From Coyote Blog, a spectacularly accurate and funny Venn diagram:
The first lesson of economics is (or ought to be), "People respond to incentives." And I would add, ".... whether we like it or not."
A few weeks ago I did a post pointing out that pundits on both the left and the right have moved further to the extremes, and away from sensible policy views. I just noticed another example today, an article claiming that if you pay people not to work, it won't significantly increase the number of people not working.Extending benefits to unemployed workers beyond the 26 weeks provided by most states has little effect on the unemployment rate and essentially no impact on labor force participation, a recent working paper released by the Federal Reserve Board found.
I guess they didn't notice that the natural rate of unemployment in Europe is at least 8%. [EE: and typically the natural unemployment rate in Canada has been higher than that in the US, in part because of our more liberal/generous unemployment compensation programmes]
Question: When was the last time you saw a liberal pundit point out that extended unemployment benefits increased the unemployment rate? Maybe when Bush was implementing the policy? Here's Brad DeLong in 2008:The rule of thumb, IIRC, is that the average duration of an unemployment spell increases by 1/4 of the increase in the duration of unemployment benefits. Thus a 13-week increase in unemployment insurance duration should increase the average unemployment spell by 3 weeks. With current mean unemployment spell duration at 17 weeks, and with roughly 2/3 of the unemployed eligible for UI, this would produce a 3/17 * 2/3 * 5.5% = 0.6% increase in the measured unemployment rate. ...
That was only a 13-week increase, not a 73-week increase, as Obama implemented. And BTW, DeLong's prediction was precisely correct.
As I said, "People respond to incentives, whether we like it or not."