One of the most important principles of logic, employed by scientists, historians and most other researchers, is that things that correlate do not necessarily have a causal relationship.
Now that’s a mouthful, but it’s really a simple concept: Just because two things happen at the same time or happen to the same person or nation does not mean that one is causing the other. For example, just because two people show up at the same movie theatre for the same show doesn’t mean that one is there because of the other. Or more famously, just because there are insects hanging around that pile of pig dung doesn’t mean that the pig dung created the insects.
If you read enough about physics, chemistry, geology, history, anthropology and other bodies of knowledge, sooner or later you will run into a discussion of whether or not two trends or set of facts that correlate (or exist together) have a causal relationship, that is, did one cause the other.
But judging from his August 30 article in Wall Street Journal it seems as if this important concept of critical thinking has not occurred recently to Robert Barro, a Harvard professor who is considered a global expert on macroeconomics, which is the study of how national or global economies function.
In the article, Barro declares that if unemployment benefits had not been extended to 99 weeks, the unemployment rate might be 6.8% and not close to 10%. He therefore blames the Democrats and the Obama Administration for extending joblessness by helping the jobless to put food on their tables.
At the heart of his argument are some numbers he throws around in the middle of the article. Let’s preview what Barro says, and then take a look at it: Barro gives some statistics for past recessions like the “mean duration of unemployment” (halfway point between the high and low for how long unemployment lasted), the share of long-term unemployment (what percentage of the total unemployed looked for a job for more than a half a year) and the peak unemployment rate. Then Barro compares these numbers to today, when they appear to be much worse. He then concludes: “The dramatic expansion of unemployment-insurance eligibility to 99 weeks is almost surely the culprit.” As you see, it comes out of nowhere, but is based on an underlying, but unstated and unproved, assumption that these numbers have a causal and quantifiable relationship.
With that explanation as our guide, let’s see what Barro wrote:
“To begin with a historical perspective, in the 1982 recession the peak unemployment rate of 10.8% in November-December 1982 corresponded to a mean duration of unemployment of 17.6 weeks and a share of long-term unemployment (those unemployed more than 26 weeks) of 20.4%. Long-term unemployment peaked later, in July 1983, when the unemployment rate had fallen to 9.4%. At that point, the mean duration of unemployment reached 21.2 weeks and the share of long-term unemployment was 24.5%. These numbers are the highest observed in the post-World War II period until recently. Thus, we can think of previous recessions (including those in 2001, 1990-91 and before 1982) as featuring a mean duration of unemployment of less than 21 weeks and a share of long-term unemployment of less than 25%.
These numbers provide a stark contrast with joblessness today. The peak unemployment rate of 10.1% in October 2009 corresponded to a mean duration of unemployment of 27.2 weeks and a share of long-term unemployment of 36%. The duration of unemployment peaked (thus far) at 35.2 weeks in June 2010, when the share of long-term unemployment in the total reached a remarkable 46.2%. These numbers are way above the ceilings of 21 weeks and 25% share applicable to previous post-World War II recessions. The dramatic expansion of unemployment-insurance eligibility to 99 weeks is almost surely the culprit.”
Barro then goes on to state that if the number of unemployed for 26 weeks or less today hit historical levels, then unemployment would be 6.8 %, blaming the extension of unemployment for the difference, with neither proof nor logic. He uses phony math to propose a causal effect where none exists.
Barro states the conceptual basis of his argument earlier in the piece:
“The unemployment-insurance program involves a balance between compassion—providing for persons temporarily without work—and efficiency. The loss in efficiency results partly because the program subsidizes unemployment, causing insufficient job-search, job-acceptance and levels of employment. A further inefficiency concerns the distortions from the increases in taxes required to pay for the program.”
In short hand: people don’t look for jobs when they can collect unemployment and businesses are less able to hire because they are paying more in unemployment insurance. It’s the same old right-wing claptrap that makes no sense when you actually examine the statement.
Let’s take a look at the second part first: To support the unemployment program in each state, employers pay a percentage of gross wages for each employee up to a small amount. In Pennsylvania, the percentage varies, but for my businesses it has been miniscule, and I only pay on the first $8,000 in income, so maybe it’s a couple of hundred bucks an employee per year. Believe me, every business that is profitable or would be profitable without financial machinations makes a whole lot more than a few hundred bucks on each and every one of its employees. So even when a bunch of those hundreds add up to enough money to hire someone else, remember that the total profit has also increased and so the company likely has the funds to hire with or without the paltry sums paid into the unemployment fund.
It’s the first assertion, though, that is truly offensive and an insult to virtually all working Americans—that a large percentage would rather stay home on their duffs than work. We hear economic right-wingers make this statement all the time, and yet we never see any numbers to back it up.
First of all, I’ll admit that there is a part of our population who would rather sit at home than work, but when it comes to unemployment insurance, we’re talking about a special sub-group: those lazy-assed loafers who had a job and now would rather collect their unemployment than return to work.
The issue is not how many people are in this loathsome subgroup, but how many can afford to live on that unemployment check and thereby eschew work. Well, trust fund babies could. But I’m under the impression that most people who lost their jobs were working at low wages, and a lot of those working for higher wages were living at or close to their means. Remember that unemployment insurance pays only a part of your former wages and that there is a limit above which you receive no more no matter how much you made in your former job. And, people who lost low paying jobs are not getting very much.
Of course people who lost higher paying jobs like school teachers, attorneys or managers may be collecting unemployment checks greater than what they could make flipping burgers or welcoming customers to Wal-Mart.
That is, if there were any such jobs. According to the Department of Labor (DOL), there are currently five people looking for work for every job that’s opened, which is down from about a year ago when it was a more than six people searching for every available job. DOL isn’t the only organization that has concluded that there are a paltry number of jobs for the number of people unemployed: so do such stalwarts of business as the Conference Board and the outplacement firm Challenger, Gray & Christmas.
It’s for this reason that what Barro says smacks more of Simon Legree than Adam Smith: If there are no jobs, we as civilized human beings must help the unfortunate fellow citizens who have lost theirs.
And now for the really offensive part: you know all these economic right-wingers, including Barro, who think that we need to hang the threat of hunger and homelessness over people who have lost their jobs to make them want to work—all those right-wingers also advocate that we should leave regulation of every industry to the high-minded, ethical and socially conscious companies that make up the industry.
In other words, we act to reign in the base instincts of the workers (most people), but don’t have to reign in owners, since they won’t succumb to a base motive. That’s the hypocritical and self-serving essence of Barro’s argument against extending unemployment benefits.
And I reject it as just another way to distribute wealth up the economic ladder, in this case from the unemployed middle class and poor to business owners.
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