Morning Bell: Back the Baucus Benefits Out of Stimulus

Conn Carroll / January 30, 2008

As bad as portions of current stimulus package are, it is looking like the Senate, led by Sens. Max Baucus (D-MT), Olympia Snowe (R-ME), and John Sununu (R-NH), is determined to make it worse by tacking on an extension of unemployment insurance (UI) benefits. There are at least three reasons to keep UI out of a stimulus package:

1. Unemployment is low, and the number of new UI claims is falling, not rising
2. Long-term unemployment has been stable over the past 2 years
3. Little evidence suggests that extending UI benefits improves the economy

Unemployment Insurance was never designed to stimulate the economy. It was created to insure workers against the risk of involuntary job loss. Supporters of UI love to point to a 2004 study purporting to show that every $1 spent on additional UI benefits increases GDP $1.73. That study is flawed. The study erroneously assumes that UI recipients spend every dollar of additional UI benefits. In fact, households respond to more generous benefits by changing their behavior. Only 50 cents of every dollar in UI benefits finances new consumption. More fundamentally, more aggregate demand is not the answer to the recent slowdown because insufficient aggregate demand is not the problem in the first place. A sectoral shift to less risky assets is. UI does nothing to address this problem.

Oh, and did we mention that the current stimulus package includes cash returns for illegal immigrants who pay taxes. There are enough thorny issues in the currently favored stimulus deal. Let’s not make it any worse.

Quick Hits:

• The White House indicated they will sign a 15-day extension to expiring FISA changes vital to our nation’s security. We can’t find any media reports that inform citizens these extra 15 days are in addition to the five months Congress has had since the temporary measures were first passed in August.

• Iran is approaching the “peak” in its nuclear program and will not yield to Western pressure to halt its activities, President Mahmoud Ahmadinejad said today.

• Oregon became the latest state to wake up to reality and stop issuing illegal immigrant’s driver’s licenses. Additionally, in four of the only five remaining states that encourage illegal migration (Hawaii, Maine, New Mexico, Utah, and Washington) there have been efforts end the practice.

• Canada may have a government monopoly on health care, but they do not have enough military funding to provide the helicopters their troops need in Afghanistan.

• A study released by the Ethics Resource Center found that nearly 60% pf government employees at all levels – federal, state, and local – had witnessed violations of ethical standards, policy or laws in their workplaces within the last year.