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Lewis reports: "The US economy is losing up to a billion dollars a week because of the 'fiscally irresponsible' decision to end long-term unemployment benefits, a Harvard economist said on Friday."

 (illustration: Alamy)
(illustration: Alamy)


US Economy Losing 'Up to a $1bn a Week' After Jobless Benefits Cut

By Paul Lewis, Guardian UK

04 January 14

 

• Harvard economist warns of 'fiscally irresponsible' decision
• Benefits for long-term unemployed allowed to expire last week

he US economy is losing up to a billion dollars a week because of the "fiscally irresponsible" decision to end long-term unemployment benefits, a Harvard economist said on Friday.

Professor Lawrence Katz based his assessment on official forecasts of the impact to the economy of 1.3 million jobless Americans losing benefits

The benefits, which apply to people who are unemployed for longer than six months, expired last week after a bipartisan budget deal on federal spending for the next two years failed to include a reauthorisation of the program.

Democrats have launched a sustained push to reintroduce the federal program, and a Senate vote on a bipartisan bill to restore the benefits for three months is expected early next week.

On Friday, Democrats in the House of Representatives released a state-by-state breakdown of Labor Department figures, showing the number of people who lost federal benefits when they expired on Saturday. The 1.3 million affected Americans are losing on average $305 per week. In total, Democrats said $400m had been "taken out of the pockets" of job seekers across the country.

"That would mean there is almost a billion dollars we are losing from the economy because of not extending unemployment insurance benefits," Katz said in a conference call organised by House Democrats.

He later told the Guardian that the calculation was based on the "multiplier effect" of cancelling the benefits program, which had been forecast by the Congressional Budget Office (CBO). Applying the CBO's estimated multiplier effect to the $400m per week being lost in benefits, Katz said, translated into a cost to the economy of between $600m and $1bn.

"It is actually fiscally irresponsible not to extend unemployment benefits," he said. "The long-run cost to the taxpayers will be much higher from disconnecting people from the labour market."

Economists argue that ending emergency unemployment insurance will have an adverse impact on the economy, mostly because people dependent upon the program tend to immediately spend most if not all of the benefits on goods and services.

Thomas Perez, the labor secretary, said on Friday that the Obama administration was planning to throw its full weight behind the push to restore the extension in unemployment benefits, which he described as "a critical lifeline".

Obama will host Americans who have lost their long-term unemployment benefits at the White House on Tuesday.

"When Congress first past this version of emergency unemployment compensation in 2008, and the president [George W Bush] signed the law, the unemployment rate was 5.6%, and the average duration of unemployment was 17.1 weeks. Today, the unemployment rate is 7%," Perez said. "The average duration of unemployment is now 36 weeks." Betsey Stevenson, a member of the White House's council of economic advisers, said that while the broad economic outlook was positive, the long-term unemployment rate - currently 2.6% - has remained enduringly high. "To put that in perspective, [during] average or normal times we'd expect to see an unemployment rate that was below 1%."

Steny Hoyer, the Democratic House minority whip, said the Senate would vote next week to expedite a bipartisan bill to reintroduce the benefits program for three months. If the bill passed, he hoped Republicans in the House would be open to negotiation.

"For Congress to let this program expire while our jobs recovery is still continuing, in my view, is reckless and irresponsible," Hoyer said. "The long-term unemployed are facing one of the toughest job markets ever."

The Senate bill is being brought by senators Jack Reed, a Democrat from Rhode Island, and Dean Heller, a Nevada Republican - the two states with the highest unemployment rates.

If Heller and all 55 senators in the Democratic caucus support a measure to bring the bill to an early vote, only four Republicans will be required to cross the aisle to reach the requisite 60 votes.

Congressional sources lobbying for passage of the legislation say they have identified seven Republicans they hope to convince to support the bill. They will be targeted, on Capitol Hill as well as in their home states, over the next week.

In an interview on Thursday, Reed told the Guardian he had been in discussion with some Republican senators over the holiday period and was "hopeful" the measure would pass. "They're weighing it," he said of his Republican counterparts. "That is my sense. They understand that they have constituents who worked hard, got laid off, and are still looking for work."


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+14 # Barbara K 2014-01-04 09:54
Is anyone surprised? This has been the Rethug/Tbagger mantra all along. The economy was improving and unemployment was improving; they cannot let that happen. They are out to destroy the economy and all of us. So they came up with this scheme to destroy both at the same time. It's a win-win for the GOPigs/Tps, killing the economy and many American lives at the same time. They don't care who gets hurts or who suffers or how many more are left homeless, they just don't want the economy to get better at all. They have been thwarting every attempt that would improve OUR country at every opportunity, and then turn around and blame it on Obama. Geez, VOTE THESE LOSERS OUT IN NOVEMBER! It is the only way we can get this country working and improving again. We cannot afford these idiots any more. VOTE THEM OUT while we can still vote.

.
 
 
-16 # moafu@yahoo.com 2014-01-04 11:44
Professor Katz is not getting to the root of the problem. It is far more irresponsible for the government to operate by borrowing money from the private banking system and spend (or give away) more than it produces (in taxes).

Insanity really, and we have not mentioned borrowing money and then giving to nations that hate and/or attack Americans.
 
