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Wednesday, August 4, 2010

Why economists don't run the country

Here's an idea: Privatize unemployment.

Comments (18)

Makes as much sense as health care savings accounts.

It's already been privatized: a bank owns the car you live in.

Allan L. - lol

Ok, I don't know about the universe the authors live in but in the real world unemployment insurance is financed by employers, not employees.

Economists envy physicists. That is the equation.

I don't know what the math symbol for envy is, but there must be one.


Haven't found one for economists, but here's the one for lawyers:


"In summation...."

This proposal presupposes a "moral hazard" in the current system because some people (e.g., single and childless adults with few recurring expenses) are able to live off UI. To the extent this is true, it's actually a good thing, as it lowers competition for whatever jobs do exist among those for whom UI does not suffice (e.g., people with families and burdensome mortgage payments). I suspect that Cascade's real intent here is to further increase downward pressure on wages by forcing more people to compete for jobs rather than stay on UI. The fact that the combined un- and underemployment rate is now about 20 percent doesn't seem to bother them at all. Especially in times like these, allowing some people to take a break from the labor market so others get a better shot at the available jobs is good social policy. Leave it alone.

Uh, Sid... really? I am sure that the cost of unemployment insurance is taken care of by whatever compensation scheme (you know like health insurance, etc.) whatever corporation has cooked up.

Thing is, Krugman could use prescisely the same math to prove exactly the opposite thesis. It's magic!

" the real world unemployment insurance is financed by employers, not employees.

It might be financed by employers, but it is paid for by employees in the form of lower wages. Same with health insurance.

The typesetting in those equations is really gross. They should use LaTeX!

Cascade blows and so do their Randian trickle-down economic theories. When are they going to get around to discussing the "moral hazard" of tax "shirkers"?

Private UI is a completely useless concept. In an economic downturn likely to produce large numbers of unemployed people (like we're in) private UI accounts that were invested in stocks or something of the sort would suffer the same kind of depletion that private retirement accounts have taken the past few years.

Darrel did you actually read the article or did you just assume?

Here is your solution to the "useless concept" you present, limit investment options.

I don't know if you have been paying attention but that current pool of unemployment benefits that have you been paying into isn't exactly immune from downturns either.

Sid, the authors live in a universe where employers can only pay employees up to the value they add to the enterprise. If employers have to write a check to the state for unemployment insurance, that reduces the value of their employees, meaning that in reality unemployment insurance ends up being paid by the employees. This is economic reality; sorry if the math equations threw you.

So, if employees are paying the cost of their own unemployment insurance, the authors are arguing that they should stand to benefit from those payments more than they do now.

I read the article.

It does nothing to address payments for the large numbers of currently unemployed people. None of those people will ever have the kind of personal unemployment account the authors put forward unless they get jobs again and have those jobs long enough to sock away an amount significant enough to get them back on their feet again and see them through hard times.

It does nothing to address the fact that a lot of those people are likely to remain unemployed and become more unemployable with time as their skill sets go out of date before the economy recovers enough to reabsorb them (assuming it does).

It does nothing to address the potential that a significant number of people are likely to become unemployed in the near future because despite the happy talk of the administration and the bankers, a "jobless recovery" isn't a real recovery.

You say limiting investment options is a solution, but investment options for 401k plans are limited, too, so I'm not sure how that's supposed to be a solution. In most cases you have only a specific range of investment options available through an employer's 401k.

Unemployment benefits already vary in size based on previous wages. Does Cascade's crack team of Quebecois economists not know that? You'll make more money as a laid-off tech dude (up to a limit) than if you lose your job at the corner grocery. Presumably because you've paid more in UI withholding.

And I still think Cascade could devote some time to advocating for tougher tax law enforcement and closure of loopholes than propping up Reagan as a marionette and coming up with stories about unemployment kings driving Caddys when it's pretty damn obvious that there are a lot of people who legitimately can't find work. Or sell their houses to move someplace where there is work.

A couple of folks wrote that employees really pay the unemployment insurance costs because it results in lower money available for wages and hence lower wages.

If you really believe that abolishing the employer contribution for unemployment insurance (or for health care or for social security) would result in employers passing those savings along 100% to employees in the form of higher wages you need to leave Fantasy Island and return to the real world. That 100% of benefits are ultimately paid by employees in the form of lower wages is a great unsupported myth of conservatives to argue against any employee benefits, similar to the myth that 100% of a corporate income tax is passed on to consumers.

I know of a lot of situations where the SS contribution by employers ends near the end of the year as high wage employees hit the SS earnings limitation, but I know of no situation where the employer increases the compensation in those months to account for the fact that the employer no longer has to pay the match. (And no, employers have not taken the reduced contribution into account when setting compensation for individuals that meet SS earnings limits).

Don't you just hate it when facts and observations get in the way of your ideological position. Oh, and by the way my Ph. D. is in Economics and Quantitative Analysis, so I understand the math. What I do not understand is the position of many people, to paraphrase the editor in Liberty Valence, that "when theory and reality conflict, print the theory".

Sid - at the rate they keep raising the amount to hit the SS earnings limit, far fewer folks are going qualify. I know because it's getting later and later in the year for that bite to stop coming out of my paycheck. I am not a conservative either but I have spent far too much time around HR and corporate compensation types to know what goes into their thinking when they jigger salaries... Your PhD is fine and dandy but where is your real world experience?

Darrel you obviously didn't read the study. Yes some 401ks are limited to a set of crap proprietary mutual funds but how does that have anything to do with limited investment options in a UI account?

Please also look into what happened to the UI trusts in Oregon and around the country before you go on a rant about how individuals in control of their own money is bad and instead an individual controlling everyone’s money is better.

The proposed idea does have a solution for those who have not built up a big enough account, but you didn't actually read the article.

This UI idea usually incorporates an option to spend the account on reeducation so those who are laid off from a dying industry can be retrained and sent back into the economy.

What does UI benefits varying in size have anything to do with discrediting Cascade's study?


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