Fox & Friends continued to attack House Speaker Nancy Pelosi's statement that unemployment insurance stimulates the economy and advanced the false claim that unemployment insurance is a disincentive for people to look for jobs. In fact, economists agree that extending unemployment insurance has a strong stimulative effect on GDP and employment and does not discourage recipients from seeking jobs during a recession.
Fox & Friends continues to attack unemployment benefits as nonstimulative and discouraging job hunting
Fox hosts guest to deny that "unemployment check[s] creates jobs." On the July 15 edition of Fox News' Fox & Friends, co-host Brian Kilmeade hosted Partnership Staffing Inc. CEO Bill Auchmoody, who claimed that unemployment benefits prevent unemployed workers from searching for jobs. During the segment, Kilmeade played Pelosi's comments and asked Auchmoody to comment. Auchmoody stated: "I don't know how an unemployment check creates jobs. You know, businesses create jobs. The economy and the government getting out of the way, in my opinion, helps create jobs."
Kilmeade: "Maybe" eliminating "unemployment benefits will get people to sober up" and get jobs. Referencing Senate Republicans who have blocked extending unemployment benefits, Kilmeade concluded the interview by telling Auchmoody that "maybe" the elimination of "unemployment benefits will get people to sober up and take some of your offers."
Economists agree unemployment benefits not a disincentive to search for work during economic downturn
Krugman: Charge that extending benefits makes unemployment worse during a recession is "dead wrong." In a July 4 op-ed, Nobel Prize-winning economist Paul Krugman wrote that some "honestly misinformed" people "who believe, for example ... that extending benefits would make unemployment worse" hold a belief that is "dead wrong." Krugman explains that although "it's a real effect when the economy is doing well ... it's an effect that is completely irrelevant to our current situation" because there are fewer available jobs. According to Krugman:
When the economy is booming, and lack of sufficient willing workers is limiting growth, generous unemployment benefits may keep employment lower than it would have been otherwise. But as you may have noticed, right now the economy isn't booming -- again, there are five unemployed workers for every job opening. Cutting off benefits to the unemployed will make them even more desperate for work -- but they can't take jobs that aren't there.
Labor economist Lawrence Katz says possibility of unemployment benefits extending joblessness isn't currently a concern due to the scarcity of jobs. In an August 2009 New York Times article, Harvard labor economist Lawrence Katz said that the claim that unemployment benefits prolong unemployment "should not be a concern now because jobs remain so scarce." From the Times article:
Traditionally, many economists have been leery of prolonged unemployment benefits because they can reduce the incentive to seek work. But that should not be a concern now because jobs remain so scarce, said Lawrence Katz, a labor economist at Harvard.
For every job that becomes available, about six people are looking, Dr. Katz said. "Unemployment insurance gives income to families who are really suffering and can't find work even if they are hustling to look," he said.
With the economy still listing, he added, a temporary extension can provide a quick fiscal stimulus. And, Dr. Katz said, when people exhaust unemployment and health insurance, many end up applying for disability benefits, which become a large, unending drain on the Treasury.
MarketWatch chief economist Irwin Kellner: "[T]here are now more than five applicants for every job. Clearly, this is not caused by more benefit checks." In a July 13 MarketWatch op-ed, chief economist Irwin Kellner wrote:
To the extent that duration of unemployment and benefit checks move together, it is a spurious correlation, like electric motors and school grades. Both may appear to correlate, but in actuality they are related to something else.
In the case of the duration of unemployment and number of benefit checks, both are really determined by the lousy economy!
Specifically, I am referring to the after-effects of the bursting of the housing bubble, the financial crisis and technological change, which resulted in the worst recession in 70 years and the highest overall jobless rate since the 1930s.
As a consequence there are now more than five applicants for every job. Clearly, this is not caused by more benefit checks.
Washington Post: Unemployment benefits are "probably not discouraging many people from accepting available work," because in "reality ... jobs [are] scarce." A July 13 Washington Post editorial also pointed out that low job openings make the argument that unemployment benefits keep workers from finding jobs irrelevant: "In theory, longer periods for drawing benefits reduce recipients' incentives to find work. In the current reality, with jobs scarce and unemployment benefits hardly lavish, the program is probably not discouraging many people from accepting available work."
