Jay Carney vs. Larry Summers

Joseph sent me a WSJ article by Stephen Moore:

Consider what happened last week when Laura Meckler of this newspaper dared to ask White House Press Secretary Jay Carney how increasing unemployment insurance “creates jobs.” She received this slap down: “I would expect a reporter from The Wall Street Journal would know this as part of the entrance exam just to get on the paper.”

OK, so Jay Carney is an arrogant jerk.  But is that a crime?  Many people would say the same about me.  The problem is that he isn’t just arrogant, he’s uninformed.  Yes, there is a theoretical possibility that UI can lower the unemployment rate, but the evidence suggests just the opposite. See, for example, this essay on unemployment by Larry Summers:

To fully understand unemployment, we must consider the causes of recorded long-term unemployment. Empirical evidence shows that two causes are welfare payments and unemployment insurance. These government assistance programs contribute to long-term unemployment in two ways.

First, government assistance increases the measure of unemployment by prompting people who are not working to claim that they are looking for work even when they are not. The work-registration requirement for welfare recipients, for example, compels people who otherwise would not be considered part of the labor force to register as if they were a part of it. This requirement effectively increases the measure of unemployed in the labor force even though these people are better described as nonemployed—that is, not actively looking for work.

In a study using state data on registrants in Aid to Families with Dependent Children and food stamp programs, my colleague Kim Clark and I found that the work-registration requirement actually increased measured unemployment by about 0.5 to 0.8 percentage points. If this same relationship holds in 2005, this requirement increases the measure of unemployment by 750,000 to 1.2 million people. Without the condition that they look for work, many of these people would not be counted as unemployed. Similarly, unemployment insurance increases the measure of unemployment by inducing people to say that they are job hunting in order to collect benefits.

The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a “reservation wage”—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer.

Larry’s right.  I’ve seen studies that suggest that extended UI caused the unemployment rate to rise by a half of a percentage point in recent years.  It’s hard to believe that even the most fervent Keynesian would claim that the stimulative effects of the UI insurance extension on AD, by itself, would reduce the unemployment rate by 50 basis points.  So Carney is almost certainly wrong.

Now let me anticipate some objections:

1.  ”We are in recession.”  But studies show UI causes higher unemployment even in economies with very high cyclical unemployment.

2.  ”Most of the excess unemployment in the US in recent years is due to a demand shortfall, not UI effects.”  I agree.

3.  “So you oppose UI?”  No, I think we should have an UI program, although I’d favor reforms to make it include at least some personal accounts.


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42 Responses to “Jay Carney vs. Larry Summers”

  1. Gravatar of Jim Jim
    23. January 2013 at 10:14

    But the reporter asked how increasing UI would “create jobs,” correct? That question invites a response concerning the AD impacts of the policy, which is what it seems Carney provided. your analysis addresses a question the reporter did not ask and Carney did not answer.

  2. Gravatar of Sean DeCoursey Sean DeCoursey
    23. January 2013 at 10:17

    The only thing I’d really disagree with you on here is that raising the “reservation wage” is a feature, not a bug of UI programs. I also disagree about the personal accounts bit, employers already pay into UI, and consider it part of their total personnel spending budget, thus workers are already contributing compensation to the program. Increasing that compensation just seems punitive.

  3. Gravatar of James James
    23. January 2013 at 11:11

    “The only thing I’d really disagree with you on here is that raising the “reservation wage” is a feature, not a bug of UI programs.”

    Bingo. The optimal benefit is >0 for this reasons. Better matches. One example
    http://www.jstor.org/stable/10.2307/1833035

    Now that doesn’t mean that natural unemployment might still rise, though I wonder if there is a model out there where up to some point increasing UI benefits actually decreases the natural rate of unemployment for the fact that a lower rate of separations outweighs a decrease in findings in the long run, though it might not be empirically important.

  4. Gravatar of Bill Woolsey Bill Woolsey
    23. January 2013 at 11:45

    James:

    Most people switch jobs by finding a new job and then quitting their old job. I don’t agree that the “optimal” amount of unemployment insurance is greater than zero because it allows for better matches. It is better for people to work and if they don’t like their current job to search for a new one while working.

