WSJ Editorial on Ending Unemployment Benefits

Editorial, "President Costanza’s Jobs Boom," The Wall Street Journal, January 27, 2015

A new study shows that Mr. Obama needs a ‘Seinfeld’ epiphany.

In a 1994 “Seinfeld” episode, George realizes that “every decision that I have ever made in my entire life has been wrong. My life is the complete opposite of everything I want it to be.” Jerry replies: “If every instinct you have is wrong, then the opposite would have to be right.”

So Costanza approaches a gorgeous woman in the coffee shop and announces, “My name is George. I’m unemployed and I live with my parents.” To his surprise, she’s interested. He lands a job with the Yankees after insulting George Steinbrenner.

Maybe President Obama ought to take Jerry’s advice too. That’s our reading of a striking new economic study that examines Congress’s decision to zero out extra unemployment benefits last year.

The authors find that this abrupt policy shift created some 1.8 million jobs, or slightly more than three of five net positions filled in 2014. The cuts also pulled a million workers who dropped out of the labor force back into the workplace. This reality happens to be the opposite of what Mr. Obama and other liberal sachems predicted.

***

Cash transfer payments like jobless benefits were at the core of the Keynesian project of the 2009 stimulus. It was natural for Washington to try to help people through the recession. But Democrats also argued that redistribution would supply the best boost for the economy based on the theory of the spending multiplier. This said that every extra dollar of jobless benefits would increase “aggregate demand” and return $1.80 in higher GDP.

Before the stimulus, benefits were determined by states and typically lasted 26 weeks. The Pelosi Congress financed as many as 53 additional weeks, with benefits flowing on a sliding scale based on the severity of a state’s unemployment. Congress also created another 20-week bonus program, allowing the unemployed to collect unprecedented compensation for nearly two years.

The programs were renewed a dozen times long after the recession ended, and as late as December 2013 benefits still lasted 53 weeks on average. That month Mr. Obama refused to negotiate any unemployment or budget reforms, so the GOP House simply let the programs expire.

At a Dec. 13 event, Mr. Obama invoked the needy and explained that this supposed abdication was “bad for our economy and that’s bad for our cities, because if they don’t have the money to pay the rent or be able to buy food for their families, that has an impact on demand and businesses and it can have a depressive effect generally. In fact, what we know is the economists have said failing to extend unemployment benefits is going to have a drag on economic growth for next year.”

The White House Council of Economic Advisers forecast direct job losses reaching 240,000 as aggregate demand fell. The Keynesians at the Congressional Budget Office warned of a recession.

As late as a June 2014 rally in Minneapolis, Mr. Obama added that the Republicans had harmed “more than three million Americans who are out there looking every single day for a new job, despite the fact that we know it would be good not just for those families who are working hard to try to get back on their feet, but for the economy as a whole.”

Instead, job growth in 2014 was roughly 25% higher than any post-2009 year. Joblessness plunged to 5.6% from 6.7%. Net job creation averaged 246,000 a month. What happened?

Writing for the National Bureau of Economic Research, economists Marcus Hagedorn, Iourii Manovskii and Kurt Mitman treat the 2014 benefits cutoff as a natural experiment. The extra federal benefits ranged from nothing to 47 weeks state by state, and then all at once fell to 26 weeks nationwide. This variation allowed them to compare the employment effects between states sponsoring more generous benefits and those with less.

Assuming that the pre-2014 trends would have continued among the two groups, the authors find that “the cut in unemployment benefit duration led to a 2% increase in aggregate employment, accounting for nearly all of the remarkable employment growth in the U.S. in 2014.” They then confirm these results with a second experiment that compares adjacent counties in different states whose economies are otherwise equal except for their unemployment benefits.

Notably, job growth improved most in states and counties that offered the most generous benefits before Congress took away the punch bowl. This suggests that the extra jobless benefits reduced the incentives for businesses to create jobs and for jobless workers to fill the vacancies.

Paying people not to work means they have less incentive to get on a payroll. More generous benefits also discourage businesses from hiring. Since benefits raise the price at which people are willing to search for work, employers must pay above-market wages in the more generous regions, and respond by creating jobs elsewhere or not at all. More jobs draw more people back into the labor force, in a virtuous cycle.

Since the states with the highest unemployment were targeted with the most federal benefits, the extra benefits harmed the people and regions that suffered the worst of the recession and weak recovery. Had Mr. Obama done the opposite, the stimulus might have recognized that people prefer the dignity of a job to claiming a government stipend for not having one. Both individuals and the larger economy would have been healthier.

