Out of Control Policy Blog

The Senate's Vote on Unemployment Benefits

Senate Democrats are hoping today to push through another extension of the emergency unemployment insurance program that has seen maximum benefit duration grow from 26 to 99 weeks. This latest proposal, approved by the House at the end of May, has until recently been stalled in the Senate by bickering between morally enthused Democrats and Republican deficit hawks. The GOP is filing a number of motions to slow down the process, but ultimately they don't have the votes to stop the bill.

President Obama castigated fiscally conservative lawmakers on Monday, arguing that the government has a responsibility to help struggling Americans in their time of need. He further contended that extended benefits will stimulate the economy by encouraging spending by the unemployed. Reason's Anthony Randazzo has addressed this argument repeatedly; infinitely sustaining unemployment insurance doesn't stimulate anything except the egos of politicians. By distorting incentives to work, and crowding out private investment, extensions are more likely to drag out the lethargic state of the economy and ultimately hurt the people they are designed to help.

Rather than focusing on these distortionary economic effects, Republicans (who have voted for extended benefits in the past) have emphasized the recent popular wariness towards Washington's culture of deficit spending. In particular, opponents have focused their attention on the $34 billion the government would have to borrow to finance a new wave of benefits. "Look around the world. Countries are sinking in debt... This reckless spending cannot go on forever" thundered Rep. Dave Camp (R-MI) during debate over the measure in the House. And he's right.

Extension proponents may argue that borrowing $34 billion is a small price to pay for helping the unemployed in their time of need. But the danger is not only, or even primarily, related to how large an individual spate of borrowing is; we can't ignore the debt problem until a massive TARP or ARRA-size bill rolls around. Rather, we should be concerned with the way our government's pattern of spending is slowly but steadily chipping away at its fiscal credibility.

Indeed, the writing is on the wall. News that Moody's Investor Service has considered a (previously unthinkable) downgrade of the federal government's creditworthiness was a shocking reminder of the position we're in. (Check out more detailed Reason coverage of the debt problem here and here.)

The reality is that borrowing ad nauseam to pay continued unemployment benefits only compounds the negative economic effects that benefits can cause in the first place. These consequences cannot simply be dismissed with Keynesian hand-waving and exhortations to help the needy. Ultimately, extending unemployment insurance poses a serious danger to our nascent economic recovery both through its direct distortionary effects in the labor and capital markets, and by fueling more borrowing.

David Godow is Research Assistant


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