  5. Gravatar of OhMy OhMy
    23. January 2013 at 11:47

    This should be simple even for a neoclassical economist. If UI adds to spending (i.e. they are not redistribution from someone else to the unemployed, it means they are not “paid for” by higher taxes) then they add to AD and higher AD always means lower unemployment. So it depends on the base case: if UI is paid out of an extra deficit then it lower unemployment, if it is “paid for” by higher taxes then one could expect it go either way.

    People like Summers don’t understand that reasons for unemployment are macroeconomic, not a lack of incentives. It is the “100 dogs, 95 bones” problem – if you ask 100 dogs to dig out and bring bones but you only bury 95 bones 5 dogs will come up short, no matter what “incentives” you cook up, whipping, burning, torture – doesn’t matter. But Summers is apparently unclear about this. Take away water from the dogs, let them try harder. Sigh.

  6. Gravatar of OhMy OhMy
    23. January 2013 at 11:48

    And please don’t write that higher deficit means more taxes later – it doesn’t.

  7. Gravatar of Andy Harless Andy Harless
    23. January 2013 at 12:52

    I don’t get Bill Woolsey’s comment. Most people do switch jobs by finding a new job and then quitting their old one, but what reason is there to suppose that that is the socially optimal way to do it? If I were an employer I wouldn’t want to hire people that are going to be looking for new jobs while working for me, but in the absence of unemployment insurance, candidates will do their best to hide that fact. And the quality of the ultimate matches is likely to be relatively low if the matching process itself is a part-time moonlighting gig rather than a full-time job.

  8. Gravatar of Greg Hill Greg Hill
    23. January 2013 at 13:03

    Bill Woolsey:

    “I don’t agree that the “optimal” amount of unemployment insurance is greater than zero because it allows for better matches.” How are we supposed to evaluate your opinion against the results from Peter Diamond’s paper cited by James above?

    Diamond’s paper, from 1981, was part of the work for which he won the Nobel Prize. But see also Raj Chetty 2008 JPE paper, which “presents new evidence on why unemployment insurance (UI) benefits affect search behavior and develops a simple method of calculating the welfare gains from UI using this evidence. I show that 60 percent of the increase in unemployment durations caused by UI benefits is due to a liquidity effects rather than distortions in marginal incentives to search (moral hazard) . . . ” And, note, the “liquidity effect,” for cash-constrained households in particular, is one reason why UI increases AD more than many other policies.

  9. Gravatar of Doug M Doug M
    23. January 2013 at 13:05

    Regarding the reservation wage,

    First suppose UI doesn’t exist, and futher suppose I am a highly trained engineer, but I have lost my job. It could take a year to find the right job that meets my skill. But as I am desperate for any kind of job, I take an entry level job in retail. There is nothing inhernetly wrong with the retail job, but it is not what I as trained for, and it is not what I want to be doing. And as my days are full, I may miss an opportunity to find the job I want. And the retailer may miss the oportunity to hire the someone who wants to work retial and may stay in the job longer than I do.

    Would it be more efficient to pay me to stay at home to find the right job, at the cost that I produce nothing while I work, and the retail job will be vacant longer before someone fills it? perhaps, perhaps not. tough to say

  10. Gravatar of Doug M Doug M
    23. January 2013 at 13:14

    Oh my,

    Neoclassical economics… If the government pays me UI does that increase spending? Where does the government get the dollar to pay me? They can tax someone for it, they can borrow it, or they can print it. If they borrow it, they can borrow it domesicly or from abroad.

    If they tax for it, that reduces spending directly.
    If they borrow it domestically, that crowds out some other form of investment.
    If they borrow internationally, capital flows must equal goods flows. So while spending increases production does not.
    If they print it, you are into the world of monetary policy. Only monetary policy can increase NGDP.

