Monday, August 30, 2010

A brief, relatively undefended argument

I don't have a world of time today, but just wanted to briefly, as a skeptical economic conservative, pose a question to my readers, along with a couple arguments (informal, without full defense of sources, statistics et cetera) to go with it: what is the effect of unemployment insurance on the economy.

The first argument is actually not mine, but comes from the Wall Street Journal. In The Folly of Subsidizing Unemployment, Richard Barro presents and defends logically the case that "subsidizing" unemployment for longer leads to insufficient job search and job acceptance. He also argues that such an action, even in a recession, continues Obamas onward march towards a socialist welfare state.

My response is a "yes, but." I'm certainly an economic conservative, but I'm also a realist, and I know that the acceptance of ANY degree of welfare distorts the perspectives and behavior of the entire population. While I do believe an argument against unemployment insurance to any degree (and it would have to be a "remove all" to evoke the necessary change in behavior) would have made sense in 1911, the year is 2010, we're in a recession, and the large bank accounts, investments, community and family support, and austere spending behavior that accompany a libertarian society are not in place and will not be in place for quite some time to come. Such changes would be better implemented in good times economically, so that private charity and the community can handle the burden of the transition well, caring for their poor (in a reasonable, authoritative manner of course) at a time when they can. So what is my argument?

My argument is that you don't want an excessive amount of job acceptance, or job search. I'll explain my case with an example: you have a pHD level Mathematician who has been trained for years in the development of algorithms and their implementation in computers, both at the hardware and software level, and the instruction of students. He loses his job at the university, due to a cut in funding, a common effect of recessions and political disagreements about the allocation of research funds. Facing a deadline on his unemployment benefits, he takes a job as a waiter at a fancy restaurant, earning about 40 grand a year, using his academic manners and knowledge as the requisite refinement.

In result, America has lost a mathematician, something we always have too little of, along with all the research and its improvements to industry that would've come through the completion of his life, and the availability of a well-paid, family-wage job for a less educated member of society, most likely leading to that members children being raised in poverty and a toxic environment where they themselves are unable to grow to full economic potential. While Barro is most likely correct in decreasing the rate of unemployment, it is the damage to the economy inflicted by the unemployment, and not its actual amount, that must be considered. Unemployment might be only 7%, but the damage to the human capital of society, both in terms of lost educated labor and advancement potential of the poorer classes, and the resulting devaluation of assets, efficiency and industrial production, could equal more then that under normal conditions.

Exactly how much more? I don't know, but it is a question that would need to be answered before the nation proceeds with such logic. We must act in foresight.

Furthermore, in a severe recession where current indicators (including government debt) seem to be indicating only a further downward spiral, the situation outlined above with the pHD level mathematician is actually very realisitic under any number of weeks less than what Obama has extended unemployment to. Still, it needs to be understood, and possibly bankrolled against with government bonds to hold congress to contract, that this is a wholly temporary condition and, in good times, unemployment benefits will be completely nixed to begin a positive transformation in behavior at a time when it can happen.

Unemployment benefits cannot be seen as a long-term solution, as Barro also states correctly that the tax burden of increasing unemployment payout WILL magnify a recession, leading to more ending up unemployed. We need to go back to savings and community, but we can't do it now any more then a man being dragged under by water moccasins can fight them off his back. We will have to wait, and pray, and curse FDR's name, but action, it will and must wait.

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