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Subsidized Unemployment and the Work Ethic
I wrote two days ago about subsidized unemployment, followed later in the day by this interview.
This controversy raises a fundamental economic issue.
I explained in the interview that employers only hire people when they expect a new worker will generate at least enough revenue to cover the cost of employment.
There’s a similar calculation on the part of individuals, as shown by this satirical cartoon strip.
People decide to take jobs when they expect the additional after-tax income they earn will compensate them for the loss of leisure and/or the unpleasantness of working.
Which is why many people are now choosing not to work since the government has increased the subsidies for idleness (a bad policy that began under Trump).
The Wall Street Journal editorialized about this issue a couple of days ago.
White House economists say there’s no “measurable” evidence that the $300 federal unemployment bonus is discouraging unemployed people from seeking work. They were rebutted by Tuesday’s Bureau of Labor Statistics’ Jolts survey, which showed a record 8.1 million job openings in March.
…But these jobs often pay less than what most workers could make on unemployment. That explains why the number of job openings in many industries increased more than the number of new hires in March. …The number of workers who quit their jobs also grew by 125,000. …some quitters may be leaving their jobs because they figure they can make more unemployed for the next six months after Democrats extended the bonus into September.
Dan Henninger also opined on the issue for the WSJ. Here’s some of what he wrote.
President Biden said, “People will come back to work if they’re paid a decent wage.” But what if he’s wrong? What if his $300 unemployment insurance bonus on top of the checks sent directly to millions of people (which began during the Trump presidency) turns out to be a big, long-term mistake?
…Mr. Biden and the left expect these outlays effectively to raise the minimum wage by forcing employers to compete with Uncle Sam’s money. …Ideas have consequences. By making unemployment insurance competitive with market wage rates in a pandemic, the Biden Democrats may have done long-term damage to the American work ethic. …The welfare reforms of the 1990s were based on the realization that transfer payments undermined the work ethic. The Biden-Sanders Democrats are dropping that work requirement for recipients of cash payments.
Amen.
I made similar arguments about the erosion of the work ethic last year when discussing this issue.
And this concern applies to other forms of redistribution. Including, most notably, the foolish idea of big per-child handouts.
P.S. The WSJ editorial cited above mentioned the Labor Department’s JOLT data. Those numbers are also useful if you want proof that federal bureaucrats are overpaid, and you’ll also see that the same thing is true for state and local government employees.
The Upside-Down Morality and Economic Illiteracy of Class Warfare
My Eighth Theorem of Government is very simple.
If someone writes and talks about poverty, I generally assume that they care about poor people. They may have good ideas for helping the poor, or they may have bad ideas. But I usually don’t doubt their sincerity.
But when someone writes and talks about inequality, I worry that they don’t really care about the less fortunate and that they’re instead motivated by envy, resentment, and jealousy of rich people.
And this concern probably applies to a couple of law professors, Michael Heller of Columbia and James Salzman of UCLA. They recently wrote a column for the Washington Post on how the government should grab more money from the private sector when rich people die.
They seem particularly agitated that states such as South Dakota have strong asset-protection laws that limit the reach of the death tax.
Income inequality has widened. One…way to tackle the problem. Instead of focusing only on taxing wealth accumulation, we can address the hidden flip side — wealth transmission. …The place to start is South Dakota… The state has created…wealth-sheltering tools including the
aptly named “dynasty trust.” …Congress can…plug holes in our leaky estate tax system. One step would be to tax trusts at the passage of each generation and limit generation-skipping tax-exempt trusts. A bigger step would be to ensure that appreciated stocks…are taxed… Better still, let’s start anew. Ditch the existing estate tax and replace it with an inheritance tax
There’s nothing remarkable in their proposals. Just a typical collection of tax-the-rich schemes one might expect from a couple of academics.
But I can’t resist commenting on their article because of two inadvertent admissions.
First, we have a passage that reveals a twisted sense of morality. They apparently think it’s a “heist” if people keep their own money.
America’s ultra-wealthy have pulled off a brilliantly designed heist, with a string of South Dakota governors as accomplices.
For all intents and purposes, the law professors are making an amazing claim that it’s stealing if you don’t meekly surrender your money to politicians.
Apparently they agree with Richard Murphy that all income belongs to the government and it’s akin to an entitlement program or “state aid” if politicians let you keep a slice.
Second, the law professors make the mistake of trying to be economists. They want readers to think the national economy suffers if money stays in the private sector.
Nearly no one in South Dakota complains, because the harm falls on the national economy… We all suffer high and hidden costs…getting less in government services. …South Dakota locks away resources that could spark entrepreneurial innovation.
According to their analysis, a nation such as Singapore must be very poor while a country such as Greece must be very rich.
Needless to say, the opposite is true. Larger burdens of government spending are associated with less prosperity and dynamism.
I’ll offer one final observation. Professors Heller and Salzman obviously want more and more taxes on the rich.
But I wonder what they would say if confronted with the data showing that the United States already collects a greater share of tax revenue from the rich than any other OECD country.
P.S. The reason the U.S. collects proportionately more taxes from the rich is that other developed countries have bigger welfare states, and that necessarily leads to much higher tax burdens on lower-income and middle-class taxpayers (as honest folks on the left acknowledge).
Milton Friedman’s Free to Choose – Ep.4 (1/7) – From Cradle to Grave
January 21, 2021
President Biden c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Dear Mr. President,
With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse.
The first step is to remove all welfare programs and replace them with the negative income tax program that Milton Friedman first suggested.
Milton Friedman points out that though many government welfare programs are well intentioned, they tend to have pernicious side effects. In Dr. Friedman’s view, perhaps the most serious shortcoming of governmental welfare activities is their tendency to strip away individual independence and dignity. This is because bureaucrats in welfare agencies are placed in positions of tremendous power over welfare recipients, exercising great influence over their lives. In addition, welfare programs tend to be self-perpetuating because they destroy work incentives. Dr. Friedman suggests a negative income tax as a way of helping the poor. The government would pay money to people falling below a certain income level. As they obtained jobs and earned money, they would continue to receive some payments from the government until their outside income reached a certain ceiling. This system would make people better off who sought work and earned income.
Here is a transcript of a portion of the “Free to Choose” program called “From Cradle to Grave” (program #4 in the 10 part series):
Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733
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