21 2010

Reasons to Extend Unemployment Benefits

From the left, Ezra Klein: the Bush tax cuts certainly majorly increased the deficit [CBO], and it’s unfair for the GOP to demand that the unemployment extension be deficit-neutral.

Further, if tax cuts don’t need to be paid for because they generate so much taxable economic activity that they pay for themselves, then neither do unemployment checks. After all, the two work very similarly: A tax cut puts more money in your pocket. Unemployment insurance puts more money in an unemployed person’s pocket. The difference is that the unemployed person is likelier to spend that money, which will generate more taxable economic activity than if that money is saved. That’s why Mark Zandi, an adviser to John McCain’s presidential campaign, estimated (pdf) that a dollar spent extending the Bush tax cuts would generate .32 cents of taxable economic activity, while a dollar spent on unemployment benefits would generate $1.61 of taxable economic activity.

In other words, using the theory under which tax cuts pay for themselves, unemployment benefits are a lot likelier to pay for themselves. …

More reasons to extend them:

  • Ending benefits doesn’t magically create jobs
  • Among those who can’t find work, spending will drop to nothing, depressing local economies
  • Walked away from mortgages and desperately-liquidated assets will destroy tremendous amounts of long term value for short-term needs.

From the right, Megan McArdle:

…in recessions, the length of time for which people need “temporary” assistance stretches out. That means that the government has to respond with temporary benefit extensions. These aren’t just good for the people who are unemployed; it’s also good for us. Unemployment assistance is one of the “automatic fiscal stabilizers” that all but the most hard-nosed conservative economists agree help smooth the business cycle in modern industrial countries. Indeed, it’s one of the most effective forms of stimulus we have.

… [Not extending benefits would be] terrible economic policy–suddenly cutting off the taps would have nasty knock-on effects on the economy. And while it’s a lot of money, it’s one of the few government programs that pretty much unequivocally improve the net welfare of the American people. If Bunning wants to hold up something, how about finding some useless defense appropriations to complain about?

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