Paying Individuals Not to Work
We all have formative experiences that usher us from the idealism of youth into the realism of maturity. One such event occurred long ago as an amateur boxing coach. I took several fighters for some sparring when another coach reported that he had just been laid off. I expressed my concern to the guffaws of all in earshot. The coach burst out laughing and started high-fiving everyone about, "Six months of unemployment!" As usual, the joke was on me.
This was during a period of robust labor markets. Anyone could certainly have found work within six months, but this highlights the folly of paying people not to work. I get up each morning and sleepily trudge to a shower. I hurry through breakfast and quick devotions with my wife before fighting snarling traffic and winter weather. At work, I tolerate the usual frustrating corporate policies, bizarre personalities and the crushing workload that has come to define our quest for heightened productivity. Some days I can't even find time to bore those around me with impromptu economic sermons.
Why? It's simple. If we don't work, we don't eat. Our employers reward us for adding value. We trade labor for pay. We can then purchase food, clothing, shelter and even entertainment. But as amenable as our modern workplaces have become and as efficiently as the free market prospers us, many would gladly do without the inconvenience of work. Since man's banishment from Eden, work has been harsh, though toil on we must.
But wait! Many of us don't work, yet still eat. How?
Unemployment benefits and other welfare schemes combine public "charity" with a Keynesian hunt for aggregate demand. Politicians extract wealth from producers to expend on non-producers. Then they wonder why private sector hiring shrinks and those seeking handouts continues to swell.
We need to recognize the eternal truth that incentives matter. If people can consume anyway, why produce? It's politically incorrect to mention the free-rider problem during economic uncertainty, but we can't keep piling more people into the back of the wagon as the ranks of workers dwindle.
There are always jobs available, but they are never perfect and may involve lower compensation or more tedious work. Subsidizing unemployment allows people to delay this hard decision. The longer we pay human capital to remain idle, the longer the recession persists.
Research by Larry Katz, chief economist in President Bill Clinton's Labor Department, indicates that the unemployed are three times more likely to find work right before their benefits expire. John Lott, a research scientist at the University of Maryland, reports studies showing a 50% rise in benefits correlates to increased unemployment by eligible recipients equaling 50%. Paying people not to work destroys motivation.
Relief programs once were predominately administered by the church. Because it was local and dispensed privately, benevolence carried moral prerequisites and accountability. Thus it was of limited necessity. Thomas Jefferson bragged that you could travel from Portsmouth to Savannah and not find a single American begging. This attests to both the availability of private charity and that its conduct sensibly served to inhibit free-loaders.
Now politicians exploit economic turmoil as opportunity for expansion. The last time Washington exhibited restraint during a downturn was 1921. Harding's "Return to Normalcy" supplanted Wilson's "War Socialism." Unemployment ricocheted quickly from 11.7% to 2.4% by 1923 as the restructured economy boomed into the Roaring Twenties.
Today, we are blessed with incredible levels of accumulated capital, a better educated populace plus astounding communication and transportation advances. The corrective reallocation of resources known as a recession would rejuvenate growth even faster if politicians ceased their meddling.
We were designed to work. Idle hands are the Devil's playground. It's inherently immoral to burden the toil of others unnecessarily. However, an undercurrent of Marxist "victim and villain" mentality has replaced the stigma of idleness with jealousy and covetousness. Society empathizes with the unemployed while railing against the wealthy whose taxes sustain them. Though this may comfort our emasculated sensibilities, it undermines those still hauling the wagon.
Couple these distorted micro-level incentives with the macro-economic madness spewing out of Washington and it is amazing unemployment isn't far worse. It's a testament to the resiliency of markets. Our political class crowned itself as despots lording over the financial realm. Their anti-business sentiments and politicized rulings plague producers. Recognizing Washington's disdain for taxpayers and property rights, wary investors fear a political environment focused more on controlling capital than defending capitalism.
Bailouts and tariffs incarcerate capital in companies that destroy wealth while public works projects waste scarce resources. Even as these Keynesian pyramids to government stupidity employ some, they ultimately shrink the pie. This deprives capital and resources from investments that could otherwise expand the pie creating better jobs and more of them.
Higher minimum wage mandates curtail the hiring of teens and others with meager skills. Threats of increased payroll taxes, heightened union power and insanely anti-business regulatory diktats like the EPA's CO2 ruling thwart expansionary hiring. As Henry Hazlitt explained, "Unemployment is mainly caused by excessive wage rates in some industries, brought about either by extortionate union demands, by minimum-wage laws (which keep teenagers and the unskilled out of jobs), or by prolonged and over-generous unemployment insurance."
Uncertainty hovers invisibly, but emphatically over the market. We paralyze the economy with similar counter-productive intrusions as authored by Hoover and expanded by FDR. Why regurgitate the madness that turned the depression "Great?"
Our intellectual class loves these socialist redistributions even now clamoring for yet another expansion of unemployment benefits. In some instances, benefits may stretch up to 99 weeks. That's not a typo.
These policies may assuage the guilt of neurotic academics playing with theoretical money. They can empower ambitious politicians playing with other people's money. But for those still pulling the wagon, the merciless sting of the tax whip and the regulatory obstacles littering our path crush our capacity to lug more free-riders and government sinecures.
Socialism looks great on a blackboard and it appeals to power-hungry elitists in government, but as the old saying goes, "Socialism only works in heaven, where they don't need it, and hell where they already have it."
This time, the joke is on all of us.