  11. Gravatar of JerryC JerryC
    23. January 2013 at 13:59

    Something interesting…

    NGDP level targeting: Yellen it from the rooftops, but nobody heard

    http://ftalphaville.ft.com/2013/01/23/1350362/ngdp-level-targeting-yellen-it-from-the-rooftops-but-nobody-heard/

  12. Gravatar of ssumner ssumner
    23. January 2013 at 13:59

    Jim, Why didn’t I think of that! So if Obama proposed a program of dynamiting every factory in America to create jobs, and a reporter asked him how that would create jobs, you’d call him stupid–obviously jobs would be created producing dynamite!

    In other words, the reporter clearly meant “how does that reduce the unemployment rate.” And Carney knew that.

    Sean, Workers are already paying the “contributions” that come from companies. It’s simply a tax on labor. Personal accounts would be much better for workers—it’s not a zero sum game. It gives workers more choice.

  13. Gravatar of Doug M Doug M
    23. January 2013 at 14:24

    What would your “personal accounts” look like? A model that comes to mind would be if my employer were to contribute 5% of my wages to my UI account. When the ballance of my UI account = 75% of my current salary, my employer gives the money that was going to the UI account directly to me.

    But then I would say, why not just give me the money, and let me save it. I suppose it would be a little bit different from that in that if my UI account was empty, I could still receive UI benefits for some period of time.

  14. Gravatar of OhMy OhMy
    23. January 2013 at 14:36

    Doug M,
    ” If the government pays me UI does that increase spending? Where does the government get the dollar to pay me? ”

    Like all government money it comes out of thin air.

    “If they tax for it, that reduces spending directly.”

    No, it is a redistribution, no impact on spending, someone else is doing the spending. That is why I said if the UI is “paid for” with taxes it may not work.

    “If they borrow it domestically, that crowds out some other form of investment.”

    Wrong. Deficits, however they are paid for crowd-IN private spending. If the govt issues a $100 bond, swaps with someone and spends the $100, the private sector is up by exactly $100 (in bonds, which are convertible to dollars), no monetary crowding out is possible. Only real crowding out is possible when the govt and the private sector compete for scarce resources. Clearly not the case when mass unemployment is present.

    “If they borrow internationally, capital flows must equal goods flows. So while spending increases production does not.”

    So production sniffs out where the increased spending comes from and doesn’t increase? It would increase if the increased spending was say credit financed?

    Second point, the sovereign government doesn’t really borrow, it offers to pay interest on assets it created, this is fundamentally different. Neoclassical macro, Summers included seems to be confused about it.

    “If they print it, you are into the world of monetary policy.”

    Of course not. Deficit spending is in the domain of Congress, this is fiscal policy. The Fed cannot just print money and do a helicopter drop. The Fed only does asset swaps.

    “Only monetary policy can increase NGDP.”

    Non sequitur.

  15. Gravatar of Geoff Geoff
    23. January 2013 at 14:49

    “Demand for commodities is not demand for labor.” – John Stuart Mill.

  16. Gravatar of Geoff Geoff
    23. January 2013 at 15:24

    Dr. Sumner:

    “”Most of the excess unemployment in the US in recent years is due to a demand shortfall, not UI effects.” I agree.”

    If “most” of the excess unemployment is due to insufficient overall spending, then that would mean “most” unemployed people can be unemployed for years at a time with zero income, and somehow survive.

    How can “most” unemployed people support themselves for three years running with zero wage income?

  17. Gravatar of Don Geddis Don Geddis
    23. January 2013 at 15:27

    Sumner: you quote from Moore’s editorial, but just as a segue to Carney? Without even a footnote mentioning that the WSJ editorial, as a whole, is nearly as stupid? Yes, Carney was too flippant, and probably got the conclusion wrong. But at least he’s thinking about aggregate demand. Meanwhile, Moore seems to think that the only valid econ is micro, and that if any macro conclusions violate micro intuitions, then the macro conclusions must be self-evidently wrong, regardless of the evidence.

    OK, you never explicitly endorsed the rest of Moore’s article, besides the paragraph you quoted. But you sure left the impression that you thought it was insightful, whereas in reality he’s even farther from the truth than Carney.

  18. Gravatar of Bill Woolsey Bill Woolsey
    23. January 2013 at 15:54

    Why does working “retail” rather than sitting about at home mean that you miss the job?

