In the Wall Street Journal, economist Robert Barro makes the case against the 99-week extension for unemployment payouts:
In the past, this change entailed extensions to perhaps 39 weeks of eligibility from 26 weeks, though sometimes a bit more and typically conditioned on the employment situation in a person's state of residence. However, we have never experienced anything close to the blanket extension of eligibility to nearly two years. We have shifted toward a welfare program that resembles those in many Western European countries.
Barro proposes that extended benefits are contributing to the high unemployment rate by giving people incentive to stay unemployed. Various economists respond with raspberries. EconLog's Arnold Kling says the disincentive has been negligible, but suggests continuing the dole even after the chômeur has found a job, so that you’re at least eliminating the disincentive to look for work.
Public policy scholar Robert Reich gets his shorts in a bind:
In theory, Barro is correct. If people who lose their jobs receive generous unemployment benefits they might stay unemployed longer than if they got nothing. But that’s hardly a reason to jettison unemployment benefits or turn our backs on millions of Americans who through no fault of their own remain jobless in the worst economy since the Great Depression.
Yet moral hazard lurks in every conservative brain. It’s also true that if we got rid of lifeguards and let more swimmers drown, fewer people would venture into the water. And if we got rid of fire departments and more houses burnt to the ground, fewer people would use stoves. A civil society is not based on the principle of tough love.
Lifeguards do present a moral hazard problem, but not the one Reich thinks. Beach patrols are a cheap way for municipalities to claim the right to restrict access to public beaches. The city takes on liability on behalf of the shoobs, and in exchange the shoobs have to pay to get on the beach. It's a nice racket, but you would not see a large increase in drownings if all the lifeguards were sent back to their sandy shacks. You would see some! But if saving lives were the only benefit, and maintaining lifeguards were the only cost, nobody would maintain lifeguards. (Different economics apply to pools at hotels, apartment buildings and other private enterprises -- which actually can get their asses sued off.)
Reich objects that Barro is underestimating the economic hyperpocalypse:
Barro argues the rate of unemployment in this Great Jobs Recession is comparable to what it was in the 1981-82 recession, but the rate of long-term unemployed is nowhere as high. He concludes this is because unemployment benefits didn’t last nearly as long in 1981 and 82 as it they do now.
He fails to see – or disclose – that the 81-82 recession was far more benign than this one, and over far sooner. It was caused by Paul Volcker and the Fed yanking up interest rates to break the back of inflation – and overshooting. When they pulled interest rates down again, the economy shot back to life.
First, "Great Jobs Recession"? Reich -- who is not a bad writer -- can do better than that.
Second, Barro addressed the supposed severity of the current recession in his original piece:
This perspective is odd on its face because, even at the worst of the downturn, the U.S. labor market featured a tremendous amount of turnover in the form of large numbers of persons hired and separated every month.
For example, the Bureau of Labor Statistics reports that, near the worst of the recession in March 2009, 3.9 million people were hired and 4.7 million were separated from jobs. This net loss of 800,000 jobs in one month indicates a very weak economy—but nevertheless one in which 3.9 million people were hired. A program that reduced incentives for people to search for and accept jobs could surely matter a lot here.
But could reduced incentives really matter if there were fewer jobs available at the end of the month than there were at the beginning?
Probably a little bit, because businesses and jobs also get created out of desperation: Yes, we all know that when you are on unemployment you're finishing up that graphic novel or finally getting that silkscreening business underway, but there's nothing like no check in the mailbox to make you, in the words of America's two greatest economists, "put down your crusty bong for ten minutes and draw up some sort of plan." The business plan can be as simple as standing on a street corner seeking paid sex or day labor, but you are a lot more likely to make it if there is real consequence attached to spending your whole day with Spike’s Hawaii Five-O marathon.
But at the national scale Barro is looking at, it’s not cricket to gloss over the real softness in the job market. Some people – most people – are just born to be employees, and they’re not going to be able to do that as long as the streets in my town, and probably yours, remain lined with For Lease signs.
There’s a simpler argument against unemployment extension: Nobody can afford it. Not Albany, not D.C., not Sacramento, and not Topeka. We’re out of money. So yes, as heartless as it sounds, we should be cutting unemployment even to those fantastically goodhearted people throughout this stout land who are pure as the unsunned snow yet really can’t find a job. It’s not tough love; it’s sad love. Outside the world of school, where Reich has spent so much of his career, most problems don't have solutions.
Related: What has Barro to fear from Robert Reich when he's already suffered the slings and arrows of Pauly Krugnuts?