Democrats’ Delusion

Published by: Dan Calabrese

Of all the things Democrats fail to understand about economics, their greatest point of befuddlement may come on the matter of incentives. They truly do not understand (perhaps because their political interests cause them not to want to understand) that when you make it easy for people to get what they need without working, you disincentive work. And when you do this on a mass scale, you get what we’ve seen in the past several years, which is large numbers of people leaving the workforce entirely and no longer even trying to find work.

Why bother? Democrats will keep extending unemployment benefits forever, and they have no intention of requiring anything on the part of recipients. It’s hardly a luxurious existence for those who depend on these checks, but they come to depend on it, and it’s a lot easier than trying to make your way in the high-pressure where of the private sector. As Dr. Ray Stantz once pointed out in horror, “They expect you to produce.”

Not politicians. All you need to do with them is learn how to game the system, and as Casey Mulligan writes in this morning’s Wall Street Journal, boy do people get to be good at that:

I met a recruiter—a man whose job it is to find employees for businesses and put unemployed people into new jobs—and he described the trade-off pretty well. Stacey Reece was his name, and he said that in 2009 his clients again had jobs to fill. But he ran into a hurdle he hadn’t seen before. People would apply for jobs not with the intention of accepting it, but to demonstrate to the unemployment office that they were looking for work.

As Mr. Reece described it, the applicants would use technicalities to avoid accepting a position. The applicants would take Mr. Reece through the arithmetic of forgone benefits, taxes, commuting costs and conclude that accepting a job would net them less than $2 per hour, so they’d rather stay home.

People remain unemployed longer, as Mr. Reece saw with his own eyes.

Friedrich Hayek’s “Use of Knowledge in Society” explains how economic information is not and cannot be fully known by a single person. That information exists “solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” Mr. Reece is one of those separate individuals. Most policy makers were not and are not aware of what Mr. Reece was seeing. Most of those who voted Democrats into the Senate, the House and the presidency were not aware.

It’s an interesting point about how people who make economic policy can’t possibly be in a position to see every actual consequence of the policies they make, and that’s true no matter who is in office.

What they could and should do, however, is learn from history and apply proven principles. It’s Economics 101 that when you subsidize something, you get more of it, and unemployment benefits represent a subsidy of joblessness. Now I am not arguing that you shouldn’t provide any at all. The system is set up to limit unemployment benefits to 26 weeks – the thinking being that you provide a safety net for people to use in transition when they suddenly and unexpectedly lose their jobs, so they have a little time to find a new one and they don’t lose their homes or starve to death in the meantime.

That is a perfectly reasonable social safety net. We can argue about whether the federal government needs to have any involvement with it, or whether it should be done entirely by the states (I vote the latter), but the basic concept itself is not bad. You don’t incentive unemployment to any serious degree by providing a very temporary safety net.

But when politicians constantly manipulate the system and keep extending benefits that are supposed to be of limited duration, they absolutely create such a perverted disincentive. And when they insist they must do it because “it’s an emergency” or “people are hurting” or whatever, what they either don’t realize or don’t admit is that they are creating the emergency by doing this very thing. People who are hurting need to solve their own problems, and when the government keeps butting in and enacting wealth transfers from producers to non-producers, it takes capital away from those who might be in a position to provide the opportunity that would take these people out of their bad situations and put them in better ones.

But Democrats don’t see that. All they see is a class of people they can turn into dependents on government, and their goal is to keep them dependent and to keep them voting for the party that is willing to send them checks forever. If that means they kill economic growth, in the process, what do they care? For them, their staffs and their consultants, the economy is doing great.

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