A Response To Conservative Camel

(The original blog post I'm responding to is posted on Conservative Camel.)

Humphrey,

I came across your blog post while doing some research on S. 3706. You've written a thoughtful critique.

Please allow me to offer a rebuttal to some of the points you've made:

You've summarized the bill's provisions fairly and accurately. Senator Stabenow did sponsor the bill, and as of the August recess, it has eleven co-sponsors, including the Senators you mentioned.

You've speculated that Senator Stabenow picked a cutoff unemployment rate of 7.5% to benefit Democrats in the midterm elections and to benefit President Obama in 2012. It's certainly a possibility, but another possibility is that 33 states and the District of Columbia all have unemployment rates higher than 7.5%.

Consider the road the bill has to travel: it's currently in the Senate Finance Committee, but not on their legislative calendar. It will have to get onto their calendar, be reported out of committee, be scored by the CBO, pass the full Senate (after overcoming a Republican filibuster), pass the House, go through the reconciliation process and land on the President's desk in time to have an effect on the midterm elections. The odds of that happening in the fall term, which will only last 12 legislative days before the next break, are, unfortunately, slim to none.

Perhaps the simple act of introducing the bill will have some electoral benefit - that's a fair point to argue, since it sends the message that Senator Stabenow and her co-sponsors are "doing something." By the same token, though, the Senators on the Senate Finance Committee have already done something: they, along with the full Senate, have cast twelve votes on bills to extend emergency unemployment compensation, and the record of those votes is very, very clear.

Looking to the second part of your speculation, that passing S. 3706 will benefit President Obama in the Electoral College come 2012: yes, it will. As a general rule, anything that helps the economy benefits the sitting Administration. But was the 7.5% cutoff specifically chosen because it will benefit the Obama Administration? Only if you think that the 124 electoral votes in states like Texas, Georgia, Tennesee and the other red states in the list would swing to the blue column because of this bill, and that the 50 electoral votes from blue states under the 7.5% threshold will stay blue.

The next two points you make are the two that are least supported by evidence.

The first is that "many have started to refer to unemployment as 'funemployment.'" The term gained currency in 2004, several years before the current recession. It's telling that the blogger who popularized the term made this announcement over a year ago in their very last blog post:

And now, finally, I have a job.

Today, "Comment of the Day: Not-So-Funemployment" is more the rule than the exception.

The second point you make is that "many of the unemployed are weighing the relaxation of going to the beach or playing golf and collecting unemployment benefits against the drudgery and pay of some job that might be available."

I would love to see your source.

Many of the unemployed are quite literally killing themselves. Quoting an article by Annie Lowery in the Independent:

The unemployed commit suicide at a rate two or three times the national average, researchers estimate. And in many cases, the longer the spell of unemployment, the higher the likelihood of suicide.

I'm not sure if you understand the scope of the problem, and why a bill like S. 3706 is vital, but it boils down to three numbers:

  • 15 million. That's the number of unemployed people who are actively looking for work.
  • 3 million. That's the number of job openings across the nation.
  • 12 million. Fill every job opening, and that's how many people are left - to fill exactly zero job openings.

In your next paragraph, you conclude that "Unfortunately, our government is subsidizing laziness." That could not be further from the truth. When you say that "These extended unemployment benefit(s) de-incentivize people from stretching themselves, looking for work in another field or possibly starting their own business," you're right. Specifically, you're 1.6 weeks right.

Quoting from a recent study published at the Federal Reserve Bank of San Francisco's Economic Research site:

The similar increase in duration for the UI eligible and ineligible groups suggests that extended UI had only a limited impact on unemployment duration. As of the fourth quarter of 2009, the expected duration of unemployment had risen about 18.7 weeks for job losers and about 17.1 weeks for leavers and entrants, using the years 2006-2007 as a baseline. The differential increase of 1.6 weeks for job losers is the presumed impact of extended UI benefits on unemployment duration.

Other people, most notably Senator Kyl from Arizona, have tried to make the same "benefits are disincentives" point, but the evidence suggests otherwise.

You mention the possibility of unemployed people starting their own businesses. Based on survey data from the NFIB, "poor sales" is the chief concern of small businesses. Opening up more small businesses will only have the effect of increasing supply, not increasing demand: one more vendor in the marketplace is one more vendor competing for sales that aren't there. Yes, the newly-minted small business owner is technically no longer unemployed, but has their situation actually improved? I would contend that no customers is exactly the same as no paycheck.

