Saturday, February 07, 2009

Quick Fix: Support Jobless, Not Bankers

February 7, 2009, 10:30 a.m.

Banker Bailout Billions Not the Answer
(brought to you by*

There's even more reason this morning [Feb. 7] to make the economic recovery case I've been urging in these blog entries ever since the potential consequences of our downturn became obvious to all.

In a failing economy, 70% of which depends upon consumer spending, once the government decides to infuse trillions of dollars into the economy the first place to put it is in the pockets of those who will spend it: the jobless.

Yesterday we learned we now have 598,000 more of them among us than we had a month ago. ("[T]he Labor Department announced that 598,000 jobs were lost in January. The contraction in jobs is already steeper than in any other recession since at least the early 1980s. And economists warn that several more shoes are about to drop . . .." Carl Hulse and David M. Herszenhorn, "Senators Reach Accord on Stimulus Plan as Jobs Vanish," New York Times, February 7, 2009.)

Adequate and additional funding for the unemployed does not require the creation of new programs (they're already in existence), can distribute the money faster than almost any other way, provides money to those most likely to spend it (rather than invest it), and to spend it almost immediately (rather than months from now), with a multiplier effect of roughly 1.7 in economic impact (compared to 0.27 for tax cuts), in the single largest economic sector (consumer spending).

And for those who look at economic recovery issues from a moral, ethical, humanist, communitarian, sociological or religious perspective, clearly those who are down on their luck through no fault of their own are the ones most deserving of our government's assistance. The point is, even if these considerations are ignored, and one just looks at the numbers like a steely-eyed banker, caring for the jobless is also the most cost-effective way out of the hole we're in.

But it's not quite that easy, as Christopher S. Rugaber's AP story explains. Christopher S. Rugaber, "Recession exposes holes in jobless benefit system; Holes exposed in jobless safety net as more than 5 million go without unemployment benefits," Associated Press/Yahoo! Finance, February 6, 2009.

o Half or more Of the 11.6 million currently jobless Americans aren't covered.

o Some earned too little to qualify -- in part because of how their earnings are calculated.

o Part-time workers aren't covered.

o Benefits run out (after, say, 26 weeks) long before new jobs appear, since the program was designed for those "between jobs" during brief recession dips not the massive, continuing joblessness of a major global depression.

o The programs are funded by employers, now contributing less.

o They are administered as state, rather than federal, programs; states are running out of money, and under-staffed to handle the rapid increase in applications.

Here are some excerpts from Rugaber's story:
The government safety net designed to protect laid-off workers from financial catastrophe is falling short, leaving nearly half the 11.6 million jobless Americans without unemployment benefits.

The shortcomings are fueling the recession as an increasing number of workers fall through the cracks and curtail spending. The trend highlights what economists say is a growing need for a 21st century makeover of a program started in the depths of the Great Depression.

Among the key problem areas:

-- There are many more part-time workers now than in 1935, but the program only covers those looking for full-time work.

-- Many eligible jobless Americans are shut out because states use an outdated system for calculating their income, making it more difficult to meet requirements.

-- Unemployment spells increasingly last longer than the usual 26-week jobless benefits program.

Jobless benefits are essentially mini-financial stimulus packages for struggling American families. Helping laid-off breadwinners continue to purchase goods and services until they find new jobs ultimately bolsters the economy and makes further layoffs less likely. . . .

[J]obless benefits . . . vary by state but average about $300 a week. . . .

[Covering] part-time workers and more low-wage workers . . . could extend benefits to 500,000 people . . ..

But more fundamental reforms are needed to address the system's underlying weaknesses, several economists said.

Many of the 5.2 million unemployed Americans without jobless benefits already ran through their 26 weeks of assistance. The program, funded by states through taxes levied on employers, has been no match for a recession that is frustrating the ambitions of even the most qualified job hunters.

That is forcing families to cut back on spending and dip into savings, if they have any. . . .

Gus Faucher, director of macroeconomics at Moody's, said if the government provided benefits to more workers, it would reduce the severity of the recession. . . .

Before the emergency extensions, only about one-third of unemployed Americans were receiving benefits, a level that has declined steadily since coverage was at its peak in 1975.

The proportion of workers covered usually increases during recessions as Congress typically enacts extended benefits. Some experts argue that extensions should be automatic during downturns to avoid politicizing them. . . .

High demand -- and insufficient funding -- has made it difficult for many unemployment offices to keep up. Last month, online systems for requesting benefits in three states crashed under the crush of claimants. . . .

