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June 28, 2010

Unemployment and Bastiat's "Broken Window" Parable

(I don't want to steal any of Ace's daytime-posting thunder, so I'm going to keep most of this post "below the fold" for those interested.)

I meant to post this as a snarky aside in one of my "Daily Financial Briefing" posts and then move on, but given how I feel about most of Megan's stuff, I think it deserves a post of its own. If only because other people (like Insty) take Megan seriously in spite of the dearth of seriousness shown in many of her posts.

The item in question:

Megan McArdle's (Suderman's?) heart bleeds for the unemployed.


My response:

Like every other liberal advocate of government largesse, she can't explain her opposition except in terms of how mean it is to take benefits away from unemployed people. Which simply tells me that she forgot her Econ 101 lessons (Bastiat's famous "Broken Window" parable). She sees Person A (the unemployed person) and Person B (the government who provides funds to Person A), but she does not see Person C -- the famous "Forgotten Man" who must pay the taxes to fund the transaction between Person A and B.

Megan does make a pass at economic theory by resorting to the "if we don't give the unemployed money, then this is money they cannot spend on stuff" argument, but it totally fails the "Broken Window" test in the same way that every other dunderheaded liberal spending program fails the test.

Unemployment funds do not precipitate out of thin air. They must either be borrowed (and paid back via taxation or revenue) or taken directly from the citizenry in the form of taxes. "Unemployment insurance" was never intended to be an open-ended benefit, and it has already been extended several times as the recession wears on. It was meant as a short-term benefit to cover the wage-gap between one job and the next, not as a form of premature Social Security (which, in its current form, is all it is). The current tax regime to fund unemployment benefits is totally inadequate to the long-term burden it is now being asked to address (chronic unemployment caused by a weak job market), which is why most states' unemployment coffers are empty. Hence the federal bailout.

People like Megan voted for Obama knowing full well that he was a far-left ideologue. I do feel badly for the millions of people who are suffering for the idiocy of the liberal bien pensant class and the politicians they helped put in office, but the best remedy is to get rid of them and put a more pro-market administration in their place. It is not to extend the tentacles of the government still further, or to punish the private sector with still more taxes and debt. Extending unemployment benefits indefinitely will simply prolong the very pain it is meant to alleviate.

Articles like this are why I say that Megan and her ilk believe in "Bigfoot": a mythical creature that exists only in their heads. This mythical creature was the "moderate, centrist" Obama, and the "fairer" economy he promised. Megan bought the lie, and she has only herself to blame for the bitter taste in her mouth now. Blaming the GOP for doing the prudent thing just shows how unserious she is.

My "solution" to unemployment is to produce a more fertile ground for investors, businesses and entrepreneurs, and to reform the tax policies of municipalities, states, and the federal government to reward producers rather than to penalize them. Government is not the answer to the problem; as so often happens, it is the problem. And more government means a bigger problem.

If this makes me a heartless bastard, then so be it -- a heartless bastard I shall be.

[UPDATE: I've always wondered how other people answer this question: Is it the government's job to make sure that you have a job? Is full employment one of the main goals of a national government? Should it be? Or is the government's job more to "prepare the ground" for the economy as a whole, through regulation, taxation, and policy? Think of it this way: suppose that a super-efficient economy could produce twice as much with half as many workers. Unemployment would skyrocket, but our GDP would stay pretty much the same. Is this a good thing or a bad thing?]

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posted by Monty at 04:37 PM

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