“It’s a recession when your neighbor loses his job; it’s a depression when you lose yours”

imagesHarry Truman said that, and it’s relevant to the current debate over extending unemployment insurance (UI). The basic UI program is meant to tide people over during a bout of joblessness that’s assumed to be temporary – not as a welfare program for nonworking people (the “idle” as some newspaper headlines unfortunately call them). Thus benefits run for a set time and then stop.

However, in recessions with high jobless rates, it’s become customary to extend UI for additional months. The extension that recently expired was the longest ever. Now Washington is debating a re-extension.

The logic of such extensions is actually hard to understand. Either UI is a welfare program or it’s not. This is the relevance of Truman’s quote. UnknownRegardless of national economic conditions, for the person losing a job, it’s catastrophic. Though it may be easier to find work when the unemployment rate is lower, that doesn’t make less awful whatever time is spent unemployed. People should be helped, if at all, to mitigate their individual suffering. It’s wrong to say, “We’ll help if there are many in the same boat. If not, tough luck.” We must decide whether any one person’s long-term unemployment merits societal help — period.

Advocates of extending benefits argue that it boosts the economy and promotes job growth – because (even if opponents are right that UI makes recipients less keen to seek work) they will spend the money given them, and this spending will be stimulative, creating jobs to meet the added demand for goods and services. This too doesn’t quite make sense. After all, if government putting spending money in people’s pockets is economically beneficial, why limit it to just the unemployed? images-1Even Americans with jobs would spend most of any money given them (the national saving rate being close to zero). If giving out money to spend is a good thing, why not give it to all those others too?

Here is the fallacy. If you earn money, by creating goods and services that people pay for, and then you spend that money, raising demand for still other goods and services, that does boost the economy. That virtuous circle is economic growth that makes everyone richer. It’s not the same when government gives you money to spend by borrowing it from China (and since we still run large deficits, any added dollar of government spending is effectively borrowed). images-2This doesn’t make us richer; in fact it makes us poorer (for a host of reasons, including the interest cost on the borrowings and the damage to the value of the dollar).

That’s not to say we shouldn’t extend UI. But we should do it because it’s humane, and not kid ourselves that it’s somehow a way to bootstrap into prosperity. Prosperity only ultimately comes from people productively employed, producing things for which others willingly pay.

And our worsening problem in this regard has to be faced. The 7% headline unemployment rate is only the tip of an iceberg. It doesn’t reflect people underemployed, doesn’t count those not looking for work and, importantly, doesn’t count the huge and growing disability rolls (which I’ve written about). Their health, in too many cases, is not the issue; a recent NPR report highlighted how in practice “disability” benefits are often given to people because they’re just plain unemployable. The percentage of the population in productive work has been inexorably falling, not only  due to those already mentioned factors, but additionally because we’re living longer and spending more years in retirement (while, at the other end, spending more years in school too).

images-3So we have ever fewer people working to generate the cash to support on their backs ever more non-working people. That growing gap can’t be made up by borrowing ever more money from China. Not least because China itself will soon face the same problem.

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14 Responses to ““It’s a recession when your neighbor loses his job; it’s a depression when you lose yours””

  1. Mac Says:

    One of the European countries used to have a four year unemployment benefit. They discovered that after a burst of people finding jobs in the first few months , the rate dropped to close to zero until shortly before the plan ended, where there was a second burst. They changed the law to three years and the second burst moved in a year.

    We are not borrowing most of the extra money Washington is spending today from the Chinese. It is something much more ominous. We are printing it. Therein lies the path to hyperinflation.

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