Alan Greenspan: "When you're in a period of job weakness ... then obviously you want to be temporarily generous." In 2003, former Federal Reserve chairman Alan Greenspan said to the Joint Economic Committee:
Unemployment insurance is essentially restrictive because it's been our perception that we don't want to create incentives for people not to take jobs. But when you're in a period of job weakness, where it is not a choice on the part of people whether they're employed or unemployed, then obviously you want to be temporarily generous. We ought to be temporarily generous.
And I think that's what we have done in the past and it has worked well.
I think that because it is stringent in normal periods, that one should recognize that people who lose jobs not because they did anything and can't find new ones, you have a different form of problem, which means that you have to allow the unemployment system to be much broader and, indeed, that's what we need to do.
Economists agree that unemployment insurance has strong stimulative effect on GDP, employment
Krugman: "Aid to the unemployed creates jobs quickly." In his July 4 op-ed, Krugman wrote:
One main reason there aren't enough jobs right now is weak consumer demand. Helping the unemployed, by putting money in the pockets of people who badly need it, helps support consumer spending. That's why the Congressional Budget Office rates aid to the unemployed as a highly cost-effective form of economic stimulus. And unlike, say, large infrastructure projects, aid to the unemployed creates jobs quickly -- while allowing that aid to lapse, which is what is happening right now, is a recipe for even weaker job growth, not in the distant future but over the next few months.
CBO scores "increasing aid to the unemployed" as the highest-scoring policy proposal to stimulate economy. In a January 14 report on "Policies for Increasing Economic Growth and Employment in 2010 and 2011," the nonpartisan Congressional Budget Office (CBO) stated:
Policies that could be implemented relatively quickly or targeted toward people whose consumption tends to be restricted by their income, such as reducing payroll taxes for firms that increase payroll or increasing aid to the unemployed, would have the largest effects on output and employment per dollar of budgetary cost in 2010 and 2011.
According to a table in the report, CBO estimated that increasing aid to the unemployed would have the greatest effects on GDP per dollar of budgetary cost and the second highest cumulative effect on employment of the policy options considered.
Elmendorf: Policies such as unemployment insurance "have a significant impact on GDP." In January 2009, CBO director Douglas Elmendorf testified:
Transfers to persons (for example, unemployment insurance and nutrition assistance) would also have a significant impact on GDP. Because a large amount of such spending can occur quickly, transfers would have a significant impact on GDP by early 2010. Transfers also include refundable tax credits, which have an impact similar to that of a temporary tax cut.
A dollar's worth of a temporary tax cut would have a smaller effect on GDP than a dollar's worth of direct purchases or transfers, because a significant share of the tax cut would probably be saved. The nonbusiness tax cuts in H.R. 1 would reduce revenues much more in calendar year 2010 than in calendar year 2009 because much of the reduction in taxes would be realized by households when they filed their returns in 2010.
Zandi estimated that extending unemployment insurance benefits provides significant stimulus. In his July 24, 2008, House testimony, Mark Zandi, Moody's Economy.com chief economist and a former adviser to John McCain, rated "Fiscal Economic Bank for the Buck," defined as "One year $ change in real GDP for a given $ reduction in federal tax revenue or increase in spending." "Extending UI Benefits" was the second-highest of 13 policy options, behind "Temporary Increase in Food Stamps." The Economic Policy Institute created the following graphic based on Zandi's figures:
Center on Budget and Policy Priorities: "The money gets spent fast and its effects spread through the economy." From an April 16 Center on Budget and Policy Priorities document:
Temporary increases in unemployment insurance benefits score high in "bang-for-the-buck" calculations of their economic impact as stimulus. The money gets spent fast and its effects spread through the economy. As a result of such policies, local businesses are less apt to lay off workers and cut back on orders from their suppliers during a downturn; and in the early stages of a recovery, they are more apt to hire additional workers and step up their orders. Policymakers have always ended these emergency UI benefits once a strong and sustainable economic recovery is underway.
