Unemployment Benefits & the Economy: A Polemic

Earlier this evening, I read this post on Weakonmics - one of my favorite personal finance blogs. In this post, The Weakonomist makes a case against unemployment benefit extensions, against the stimulus package and against Nobel Prize winning economist Paul Krugman, calling him "as crazy as Glenn Beck". I am not here to defend Krugman's honor - he doesn't need the likes of me to do so - but I disagreed with The Weakonomist's post so badly that I decided to publish a polemic against it, and let the readers make their own call about who's right.

I have many issues with the Weakonists' post, but I will focus my criticism on only a few of them - or else I will be here all night, and tomorrow is a work day, after all.

First point: in the post The Weakonomist criticizes the stimulus bill saying that "...the Obama stimulus was a bomb..." - that's opinion not fact. The stimulus bill was far from perfect, but it averted  the worst effects of the economic catastrophe. Don't take my word for it, check out this report from the Congressional Budget Office (which is a non-partisan body) about the effect of the stimulus bill. To save you some reading, here is a brief excerpt from this long and detailed document:

"[The stimulus] Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.2 percent,

Lowered the unemployment rate by between 0.7 percentage points and 1.5 percentage points,

Increased the number of people employed by between 1.2 million and 2.8 million, and

Increased the number of full-time-equivalent (FTE) jobs by 1.8 million to 4.1 million compared with what those amounts would have been otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)"

Still think that the stimulus bombed?

But forget government studies. Let's talk personal experience. I work in the wireless industry, where I have seen first hand the impact of the $7.2B allocated as part of the stimulus to increase broadband penetration in unserved and under-served areas of the country. Without these funds, many companies in my industry would have gone under.

My own company hired another person to coordinate our response to this stimulus bill, and we didn't receive a dime of government money. We also hired consultants, lawyers and took trips to visit customers applying for these funds. Just like us, hundreds of other companies around the country increased their spending in response to the stimulus. That created jobs, economic activity and brought us all back from the brink of even worse economic disaster.

The stimulus was an unqualified success! Yes, there were some inefficiencies, but ANY large project, especially one attacked with such urgency will have some of those. That's the price of action.

Second Point - The Weakonomist says "First of all, extending benefits won’t do much for demand.  People still have to pay off their demand from a few years ago, via credit cards, HELOCs, and mortgages."

This is plain wrong.

I know very talented, hard working and qualified people who have been out of work for over a year in spite of aggressive job hunts. These people have exhausted their savings, and necessarily have to reduce spending. Any unemployment benefits that they receive will be used to pay for food, rent, fuel - you know, keeping their families clothed and fed. This money will not go into savings accounts. The unemployed will spend their unemployment benefits not because they want to, but because they have no other choice. Therefore, by necessity, unemployment payments will stimulate demand.

Third Point - The Weakonomist is concerned about the deficit. Well, so am I. But stopping unemployment benefits is an asinine way to try to fix it. The US Government's debt is so large (over $13 trillion dollars), that the cost of unemployment benefit extension, a mere $33B, would add a negligible - truly negligible - fraction to it.

The Weakonomist is giving props to the imbecile Republicans and Democrats in Congress who are the very ones responsible for the deficit fiasco. These are the same idiots that authorized two wars without paying for them - the cost so far, over a TRILLION dollars. These are also the same imbeciles that have only a few years ago cut taxes repeatedly without cutting spending, leading to - hold your breath - DEFICITS.

NOW, they are thinking about deficits, when it's time to extend the benefits for unemployed Americans who are unable to find a job?! How morally bankrupt can they get?

This is not only bad for the economy, it also shows a severe lack of compassion.

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