How Jobless Aid Became Dysfunctional

by: Rick Newman

Ever watch a parent lecture a demanding child about self-discipline—then give him everything he asks for? That's the pattern Congress is falling into.

Beleaguered governors and advocates for the jobless are pleading with Congress to extend unemployment insurance, for at least the sixth time since 2008. There are two basic views, which both have merit if you strip away the odious political posturing that sickens voters. President Obama and Democrats in Congress favor another extension of benefits, which would ease the misery of some 2 million people who have been unemployed so long that they've exhausted the 26 weeks of benefits available in most states, plus various extensions. With unemployment at a shockingly high 9.5 percent, that only seems humane.

Senate Republicans argue that the $34 billion cost of another extension is more than America can afford, and they oppose the measure unless Congress finds a way to pay for another round of subsidies. That seems reasonable too. With the recession supposedly over and the national debt forming a giant anvil hanging over the economy, what's wrong with paying for spending programs in real time? Surely Congress can cut agriculture subsidies or dreamy weapons programs or other boondoggles, in order to help millions of Americans in need. The Congressional Budget Office has even provided a handy list of 188 ways (.pdf) to cut spending and raise revenue. Just pick a few.

Like other problems facing Washington, this shouldn't be that hard to resolve. But the inevitable outcome will be like all the others: Congress will defer a real solution, jack up the debt yet again, and continue to tell voters they can have something for nothing. And voters will return the favor by continuing to insist on smaller government—as long as their own favorite subsidies remain in place.

It can't go on. Our entire concept of what the government should do for us has become a fantasy, with most Americans feeling entitled to a lot more than the government—we taxpayers—can afford. In coming years this will inevitably impact recipients of Medicare, Social Security, Medicaid, and many other government payments. In other words, mostly everybody. At the moment, the battle over unemployment benefits represents an instructive microcosm of fiscal dysfunction that's only going to get worse.

Since 2008, Congress has boosted unemployment insurance from the usual 26 weeks to as much as 99 weeks for people in the worst-hit states. The standard payout is funded by a tax on companies in most states. But extensions aren't, and various extensions since 2008 have added at least $65 billion to the national debt. It's appropriate to help the needy during an awful recession, and there's general agreement over the idea that the government should borrow and spend more during a downturn, to fill the hole left when private spending drops off. But that traditional Keynesian view also requires the government to rein in spending when things improve, and pay off its debt. That part, we don't believe in so much anymore.

If Congress extends unemployment benefits yet again, it will last until November. Then what? Will that be the moment to finally cut millions of unemployed Americans loose? The economy will hardly be rosy enough for all the unemployed to find jobs, and the unemployment rate at the end of the year might even be higher than today's 9.5 percent. At current weak rates of growth, in fact, it will take five years or so just to add back all the jobs lost during the recession. But at least one thing will be different by the time the next extension runs out: The midterm elections will be over, so there will be less need to pander to voters. At least for a while.

It's becoming obvious that we need a coherent long-term plan for what to do about prolonged joblessness, instead of continual ad hockery. If Washington can no longer cover the expense of expanded benefits, Congress should say so definitively, so governors can make other plans and the unemployed can stop looking to Uncle Sam as a savior. To its credit, that's what Congress did with the cash-for-clunkers rebates last year, and with the home-buyer tax credit that was extended once, but ended in April. So far, however, Congress keeps pretending the economy will get better in a few months—and playing a cruel game of chicken with unemployed people on the verge of losing their homes and livelihood.

If extending benefits indefinitely is the right way to go, then it's time to decide how to pay for all the aid. Once the economy is in better shape, will those who benefitted from the extensions view them as loans that helped them survive lean times, and be willing to pay them back through a tax hike? That's highly doubtful, especially since President Obama has promised there will be no middle-class tax hikes on his watch, no matter how many additional benefits accrue to the middle class. Still, if it's so important to extend aid to the jobless, then we should be willing to take the money from someplace else instead of waving the magic deficit wand.

It might even be time to start asking the middle class for something back. Maybe certain types of aid should be designated as bridge loans that must be paid back, like student loans, instead of grants that come with no strings attached. And how about some metrics that govern when various benefits go into effect and expire? They could be pegged to the unemployment rate or other economic indicators, reducing the need for arbitrary decisions about extensions—and the political vitriol that goes with them.

There's another concern about whether indefinite extensions of aid discourage people from finding a job, depress economic activity, and foment a growing welfare state. It's grossly inaccurate to label everybody who's unemployed as a happy recipient of handouts. But 99 weeks of aid—nearly two years' worth—is an extraordinary subsidy that has to have some unintended consequences, beyond simply helping people weather a storm. Congress is handing over a lot of taxpayer cash without a clear understanding of the effect it will have.

We're in the midst of a fiscal shell game right now in which states that have run out of money and cut their own programs to the bone are begging the federal government for aid so they can extend jobless benefits and lots of other subsidies. Unlike the states, the federal government can borrow indefinitely, and since it can, it does. But we all need to pay that back, so running a federal deficit in order to spare people who live in states and cities is about as effective as moving the family bills from the kitchen to the basement. Even if you don't see them as often, they're just as onerous. And if you simply ignore them, maybe worse.

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Disclosure: No positions