Published August 12, 2010
News headlines worryingly point to "US jobless claims hit six-month high," "Wall Street Slides Further on More Signs of Slowdown," or "Latest US Jobless Claims are a Bad Omen." Quite a contrast from news headlines just a month ago touting: "New jobless claims fall to near two-year low." What could happen in just a month? Has there really been that much of a worsening in the fundamental jobs picture in that short of time?
There is actually a very simple answer for the change. While a month ago those who filed for unemployment insurance would only get 26 weeks of benefits, over the last few weeks people can get at least 95 weeks of benefits. The result is something that I predicted in a piece that I wrote for Fox News on July 20th.
When unemployment insurance extension ended, new filings fell from around 472,000 to 429,000. Now that they have been reinstated, new filings for the last two weeks have been 482,000 and 484,000.
You subsidize something and you get more of it. Unemployment insurance not only causes people to stay unemployed longer, but it also has an impact on people's decision to become unemployed in the first place. If Americans are unemployed solely because they were having trouble finding a job, the number of new people becoming unemployed and filing for benefits should be the same whether they are eligible for 26 weeks of benefits or at least 95 weeks, right? The impact of the number of new people who become unemployed because of large unemployment insurance has been completely ignored in the debate over the economy.
If you offered people $100,000 to become unemployed for six months, everyone would expect a lot of people to take up the offer and go on vacation for six months. The unemployment insurance benefits are no where as generous, but there are still a lot of people who are apparently willing to become unemployed to get them. In addition to the unprecedented long length of unemployment insurance benefits, the unemployed also get their health insurance subsidized and this week the Obama administration announced new plans to cover the unemployed's mortgage payments.
Of course, besides encouraging more people to be unemployed and be unemployed for longer, the mortgage payments subsidy also discourages people from making wise decisions on their house. For example, without the subsidy, if you can't afford your house, you can rent it out and get a smaller, cheaper apartment. But the mortgage subsidies prevent that because you only get the subsidy as long as you live in a house that you can't afford to live in.
There are real problems with the economy caused by everything from the disastrous stimulus package to mortgage and financial regulations that created the financial crisis to all the new regulations out of Washington that are creating chaos. It is time for Washington, DC to stop causing problems and get out of the way.
John R. Lott, Jr. is a FOXNews.com contributor. He is an economist and author of "More Guns, Less Crime (University of Chicago Press, 2010)."