U.S. Workers Aren't Better Off
July 22, 2010
by Diana Furchtgott-Roth
With Wednesday's vote to extend eligibility for unemployment insurance benefits, the Senate has just added $34 billion to the national debt. That's more than $500 million per senator who voted for the bill.
You can call it cover-up money, because these are many of the same Democratic senators who voted into law policies that threaten to destroy Americans' jobs to begin with, such as mandatory employer-provided health insurance. Now they're voting to send to President Obama, after the House of Representatives votes today, a small remedial package to assist workers who have been out of work for 99 weeks or longer.
Mr. Obama will sign it, his past statements notwithstanding. Obama Version 1.0 insisted on fiscal responsibility, that Congress find a way to pay for unemployment benefits. In November, 2009, he signed an extension of unemployment benefits into law and declared,
"I would also like to announce I just signed into law a bill that will help grow our economy, save and create new jobs and provide relief to struggling families and businesses. ... Now, it's important to note that the bill I signed will not add to our deficit. It is fully paid for, and so it is fiscally responsible."
Fast forward eight months later: Obama Version 2.0 mocks Republicans for saying that unemployment benefit extensions have to be paid for. The $34 billion could have been paid for with unused stimulus money - about $362 billion remains - but the president opposed Republican suggestions to do just that.
Since the unemployment benefits extension is deemed "emergency spending'' under congressional budget rules, Congress does not have to pay for it. Ever.
The $34 billion brings the total unfunded level of unemployment benefits during this recession to $123 billion since July 2008.
Most Americans out of work for 99 weeks or more will be grateful to get the additional payments from the Federal-State unemployment insurance system, payments that some say will keep aggregate demand high and the economy chugging along, albeit slowly.
But the economy has little to show for the $152 billion spent on stimulus by President Bush in 2008, the $425 billion spent by Mr. Obama from 2009 to the present day, as well as the additional $86 billion for extending unemployment benefits since July 2008. Growth is slow, unemployment high.
What jobless men and women don't see is the discouraging effect government spending may have on job creation. These unemployed workers should ask their members of Congress:
(1) What have you done to make it easier for employers to hire workers?
(2) What have you done to make it more attractive to locate businesses in America rather than offshore?
(3) What have you done to lower taxes on employers who will consequently hire me, rather than going offshore where taxes may be lower?
(4) What have you done to reduce regulation and red tape so that employers are more likely to hire me rather than contract out to companies abroad?
Most of these 59 senators who voted to extend unemployment benefits support Obama administration policies that are dampening job creation, such as health care reform, financial regulation signed into law Wednesday, pending climate change legislation, and large spending projects such as high-speed rail. Democrats favor them, but such undertakings discourage employers from hiring.
Until the president and Congress abandon this costly interventionism, the economy won't produce the jobs needed to reduce unemployment significantly. In other words, more aggregate demand alone may be unnecessary and surely is not sufficient.
Take the new health care law, for instance. When it is fully phased in, the cost of health insurance will be higher, due to the generous mandated benefits. And every employer with more than 50 workers will either have to offer health insurance or pay an annual penalty of $2,000 per full-time worker. Small firms, those with 50 or fewer workers, will have a cost advantage.
Although small business is the engine of growth, firms with fewer than 50 workers won't want to add workers, and firms with around 60 to 70 workers will be trying to shrink to 50 workers to cut costs. Low-skill workers will be the worst affected.
The prospect of higher taxes, set to rise by five percentage points both at the top and the bottom of the income scale on January 1, 2011 unless Congress acts, discourages hiring now. So does the prospect of increases of capital gains and dividend taxation.
If members of Congress wished, they could have redesigned unemployment benefits to make them more effective. For instance, they could have given the unemployed relocation grants to move to areas of the country where there are more jobs. Senators could have voted for wage insurance, which would give people an incentive to take a new, lower-paying job by paying part of the difference between what they earned in a lost jobs and what the new jobs pays.
Such incentives were not debated. Most members of Congress have done absolutely nothing for the American worker, other than to guarantee their unemployment. They are misguided by inept advisors who know nothing about what it takes to employ workers in America.
Ronald Reagan said it best in 1980, "Are you better off today than you were four years ago?" For the American worker, the question to ask is "Are you better off today than you were two years ago?" And the answer is no.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, was a Senior Fellow at Hudson Institute from 2005 to 2011.
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