Paul Krugman in his blog at the New York Times on the debate over whether to extend unemployment benefits:
There’s a sort of standard view on this issue, based on more or less Keynesian models. According to this view, enhanced UI actually creates jobs when the economy is depressed. Why? Because the economy suffers from an inadequate overall level of demand, and unemployment benefits put money in the hands of people likely to spend it, increasing demand.
You could, I suppose, muster various arguments against this proposition, or at least the wisdom of increasing UI. You might, for example, be worried about budget deficits. I’d argue against such concerns, but it would at least be a more or less comprehensible conversation.
But if you follow right-wing talk — by which I mean not Rush Limbaugh but the Wall Street Journal and famous economists like Robert Barro — you see the notion that aid to the unemployed can create jobs dismissed as self-evidently absurd. You think that you can reduce unemployment by paying people not to work? Hahahaha!
He then goes on to extol Keynesian economics as a “scientific revolution” that made the inexplicable comprehensible. I don’t agree with that but I’m more interested in this post on Krugman’s views of his intellectual opponents who refuse to accept the Keynesian argument that unemployment benefits will reduce unemployment.
Here is Paul Krugman in his book, Essentials of Economics (2010):
People respond to incentives. If unemployment becomes more attractive because of the unemployment benefit, some unemployed workers may no longer try to find a job, or may not try to find one as quickly as they would without the benefit. Ways to get around this problem are to provide unemployment benefits only for a limited time or to require recipients to prove they are actively looking for a new job.
Here is Paul Krugman in his textbook Economics (2009):
Generous unemployment benefits can increase both structural and frictional unemployment. So government policies intended to help workers can have the undesirable side effect of raising the natural rate of unemployment.
(Both of these quotes are taken from Google Book searches.)
How does someone like this maintain his intellectual credibility? How do people who claim to respect him, continue to do so? I can understand liking him as a fellow partisan. But how do you respect him as an economist when he ignores incentives? What he writes doesn’t just contradict thoughtful economics. It contradicts the thoughtful economics he himself writes in the latest editions of his textbook. What am I missing?
There’s nothing wrong with arguing that extending unemployment benefits is a good idea. There’s nothing wrong with arguing that extending unemployment benefits might reduce unemployment benefits by increasing aggregate demand. But how do you argue that your opponents are ideologues because they believe the opposite–that paying people to be unemployed increase unemployment when you yourself have conceded that that idea is true?
How do you write a post on unemployment benefits without conceding the possibility that your opponents might be right, given that you have made a similar argument to theirs?
I don’t know what to call this post. I’ve run out of words.