Joseph Stiglitz: Stimulus "should begin by strengthening the unemployment insurance system." In a January 23, 2008, op-ed, Nobel laureate Joseph Stiglitz wrote that "America's economy is headed for a major slowdown" and that "[t]he country needs stimulus." Proceeding to describe the "optimal package," Stiglitz recommended: "We should begin by strengthening the unemployment insurance system, because money received by the unemployed would be spent immediately."
Blinder: "Extending unemployment benefits is one of the best forms of stimulus we know." On July 2, NPR reported that former vice chairman of the Federal Reserve and Clinton economic adviser Alan Blinder "supports the effort to extend expiring unemployment benefits." NPR quoted Blinder as saying: "Extending unemployment benefits is one of the best forms of stimulus we know."
Martire: Stimulus from unemployment benefits "greater than any other fiscal action government can take." In a June 30 piece in the State Journal-Register of Springfield, Illinois, Center for Tax and Budget Accountability Executive Director Ralph Martire wrote:
As for the contention that extending UI encourages people to avoid finding jobs so they can stay on the public dole -- well, it's just plain goofy. In May 2010, the private sector created only 41,000 jobs. That's 72,000 less than what's needed to keep up with the demand generated by natural work-force growth, much less creating the positions needed for the unemployed to find work. No one's thumbing a nose at getting hired to live in luxury eating government cheese -- there simply are no private sector jobs available.
Perhaps the hawks have forgotten that consumer spending accounts for more than two-thirds of the nation's economy. The best consumers are low- and middle-income folks, who don't earn enough to save, so they spend their paychecks. That is, when they have paychecks. See, if they've lost their jobs and the private sector isn't creating jobs and the feds cut off unemployment benefits, their ability to spend drops to, well, nil. Which is why the amount of private sector economic activity stimulated by unemployment benefits is greater than any other fiscal action government can take. In fact, dollar-for-dollar, it's five times more stimulative than the Bush tax cuts.
Sure, the long-term deficit has to be dealt with -- but honestly and responsibly. Short-term, deficit spending -- particularly on things like unemployment insurance, food stamps, housing assistance and the like -- is creating jobs and saving the U.S. economy from disaster.
EPI's Mishel explains why unemployment insurance is "such good stimulus." In a June 10 hearing before the House Ways and Means Income Security and Family Support Subcommittee, the Economic Policy Institute's Lawrence Mishel testifed:
As I have explained, the only real option for increasing economic activity and consumer demand for goods and services is federal government intervention in the economy, specifically through more deficit spending. The safety net programs are a vital part of this picture.
The reason extending unemployment insurance is such good stimulus is that it gets money to people who are the most likely to have depleted their savings and thus tend to have no choice but to quickly spend essentially every dollar they receive on necessities found in their local economy. In other words, virtually every dollar spent on extending unemployment insurance benefits goes directly, and immediately, toward the purchase of local goods and services, providing an extremely efficient demand boost. Not only is extending and expanding UI benefits the right thing to do for the people hurt most by this economic downturn, it is also excellent economic policy.
CEPR's Schmitt: Unemployment insurance helps "sustain a community." In an April 28 article, McClatchy Newspapers reported:
And allowing workers to fall off the unemployment insurance rolls can have negative ripple effects, said John Schmitt, senior economist with the Center for Economic and Policy Research.
"It hits individuals hard, but it also hits their communities, and more broadly the country," Schmitt said. "Having unemployment insurance benefits can help sustain a community through a very difficult time."
Fox correspondent agreed with Pelosi that in economic downturn, unemployment insurance "is a job creator"
Garrett: Unemployment insurance is "a job creator when there are no other job creators out there." In a July 2 segment on Fox & Friends, guest co-host Alisyn Camerota asked Fox News senior White House correspondent Major Garrett, "[Pelosi]'s basically saying it injects cash into the economy. That is true. But it's a job creator?" Garrett responded:
GARRETT: It's a job creator when there are no other job creators out there. ... When you have a climate where pervasive attitude among potential job hirers, meaning employers, is that we're just going to hold pat, then you really have nothing else to do to fuel the economy other than provide stimulus. And if you give cash to unemployed workers, at least that's cash they can spend in their local economy. So from that limited perspective, if you have no other alternatives and no one is hiring, or hiring is very, very low or slack, then unemployment benefits do provide ready cash at the local merchants to keep those businesses afloat.