The Controversy Over Extending Jobless Benefits
: Does collecting an unemployment check sap people of the will to work? Republican Jon Kyl of Arizona said this in the Senate recently.
: That doesn't create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work. I'm sure most of them would like work and probably have tried to seek it, but you can't argue that it's a job enhancer. If anything, as I said, it's a disincentive.
: Senator Kyl was making the moral hazard argument against unemployment benefits: Pay people for not working, and they won't. We wondered how attractive that argument is to conservatives. So we've called up Ken Rogoff, professor of economics at Harvard, co-author most recently of "This Time is Different: Eight Centuries of Financial Folly," and a fiscal conservative who advised the McCain campaign. Welcome to the program once again.
P: Thank you, Robert.
: And what do you make of the argument that an unemployment check is a disincentive to job-hunting?
M: Well, there's certainly a truth to it, and many people believe that's why Europe, with much more generous benefits, has higher unemployment. But today, we're in a once-every-50-years, once-every-75- years recession. There just aren't a lot of jobs.
And it's hard to believe that that's really what's holding people back from getting them, that they can collect a modest unemployment check.
: That the number of jobs available is simply outnumbered by the number of people who are unemployed.
M: Yeah, absolutely. I mean, look at young people today. They're not looking to be unemployed. There's a massive unemployment rate among people in their early 20s. This isn't your normal recession, and we can't treat it this way.
And absolutely, I worry about the incentives people have to work, and absolutely, we don't want to be like Europe, Spain with 20 percent unemployment. But on the other hand, this just isn't a normal circumstance.
: But as you say, benefits are much higher in other countries. I assume that employers, if not employees, are taxed rather heavily to support those benefits in those countries.
M: Well, that's right. I mean, something's got to pay for it. So it's not a free lunch, to extend unemployment benefits. It's going to cost tens of billions of dollars.
But I would just say that of the various stimulus programs that we're doing, I think the unemployment benefits is an important one, especially from our sense of fairness - that, you know, we have a society, we have an economy, which is pretty rough-and-tumble, capitalist economy. There should be some social safety net. It's important to strengthen that and enhance it temporarily.
I wouldn't recommend keeping it on for 25 years. I think the high unemployment is going to last for at least a couple more years.
: There is another argument made on behalf of unemployment benefits. It runs roughly this way: Give an unemployed worker a check, and it goes straightaway to buying food and children's shoes and gasoline. Give an employed person the same amount in, say, a tax break, and it could just sit in the bank and wouldn't stimulate the economy. Is that true?
M: Well, I think that is true. I mean, I think that's not the main argument because frankly, there's a lot of other things that does discourage employers from hiring workers, because they know that they might have higher taxes.
I mean, I think the stimulus argument is not really what this is about - to me, anyway. It's a fairness argument.
: When you hear Senator Kyl making the argument - and I think Senator Cornyn of Texas has made the same point - what do you make of that? Is - are they being truer conservatives in the clutch? What do you say?
M: Well, I mean, they're making a correct point, but they're stretching it. The empirical work suggests that maybe if you get an extra week of unemployment benefits, your unemployment lasts a day longer, and that's in normal times.
I think it's important to have some checks and balances, not to get carried away. But they're really taking a small point and stretching it out into something bigger than it is.
: Ken Rogoff, thanks a lot for talking with us.
M: My pleasure.
: Economics professor Kenneth Rogoff of Harvard University, co- author with Carmen Reinhart of the book "This Time is Different: Eight Centuries of Financial Folly."