Friday, April 16, 2010

Quote of the day

"The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a 'reservation wage'—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase [the] reservation wage, causing an unemployed person to remain unemployed longer."

What follows is not going to be one of our beloved Milton Friedman videos because the quote above did not come from him or any of the other usual supply-side suspects but rather one of President Obama's chief economic advisers, Larry Summers.

As Congress is considering pushing the duration of unemployment benefits out to 99 weeks, studies, facts on the grounds and simple human psychology don't support the fact that unemployment benefits actually put people back to work.

Alan Reynolds of the Cato Institute has found that the average unemployment episode rose from 10 weeks before the recession to 19 weeks after Congress twice previously extended jobless benefits—to 79 from 26 weeks.

Even the Brookings Institute, which will never be confused with Heritage Foundation, concluded that the jobless insurance extensions "correspond to between 0.7 and 1.8 percentage points of the 5.5 percentage point increase in the unemployment rate witnessed in the current recession."

And another Obama economic advisor, Alan Krueger concludes from a 2008 study that "job search increases sharply in the weeks prior to benefit exhaustion" which is a concept that we need neither an economic advisor nor a study to realize as we've been there-done that.

Again, if one is being paid not to work, what is then the incentive to work?

This administration's policies have been all about putting off, delaying or simply denying the pain that comes with bouncing back out of a recession.

Compassion is a wonderful thing but all too often when practiced by the government it morphs into a cheap political tool that almost without exception stunts individual initiative that is at the heart of a robust economy.

Casting wider the welfare net does not make for an economic recovery.