Fund Unemployment Through Stimulus Pool

Liz | 07/20 at 09:20 AM

The debate – spending vs. no more spending – rages on. An excellent piece in today’s Financial Times (carried on this site) recaps historical arguments well; since the pro-deficit Paul Krugman camp can only rely on historical precedent to make their case, these reviews are useful. One can only argue for expanded government outlays based on the notion that they worked in the 1930s, and will work again. However, since it is not at all clear that the huge deficits piled up by FDR or his much-vaunted public works programs did boost the nation’s economy, pushing our government debt higher is reckless. Krugman recently wrote a piece in which he expressed alarm that the U.S. might follow Japan into a long-term deflationary cycle. I was astonished. By far the best reason NOT to increase debt is to look at Japan’s recent history. Because of numerous attempts to boost output through deficit spending, Japan now carries a greater debt/GDP burden (almost 200%) than any other OECD country –with little to show for it.  

However, each new proposed assault on our country’s balance sheet needs analysis on its own merits. The current argument is over extending unemployment benefits. An excellent op-ed in the Wall Street Journal (see below) cites several studies indicating that longer unemployment allowances promote longer unemployment. I have no idea if this is true; there is certainly a humanitarian case to be made for helping those unable to find work. However, I side with those who think we should deploy some of our unspent stimulus dollars to this cause. The stimulus money has been spent already on similar needs – effectively propping up the income of teachers and other public employees. There has been no “investment” aspect to the stimulus outlays; why shouldn’t they be funneled into unemployment – helping to limit in a tiny way further deficits? Doesn’t that make sense?

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