Commentary: Feeding the problem of joblessness

President Obama recently congratulated Congress for restoring the pay-go rule, which says new spending must be paid for with budget cuts or tax increases. He complained about politicians who pretend to be fiscal conservatives, meaning they "talk the talk, but won't walk the walk." Kentucky Sen. Jim Bunning, a Republican, made a big mistake. He took Obama at his word.

Last week, Bunning used one of the Senate’s arcane rules to stop a $10 billion spending bill and demanded that its costs be offset with spending cuts. Suddenly he became politically radioactive.

The White House, forgetting its fiscal pieties, called him "irrational."

Democrats gloated and murmured about obstructionist Republicans. Commentators moaned about a Senate held hostage, petty tyrants in Congress, dysfunctional Washington, oh the unfairness of it all.

Instead of standing up for Bunning's simple point — if you're going to spend it, you've got to pay for it — most of Bunning's fellow Republicans cringed and ran for cover.

A few backed him up rhetorically, but you would have thought the supposed party of limited government would have made a better showing.

The impasse finally ended, but it was a most revealing week — and not only because the flap unmasked a lot of phony fiscal conservatives. There was more to this story than that.

A key part of the bill threatened by Bunning's quixotic stand was yet another extension of jobless benefits.

Democrats thoroughly enjoyed the spectacle of a Republican blocking aid to the unemployed. But actually, it's politicians in both parties — by continually extending jobless benefits — who have unduly increased the number of long-term unemployed.

This is one of those cases in which economics and politics are in conflict. It's good politics to be seen offering aid to people who need it. But it's bad economics to overly subsidize joblessness.

The problem: Unemployment benefits encourage people to remain out of work longer than they would without the aid.

"Everybody in economics knows this, they're just afraid to say it," said Cato Institute economist Alan Reynolds.

Nor is this conclusion confined to those on the right. As one prominent Democratic economist wrote in a 2005 article, jobless aid contributes to "long-term unemployment by providing an incentive, and the means, not to work."

Among the points made by this economist: Federal benefits raise a worker's acceptance threshhold, encouraging a jobless person to hold out for a higher wage before accepting work. Jobless benefits lengthen the time a person remains idle.

Demand for labor by companies is obviously important. But if unemployment benefits were eliminated, "the unemployment rate would drop by more than half a percentage point, which means that the number of unemployed people would fall by about 750,000."

The author of that article: Lawrence Summers, now director of the White House National Economic Council.

Other research has found that the probability of an unemployed worker going back to work triples as the duration of remaining benefits drops from six weeks to one, which is common sense. A looming deadline prompts more urgent action.

No one is talking about eliminating jobless benefits, nor should they — nor should benefits be abruptly halted without warning, as they were temporarily because of Bunning's action.

The real issue is unduly extending such aid. Democrats enjoyed portraying Bunning as heartless, but now Congress is debating whether to extend unemployment benefits even further — to the end of the year.

Given that these extensions encourage long-term unemployment and profoundly damage a worker's marketability, it's worth asking whom these politicians think they're "helping" — unemployed workers, or themselves.