Paying people not to work is not an economic stimulus

Back in 2009, Nancy Pelosi infamously declared the best way to revive the economy was to dole out ever more generous food stamps and unemployment benefits. The more people collecting welfare the better. At the time, this notion seemed laughable. Now this economic illiteracy seems to have become a conventional wisdom.

(Article by Stephen Moore republished from RealClearPolitics.com)

This was a headline in the New York Times recently: “End of $600 Unemployment Bonus Could Push Millions Past the Brink.”

Here was the lead on the “news” piece: “When millions of Americans began losing their jobs in March, the federal government stepped in with a life preserver: $600 a week in extra unemployment benefits to allow workers to pay rent and buy groceries, and to cushion the economy.

“With economic conditions again deteriorating, that life preserver will disappear within days if Congress doesn’t act to extend it. That could prompt a wave of evictions and inflict more financial harm on millions of Americans while further damaging the economy.”

These benefits are not a “life preserver,” but a job-killer. A study for the Committee to Unleash Prosperity by University of Chicago economist Casey Mulligan estimated 10 million fewer Americans working by the end of the year, thus killing any chance of a “V-shaped recovery.”

Perhaps that’s why Pelosi is so adamant about the policy remaining in place. This would mean a high unemployment rate in November when voters go to the polls. How convenient for Pelosi and Joe Biden.

Incidentally, there are now some 5 million unfilled jobs in the U.S. today — near an all-time high. This is a weird predicament we are in. Even with some 25 million unemployed Americans, employers are hanging “Help Wanted” signs in the windows.

Here’s why. Under the Pelosi policy, 5 out of 6 unemployed workers are getting paid more NOT to work than to return to the job, according to the Congressional Budget Office. We estimate that most workers who earn $30 or less are financially better off staying off the job — even as the economy improves. Many workers can get twice as much for staying unemployed. Workers are supposed to lose unemployment benefits if they are offered a job and don’t take it. But workers know how to game the system. They can pretend to be sick, and employers are loath to bring a contagious worker back in the office or factory.

Employers are now telling me that to get workers back on a construction crew, on a factory line or in a restaurant, they won’t work unless they get paid cash of, say, $100 or $200 a shift so they can still collect the unemployment benefits. The Economist magazine recently wrote that the extra unemployment benefits are doing more harm than good. Liberal groups are marching in the streets for another six months of these payments.

This policy is what I have long-called economic bimboism. Somehow, magically, if I pay my kid who gets up, mows lawns and works hard 40 hours a week, and I pay my other son even more money for staying home and playing computer games, this strategy is going to lead to more work effort in the Moore household. I assure you it won’t.

Paying people not to work is no way to expand economic output, more jobs and more prosperity. By this warped logic, we should start paying unemployed workers $5,000 a week, and we will really have a rip-roaring recovery.

This is not just lousy economics; it also violates basic principles of fairness. Think of a construction company with 100 employees laid off. They are all offered their jobs back a month later, but only 50 come back to work. Under the Pelosi scheme, the 50 that work hard get less money than the ones who stay home and watch TV. The suckers here are the ones who return to the job.

The only way politicians can “stimulate” the economy and lower unemployment is by incentivizing more economic production. This is why a payroll tax cut makes a lot of sense, and let us hope President Donald Trump, who favors the idea, doesn’t give up on it. Every worker — the heroes of our economy, including nurses, technicians, sanitation workers, truckers and nursing home care givers — would get a 7.5% pay raise starting on or around Aug. 1. Every small business would see their payroll costs shrink by 7.5%. By a 2-to-1 margin, workers love the payroll tax cut.

Skeptics complain that the payroll tax cut only helps people with a job, not the unemployed. Wrong. The best way to help the unemployed, Nancy Pelosi, is not by passing out food stamps and unemployment benefits. It is getting people a job, a paycheck and a step on the economic ladder. And there is one other thing that liberals seem to have forgotten: there is dignity and educational value in working rather than getting a welfare check paid for by someone else.

Read more at: RealClearPolitics.com