At least a half-dozen states have had to borrow money from the federal government to pay benefits after exhausting their unemployment insurance trust funds. . . .

In decades past, layoffs during recessions were often short-lived and workers were eventually rehired by the same company. Today, companies are more likely to eliminate jobs for good, either by shutting down plants or moving them abroad, according to a study by the Brookings Institution.

The result: Unemployment spells tend to be longer . . ..

Many states don't count workers' most recent 3 to 6 months of wages . . . [S]hortchang[ing] low-income workers, who may not be able to prove they earned the minimum required for benefits. . . .

In 21 states that have begun calculating eligibility using up-to-date wages, roughly 40 percent of those who initially didn't qualify were able to do so . . ..

Jeffrey Kling, an economist at the Brookings Institution, says . . . the government should temporarily replace part of the income workers lose when they take lower-paying jobs after a layoff.
The stimulus package provides some little nods in the direction of the jobless, but is a far cry from solutions. Once these problems are fixed, once all of the jobless are offered financial support, job training and job opportunities, once we've at least begun to expand for them the immediate relief of health care and ways to hang onto their homes, then and only then should we be considering any additional hundreds of billions for bankers.

Presumably, the Republicans in the House and Senate will support me on this. After all, their objections to some elements of the Obama stimulus package were that they didn't think they would create jobs, that any impact on economic stimulus would be too far in the future, or that they had nothing to do with stimulating the economy, and that taken together they involved far too much total money.

Surely those concerns are all equally applicable to the additional hundreds of billions Treasury Secretary Geithner is about to propose for his banking friends. Those billions not only won't create jobs, they will not even require the banks to make loans! And given the $2.4 trillion the Fed has already provided the banks, and the $350 billion in TARP funds, the amounts Geithner is talking about far, far exceed anything ever considered for the jobless, or for jobs programs.

Stephen Labaton, "New Plan to Help Banks Sell Bad Assets," New York Times, February 7, 2009 ("[T]he Obama administration has settled on a plan to inject billions of dollars in fresh capital into banks . . . [that] will not require banks to increase their lending. That is despite criticism that institutions that already received money from the Troubled Asset Relief Program, or TARP, either hoarded it or used the funds to acquire other banks. . . . The goal is to relieve the banks of their worst assets . . ..")

There may be more details tomorrow, but I still intend to measure them by the standards I set out at the end of the blog entry two days ago. Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009.

Related Blog Entries on Global Economy and Bailouts

Nicholas Johnson, "Who's The Reason?" September 5, 2008

Nicholas Johnson, "How Much Do You Owe the Chinese?" September 6, 2008

Nicholas Johnson, "Taxpayer Rescue," September 15, 2008

Nicholas Johnson, "Global Finance: The Great Fountain Pen Robbery," September 21, 2008

Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008

Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan," October 2, 2008

Nicholas Johnson, "Can We Trust Our Bankers?" October 29, 2008

Nicholas Johnson, "It's the Economy," November 7, 2008

Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery," November 8, 2008

Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008

Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008

Nicholas Johnson, "A Trillion Here, a Trillion There," November 20, 2008

Nicholas Johnson, "FromDC2Iowa's Weekend Edition," November 21, 2008 ("The Answer to Global Economic Collapse" and "Auto Bailout: 'Show Me the . . . Plan'")

Nicholas Johnson, "Citigroup Deal Stinks," November 25, 2008

Nicholas Johnson, "Only Select Few Are Thankful for Trillions," November 27, 2008

Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008

Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008

Nicholas Johnson, "You Know It's Serious When We Start Laughing," December 15, 2008

Nicholas Johnson, "A Car in Every Garage," December 16, 2008

Nicholas Johnson, "Forget Madoff, Focus on Bernanke," December 17, 2008

Nicholas Johnson, "Of Theaters and Automobiles," December 20, 2008

Nicholas Johnson, "There's Bad News and . . . and . . .," December 21, 2008

Nicholas Johnson, "Et Tu, Toyota?" December 22, 2008

Nicholas Johnson, "Revolting Developments," December 23, 2008

Nicholas Johnson, "First Things First," January 8, 2009

Nicholas Johnson, "Why We Should 'Point Fingers' and 'Look Backwards,'" January 13, 2009

Nicholas Johnson, "Fool Me Twice," January 14, 2009

Nicholas Johnson, "Economic Sorrows and Solutions," January 27, 2009

Nicholas Johnson, "No More for Wall Street!" February 1, 2009

Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009

Nicholas Johnson, "Quick Fix: Support Jobless, Not Bankers," February 7, 2009

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson

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