The Spectacle Blog

Extending Unemployment Insurance a Bad Deal

By on 12.19.11 | 3:28AM

Congress remains mired in a bitter fight over extending the cut in the Social Security payroll tax rate.  It's fun watching Democrats push a two percent reduction after demonizing President George W. Bush for wanting to let workers put that same two percent into a private investment account.  So much for being concerned about the "integrity" of Social Security!

Another part of the bill would extend unemployment insurance.  My Cato Institute colleague Chris Edwards explains why this is bad policy:

any stimulus from UI benefits will be counteracted by the anti-stimulus of the higher taxes needed to pay for them. Many states have been raising their UI taxes on businesses in order to replenish their unemployment funds, and these tax increases are surely harming job creation.

Another negative effect of UI benefits is that they increase unemployment because they reduce the incentive for people to find work. Higher UI benefits delay the need for people to make tough choices about their careers, such as switching industries, taking lower pay, or moving to a different city. It's a basic rule that when the government subsidizes something, we get more of it.

Leave it to Congress to create more long-term problems with every step they take trying to deal with the economy.  This may be the most important argument on behalf of a policy of laissez faire.  Private markets are far from perfect.  But politicians always in every case make a bigger mess of things!

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