Unemployment Problems Will Get Much Worse

Alan Greenspan stated the obvious recently when predicted unemployment would rise over 10% soon. He also said that extending unemployment benefits should not be considered a part of the stimulus package because the action would be only temporary. The entire stimulus package is temporary, but questions of permanence should not be the sole factor that decides whether a program is a legitimate way for the government to spend taxpayer money. “This is an extraordinary period and temporary actions must be taken, especially to assuage the angst of a very substantial part of our population.” Greenspan said.

The September unemployment figures show that 7.2 million people have lost their jobs since the beginning of the current recession in December 2007. The total population of the unemployed in America is now 15.1 million. The government’s figures show an unemployment rate of 9.8%. The media and economists regularly point out that this is a misleading number. Those who have become discouraged and are not looking for work and those working part-time who would like to be working full-time should be added. That would bring the figure to about one-in-six Americans without work at the level that they are capable of working or would like to work.

Greenspan’s suggestion of extending unemployment insurance raises an uncomfortable set of questions. The first is what portion of people who do not have work should get extended benefits. The Congress recently passed a bill to help people in states with unemployment over 8.5%. This would give help to about one million people by extending their benefits for 13 weeks. That number of people is small compared to the total number of the unemployed so it will have an impact on a relatively few of the lives of those who may have reached the point where they cannot buy food or maintain lodging, but the overall effect is very limited. More than fourteen million people will still be at risk for falling completely off the economic grid.

One of the arguments against socialism is that once a nation begins down the path of helping citizens who need income, healthcare, and other basic services then there is no going back. The economy and government system in Sweden could never be transformed into a system like the one in the US. That may be true, although there is some argument that the economies in Russia and China have begun an evolution toward a free market system.

The most powerful reason for not providing unemployment benefits to 15 million people is that the government would become the caretaker of an extremely large portion of its population and the money needed to pay for this would come from the taxes of a shrinking number of people who are employed. Many analysts would argue that the people getting money from the government have lost some of their incentive to look for work. That may be academic in an economy where there are very few jobs to be filled. Economists and legislators may also argue that the cost of supporting 15 million people would substantially increase the government’s need to raise money either through issuing debt or through additional taxes, especially when added to the cost of the stimulus package.

The reasons for not extending unemployment benefits to the large portion of those people out of work are nearly overwhelming, based on both a philosophy of what government should do for citizens and the economic burden that it puts on already financially overburdened  government spending programs. Those reasons are compelling enough to be beyond debate.

These philosophical and economic concepts are harsh when imagining the impact of one-out-of six Americans being in or on the edge of destitution. The mainstream media has become fond of running features about people whose unemployment has ruined their lives and changed them permanently. The people and families profiled in these articles are not the hollow-eyed out-of-work Americans in photos and accounts of the Depression’s victims. However, the individuals themselves are in just as much trouble. Many people who have lost their jobs in the great shift in the economy over the last three years may never find full-time work again. Some will make it back to a 40-hour work week, but it will be at a much lower wage than they had earned in the past.

One of the regular topics of conversation and analysis in the media is that the $787 billion unemployment package is ill-suited to the circumstances of rapidly rising joblessness. The stimulus programs are set up to take effect over almost two years. If the bureaucracy of the government plays any role in timing, those programs could take even longer to affect the economy. The stimulus package is not created to create jobs. It has as its purpose a plan to support industries that will in turn be more likely to hire people.

The stimulus package is slow-acting. There is no way around that and the proof is in the extent to which is has done little to create jobs so far. That leaves the colossal problem of treating the disease of vast and chronic joblessness in America. The effect of this cannot be predicted because it is unprecedented and defies classifying. What can be understood is the extent to which the economy will be silently undermined by the impact of tens of millions of people who are making no money at all or are making much less than they could make in a robust expansion. The erosion is largely beneath the surface and therefore hard to see. This means it has the potential to cause a collapse of a large part of the recovery, the part that depends on consumer spending, a revival in home prices, and an improvement in personal credit default rates.

There is no plan to employ Americans who are unemployed. There is nothing in the current collection of stimulus programs that offers any direct solution nor is there anything in the Budget that can be identified as an “unemployment reduction act”. That leaves a tremendous hole in the systematic attempt by Congress and the Administration to salvage the economy. Either the government can move to give some level of support for the nation’s unemployed who have lost or are losing their jobless benefits or the economy can suffer what are not predictable but will certainly be serious consequences.

Douglas A. McIntyre