Posts Tagged ‘unemployment’

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

January 12, 2014

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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America on Disability

April 20, 2013

Unknown-2NPR’s “This American Life” broadcast a report by Chana Joffe-Walt about the Disability system. It’s a real eye-opener. (click here; or, for a text version, here.)

The ranks of non-working people collecting government disability benefits have nearly doubled in 15 years, to 14 million. Yet they are ignored in employment/unemployment numbers. Every month we’re told how many jobs the economy added – but not how many people went on disability – usually more. (Thus while the “unemployment rate” (currently 7.6%) keeps going down, the percentage of people actually employed also declines.)

images-1Three big factors ought to be reducing disability rolls. The 1990 Americans With Disabilities Act aimed to remove barriers to their employment. Medical advances make more health conditions fixable or manageable. And thirdly, automation and a decline in physically demanding jobs, in favor of the service sector and desk jobs, should enable more people with health issues to work.

Yet despite all this the disability system is ballooning. Why? What NPR’s report makes clear is that it has, de facto, become a hidden welfare program. Disability benefits go to many people not because they physically can’t work but because they’re not employable. They lack the education and/or skills to participate in today’s economy. That’s their “disability.”

This outcome is promoted by what Joffe-Walt calls the “Disability-Industrial complex.” But who, you might ask, could profit from this? images-2Well – lawyers, for one. There’s a whole genre of firms that heavily advertise their specialty of winning disability benefits for clients. The system’s rules give such lawyers a direct cut of the government’s pay-outs.

NPR noted that in normal adversarial hearings (where I spent my career), a lawyer for one side is opposed by one representing the other. But in disability hearings, there is no one speaking up for the other side – for the government and its taxpayers who’ll have to pay if the claimant lawyer wins. No wonder those lawyers usually do win, making this practice so lucrative.

Another part of the Disability-Industrial complex is state governments. If someone’s on welfare, the state pays; on disability, the federal government pays. States have figured this out, and have mounted big efforts to move people from welfare to disability. One large private company makes its money helping states do this.

Disability recipient (colored finger disorder)

Disability recipient (colored finger disorder)

Now, you may also be surprised that a major part of the disability population is: kids.

It’s called “Supplemental Security Income,” and has grown sevenfold in three decades, to 1.3 million child recipients. They’re supposed to be disabled in getting through school. But they become cash cows for their parents. NPR profiled one kid who actually seemed to be thriving in school; and of course his mother wants him to; but not so much that the disability bureaucrats will notice and stop the payments.

I don’t want to imply people live high on the hog on disability benefits. The payments are small, they can’t earn any extra, so are really stuck in poverty. But meantime disability payments now consume a quarter of a trillion dollars annually, more than food stamps and conventional welfare combined. It’s a rotten picture all around.

In a democracy, government is supposed to do voters’ bidding, and they pay for it through taxes. But I don’t think voters and taxpayers were ever asked about this disability monster. It’s a key problem of modern government: programs mutating far beyond anything contemplated at their start, with no brake, no accountability. It just happens. (Well, in fact it doesn’t just happen – self-interested people like lawyers – and of course we’re all self-interested – make it happen for their own benefit.) And notice that in the recent “sequester,” things like air traffic controllers are being cut, but not programs like disability.

Unknown-1Paying for disability ultimately has to come from what actual working people earn and produce. And disability is just part of our larger economic challenge: an ever smaller population percentage actually working and producing, to pay for all those not doing so: the “disabled,” the welfare recipients, the unemployed, the kids in school till ever later ages, and of course the vast numbers living ever longer in retirement drawing pensions and racking up ever larger health care bills. All this on the backs of the shrinking core of people who produce.

As I’ve stressed till blue in the face, Unknown-3we can no longer tolerate an education system so crappy that millions don’t even finish high school and millions are relegated to lifetime “disability” benefits because they’re not employable. And how bizarre that with so many citizens not working, we’re so hostile to foreigners who want to come here to work. Without getting more people in productive employment, America will go bust.