ECON 101 for a Liberal

The Blamestormer-in-Chief gave us another example how our President appears to be mentally handicapped when it comes to basic Economics and Mathematics.  In case you missed it, here is the quote from the Washington Examiner:

President Obama said that he will delay his vacation and keep Congress in session until the passage of his desired payroll tax cut and unemployment benefits extension — two proposals that Obama said would create more jobs than the Keystone XL pipeline that his administration recently delayed.

 “I would not ask anyone to do something I’m not willing to do myself,” Obama said when asked if he would go on vacation while keeping Congress in Washington D.C. “We are going to stay here as long as it takes [to get unemployment extended and pass the payroll tax cut].”

 As Obama called for passage of those bills, he also responded to a recent Republican push to require him to approve the construction of the Keystone XL pipeline from Canada. “However many jobs might be generated by a Keystone pipeline,” he said, “they’re going to be a lot fewer than the jobs that are created by extending the payroll tax cut and extending unemployment insurance.”

 

That’s right, according to Obama we can create more jobs by extending the Unemployment Insurance (UI) and payroll tax cut than by building a pipeline from Canada to the Gulf of Mexico.   OK, let’s break up this Head-desk moment into two bite size pieces. 

Obama and his team have already stated that they will offset the payroll tax cut extension by raising taxes on the rich so in Obama’s worldview job creation is defined as taking money from one group of people and giving it to another group of people.  That is exactly what we are talking about by giving tax reductions to one segment of the population and offsetting that reduction in tax revenue by taking that same amount of money from another segment.  It is arguable whether this payroll tax cut has actually helped or not but if we want to extend them then cut that corresponding amount in SPENDING!  We have a spending problem, not a revenue problem.

Now let’s look at the other part of this ‘plan’ as it is related to extending the UI.   Extending UI means that we are giving people who don’t work more time to sit at home and have checks mailed to them.  Economics is all about incentives and where is a person’s incentive to find a job when he is being paid to not work?  UI benefits already go for 99 weeks so you have almost 2 years to find another job and Obama appears to believe that extending the time we pay people to sit at home will somehow create new jobs.

There was an Economics journal paper written in 2002 entitled “Labor Supply Effects of Social Insurance” and it asked the question that most sane people reading this have already asked.  Wouldn’t extending UI make the unemployment rate artificially higher than it normally would’ve been if the benefits were terminated and those out-of-work were forced to obtain employment?

I recommend reading the whole paper but if you don’t have time here is the pertinent quote from the Abstract:

The empirical work on unemployment insurance (UI) and workers’ compensation (WC) insurance finds that the programs tend to increase the length of time employees spend out of work.

Eureka!  Economic data agree with our common sense hypothesis we proposed above so maybe Obama just has the wrong economic advisors and they aren’t familiar with this type of research. 

But wait, here is the ultimate facepalm moment.  I left something out regarding that journal paper.  It was written by none other than Alan Krueger, Obama’s chief economic advisor. 

 

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6 Responses to ECON 101 for a Liberal

  1. Ben Hoffman says:

    Congress should not have to extend benefits with ad hoc legislation. U.I. would be a more effective stabilizer for the economy if benefits were automatically extended in a state based on the conditions on the ground.
    ~ Alan Krueger

    • cosmoscon says:

      Thanks for posting Ben. Do you have a link for that quote? Was this before or after Mr. Krueger wrote this paper stating that UI only extends high unemployment rate?

      • Ben Hoffman says:

        http://economix.blogs.nytimes.com/2008/10/27/reforming-unemployment-benefits/

        Was this before or after Mr. Krueger wrote this paper stating that UI only extends high unemployment rate?
        He originally wrote that it “tends” to increase the time the unemployed spend out of work, which is probably true for those who don’t want to work. Those who do want to work but can’t find a job because of the Republican Great Recession are not going to turn down a job to stay on unemployment.

        Newer studies show mixed results, which sends conservatives into convulsions. Conservatives have smaller brains than more evolved humans, which make them unable to handle ambiguity. They see everything in black-and-white. They are also unable to understand cause and effect.

        • cosmoscon says:

          Nice try. 26 weeks of UI is an economy stabilizer but more than 99 weeks is a path to socialism, redistribution of wealth and all the other end-games that “smaller brain” conservatives are warning you about. I realize math is difficult for some Liberals but see Greece.

          Right now our Debt is equal to our GDP and if that doesn’t cause you to abandon the liberal group think that you cherish so much, then nothing will. Thankfully you are in the minority and you will realize that fact in about a year.

          And I’ll go with the conclusions in a peer reviewed science journal over an opinion piece in the New York Times any day.

      • Ben Hoffman says:

        Since when is economics a “science?”

  2. Pingback: Political Disconnect and the Dunning-Kruger Effect | cosmoscon

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