    Is it because you cannot schedule an interview?

    Is it because you cannot check want ads during off hours?

    Does the typical unemployed person really just go door to door or do cold calls or spend all day reading page after page of want ads looking for the right one?

    Frankly, I think a little retail work would do an engineer some good. If someone wants to laze around as they wait for an acceptable job to come around should have to save up to do that.

    And, of course, nominal GDP targeting means that there is no impact on aggregate demand.

  19. Gravatar of Doug M Doug M
    23. January 2013 at 16:28

    “Why does working “retail” rather than sitting about at home mean that you miss the job?”

    ‘Cause I’m tired!

  20. Gravatar of Doug M Doug M
    23. January 2013 at 16:38

    Oh my,

    Are you suggesting that when the Treasury sells debt that creates money, and when the Fed buys debt that creates money?

  21. Gravatar of J J
    23. January 2013 at 17:32

    I agree with Jim in the beginning. There is clearly some debate over whether or not longer UI benefits lower unemployment. Carney isn’t going to pull out a chalk board and write up an efficiency wage model to demonstrate the potential drawbacks. The reason why more UI benefits may lower unemployment is that they boost AD. There are also reasons why UI benefits will raise unemployment. I agree that a WSJ reporter should know that the reason why some think UI benefits may lower unemployment is that extending UI benefits boosts AD.

  22. Gravatar of ssumner ssumner
    23. January 2013 at 17:33

    Geoff, Savings, spouses, underground economy, welfare, crime, nickels in their sofa. How do I know?

    Don, You must be new to the blogging game. When I comment on a quotation, there is no implications for anything else. I am very careful to mean what I say. Those that read my blog know that I totally disagree with Moore, so I didn’t think there was any point in stating the obvious.

  23. Gravatar of J J
    23. January 2013 at 17:38

    That aside, I’m surprised that Carney’s quote was the thing that caught your eye in this there-is-no-such-thing-as-a-demand-side-recession opinion piece.

  24. Gravatar of OhMy OhMy
    23. January 2013 at 18:12

    Doug M,

    I am saying that when Treasury creates bonds out of thin air it creates a form of money and when the Fed creates reserves out of thin air it creates a form of money.

    http://moslereconomics.com/2011/04/22/quick-bernanke-video-clip-from-60-minutes-on-how-the-fed-spendslends/

    On its own the Fed is only allowed to *swap* the new reserves for other assets so it cannot create net financial assets. Only as a fiscal agent of the Treasury it can create new money and inject it into the economy. Eg. when Congress appropriates new military spending the Fed credits the account of banks where contractors have accounts. These new reserves are then used to buy bonds which likewise are created out of thin air by the Treasury. So you statement that deficits crowd out anything makes no sense. If you follow my example it leaves the private sector with $100 more in assets, in this case a new Treasury bond. By accounting the government deficit is the surplus of the rest of the world – which accumulates the newly created asset, be it a bond or a Fed reserve. Creating new net financial assets can only be achieved by the fiscal policy which is a restricted domain of Congress, so eg. the Fed cannot just decide to start paying UI with newly created reserves.

    Unfortunately, neoclassicals are confused about these basics and teach students that deficits crowd out private investment (but at the same time are inflationary, go figure) or that creating new money (in any form: bonds or reserves or platinum coins) and spending it is “monetary policy” while it is fiscal policy.

  25. Gravatar of Mike Sax Mike Sax
    23. January 2013 at 21:14

    Summers first way UI increases unemployment is baiscally meaningless-it’s just accounting. He’s saying that pretending they’re looking increases the unemployment rate. But it’s just statistical-more people are not unemployed, just more people are considered unemployed.

    In the quote he also seems to be saying that the work requirement also raises the unemployment rate. Again, just statsical but by this logic we should oppose the work requirement-as it would lower the unemployment rate.

    Meanwhile there’s a school of thought that says that we undercount unemployment anyway by considering so many people outside the work force-the debate over U-6 unemployment.

