Why a civil society extends unemployment benefits

I have the questionable distinction of appearing on Larry Kudlow’s CNBC program several times a week, arguing with people whose positions under normal circumstances would get no serious attention, and defending policies I would have thought so clearly and obviously defensible they should need no justification. But we are living through strange times. The economy is so bad that the social fabric is coming undone, and what used to be merely weird economic theories have become debatable public policies.

Tonight it was Harvard Professor Robert Barro, who opined in today’s Wall Street Journal that America’s high rate of long-term unemployment is the consequence rather than the cause of today’s extended unemployment insurance benefits.

In theory, Barro is correct. If people who lose their jobs receive generous unemployment benefits they might stay unemployed longer than if they got nothing. But that’s hardly a reason to jettison unemployment benefits or turn our backs on millions of Americans who through no fault of their own remain jobless in the worst economy since the Great Depression.

Yet moral hazard lurks in every conservative brain. It’s also true that if we got rid of lifeguards and let more swimmers drown, fewer people would venture into the water. And if we got rid of fire departments and more houses burnt to the ground, fewer people would use stoves. A civil society is not based on the principle of tough love.

http://www.csmonitor.com/Business/Robert-Reich-s-Blog/2010/0902/Why-a-civil-society-extends-unemployment-benefits

It’s also true that if we got rid of lifeguards and let more swimmers drown, fewer people would venture into the water. And if we got rid of fire departments and more houses burnt to the ground, fewer people would use stoves.

There is no moral determination to be made on whether or not to swim and whether or not to use a stove. Those few who could get a job but elect not to because they're still getting paid are making a moral determination and the rest of us pay for it.

most states provide unemployment benefits that are only a fraction of the wages and benefits people lost when their jobs disappeared.

Well of course... but that doesn't change the fact that there is an incentive... it just reduces the number of people who will be influenced by it. At some level (different for each individual), it becomes preferable to "not work" at a lower income than to work 40-50 hours a week for marginally more.

What is more, Reich understands all of this.

There's no need to make the argument in this fashion. It's simple enough to say that we recognize that there will always be SOME people who prefer not to work although they could. But that number is a far FAR smaller proportion of the unemployed when the job market is this weak. When unemployment was at 4.5% maybe there were ten mooches for every 100 people on the rolls. Now perhaps the number is higher (since benefits last longer), but it is out of a massively larger base. So in the past when cutting benefits might send ten people back to work and unintentionally injure the five who couldn't get a job... now you would injure 200 to catch 20.