Monday, December 10, 2012

Dangerous Keynesian Thinking on Unemployment

The Washington Post has published an op-ed co-authored by Rick McGahey and Teresa Ghilarducci who are professors of economics at the Schwartz Center for Economic Policy Analysis at the New School in New York. The article is titled, Five myths about the unemployed.

Let's take a look at some of these "myths." McGahey and Ghilarducci write:

[Myth]People who receive unemployment benefits are slow to search for work. 
This oft-repeated statement might have a chance of being true if benefits were unduly generous. They aren’t. Weekly unemployment insurance payment averaged $300 in 2010 and 2011, federal statistics show.
First of all M & G are misleading here in simply looking at unemployment benefits, almost all those on unemployment benefits receive food stamps (SNAP). But let's for a moment consider things relative to a $300 per week payment. Someone working 40 hours a week would have to earn $7.50 per hour to make a gross payment of $300 per week. Net would require a significantly higher hourly wage because of payroll taxes, etc.

Currently, the federal minimum wage in the U.S. is $7.25 per hour, so for a minimum wage worker there is absolutely no incentive to get back to work. The more a person can earn on an hourly basis, the less likely he is to stay on unemployment, but for the low wage earner, the incentive is to suck every penny of unemployment money that is offered, given the amount of current payouts.

Thus, it should come as no surprise that the least skilled have the highest unemployment rates. 12.7% of those without a high school diploma are unemployed, 8.4% of those with high school degrees but no college are unemployed, 7.4% of those with some college are unemployed and only 4.2% of those with a college degree are unemployed.

Many attribute this unemployment difference to the educational level itself of workforce members, but could it be that the lower educated, who are likely to be the least skilled, simply have more incentive to stay unemployed, given what they would earn working versus what they can earn on the dole?

D&G also write:


[Myth] Onerous regulations cause jobs to disappear. 
Anti-regulation advocates say rules always bring increased costs and sometimes drive economically shaky firms out of business. But sophisticated studies don’t support their claim. 
To take one example: Pollution-abatement technologies often create demand for skilled labor and financial investment. Studies have found that when regulators required power plants to install scrubbers in their smokestacks, it created incentives for innovation that lowered the costs of operating the anti-pollution equipment.
Sure, tighter regulations on carbon emissions will affect the coal and oil industries, but those same rules bring jobs in wind and solar plants. Jobs aren’t necessarily destroyed — they are moved around.
This is misframing the problem. The problem is not about businesses put out of work because of regulations. The problem is regulations on on-going businesses that make it dangerous for firms to bring on new employees because they don't know what the costs of bringing on such employees will be given that payroll taxes, business taxes and healthcare fees are all up in the air and are all likely to be higher.

What's up with M&G are trying to knock down these supposed "myths"? They are both big government Keynesian interventionists, who believe more government spending is the cure for all social and economic ills. They give away their biases in their closing comments:
We are stuck in a slow recovery. Congress needs to extend emergency benefits again, but most important, it needs to enact more economic stimulus to help create jobs That will drive down our excessively high unemployment rates.

7 comments:

  1. "To take one example: Pollution-abatement technologies often create demand for skilled labor and financial investment. Studies have found that when regulators required power plants to install scrubbers in their smokestacks, it created incentives for innovation that lowered the costs of operating the anti-pollution equipment."

    So where would the money required to install scrubbers have gone had not power plants been required to install them? Maybe to build a new power plant(s) and lower the cost of electricity for consumers? Hmm.

    "Sure, tighter regulations on carbon emissions will affect the coal and oil industries, but those same rules bring jobs in wind and solar plants. Jobs aren’t necessarily destroyed — they are moved around."

    Ah, so let us move from more efficient methods of generating electricity to less efficient methods. Hey, never mind electricity rates skyrocketed for consumers, we created JOBS!

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  2. You know that an article is garbage when someone attempts to make the "faith in science" approach by referencing "studies" that say exactly what the author wants them to say, but does not cite them. This is abusing a faith in science since most people are conditioned to accept that if a "study" was done then that point is backed by the religious establishment known as science. This is exactly the same as a priest making a claim about god and having all listeners accept whatever he says since then people were programmed to accept the religious establishment known as Christianity at its word.

    As you say they also ignore regulation in the form of compliance and in the amount of ever increasing taxes and fees on the employer. If all social security / medicare / medicaid taxes were ended either each employee would have a larger paycheck or the employer would be hiring additional employees with the extra money left over.

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  3. Robert, another thing unemployment benefits do is incentivize people to work informally- in other words, to stay off the official books so they can collect unemployment benefits whilst simultaneously scoring an unofficial income elsewhere.

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  4. I agree with Bob, but I do think emission controls are healthy, I know it's against free market thinking, but what factors were making these industries strive to be cleaner? Environmental regulation is one of the only areas I think there should be some minimum standards. While the argument against is just, ie it may hinder competition, and stifle innovation, bad as well, I think some basic environmental protections are good for the planet. Not that I'm an environmentalist or anything of the sort, but look at car companies, they have had the ability to create much more environmentally friendly cars for decades, but the big
    oil and auto companies don't want them built. Now obviously market demand changes over time, but it seems like a minimum standard in emission's are a positive step in this case as well, because it not only saves money, it is better for everyone air quality wise. Now it seems contradictory to be a libertarian and be for some minimum enviro protection, and I don't want to stifle job growth or competition, but given what we know about environmental impact of all these pollutants, I don't think it's unreasonable to have some minimum standards for dangerous substances like chemicals, oil, and the burning of fossil fuels.

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    1. I know I'm gonna ripped for the post, but I would just add, it's against libertarian thinking for someone to be able to agress against my person or property, so I think minimal standards are ok in the sense that it reduces the pollution that agresses against other people. So from that standpoint I could argue its good, I guess the alternative could be litigation against polluters, but proving a coal company harmed you because of its pollutants sounds very challenging, and I don't think it would move the market because the cost/benefit of continuing the practice may still be worth it to a polluter. So is it wrong headed to want minimum standards, yes and no. If I'm harmed by other peoples pollution, it's wrong, but very difficult to prove, so addressing that would be costly and maybe unfruitful, so that's why I think we should have some minimum standards for dangerous substances.

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    2. Private Property rights would handle pollution if allowed. Everyone agrees that I can't dump my trash on your property, but if I spew my trash in the air and it is blown on to your property, somehow I am no longer liable. It is the governments minimum standards that allow the pollution. The courts sided with the railroads back in the 1890s for the "common good." It has been down hill ever since. See Dr Walter Block on this issue.

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  5. "....but those same rules bring jobs in wind and solar plants."

    WITHOUT subsidies? Let's see the evidence for THAT. Making coal power more expensive doesn't make wind and solar cheaper. These people are idiots, and commit just about every logical fallacy in the book.

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