Time to employ common sense

| December 30, 2013

John Hood Headshotby John Hood, John Locke Foundation and NC SPIN panelist. December 30, 2013.

According to official government estimates, paying people not to work for extended periods of time is good for the economy, because it encourages consumer spending. This is an excellent reason why you should not take official government estimates all that seriously.

To concoct such fanciful models is to think like my children did in their pre-teen years. When it came to money, they knew only that it bought things they liked — cheeseburgers, candy, and computer games. If more was required, Dad just went to the bank and got some. Who put the money in the bank in the first place? Who cares?

As they start to earn their own money, and to understand what it takes for Dad to earn money, the boys see things a little differently. (Not a lot differently, mind you. They are still teenagers.) Given limited time and opportunity to earn, you can’t accumulate unlimited dollars. So if you buy one good with a dollar, you can’t buy something else with the same dollar.

Unemployment insurance is a transfer program. It moves money from some pockets (current taxpayers or bond buyers) into other pockets (recipients). Unless current taxpayers or bond buyers were going to use their cash to kindle their Yuletide fire, the result of extending unemployment insurance benefits can’t be a net increase in spending. Instead, current taxpayers will spend less on goods and services, and bond buyers will spend less on investments in other sectors of the economy.

President Obama, desperate to change the subject from health care, is trying to pressure Congress into extending federal UI benefits yet again. Not surprisingly, most Democrats and liberal activists are cheering him on. More surprisingly, some Republicans and conservative activists say they are open to the idea. Even more surprisingly, some are citing North Carolina’s recent experience as supporting Obama’s push for extended benefits.

Faced with a multi-billion-dollar debt in North Carolina’s UI program, the General Assembly enacted changes during the 2013 session to bring the state’s benefits more in line with competing states and thus reduce future debt-servicing costs. Under federal rules, that meant that as of July, North Carolina could no longer participate in extended federal benefits.

Critics predicted economic disaster. Some claim to see it now. But that’s not what the preliminary evidence shows.

From July to November, North Carolina employers added nearly 40,000 new jobs. Civilian employment, a different statistic derived from household rather than employer surveys, rose by 22,000. The state’s unemployment rate dropped by 1.4 percentage points, to 7.4 percent, while the national unemployment rate dropped by only 0.6 percentage points.

Critics point out, quite correctly, that North Carolina’s labor force also declined during the period, by about 10,000 persons a month. But they seem not to have noticed that the labor force was declining at a somewhat-faster rate, about 13,500 persons a month, before North Carolina exited the extended-benefits program.

There are two possible ways for extended benefits to elevate a state’s unemployment rate. One way is to keep recipients in the labor force who would retire, move, go back to school, or otherwise exit the program without an in-state job. The other way is to discourage recipients from taking in-state jobs they might not relish.

North Carolina’s unemployment rate has clearly fallen significantly since July. Liberals want to attribute the drop entirely to the first cause. But as Wells Fargo economist Mark Vitner points out in a new analysis, the second cause — people taking available jobs — appears to be having a larger effect on North Carolina’s numbers.

Congress should reject the president’s lobbying for extended benefits. Unemployment insurance was designed to provide temporary benefits for those who, through no action of their own, suddenly find themselves without employment or sufficient savings. It was never intended as open-ended income support. Lengthy spells of unemployment will tend to lead to retooling, retraining, or relocation as long as people aren’t presented with perverse incentives.

North Carolina isn’t a pariah when it comes to unemployment insurance policy. It is a leader.

Category: NC SPIN Perspectives - Opinions from NC Leaders & Organizations

Comments (2)

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  1. Rip Arrowood says:

    It’s hard to debate greedy people without one’s feelings becoming involved…

  2. Norm Kelly says:

    I’d love to be able to claim that John is a mentor. Someone I know and respect enough to emulate him, to accept his knowledge and follow in his footsteps. Except, unfortunately, I do not know John. However, he is still a mentor, his intelligence and common sense are worth emulating.
    I find that I fall into the same trap as John. It’s a problem that conservatives in general tend to have. We like facts. We like information. We like to connect the dots, so to speak, and follow the lead of the facts to a logical conclusion. The challenge? Libs rely solely on feelings. Libs have no concept of what a fact is or how it impacts the discussion. (generally speaking. there are some confused libs who sometimes/on rare occasions find it necessary to acknowledge a fact, but it’s so infrequent as to not show up in the statistics. and when a fact is recognized by said lib, they tend to make excuses to explain it rather than recognizing it as an issue to be resolved. hence barack. libs make excuses for him rather than facing the fact that he is an incompetent boob.)
    So, John makes some valid, verifiable statements, drawing logical conclusions about the negative effect of paying extended unemployment benefits. If the socialists in the US would simply look to their European examples/leaders, they would see that these countries have already experienced this. Some of those countries have changed their unemployment programs and found that employment actually went up. Removing the incentive to sit on your butt has an odd result in that it forces people to get off their butts & start to take care of themselves once again.
    Except, since this is based on historical data, facts, and logic, it escapes people like Prince Harry, Queen Nancy, and His Honor Barack. And people in the media such as CNN, NBC of every flavor, editorials in the N&D, some other major news outlets, all politicians in California, and most residents of California – even the legal ones.
    How exactly does one debate with an opponent who refuses to take feelings out of the debate?