Wednesday, July 14, 2010

The Moralistic Fallacy

The following quotes are considered patently idiotic by TalkingPointsMemo:

"I've literally had construction companies tell me, 'I can't get people to come back to work until...they say, I'll come back to work when unemployment runs out.'"
~Pennsylvania Attorney General Tom Corbett

"As bad as it sounds, ultimately we do have to sometimes accept a wage that's less than we had at our previous job in order to get back to work and allow the economy to get started again. Nobody likes that, but it may be one of the tough love things that has to happen."
~Rand Paul, the Republican nominee for senator of Kentucky

"continuing to pay people unemployment compensation is a disincentive for them to seek new work."
~Sen. Jon Kyl (R-AZ)

"facilitating the problem if you give an animal or a person ample food supply," he said. "They will reproduce, especially ones that don't think too much further than that. And so what you've got to do is you've got to curtail that type of behavior. They don't know any better."
~South Carolina Lt. Gov. Andre Bauer

I suppose they wish to presume that incentives don't matter and that no one should have to work for less than what their previous mortgage-banking job paid them, even if that job was, in retrospect, purely counterproductive. Why not also think that Madoff's investors should be able to peg their portfolio statements at their high water mark, and to suggest otherwise is mean-spirited lunacy?

Prior to this recession, it was generally acknowledged that increases in welfare increased unemployment spells. Now, saying such a thing is considered taboo, like saying that statistically, it's possible that women aren't as dominant at math at the highest levels (Larry Summers seems to have two opinions on all these subject)


Dave said...

Frontal assaults here are counterproductive. There's a better way to advocate for more rational policies. Instead of noting the disincentive impacts of unemployment checks, you could note that a lump sum might give the unemployed the critical mass of cash they need to, say, move to a place with better job prospects.

If memory serves, President Bush (43) proposed something along these lines, though it was never implemented.

Anonymous said...

Comparing people to animals is bit too much. Other than that I think some of the comments make sense. But don't you think that the worst economic downturn in 30 years could change normal economic relationships? Take incentives, unemployment benefits on average are abotu $290 a week, slightly lower than minimum wage. Are you telling me that a non-min wage worker would not take job at $14 hr when there is such uncertainty in economy. At close to 10% unemployment rate, how does anyone know that they'll have a job 6 months later when their unemployment runs out? Wouldn't the rational thing to do is to secure a job now (that is of course assuming these are human beings and not animals)?

I am just curious, what you think the unemployment rate would be right now if we did not have unemployment insurance? 8%? 5%?

Eric Falkenstein said...

well, we are animals--we like warmth, food, sex--and respond to incentives like pigeons. Sure, we have other aims most animals don't--meaning of life stuff--but to say people will respond like strays to indiscriminate rewards is more true than untrue.

It's likely that unemployment would be lower without all the increases in unemployment insurance.

Isegoria said...

What is the rationale for making unemployment benefits a grant and not a loan?

Dave said...

"What is the rationale for making unemployment benefits a grant and not a loan?"

It's neither a grant nor a loan, technically; it's an insurance payout. Employees pay unemployment insurance premiums while they're working.

Dave said...

"At close to 10% unemployment rate, how does anyone know that they'll have a job 6 months later when their unemployment runs out?"

Unemployment has been extended well beyond 6 months I think, with Emergency Unemployment Compensation, and a recipient can probably earn more in fewer hours by combining it with a few hours of off-the-books work. Besides, a lot of low end jobs are unpleasant and difficult*, so getting paid to not work for months is attractive.

*Watch the CEO of Hooters fail as a busboy on Undercover Boss.

Isegoria said...

Well, yes, of course unemployment benefits are nominally insurance payouts — but I can't imagine too many insurance companies structuring a policy to be so susceptible to moral hazard.

If the goal is to get people through a rough patch, why give them money outright, when we could help more people, more efficiently, by loaning them (more) money?