Monday, July 26, 2010

Becker and Posner on the Extension of Unemployment Compensation

This week the Becker-Posner Blog (here) takes on the unemployment benefit extension bill that President Obama signed into law last week. Not surprisingly, both are against it because they see the stimulus effects as insignificant, given the total amount of money involved, and they have concerns about the incentive effects for those who are unemployed.

As a supporter of the legislation signed last week by President Obama, I take no issue with Becker's arguments, which at least give some regard to the extent of the crisis facing those who are involuntarily unemployed through no fault of their own; his claims are conditional and respect counter-arguments. In my view, the counter-arguments favoring the extension of benefits, including the expected marginal stimulus effect outweigh Becker's concerns about the potential disincentive effects, but his concerns are certainly valid. In fact, Becker does not oppose the extension of benefits; his only disagreement is with the length of the extension.

Posner, on the other hand, comes off as a later-day Scrooge. His post is, in effect, an attack not just on the extension of unemployment benefits but on their very existence. His arguments about disincentives to work and the fact that not all of the unemployed really care all that much about work or are good workers apply as strongly (or weakly) to the first week's worth of unemployment benefits as the last. His main beef seems to be with the lack of means-testing in the legislation, noting that even if the "bulk" of the unemployed are hardship cases, some may choose to remain unemployed because of the additional benefits. This ignores, of course, the costs associated with means testing, which may not be worth bearing if the "bulk" of the unemployed are, indeed, hardship cases. Finally, I find it remarkable that Posner would concede that most of the unemployed are in hardship, but would still deny them additional benefits just because of the existence of a small percentage of  potential recipients who do not need the assistance. Seems like a case of the (quest for the) perfect being the enemy of the good.

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