Presidents typically invite Americans to appear at Rose Garden press conferences to trumpet their policy successes, but yesterday we saw what may have been a first. President Obama introduced three Americans—an auto worker, a fitness center employee and a woman in real estate—who've been out of work so long they underscore the failure of his economic program. Where are his spinmeisters when he really needs them?Sure, Mr. Obama's ostensible purpose was to lobby Congress for the eighth extension of jobless benefits since the recession began, to a record 99 weeks, or nearly two years. And he whacked Senate Republicans for blocking the extension, though Republicans are merely asking that the extension be offset by cuts in other federal spending.
But Mr. Obama was nonetheless obliged to concede that, 18 months after his $862 billion stimulus, there are still five job seekers for every job opening and that 2.5 million Americans will soon run out of unemployment benefits. What happens when the 99 weeks of benefits run out? Will the President demand that they be extended to three years, or four?
Only last week Vice President Joe Biden was hailing the stimulus for "saving or creating" three million jobs. This week the White House says we need even more stimulus, in the form of jobless checks, to make up for the jobs his original spending stimulus didn't create.
The one possibility the President and Congressional Democrats won't entertain is that their own spending and taxing and regulating and labor union favoritism have become the main hindrance to job creation. Since February 2009, the jobless rate has climbed to 9.5% from 8.1%, and private industry has shed two million jobs. The overall economy has been expanding for at least a year, but employers still don't seem confident enough to add new workers. The economists who sold us the stimulus say it's a mystery. But maybe employers are afraid to hire because they don't know what costs government will impose on them next.
In the immediate policy case, Democrats are going so far as to subsidize more unemployment. If you subsidize something, you get more of it. So if you pay people not to work, they often decide . . . not to work. Or at least to delay looking or decline a less than perfect job offer, holding out for something else that may or may not materialize.
The economic consensus—which includes Obama Administration economists in their previous lives—couldn't be clearer on this. In a 1990 study for the National Bureau of Economic Research, labor economist Lawrence Katz found that "The results indicate that a one week increase in potential benefit duration increases the average duration of the unemployment spells of UI recipients by 0.16 to 0.20 weeks."
A March 2010 economic report by Michael Feroli of J.P. Morgan Chase examined several studies and concluded that "lengthened availability of jobless benefits has raised the unemployment rate by 1.5% points."
A 2006 NBER study by Raj Chetty of UC Berkeley on a related subject begins, "It is well known that unemployment benefits raise unemployment durations."
The current recession is bearing this out, as a record 6.7 million Americans have now been out of work for at least six months. That's 45.5% of the total jobless, close to the highest share ever recorded. The number was 23.4% in February 2009. Americans tend to support jobless benefits on compassion grounds, but at some point such a policy becomes the false compassion of welfare by keeping people out of the job market and thus not learning new skills.
Mr. Obama also claimed yesterday that he wants to cut taxes on small businesses. That's a good idea, but Mr. Obama's proposal to provide one-year temporary tax cuts, such as expensing of certain capital purchases, will be dwarfed by one of the largest tax increases on small- and medium-sized firms in history that is scheduled to hit on January 1. The increase in the capital gains tax will fall hardest on start ups and expanding businesses that need capital for growth. More than half of the "rich" who will pay higher income tax rates next year are small business owners and investors.
The President is right that "we've got a lot of work to do" to get Americans back to work and that the toll on families from high unemployment is considerable. There are few things in life more demoralizing than being unemployed for a lengthy period of time. But paying people not to work and adding $30 billion more to nearly $1.4 trillion of deficit spending is a dismal substitute for real economic growth and private job creation. Republicans are right to resist it.