An Economic Bright Spot
Homeowners continue to lose billions in equity, wages are down, 861,000 American lost their jobs between April and May, the stock market’s slumping, and high gas prices show few signs of abating. The bright spot? Congress and the President took a small step toward reality-based economic policy yesterday by finally – finally! – extending unemployment benefits. The policy may actually help turn the economy around.
The measure is very simple: people who get laid off but still can’t find a new job after 26 weeks of looking – at which point they’ve exhausted their federal unemployment benefits – qualify for 13 more weeks of benefits. The policy is a lifeline for families with a wage-earner out of work for months on end at a time when jobs are hard to come by. But, as I’ve written before, it’s also among the best measures to boost the economy as a whole. Unlike the federal stimulus checks which went to many families likely to save the cash for a rainy day, unemployment benefits target those for whom the storm clouds have already burst. Families trying to get by without a paycheck tend to spend the money immediately, supporting their local economies. Companies that would otherwise have seen a drop-off in demand as customers became too broke to shop experience less of a loss. As a result, they may be able to minimize or avoid layoffs of their own. The economic effects reverberate. That’s why studies suggest that for every $1.00 spent on unemployment benefits, the economy gains $1.64. Few government interventions can match that level of efficiency.
The question is: what took so long?
The economy has been losing jobs since January and at that point there were already 1.4 million Americans who had used up their unemployment benefits but were still unable to find work. Why has it taken six months to help these people out and enact one of the most effective stimulus measures ever tried?
The reason, of course, is that reality-based public policy has taken quite a beating over the past few years. In January, the President warned Congress not to “load up” his stimulus package of costly and ineffective corporate tax cuts with measures like an extension of unemployment benefits. The Senate’s February version of the stimulus bill nonetheless included a benefit extension but was promptly killed by a filibuster. In April, the House extended benefits but the bill never came to a Senate vote. Finally, Members of Congress stuck the measure on to a war spending bill that the President simply could not veto. They compromised away a measure that would have enabled more out-of-work Americans to qualify for unemployment benefits. They didn’t include a whole host of other reforms [pdf] that would update the unemployment insurance system and enable it to serve more people. And they certainly didn’t act to improve the Extended Benefits program so that lengthier benefits would kick in automatically when unemployment rises, without the need for Congress and the President to engage in political negotiations on what should be a no-brainer issue. Still, the extension of benefits is a policy victory. The Members of Congress who worked, time after time, to get the policy passed deserve praise. And it’s one of the only economic bright spots we’ve got.
P.S. Unemployment insurance wasn’t the only positive measure attached to the latest war spending bill. Senator Jim Webb’s “New GI Bill” improving education benefits for recent veterans, was also signed into law. As the campaigners for that bill note: “We sent them to war. Why can’t we send them to college?”