Hussein Obama wants to borrow another $50 Billion on the backs of our grandchildren to extend unemployment benefits. Hasn’t worked so far but Obama wants to keep trying! Art Laffer says it reduces incentives to find work.
In a well-reasoned WSJ op ed, Unemployment Benefits Aren’t Stimulus, Laffer shows that welfare makes work less attractive. Historically he charts the unemployment rate against the unemployment benefits:
“While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.
“Given the massive inefficiencies the government creates in securing resources from the private sector, there may also be a large negative income effect over wide ranges of stimulus spending. This is the proverbial “toll for the troll.” These massive inefficiencies could lead to lower output.
“To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may “buy” more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will “buy” less. There is no stimulus for the economy.”
Art concludes by saying the $3.6 Trillion already spent would have better been used as an 18 month tax holiday! I disagree with this, time limited tax relief begets time distorted economic activity. Permanent entitlement cuts along with permanent tax cuts are what’s needed to restore economic and fiscal sanity.