On June 29, 2010, Nebraska Senator Ben Nelson issued a press release on his website to explain his “nay” vote: “Unemployment benefits are needed and should be paid for.” Nelson states that “they (unemployment benefits) should be paid for and not add to the high federal deficit and national debt.” He says that he is “very sympathetic to the many Nebraskans who remain out of work and recognize that the federal government should extend unemployment benefits to help them.”
Nelson went onto explain why he would vote “nay” vote on the June 30th bill writing: “Some also say we need more emergency spending now to keep the recovery going. But in my view it could jeopardize the recovery and would add to our already enormous deficit, likely to be around $1.4 trillion for the second year in a row…. Congress should provide additional unemployment benefits but not as a bailout to the states that worsens the deficit and passes the bills onto our children.”
Unfortunately, Harry Reid voted against the bill, in a parlimentary maneuver, to allow it to come to vote again after the recess when the Senate finds a replacement for Senator Byrd. The Democrats have the two usual Republicans in their camp Snow and Collins to keep votes necessary to block a filibuster close (58 to the necessary 60 needed to block).
On July, 8, 2010, Economist Art Laffer offered the following: “The flaw in their (the Democrats) logic is that when it comes to higher unemployment benefits or any other stimulus spending, the resources given to the unemployed have to be taken from someone else. There isn’t a “tooth fairy,” or as my former colleague Milton Friedman repeated time and again, “there ain’t no such thing as a free lunch.” The government doesn’t create resources. It redistributes them. For everyone who is given something there is someone who has that something taken away.”
Are we to believe, as Krugman and the Keynesians would have us believe, that we can keep spending and borrowing and redistributing and there will be no long-term consequence to it? Are we to believe that there is some sort of hump that we must get past on the road to recovery that will make all this current spending appear reasonable in hindsight?
Or, are all of these temporary stop gaps going to eventually lead to a large long-term recession that would’ve been less damaging two years ago if we had simply allowed those institutions that we’re “too important to fail” to fall following the collapse that began in September of 2008. Our representatives are getting elected and re-elected with these stop gap measures, but when will we have to pay the piper?
Art Laffer has a decidedly different take than Paul Krugman and the Keynesians on this: “The most obvious argument against extending or raising unemployment benefits is that it will make being unemployed either more attractive or less unattractive, and thereby lead to higher unemployment. Empirical research supports this view.”
“The Democratic retort is that the economy today is so different from the past that we have to suspend our traditional understanding of economics. With five job seekers for every job opening, the unemployed are desperate for work and increasing unemployment benefits will have very little if any disincentive effect. This view hinges on a total change in employee behavior from “normal” times to the current period of “the Great Recession.”
“On the face of it, the idea that higher unemployment benefits won’t lead to more unemployment doesn’t make much sense. Imagine what the unemployment rate would look like if unemployment benefits were universally $150,000 per year. My guess is we’d have a heck of a lot more unemployment. Common sense and personal experience indicate higher unemployment benefits will make unemployment less unattractive and thereby increase unemployment even in the Great Recession. As the chart nearby clearly shows (see source), since the 1970s there’s been a close correlation between increased unemployment benefits and an increase in the unemployment rate. Those who argue that things are different today don’t have the data to back up their claims.
“My suggestion would have been to take all $3.6 trillion and declare a federal tax holiday for 18 months. No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound?”
Of course that sounds great to us. We would have more of our money to distribute and redistribute in our economy. Employers would have more profit, and more ability to hire as a result. The only ones damaged by such a plan would be our representatives for such a notion would take away their distributive and redistributive powers, and does anyone think that a current representative would vote to expose their irrelevance on the national stage? Does anyone honestly think that this current crop of politicians would deem it reasonable and sensible to lessen their power over the economy even for a short period of time? Most representatives would privately admit that Washington was at least partially responsible for causing the problem in the first place, but that doesn’t mean that they would take such a hands off approach to fixing it now. Even if they privately believed Laffer’s idea was a reasonable one they wouldn’t vote for such a measure, because that would expose the fact that they’re part of the problem?