Your next paragraph describes how S. 3706 extends provisions of the HIRE Act, and here, you're on very sound footing - you've accurately summarized the bill.

Next, you mention evidence that the HIRE Act is creating jobs: that's not just Senator Stabenow's assertion: that's the conclusion of a report published by the Treasury Department.

You go on to say that "once again, a Democrat fails to understand basic business principles." I think you may be overlooking a critical economic principle yourself - the principle of the externality:

Definition: An externality is an effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account.

Classic example of a negative externality: pollution, generated by some productive enterprise, and affecting others who had no choice and were probably not taken into account.

Example of a positive externality: Purchase a car of a certain model increases demand and thus availability for mechanics who know that kind of car, which improves the situation for others owning that model.

In this case, there is a negative externality present in the market: corporations are increasing profits by increasing efficiencies. That sounds great, until you realize that those gains in efficiency are coming at the cost of jobs. Less jobs means less people able to afford goods and services.

If the interests of corporate America are aligned with the rest of the country, both groups win: companies see a growing demand for their goods and services because consumers have sufficient purchasing power. Robert Reich captured the argument nicely:

The reality is this: Big American companies may never rehire large numbers of workers. And they won’t even begin to think about hiring until they know American consumers will buy their products. The problem is, American consumers won’t start buying against until they know they have reliable paychecks.

S. 3706 helps align corporate and workers' interests, in just the way you've described: by extending the provisions of the HIRE Act, which have been shown to create jobs. Far from a misunderstanding of business principles, it's a savvy application of them.

You end with a summary that is thisclose to the argument for passing S. 3706: more jobs creates more demand. (Your "cut personal and corporate taxes" call, however, misses the mark - tax bills are at their lowest level since 1950, and a tax cut for someone with no income, like an unemployed worker, won't affect them in any material way.) If the HIRE Act has been responsible for 5.6 million jobs, I submit that as evidence that Democrats are truly interested in creating jobs. By focusing on the long-term unemployed, Democrats are demonstrating that they understand that people out of work the longest are likely to need the most help getting back to work. By creating a fifth tier of emergency unemployment compensation, Democrats are demonstrating that they understand the historic circumstances America is facing. Businesses receive tax breaks and credits for hiring and keeping employees: workers get the paychecks/benefits they desperately need. Economic demand rises to meet supply. Positive externality.

Comments

  1. I am a 59 year old African American female. I have worked since I was 17 years old. My parents didn't even WANT me to work while I was in college (17-21)because they were afraid my grades would suffer. So many years later, here I am unemployed for 25 months. My savings and 401K are gone, I'm a 99er and I have no idea how I'm going to survive on the less than $50 I have in my bank account. I have no husband, children or family to turn to. I'd love to start work TOMORROW. I'm a librarian and no one is hiring librarians. I don't have the money to take classes in ANYTHING, though I go online lookng for ways to update my skills. I cannot survive on a $10 an hour job. I did the math: I could not pay even my rent on such a salary, which means I would be homeless. I've paid my taxes, my Social Security and my Unemployment for 47 years. How dare anyone say I'm lazy, malingering and leeching off the system.

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  2. By the way, I left this part out: From the time I was 12, I had odd jobs babysitting, volunteering as a Junior Candystriper and teaching sewing and crafts to inner city kids. My parents insisted that I not take my advantages for granted so while I wasn't always getting paid, I've actually been "working" since the age of 12. Thus my total of 47 years.

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  3. @La Belle Creole -
    Check out a program called the Workforce Investment Act.

    I am also in my 50's and laid off for 18 months. I found that my Associates degree was no longer marketable in my field, but being unemployed I also did not have the money to go back to school to become more valuable in the job market.

    The unemployment insurance program usually cuts off payments to people who go back to school because they are not "available to work" -- however the unemployment bill makes an exception for those in "approved training programs" -- this refers to the Workforce Investment Act program.

    No one told me about this exception at the unemployment office, I had to ask about it myself, and was referred to the Workforce Investment office, which was literally 20 feet from the desk where I inquired about it, but as I said no one bothered to mention it until I'd been on unemployment several months.

    This program paid for me to go back to school and earn my degree. I graduate in December, just as my 79 weeks run out. (I won't get 99 weeks because EB expires in December also.) It covers my tuition, fees and books.

    With my upcoming degree completion I am now starting to look for a job again, and have already gotten interest from a couple of employers.

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