    If you want a reform of UI, how about one that even the GOP used to say they supported-until Obama suggested it last year, where you allow people to continue to collect UI for 8 or 9 weeks after they get a job.

    This would be added incentive coming at it from the other direction.

  26. Gravatar of Mike Sandifer Mike Sandifer
    23. January 2013 at 21:18

    Scott, I understand that you occasionally mention the effects of UI on unemployment as perhaps an academic point, but from a prescriptive perspective I wish you’d mention it in the context of a wage subsidy, elimination of the minimum wage, tax reform, etc. It really all fits together, and I’d like to see you push your prescriptive policy views more.

    Couldn’t you even push it in terms of stimulus? If the Fed stays true to its word, and given Bernanke’s statements on his desire for more fiscal stimulus, wouldn’t your secular policy prescriptions actually boost the economy?

  27. Gravatar of ssumner ssumner
    24. January 2013 at 05:59

    Mike Sandifer. That’s a good point, I see all those proposals as fitting together, making the supply-side of the economy more flexible and efficient. When money starts to fade from the news I plan to focus mostly on supply-side issues.

    BTW, I think it’s quite possible that extended UI raises unemployment by more than 1/2%–it’s tough to measure long run effects.

  28. Gravatar of Geoff Geoff
    24. January 2013 at 06:21

    Dr. Sumner:

    “Geoff, Savings, spouses, underground economy, welfare, crime, nickels in their sofa. How do I know?”

    Well, to be fair to your readers, since you argued that most of the unemployment is due to insufficient total spending, that showed me that you have intimate knowledge of various non-NGDP reasons that you have since ruled out as the biggest reasons, leaving NGDP as the biggest reason.

    But if you now say you have no idea of the extent of those other potential reasons, then there is a rather gaping hole in your argument.

    I think that in order to be sure that NGDP is the biggest reason, you have to have equally sure knowledge of what the smaller reasons are, their extents, and why they only make up only a small part of the reason for unemployment, rather than “most” of the reason.

    You can’t know you have 3/4 of a pie unless you know there is 1/4 missing, and vice versa. Imagine me telling you I have 3/4 of a pie, and then you ask me about the complement, and I get testy and say “Oh that? 1/8? 5/7? 2/5? I have no idea.”

    I’ll be more convinced that NGDP is the biggest reason when your explanations of the smaller reasons are as equally rigorous.

    Nickels in an unemployed person’s couch is not exactly convincing.

  29. Gravatar of Becky Hargrove Becky Hargrove
    24. January 2013 at 06:49

    As someone who is about to make a tentative (and scary) leap back into the job market (which means being responsible for rent again), I would like to voice my concerns for the idea of wage subsidies as an adequate supply side solution. What that does is create yet another category of fixed income status which only competes with other fixed income categories trying to live close enough to needed amenities. In years past for instance, were wage subsidies created, they might have been sufficient so long as someone lived in inaccesible areas where housing was inexpensive. However as fewer people rely on cars in the future, and cars are now also built beyond the capacity of owners to repair and maintain, more people need to live closer to more accessible areas where housing tends to be beyond the reach of said wage subsidies.

    Let me provide a concrete example how this currently plays out in real life (will keep this city anonymous). Say a city appears in job listing markets as providing practically the greatest increase of jobs in the country. Sounds like a great place to get a job, right? But on closer inspection, turns out the city closed its borders some decades back, forcing people who work there to build traditional housing out in the countryside and commute, as the prices of real estate in the city interior skyrocketed and yet people who would fill (the offered) low skill jobs needed to live closer to town. However, this strategy worked out more or less for decades until people started seeking out walkable cities. The paradox is that said anonymous city is listed as a top walkable city, only people have to park their car in a garage somewhere and then walk…

    IOW we have to have supply side solutions that involve the actual consumer products offered. Wage subsidies now would only add further problems to this scary present reality.

