LBO News from Doug Henwood

Stumbling recovery continues • bourgeois theories of unemployment • who gets UI? • how the StimPak helped • models for budget-cutting

[The commentary also included an analysis of health lunacy, which I’ve posted separately.]

stumbling along

The U.S. economy continues its stumbling recovery. On Thursday, we learned that first-time applications for unemployment insurance, filed by people who’d just lost their jobs, rose slightly last week after falling decently the previous week—a fall that exactly reversed the rise of the previous week. The four-week moving average, which smoothes out the weekly volatility in this series, fell by 4,000, but is only slightly below where it was almost two months ago. In other words, it looks like the trend of modestly declining rates of job loss is continuing. But job loss, as measured by these initial claims, is still pretty high by historical standards—and there’s not much evidence that employers are picking up the sluggish pace of hiring.

Meanwhile, it looks like millions of people are going to lose their unemployment benefits (which, by the way, are a joint program of the federal government and the states). Normally, a jobless person can draw benefits for 26 weeks, but Congress often extends that period in times of high unemployment, like this one. There have been a number of extensions of that 26-week limit since the recession hit, but no longer. House Republicans blocked attempts to extend emergency benefits, so nearly a million recipients are going to lose their benefits at the end of the year, and another million a month will suffer the same fate in early 2011.

elites theorize joblessness, conveniently

There’s a ludicrous theory (prime example: here) circulating among elites—meaning right-wing economists and some, though far from all, Federal Reserve officials—that our near-10% unemployment rate is not a reflection of a sick economy, but something called job skills mismatch—that is, there are jobs out there, but our unemployed workers are just too dumb or unqualified to do them. There’s almost no evidence for this proposition—why did the number of mismatched roughly double over the last three years, anyway?—but orthodox types find it a comforting explanation.

Another popular theory among elites is that unemployment benefits are too generous, encouraging the jobless to sit back and live large on $307 a week (the size of the average check). So if we cut benefits, they’ll scurry back to work. This is vicious nonsense—I faced it in my Real News debate with Peter Schiff—but orthodox types find this one, too, a comforting explanation.

UI: who benefits?

The Congressional Budget Office is just out with a study of who gets what from unemployment benefits. They found, among other things, that just under half the unemployed drew benefits in 2009. Of those that did, the average recipient collected $6,000, accounting for 11% of their family’s income last year. That is not living largely, but that 11% translates into about a month and a half’s worth of income over the full year, which is not nothing. Without unemployment benefits, the CBO estimates, the poverty rate last year would have been 15.4% rather than 14.3%. So you can say that unemployment insurance kept well over three million Americans out of official poverty last year. Not next year, though.

Speaking of which, I was just looking at some personal income numbers. Most people don’t know this—and I didn’t know the extent of it until I looked at the figures—but tax cuts and government assistance have offered enormous support to personal incomes during the recession and weak recovery. For example, the tax share of personal income fell by three percentage points over the last several years—for that, you can thank last year’s stimulus bill. (Funny how most Americans think that Obama raised their taxes.) And what economists call government transfer payments—benefits like Social Security and unemployment insurance—rose from 14% of income before the recession to 18% now. Add that four point rise to the three point decline in taxes and you see that household incomes would be about 7% below where they are today without government action, much of it from the maligned stimulus bill. That 7% is nearly a full month’s income. Fiscal policy certainly hasn’t turned bust to boom, and it could have been a lot more potent if it’d been bigger and better designed, but still, without it, we’d be wearing barrels.

budget cuts: take food from the disabled

Meanwhile, the increasingly Murdochized Wall Street Journal had a piece the other day pointing to the states as a model for Washington on how to do budget cutting. The news pages of that paper move further rightward by the day, which is a very sad thing, because the Journal used to be a real treasure. States are taking tough measures because they have to—most are required to balance their budgets. And these measures are mean and ugly. Over the last three years, 29 states have raised fees on or cut benefits for the elderly and disabled. States have also been cutting aid to local governments, which means they in turn have to cut benefits and services. A model is Indiana, whose governor Mitch Daniels is a likely Republican presidential candidate. He’s balanced his state’s budget by ending collective bargaining rights for state employees, cutting $150 million from aid to colleges and universities, and hacking away at assistance to foster parents and the developmentally disabled. But since this is the USA, where meanness is often admired as strength of character, Daniels is a popular figure in his state. What a country.