: Do you really not understand the concept of “at the margin”? These politicians are twits but there is a definite correlation between the length of joblessness and the generousness of jobless benefits. The anecdote above about the lady’s boyfriend is exactly what this is about. Saying that extending jobless benefits extends the length of unemployment does not mean that all people who are jobless are lazy. All it means is that there are workers at the margin who will remain unemployed longer for a variety of reasons if benefits are extended. It might be because they don’t want to take a job at lower pay than the one they lost or some other reason. If they have sufficient savings extended unemployment benefits might allow them to wait for the “perfect” job rather than taking whatever comes along. You might believe there is a social benefit to that and there may be, but it doesn’t change the fact that this type of behavior does happen with some small sample of the population. There are numerous studies demonstrating this effect if you’d take the time to search them out.

This is really pretty basic stuff and there are tons of studies which confirm the behavior:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=425572

http://ideas.repec.org/p/ces/ceswps/_1765.html

http://www.heritage.org/research/Labor/wm2759.cfm

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=537948

http://www.nber.org/papers/w2741

In other words, this isn’t particularly controversial stuff in the econ world.

Having said all that, I am not opposed to the extension of benefits in this case. The effects are at the margin and with unemployment this high are likely to be minimal. Yes, some will voluntarily extend their stay on the unemployment rolls but the vast majority are looking to get off as soon as they possibly can. But that doesn’t excuse lazy thinking on the part of Invictus.

Update: Invictus has responded:

Invictus Says:
March 10th, 2010 at 8:23 pm

@jyc3

Out of five, one’s from the Heritage Foundation, two from a prof who’s at the University of Chicago, confirming what I’d said about the politicization of data analysis. I’ll look at the other two.

However, as BR pointed out, when you’ve got record or near-record applicants/job-seekers for every job opening, it stands to reason that duration is going to increase and even those who aren’t lazy are going to have a tough time.

And

Invictus Says:
March 10th, 2010 at 8:36 pm

@jyc3

Excerpt of abstract from first of remaining two studies I go to look at: “…this program is targeted to individuals aged 50 years or older, living in certain eligible regions in Austria.”

I’m thinking a study involving a 50+ year old cohort in “certain eligible regions in Austria” might not be so applicable to the entire UI-collecting population of the United States. But, of course, I could be wrong. On to Study #5.

and

Invictus Says:
March 10th, 2010 at 8:58 pm

Speaking of studies:

Two recent studies have resurrected the idea of using UI insurance as economic stimulus. The Congressional Budget Office (CBO) reviewed vari­ous stimulus measures and concluded that UI pay­ments were one of the most effective means of stimulating the economy. In 2004, Mark Zandi released a macroeconomic study of fiscal policies that concluded that unemployment insurance ben­efits provided the greatest “bang for the buck.” He found that each $1 spent on additional UI bene­fits resulted in $1.73 of economic growth in the short run.

I note that Mark Zandi was an economic advisor to the presidential campaign of John McCain.

And I have responded in kind:

jyc3 Says:
March 10th, 2010 at 9:08 pm

Invictus: They used this program in the study to isolate the effect. One of the problems with these studies as with all studies of this nature is that you are working with a counterfactual. Since you don’t know what would have happened without the extension it is hard to isolate the exact effects of the study. Using examples such as the one in this study makes it easier to isolate the effect because it was targeted to a small group. That doesn’t invalidate the results of the study; if anything it makes them more relevant.

You are missing the point here – the effects are at the margin. That doesn’t mean they don’t exist and for you to say that this is beneath civil discourse is like saying we should just bury our heads in the sand when it comes to human behavior we don’t like. You seem to be saying that acknowledging that people do exist at the margin who respond to these incentives is somehow evil or wrong. It isn’t; it’s an acknowledgement of the way humans actually act. Unless I’m missing something, that is what the study of economics is all about. It’s important information to have and should inform policy in some ways. As I said in my blog post, I happen to agree with the extension of benefits in this case because the effects are extremely marginal due to the extreme degree of unemployment. That’s the compassionate thing to do at this point. But what would be the right thing to do if the unemployment rate was 7%? or 6%? or 5%? Maybe these studies might be useful in those cases and we shouldn’t ignore them.

You and others here are making an assumption about the motives of people who do these studies or use them. While Tom Delay and Jim Bunning may have a political axe to grind (although Bunning is retiring and Delay is out of office and unlikely to ever be elected to anything again), I don’t and I seriously doubt the researchers (with the possible exception of Heritage which is obviously partisan) who produced these studies do either. You are the one that tried to make a political point with your post by responding to what some stupid politician said. Of course the politicians are trying to score political points; so what. Barry runs money and so do I and the only thing we should want to know is what the effects of a certain policy are on the economy and the markets. That’s why this stuff is important; not so one side can score political points. Grow up.

and

jyc3 Says:
March 10th, 2010 at 9:20 pm

Invictus: Just to further make the point that you are the one trying to score political points here. You cite Zandi’s study above and point out that Zandi was an advisor to McCain as if that is somehow relevant. Whether the study is sound scholarship is totally irrelevant to who has employed Zandi as an advisor. I didn’t vote for McCain and frankly Zandi as an advisor would tend to make me less likely to vote for him anyway but that is irrelevant. And by the way, the link you provide is pretty good debunking of Zandi’s paper. Thanks for the link so I didn’t have to do it myself. Again, who cares about the politics? Are you interested in being a good analyst, a good investor or just a partisan hack? You can’t be both.

 

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