    To make a long story short, supply side solutions will not work until we make real, sustainable, technological progress in building alternatives. The good news? I think I might have found a really nice livable city still manageable for the lower skill jobs actually offered. But it wasn’t easy…

  30. Gravatar of Jay Carney vs. Larry Summers (and the CBO) « J.uris D.ebtor Jay Carney vs. Larry Summers (and the CBO) « J.uris D.ebtor
    24. January 2013 at 07:06

    [...] The first part is conscripted from Scott Sumner: [...]

  31. Gravatar of Tyler Healey Tyler Healey
    24. January 2013 at 08:39

    The goal should be poverty reduction, not unemployment reduction. UI reduces poverty – that alone makes it good policy.

    There is no point in having low unemployment if it will not cause low poverty.

  32. Gravatar of James James
    24. January 2013 at 10:48

    Along the lines of my last post I found this paper

    http://onlinelibrary.wiley.com/doi/10.1162/JEEA.2009.7.6.1225/abstract

    I don’t have access to an ungated version to take a look at it yet.

    “This paper provides evidence on the effect of unemployment insurance on unemployment and subsequent employment duration in Europe using individual data from the European Community Household Panel. Country-specific estimates based on a multivariate discrete-time duration model, which takes into account dynamic selection issues and the endogeneity of benefit receipt, suggest that although receiving benefits has an adverse effect in the sense of increasing unemployment duration, there is also a positive effect associated with the increased duration of subsequent employment. This beneficial effect of unemployment insurance on employment stability is pronounced in countries with relatively generous benefit systems, and for recipients who have remained unemployed for at least six months. These findings are in line with theories that suggest a matching effect of unemployment insurance. ”

    UNEMPLOYMENT INSURANCE IN EUROPE: UNEMPLOYMENT DURATION AND SUBSEQUENT EMPLOYMENT STABILITY

    Konstantinos Tatsiramos*

    I don’t know how the author disentangles the possibility that a longer boughts of separation and laws preventing firing at will, decreases job separation and the alternative hypothesis of better matches.

  33. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    24. January 2013 at 11:16

    Of course we all already know about this, but;

    http://www.econtalk.org/archives/2012/12/mulligan_on_red.html

    Where he talks about his new book; ‘The Redistribution Recession: How Labor Market Distortions Contracted the Economy’

  34. Gravatar of Tyler Healey Tyler Healey
    24. January 2013 at 12:03

    UI stimulates the economy for the same reason that tax cuts stimulate the economy: they put money in people’s pockets.

    According to Mark Zandi, UI is one of the most stimulative economic policies in existence.

    I find it extremely hard to believe that one of the most stimulative economic policies in existence causes the unemployment rate to rise.

  35. Gravatar of Bill Woolsey Bill Woolsey
    24. January 2013 at 14:32

    Nominal GDP level targeting and a supportive monetary policy will provide all the stimulus needed. There is no reason to have unemployment insurance so that there will be more spending.

    So, where does that leave us? Paying people to procrastinate.

    If people on average take longer to find a job, then at any point in time, the unemployment rate will be higher.

  36. Gravatar of Geoff Geoff
    24. January 2013 at 15:01

    Bill Woolsey:

    “Nominal GDP level targeting and a supportive monetary policy…”

    What’s the difference between “NGDP level targeting” and “supportive monetary policy” that would justify the use of “and” here? Is there such thing as NGDP level targeting and non-supportive monetary policy?

    “…will provide all the stimulus needed.”

    Only if you define a constant NGDP growth to be all that is needed…for accomplishing…NGDP growth targeting.

    A constant NGDP growth rate of X% may in fact contain too much of what is needed, or too little of what is needed, in terms of the related money growth and interest rates, relative to what individuals who are constrained to market behavior actually want at the time.

    All “one size fits all”, “from above” type economic plans are almost certainly going to be different from what individuals who behave according to pure market processes would bring about on their own.

    It would be nice if everyone in a pure market brought about exactly 5% NGDP level growth as if by a physical law like gravity. For then a “from above” monetary policy that targets 5% NGDP growth would be bringing about an outcome pretty darn close to pure market money supply growths and interest rates. But…

  37. Gravatar of ssumner ssumner
    25. January 2013 at 05:27

    Geoff, Your response makes no sense. We know that millions of people survive unemployment w/o benefits in America right now. It’s not an issue that is even up for dispute. How they survive has no relevance to my claim. The fact is they survive.

