One of the most cogent refutations of Nanci-nomics (unemployment benefits = employment) came the other day from one of the most influential thinkers of the 1980s, Arthur Laffer, father of supply side economics. (Think of supply side economics as the opposite of Nanci-nomics and recall how people who invested in the market in the wake of the Reagan tax cuts prospered.)
Here are just a few tidbits:
The most obvious argument against extending or raising unemployment benefits is that it will make being unemployed either more attractive or less unattractive, and thereby lead to higher unemployment. Empirical research supports this view….
On the face of it, the idea that higher unemployment benefits won’t lead to more unemployment doesn’t make much sense. Imagine what the unemployment rate would look like if unemployment benefits were universally $150,000 per year. My guess is we’d have a heck of a lot more unemployment. Common sense and personal experience indicate higher unemployment benefits will make unemployment less unattractive and thereby increase unemployment even in the Great Recession….
[W]hen it comes to higher unemployment benefits or any other stimulus spending, the resources given to the unemployed have to be taken from someone else. There isn’t a “tooth fairy,” or as my former colleague Milton Friedman repeated time and again, “there ain’t no such thing as a free lunch.” The government doesn’t create resources. It redistributes them. For everyone who is given something there is someone who has that something taken away….
Laffer’s proposed solution to our current travails is an 18-month federal tax holiday, which he believes would have lowered the unemployment rate to 2.5. The link won’t work, possibly because the Wall Street Journal requires subscriptions. But I hope you get the thrust of Laffer’s argument.