There's
difference between unemployment benefits being the sole cause of unemployment, and being a factor that increases unemployment at the margins. If the only point is that the graph doesn't support the thesis, great! It doesn't justify distorting Laffer's argument.
4 comments:
I'll agree with Drum that the graph doesn't support Laffer's thesis, there's usually a lag b/t the unemployment spike and the benefits spike, but when he attempts to slam his point home with, "can you think of an alternate mechanism to explain why total unemployment benefits paid out might go up when the unemployment rate goes up?" he seems to miss the rather important "per recipient" part of the label.
This does bring up an interesting question though, why do we increase benefits per capita when unemployment in on the rise? Is it an attempt at stimulating the economy as a whole? Have we been doing that since the 70s (or further)? My guess is that it's mostly politically motivated, when unemployment is in the news it looks good to raise the benefits.
I initial made the same point in this post, but then thought better of it, and took the post down.
The problem other than lag, is that the benefits are calculated in terms of average payment per week times average duration of benefits. I think the Drum argument would be, of course benefits are greater, people stay out of work longer in a recession. In other words, you could get this same graph without any change in the weekly benefits paid out, or even the duration of benefits. Difficulty in finding a job may cause people to stay on unemployment longer and entirely account for the correlation.
On the other hand, I think Laffer's point is self-evidently true: the more you subsidize unemployment the more of it you'll get, on the margins at least. I don't know how much of an effect it has, but it has some. It's obnoxious that Drum is putting other words in his mouth.
But then, I too don't get the significance of the graph. Or maybe I'm misreading it.
Or maybe this graph is not actual money paid. Maybe it's a graph of average payments legally available, plus average duration of benefits legally available. That might made sense. However, "real" seems to indicate payments actually made.
Yes, interesting units on the plot. Average payment per week (per recipient) would only change as a result of legislation, but average duration could obviously reflect prolonged inability to acquire employment. Legislation might factor into the latter as well though as the government determines the time one can be eligible for benefits.
Seems pretty obvious that the more attractive you make unemployment, the longer people are likely to stay there (it's at least one of the factors). Aaron was telling me a while ago about someone he knew who was off traveling in Europe while having friends at home fill out the paperwork saying they were looking for work so that they could continue to collect unemployment. Freeloaders make me ANGRY.
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