    James, There is another problem; the duration of UI benefits is itself endogenous. It tends to be longer in high trust societies. So cross sectional studies are very tricky.

    Tyler, Mark Zandi? He is an expert on UI?

  38. Gravatar of Geoff Geoff
    25. January 2013 at 06:11

    Dr. Sumner:

    “Geoff, Your response makes no sense. We know that millions of people survive unemployment w/o benefits in America right now. It’s not an issue that is even up for dispute. How they survive has no relevance to my claim. The fact is they survive.”

    Well, I wasn’t referring to just anyone without work. Yes, of course there are many, probably in the millions, who are self-sufficient and live in “the sticks”. But they are not in the group of people who are “unemployed”.

    I was thinking more of how can millions of former employees, and those looking for work be supporting themselves for years on end if their wage income is zero.

    I didn’t actually say that it was “benefits” (I am assuming you mean government subsidies) per se that must be supporting them. I wasn’t saying anything about specific support mechanisms. I was just investigating your certainty that it is unsufficient NGDP. To me that means we have to be equally certain that the smallest reason is not insufficient NGDP. You seem to want to casually dismiss this part and insist it isn’t important to your position.

    I think it is crucial to separate those looking for work, and those who can’t support themselves, from those who don’t intend to work and are self-sufficient. I think you are referring to the latter group of people when you said “millions are surviving”, while I was referring to the former group of people.

    The support mechanism of those looking for work, who can’t support themselves, I would think, have to be explained by you with the same extent of certainty as your certainty that it is insufficient NGDP that is the biggest reason for overall unemployment. I think you can’t know the biggest reason is insufficient NGDP without knowing that the smallest reason(s) is(are) X. I doubt that this “makes no sense.”

    I just did some quick research in response to your response here, and I found that since 2008, around 15 million additional people have entered into the food stamp program. The total number of people in the program now totals 45 million. This greatly surprised me, because I was lead to believe by your response that most of those who can’t find work will simply become benefitless self-sufficient farmers, criminals, and so on.

    I don’t have numbers of those who are benefitless and surviving, but I doubt that the “millions of people surviving w/o benefits” as you referred above, comes even close to this 45 million number.

    I think it is wise to do as much research into how unemployed people can be supported for years on end, as researching the effect of insufficient NGDP on unemployment. Without that complement, one might be lead to being unduly certain about a particular reason as being the biggest reason, when it might in reality be a very minor reason.

    I apologize if my last post made no sense. I am trying to be as clear as I can.

  39. Gravatar of Tyler Healey Tyler Healey
    25. January 2013 at 06:12

    A study by Moody’s Analytics found that every dollar spent by the government on benefits for the unemployed produces an overall return of $1.61 for the economy.

    Zandi’s testimony to Congress can be read here: http://www.economy.com/mark-zandi/documents/2010-04-14-Senate-Finance-Committee.pdf

  40. Gravatar of RebelEconomist RebelEconomist
    25. January 2013 at 10:16

    @Becky Hargrove

    “As someone who is about to make a tentative (and scary) leap back into the job market…”

    Good luck!

  41. Gravatar of ssumner ssumner
    26. January 2013 at 05:52

    Geoff. If we eliminated all forms of welfare, food stamps, etc, the labor market would become more flexible and the natural rate of unemployment would fall. But as we found in 1921, even without welfare the unemployment rate jumps when NGDP falls.

    Tyler, Those numbers are not correct. They ignore monetary feedback. But even if they were 100% correct they would have no bearing on my argument. Read my post again, conceded UI might impact AD. And blowing up all our factories would create jobs building dynamite.

  42. Gravatar of Tyler Healey Tyler Healey
    28. January 2013 at 07:14

    CBO has also found that UI is extremely stimulative: http://www.cbo.gov/publication/43734

    If UI provides incentives for recipients to remain unemployed, the obvious solution would be to raise the minimum pay for workers enough that UI would no longer be seen by anyone as a preferable alternative to employment.

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