The Brett Kimberlin Saga:

Follow this link to my BLOCKBUSTER STORY of how Brett Kimberlin, a convicted terrorist and perjurer, attempted to frame me for a crime, and then got me arrested for blogging when I exposed that misconduct to the world. That sounds like an incredible claim, but I provide primary documents and video evidence proving that he did this. And if you are moved by this story to provide a little help to myself and other victims of Mr. Kimberlin’s intimidation, such as Robert Stacy McCain, you can donate at the PayPal buttons on the right. And I thank everyone who has done so, and will do so.

Friday, December 9, 2011

Obama’s Economic Illiteracy on Display: Extending Unemployment Benefits is Stimulus!

I heard about this gem on Twitter last night, but I couldn’t find a citable source until this morning:

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."

Okay, folks let me explain something to you that maybe a lot of you don’t know—I mean, bluntly a lot of people don’t know this in my experience.  Do you know how unemployment benefits are paid for?  In the three jurisdictions I work in (Virginia, Maryland, and Washington, D.C.), and I believe in almost all of the rest of the country, it works like this.  Employers are required to contribute directly to the unemployment benefits fund.  Their contribution is determined by their “experience rating.”  There is a lot of complicated numbers in their formulae, but it really comes down to this.  Just about every dime of benefits paid out to an ex-employee gets taken out of the respective ex-employer’s hide.  If a former employee gets $30,000 in benefits in a given year, you can bet that one way or the other the employer will have to pay very close to $30,000 that they would not have had to pay but for that employee getting benefits.

Now this cost can be avoided by different means.  The most common one is by showing that the conduct of the ex-employee was so bad that it justified termination.  If that happens, then the ex-employee gets no benefits, and the employer doesn’t have his or her experience rating increased.  Generally the misconduct has to be reasonably severe and it can’t just be, “we found someone better than him/her.”  In this way, then, the unemployment benefits system is a tax on terminations that are based on anything but misconduct of a relatively severe nature.

So any rational employer  recognizes that if they hire a new employee they run the risk of needing to fire them and then having to pay unemployment benefits for months to come.  Last I heard we were already forcing employers to pay for 99 weeks of benefits, almost two years.  So every time you increase unemployment benefits, you increase the risk and costs associated with hiring new employees.

Now surely Obama would respond by arguing that by giving these unemployed people free money, they are likely to spend more money and that will have a stimulative effect on the economy leading to more job creation.  But that benefit is theoretical at best and so far the Obama administration has had a proven track record of being wrong on this point.

After all, let’s not forget  this chart:

Now that chart is a few months old, and the unemployment rate has crept down to 8.6% since then.  And even that number is not really as good as you might think.  Let’s let Business Week explain this to you:

A big drop in the jobless rate isn’t always good news. A lot depends on what causes the drop. Remember, the unemployment rate is calculated by adding up all the people who tell government surveyors that they can’t find work and dividing it by all the people in the labor force—those either employed or actively looking. So if people give up searching, they’re no longer counted as unemployed, and the rate falls. In November about two-thirds of the improvement in the jobless rate came from people dropping out of the labor force and thus out of the calculation of the unemployed. Only one-third was because of actual job creation.

So in other words about two times as many people gave up on looking for lawful employment* as gained new jobs.

And even if you update the chart to the current 8.6% the fact is that this is still significantly higher than Obama said it would be, even if we didn’t pass the stimulus.  As I wrote over at Patterico’s Pontifications:

Logically there are only two explanations for why things are the way they are:

1.      Either the Obama administration stinks at making predictions; or
2.      They’re making it worse.

That’s it.  There is no third option.  And either way, it leads us to the same conclusion: they need to stop what they are doing.  The reason why option #2 leads to that [conclusion is] obvious, but the reason why option #1 leads there is less so.  The reason why their inability to predict accurately proves they need to stop is simply that if they can’t predict the future, then they can’t possibly know what the effects of their policies would be.

What we need at this point is for a President who will take the Hippocratic [Oath] before attempting to treat our economic “body.”  Like Hippocrates, we need a president who understands first and foremost that he or she doesn’t know very much about the “body” that s/he is treating and therefore he or she must follow the maxim “first, do no harm.”  Obama stands before us today saying (paraphrase), “trust me, the economy would have been in much worse shape today if I didn’t intervene.”  He is like one of the quacks of old who bled a person to death’s door, claiming that if he hadn’t, then the patient would have been in even worse shape.

The maxim “first, do no harm” means that you don’t do something you know will hurt the “patient” on the hope (without proof) that the benefits will outweigh the harm.

Applied to this situation, the President is proposing to do something that we know will reduce the incentives of businesses to hire new employees.  You can be almost guaranteed that this will put a downward pressure on hiring.  On the other hand, he is also hoping that this will have a stimulative effect.  Even forgetting how just plain bad he is at predicting what will and will not stimulate the economy, that would be a dubious proposition.  First do no harm, Mr. President.  Do not depress hiring in the hopes that something good might come out of it.

And you know what really helps the economy? New hiring.  And that is because instead of paying people not to work, then you are paying them to work.  And that in turn means that those people just might help in the creation of real things that create real wealth.  Hiring 100 new employees at an auto plant is not economically identical to paying the same 100 people to sit on their duffs all day, because the members of the first group are not only receiving money that they will presumably pay into the economy, but they are creating real things of real value.


* I wonder why economists never consider the possibility that some of these people dropping out of the labor pool might in fact be turning to illegal professions such as drug dealing or prostitution.  Now by the very nature of such work, it will be almost impossible to estimate how many people left the workforce for this reason, or just gave the hell up, you have to think that this is at least part of the explanation.


Update: I should thank JWF for giving me this link.

Follow me at Twitter @aaronworthing, mostly for snark and site updates.

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