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Contentions

Unemployment Insurance I

If an astronomer were to casually claim that Ptolemy was right and the sun revolves around the earth, or if a paleontologist were to suddenly subscribe to Archbishop Ussher’s idea that the world was created as we know it now in the night preceding October 23, 4004 BCE, they would be laughed out of their disciplines. The evidence for the modern understanding of such matters is, after all, overwhelming. So to make such a claim would require massive and unequivocal data to back it up.

However, if an economist does the equivalent, the entire profession, instead of collapsing in laughter, says, ” . . . . oh, look! A squirrel!” Economists, it seems, suffer no loss of respect by their peers if they utter ex cathedra pronouncements that are in flat contradiction of the most basic tenets of the discipline. All they have to do is to be advancing a political agenda at the time, and all — no matter how ridiculous — is forgiven.

When Senator John Kyl said that “continuing to pay people unemployment compensation is a disincentive for them to seek new work,” Paul Krugman wrote in his New York Times column “To me, that’s a bizarre point of view — but then, I don’t live in Mr. Kyl’s universe.”

Really? Here’s what Paul Krugman wrote in his own textbook, Macroeconomics:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. … In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.

As James Taranto pointed out, “It seems Krugman himself lives in two different universes — the universe of the academic economist and the universe of the bitter partisan columnist.”

When the Wall Street Journal noted last week that extending unemployment benefits tends to keep unemployment high by reducing the incentive to look for work — and quoted Lawrence Summers, writing in 1999, to that effect — they received a furious letter from Mr. Summers, now head of Obama’s National Economic Council. The Wall Street Journal had a field day in response, pointing out that,

The Summers argument is that increasing unemployment insurance increases aggregate demand and thus reduces unemployment. This is because he and the neo-Keynesians believe that the impact on macroeconomic demand of this jobless spending outweighs the microeconomic harm on individual incentives. In other words, if government pays people for not working, then more people will work. Subsidize unemployment and you will somehow get less of it.

Summers’s idea is the economic equivalent of a perpetual motion machine.

If economists want to get the same respect that people give to real scientists, they are going to have start behaving like real scientists. They have to denounce nonsense from a fellow economist when they hear it, even if that economist is wearing a political hat rather than an academic one.



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