Economics Made Simple - Unemployment Version

July 11, 2010
Posted by Jay Livingston

Economics, as Tyler Cowen says, is “really, really, really . . . hard.” But there are simple versions of economics, and I don’t mean just Father Guido Sarducci’s five-minute- university version (this earlierSocioblog post has a link to Fr. Sarducci).

Here’s a letter from the New York Times arguing that current proposals to extend unemployment benefits will actually increase the unemployment rate.

The more government subsidizes unemployment, the more people will indulge in it for longer periods of time.
--Ryan Young, Washington, July 6, 2010
The writer is a journalism fellow at the Competitive Enterprise Institute.

When I read this, I assumed the writer was some smug, smart-assed kid (what is a “journalism fellow” at CEI anyway?) who had learned one or two principles in Econ 101 and had no sense of how real people think and act – people who have lost their jobs and are scraping by on $300 a week in unemployment benefits (the US average).

A couple of days later, the Wall Street Journal ran a full op-ed by Arthur Laffer, a well-known economist and not a kid, saying the same thing.

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.

Economists sometimes clarify principles by using simplified models. Here’s Laffer’s explanation of the effects of unemployment benefits.

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.

Marx (or somebody) said that differences in degree eventually become differences in kind, but Laffer doesn’t think so. He is arguing that a few more weeks at $300 is just a smaller version of $150,000 a year for life.

He provides some evidence in this graph (note the compassionate title):


According to Laffer, the graph shows that “since the 1970s there’s been a close correlation between increased unemployment benefits and an increase in the unemployment rate.” [emphasis added]

Correlation is not cause. In fact, what I see in the graph is that the increase in benefits almost always follows the increase in unemployment. That’s exactly what would happen now. Unemployment goes up, people can’t find work, and Congress increases the amount or length of benefits. There is a correlation, but the cause goes the other way.

I have heard many politicians argue that because unemployment is high, we need to extend benefits. It’s much rarer to hear people say that they have chosen not to work because that $300 a week is just too tempting.

From Cheney to BP

July 9, 2010
Posted by Jay Livingston

When did the BP oil disaster (11 people killed, untold environmental damage) begin? The explosion occurred in April 2010.

But in 2001, one of the first things Dick Cheney did when he became president vice-president was to convene a task force on energy. The process was so important that the government refused to tell the public who was on the task force or who they were consulting. After all, in a democracy, it makes no sense to let the people know what the government is doing or who they’re doing it with.

The task force did produce an energy policy and a document that contains this prescient bullet point:

• Advanced, more energy efficient drilling and production methods:
— reduce emissions;
— practically eliminate spills from offshore platforms; and
— enhance worker safety, lower risk of blowouts, and provide better protection of groundwater resources

Nine years later, those chickens came home to roost, feathers drenched in oil.

There’s probably some larger sociological point here, maybe about how industries “capture” regulatory agencies, though capture suggests that there was some actual struggle going on. With the Cheney-Bush administration, that would be like saying that a rich kid “captured” the extravagant birthday presents he’d been whining for. In both cases, it would be technically more accurate to use the term gift .

(HT: Eric Alterman )

Writing Contest

July 8, 2010
Posted by Jay Livingston

The InsideHigherEd table of contents listed:

Provost Prose
And the winner is . . .

I hadn’t read Ed in a while, so I thought they must have been running a contest with faculty submitting actual sentences from memos from their provosts.

Turns out, “Provost Prose” is a column written by an actual provost (Herman Miller of Hofstra), and his prose is surprisingly clear, readable, and non-bureaucratic. The column in question was about Hofstra’s Teacher of the Year award and whether a winner should be allowed to repeat, threepeat, etc., hence the title of the column.

But there should be an academic prose competition – like the Bulwer-Lytton awards. I used to collect particularly opaque gems of the genre, full of bureaucratic vagueness, but I must have deleted the file. Maybe some other more widely read blog would run the contest. Only authenticated memos from authenticated administrators. One hundred word maximum. All entries become the property of the blog. Offer not good where prohibited by law. Eyes on your own paper, turn off all cell phones, no flash photography, and if you have cellophane-wrapped candy, open it now.

Hot and Cold

July 6, 2010
Posted by Jay Livingston

How hot is it? It’s so hot that even though I know next to nothing about global climate change, I’m doing a post on it.

When there was a heavy snowstorm back in Februray, and the Fox news geniuses were saying that this snowstorm was burying all notions of global warming, I embedded a Daily Show clip pointing out the idiocy of using this single bit of anecdotal evidence.*

So instead of pictures of thermometers with three-digit temperatures today, here are two simple graphs from Climate Progress showing more systematic, long-term evidence on hot and cold.





*Jon Stewart should also have pointed out that the temperatures weren’t especially cold for February. There was just a lot of snow.