Something Rotten in the State

Since my last post a few short days ago, the mainstream media has finally taken notice of the ongoing Congressional battle to extend unemployment benefits.  And my wife has become (yet again) another of those disconcerting statistics.  She is now one of the, according to Time, 1.3 million American's who have lost unemployment benefits during the latest round of partisan wrangling.

Of course, while you were enjoying a three-day weekend (if you're lucky enough to have a job), Congress took a week-long furlough--without making any headway into the unholy alliance of Republicans and so-called Blue Dog Democrats.  How is this possible?   

Over the course of the last month, the bill making the rounds on Capitol Hill has been stripped to skeletal form. It contains no extension of funds to states (Imagine if California actually goes bankrupt. Would our chances of avoiding a depression plummet then?). It contains no money for Medicare. It contains no extension of COBRA assistance. It contains no extension of the first-time home buyer's credit.  The bill has been pared down to nothing more than an extension of benefits for the unemployed.   Yet, in a striking refusal of Keynesian economics, Republicans have steadfastly refused to vote for the bill, and Democrats have been unable to break the filibuster.    

Keep in mind that in February, when Jim Bunning and Tom Cobourn decided to delay the passage of an extension, the general public--including many who self-identify as Republicans--decried the so-called stand as heartless and damn near evil.  It was, of course, just political grandstanding.  Or was it?

Now, the two "gentleman" seem like prophets.  Their "principled" stand against deficit spending (except, as Dean Barker notes in a harrowing article in the Guardian, in the case of war or tax cuts) is now the position of every single Republican in the House and the Senate.  The Republicans, clearly, are worried about the ballooning deficit--you know the one created, by and large, by the policies of George W. Bush. Is it possible that the mid-term elections have something to do with this? Greece? 

The sudden focus on deficit spending is, of course, understandable if you look at macroeconomics through the same lens as personal finance or Herbert Hoover.  Doubtless, there are economists who think that millions of people, in a job market where there are more than 5 applicants for every job opening, only need to have their benefits eliminated to find a job?  Why else would Republicans think that taking billions of dollars out of direct circulation in the economy? (remember the unemployed, living on approximately $300/week tend not to save--because they can't.  All of that money goes directly to the purchase of goods and services).  Why else would Republicans risk exacerbating the mortgage crisis by taking away such a lifeline, which would inevitably lead to an increase in the number of people evicted from apartments and, very likely, a subsequent increase in the number of foreclosures on both single-family and multiple family mortgages?  What could have changed since February?

Well, believe it or not, at least one economist, according to The Wall Street Journal, Michael Feroli, suggests that: 

Extending jobless benefits could inflate the official unemployment rate — even though more people aren’t out of work.

Now, before I continue, I should be clear: I don't have any problem with that statement.  Psychologically speaking, we should be prepared for a higher official unemployment rate because more people are continuing to look for jobs, which is, of course, good for the economy.  The key point here is that the rate could seem higher because of the way in which that rate is calculated. Essentially, without the extension of unemployment benefits, we will have millions of people who are neither employed nor looking for employment.  They will join those among the unemployed who are not counted in that statistic.  In other words, this is a sleight of hand that has no bearing (except perhaps in terms of psychology) on the actual health of the economy.  More, I should be clear that the above statement is the lead in that Wall Street Journal blog post. It is not, what Michael Feroli (an economist, remember) actually said.

Here's a little bit of what he actually wrote in a report dated March 17:

• Lengthened availability of jobless benefits has raised the unemployment rate by 1.5%-pts
• This added availability has increased the average duration of unemployment spells by over a month
• The resulting constraint on supply and lift to demand may explain recent phenomenal productivity growth

Here's a little bit more of Feroli's "analysis":

In particular, the availability of these benefits has almost certainly played a significant role in the record rise in the average duration of unemployment. Consequently, they have also had a role in the stunning rise in the unemployment rate over the last two years. Finally, and more conjecturally, the program’s support to consumption and restraint on forming employment matches may have a role in explaining the good growth/great productivity/bad labor market nexus that has characterized the recovery so far.

As a writer, I'm compelled to admire Feroli's deft use of qualifications here, "[f]inally, and more conjecturally." That's a gorgeous conjuring of speculation into the fabric of what purports to be a factual report.  Conversely, as a human being, the limit on Mr. Feroli's ability to see other potential variables (such as the slim possibility that "great productivity" is inextricably linked with continued layoffs and the abiding lack of employee/consumer confidence that began with that whole derivatives trading snafu).

Surely, this couldn't get any worse?  And yet, it does. Here's another taste of Feroli's actual text:

Note: In the analysis that follows, we attempt only to discern the impact of emergency benefits on the economic data. We make no recommendation or claim about the appropriateness of alternative unemployment compensation policies. Such an analysis would require a much more thorough consideration of other factors, such as equity and moral hazard, which are not addressed here.  

Or in layman's terms, "Note: CYA. This report is woefully incomplete for the policy decisions we'd like made to be made, but we're still going to speculate, and maybe we'll obfuscate ever so slightly on the basis of "data."

The "best" part though follows the multiple rejoinders:

Jobless benefits have the potential to increase the unemployment rate through two channels. First, by softening the blow of losing a job, they allow unemployed persons to become more selective in what job offer they accept, thereby raising the average duration of unemployment and increasing the unemployment rate. Second, they may encourage people who would otherwise drop out of the labor force to be counted as jobseekers and therefore in the labor force. 

And herein, we find evil masquerading as economics.

To be fair, I'm not an economist. But to be fair, the following conclusion can neither be supported by Mr. Feroli's so-called analysis, nor by, well, logic:

To the extent increased jobless benefits restrain the aggregate amount of labor employed in productive activities, they could in fact lower the amount of output produced.

Because, quite simply, the continuing instability in the credit and labor markets are responsible for the downturn in aggregate production.  You know, if your company lays people off, has less access to capital, and is facing a marketplace where consumer confidence is shaky, you make fewer fucking widgets.

For a, perhaps, better informed take on the report, see Robert Garcia's blog on The Huffington Post and Daniel Hoffman on Wall Street Cheat where I found the actual link to Feroli's "work."

Unfortunately, the problem here is that policy in our nation is now being shaped by such haphazard ideas.  While Paul Krugman--a professor of economics at MIT with degrees from both Yale and MIT, and by the way, a Nobel Laureate, suggests that we are on the cusp of Depression because of the overbearing (and sudden) concern of Republican and Blue Dog Democrats with balancing the budget.  As Krugman points out:

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

Furthermore, it seems to crucial to point out that this is not simply (as Mr. Feroli seems to believe) a matter of manipulating data points.  Instead, this is the well-being, the ability to make rent and eat for millions of unemployed Americans.

So, why would Feroli write such a report.  That's easy.  He works for JP Morgan Chase.  Why would our politicians--those entrusted with protecting and ensuring the public good--believe what Feroli and others of his ilk have written from a mire of conflicting interests?  Now, the answer to that question is a little bit harder.

In my opinion, the Republicans are playing politics. Grandstanding.  In short, they've fundamentally undermined their oaths of office, risked economic catastrophe, and deepened the gulf between those who have and have not.  Or else, they're just stupid and prone to false analogies, like USA is to Greece as Patriot is to Republican.

Still, I have a long history of listening to the other side, of believing, perhaps irrationally, that conservatives and liberals can work together for the betterment of our country, so I have a solution.  If the benefits need to be paid for before a single Republican will vote for their extension, here:  End subsidies for oil companies. As the New York Times reports, the most profitable companies in the world receive billions upon billions of dollars in subsidies. So let's start there.