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Tuesday, October 28, 2008

"Focus on the Unemployed"

Robert Reich says you should never trust a lame duck:

The Lame-Duck Stimulus, by Robert Reich: When even the chairman of the Federal Reserve Board says Congress should pass a stimulus package we know we're in trouble. The last stimulus of tax rebates stimulated lots of people to pay off some of their debts, which hardly stimulated the economy at all.

The coming stimulus package could be even more nonsensical. It will be voted on by a lame-duck Congress, many of whose members will want to reward campaign donors with juicy pieces of pork. Other lawmakers will see it as their last opportunity to include their pet project or tax perk, and some who won't be accountable because they'll be out of office in a few weeks anyway. In other words, it'll be less a stimulus than a Christmas Tree.

Instead of this, Congress should do just one thing when it returns right after Election Day: Extend unemployment benefits. ...

More than 1 in every 5 people out of work the unemployed have been looking for six months or more. And many are running out of unemployment benefits. ... That means they won't be able to pay their bills, including their mortgages. Already this year, almost half of mortgage delinquencies have been caused by homeowners' lacking of income or employment.

America needs a comprehensive stimulus package, but it should be voted on by the next Congress under a new Administration. And it should be part of a broader jobs strategy that would include rebuilding the nation's crumbling infrastructure, funding alternative sources of energy, and creating tax incentives for businesses that generate new jobs.

For now, focus on the unemployed.

One reason we don't extend unemployment benefits is that we worry about moral hazard, i.e. that some people will simply live off the benefits until they run out, however long that might be, and only then will they be motivated to look for and accept a job (or some milder version of this behavior). However, given our willingness to overlook moral hazard concerns for the time being in the bailout of financial institutions due to the urgency of the situation, is it fair to use the argument that a few people will misbehave as a reason to deny extending benefits to all the people who really need it? Shouldn't the seriousness of the situation and our desire to avoid a severe downturn play a role here too?

    Posted by on Tuesday, October 28, 2008 at 01:23 AM in Economics, Fiscal Policy, Unemployment | Permalink  TrackBack (0)  Comments (81)

          

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