 
0 # glennjc 2014-01-04 13:09
My understanding is that the government has been borrowing money from the very banks that they had given or loaned money to. The superficial reasons for this are that it is very profitable for the banks to lend to the Government. Please explain why this understanding is not accurate as I fully appreciate that government borrowing and lending is nothing like the checks and balances of accounting and should not be viewed in the same way as a common household account.
 
 
+4 # economagic 2014-01-04 20:44
At this point, government borrowing is still not a problem. Some of it is borrowed from the Federal Reserve (not QUITE the same as borrowing it from individual banks as the Fed by law remits most of its profit to the federal government). Some of it is borrowed from individual banks that buy the bonds, but more of it is borrowed from the global investors who are still glad to accept absurdly low rates of interest in exchange for the security provided by the fact that the U.S. government has never defaulted on a debt.

Some politicians would like the government to renege on its promise while demanding that the government be run more like a business. They will probably find themselves unable to do so, but much more so if they were to succeed. If the borrowing were a problem, the government could issue new currency, and in that situation it would be foolish not to do so as the problem of 1.3 million people unemployed for more than six months is far more serious. Where on earth did you learn what you think you know about economics?

Almost everything the federal government has done with regard to the corrupt global financial system for nearly 20 years has been foolish and destructive (IMNSHO). But failure to deal with unemployment is far more likely to lead to eventual default than continuing to borrow a mere $400 million/week. In the world of finance, that is a very small number.
 
 
0 # tclose 2014-01-05 18:27
Excellent comment, economagic. Thanks for your very clear and accurate explanation.
 
 
-14 # HowardMH 2014-01-04 12:18
I would sure like to see the math that PROVES that 1 Million people not getting $400 a week costs the country 1 $Bn a week. Show me the figures.

If this is actually true then should be paying them $2000 a week. Poor recovery would be over in a month and US would have a profit margin. (Not really a profit but you get the idea)

Harvard economist -- isn’t that where Obama went to school.
 
 
0 # tclose 2014-01-05 18:50
Yes, Obama went to Harvard. In addition to having one of the nation's, and the world's, best economics schools, it has perhaps the best law school, where Obama graduated - cum laude.

Prof Katz is therefore situated well to explain to us amateurs about the "multiplier effect", an effect that is well known to economists, and used by the Congressional Budget Office. If you contact Prof. Katz, I'm sure he will demonstrate to you the math that he used.
 
 
+8 # reiverpacific 2014-01-04 13:03
But folks, please; -don't forget the wisdom of the econo-pundits who declaimed from their isolated towers that the "Recession was over in 2009"!!!
Just ask any small business owner trying to honestly make it without particularly deep pockets, how truthful THAT bit of highly paid whitewash, hogwash is -or these poor buggers who have given up looking.
In the interest of full disclosure, the (thankfully) home-studio based enterprise my wife and I run has just had it's first profitable year after material and a small amount of occasional labor costs, since 2008 but if I was paying rent on professional premises not our own, like my formerly very profitable Architecture/CM practice which was killed stone-dead by the downturn (and healthcare costs WITH insurance) we'd still be under water. And I'm under no illusion that the income(s) will ever return to their pre-recession levels.
BTW, the self-exploited get NO unemployment if they go under in the US!
To his credit, I hear that Obama got a three month extension to jobless payments and will be working for more on return from Hawaii.
I'd like to see the current Congress thrown out on the streets without the generous salaries and benefits WE pay them to DENY to us, and try to get by on the average nation wide unemployment payment or better still, the average minimum wage they also mostly strive to keep down!
They work for US after all but you'd never guess it from their strident arrogance and ignorance of the real world!
 
 
-2 # jwb110 2014-01-04 13:54
Duh....
 
 
+2 # Edwina 2014-01-05 10:49
Our government -- Executive, Congress, and the courts -- has decided to support the financial sector and corporations, rather than its citizens. $85 billion a month, as I understand it, in "quantitative easing". I understand why they would decide not to let the dollar crash, along with the economy, in 2007 & 2008. But since then, they have failed to confront, and correct, the problems of the economy. Vast susidies still go to highly profitable international (nominally American) oil companies; banks are loaned money at near 0% interest, then loan to students, homeowners, or small business, if at all, at a higher rate -- using taxpayer money. The "too big to fail" banks have become even larger. The stock market is the only sector doing well, thanks to government "monetary" policy. Looks like 2007/2008 all over again. Capitalism has always required government intervention in order to "work". Booms and busts are the norm. Our government should be once again saving capitalism from itself -- from the failure Reaganomics and neo-liberalism, but instead is so controlled by the corporate/finan cial sector that it does not intervene.
 
 
0 # robcarter.vn 2014-01-06 17:25
Adding to Economic reasoning 1.1 in earlier press "Why USA economic recovery has been so anemic is the collapse of public spending?"
Now this :-

US Economy Losing 'Up to a $1bn a Week' After Jobless Benefits Cut
By Paul Lewis, Guardian UK ~ 04 January 14
 Rob Carter comments:- Both USA Parties are now ruled by the 1% Super-rich & Corporate Interests. When stopping years of QE's (Quantative Easing) & bailouts supporting failing Business Economy they can only TAPER over 5 years even then uncertain under next administration? But when it comes to the 60% majority domestic consumer economy, via their failing 20% long term unemployed this cut off of welfare can not manage to TAPER.
 

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