***

Mr. Obama is now taking credit for 2014’s job gains that his policies inhibited, much as he is for the boom in oil and gas drilling that his Administration resisted. Thus comes the opportunity for a late-term “Seinfeld” economic epiphany. Imagine the possibilities if the President realized that everything he thought about economics is wrong.

A President Costanza would cut the tax rate on capital, not raise it; reduce the incentives to go on disability, not increase them; and reduce regulatory costs on business, not add to them. Whatever economic instincts you have, Mr. President, do the opposite.

Stephens on Greek Corruption

Bret Stephens, "Greece’s Last Evasion," The Wall Street Journal, January 23, 2015

Why capitalism is the only real cure for corruption.

Whenever I think of Greece and its economy, I can’t help but recall the stool-sample story.

Sorry to begin on a scatological note, but here’s a revealing tale about a country that, by electing the radical left-wing Syriza party over the weekend, just voted itself down the toilet. In 2011, Greek entrepreneur Fotis Antonopoulos and his partners decided to start OliveShop.com, an online store specializing in organic olive-oil products.

Before they could start their business, they first needed the right paperwork. As recounted in the Greek newspaper e-Kathimerini, authorizations were required from the government tax office, the local municipality, the fire department. Also the bank, which insisted that the entire website be in Greek—and only in Greek—despite Mr. Antonopoulos’s attempts to explain that he intended to market his products to foreign customers.

And then there was the health department, which informed Mr. Antonopoulos that company shareholders would be required to furnish chest X-rays and, yes, stool samples. Greece has standards, you know.

It took OliveShop.com 10 months to get all the right stamps, certificates and signoffs. The problem with the bank was resolved only when Mr. Antonopoulos opted for PayPal instead. Registering with the U.S. Food and Drug Administration, by contrast, took him all of 24 hours and one five-minute digital form.

The stool story is a useful reminder that, when it comes to understanding the economic life of a nation, it’s worth looking at the micro-side first. As told in the pages of most Western newspapers, Greece’s economy is best measured in debt-to-GDP ratios (174.9% in 2014), external debt (still north of €400 billion), bond yields (9.3% on the 10-year) and so on.

These are all useful data points, assuming you know how to draw the right conclusions. But the study of economics—the word derives from the Greek oikos, meaning “house,” plus nemein, meaning “manage,” to form oikonomia, or “household management”—needs to start with the basics. Like: What does it take to start a business in Greece? What does it take just to get by?

The OliveShop tale is a case study in what it takes to start a business legally. Yet the whole purpose of these peculiar regulatory roadblocks is to create opportunities to grease the skids with a fakellaki—the little envelope, stuffed with cash—that gets you the necessary certificate, or the government contract, or the timely medical appointment. When I interviewed Syriza leader (now Prime Minister) Alexis Tsipras in New York two years ago, his first question to me was: “Here in the United States, why do you not have this phenomenon of passing money under the table?”

My answer was that you’re less likely to seek a bribe if you can make an honest profit instead: Capitalism is the only real cure for corruption. Mr. Tsipras demurred, arguing that what was really necessary was a “revolution in conscience.” Good luck to him with that.

The reality of Greece—and the one that now confronts Mr. Tsipras—is that the country has been playing economic make-believe for decades. The state offers national health insurance: People then pay bribes in order to obtain treatment. The state imposes stiff tax rates to comply with the expectations of Brussels or the demands of the International Monetary Fund: People then figure out how to evade their taxes. The state makes a show of maintaining a First World regulatory architecture: The regulations are subverted through bribery, misreporting and other fixes.

How do people get by? They cheat. That cheating is less a moral indictment of the cheaters individually, or of the character of the Greeks generally, than it is of the system that gives normal people no other good choice if they want to survive.

***

Margaret Thatcher once quipped that the problem with socialism is that eventually you run out of other people’s money. For Greece, “eventually” took an especially long time, since it always found a way of freeloading off of someone else: Washington, after the Truman Doctrine was declared in 1947; Brussels, after it joined the European Community in 1981; Frankfurt, after it lied its way into the eurozone in 2001; Berlin, after the onset of the euro crisis in 2010.

Now the game might at last be up. German Chancellor Angela Merkel has made it clear that she will not allow Athens to renegotiate the terms of its bailout, which is what Mr. Tsipras had been counting on in the conceit that the EU would never let Greece fail. A bad bet.

Mr. Tsipras will now have to choose between buckling to the demands of his paymasters, doubling down on socialism, finding another rescuer (maybe China, since Russia is no longer available), or belatedly discovering the virtues of free markets that allow the rule of law to take root.

My guess is that Mr. Tsipras will find a face-saving way to buckle, and Greece will continue to stagger along. The most painful outcome, but perhaps also the best, would be a forced Greek exit from the eurozone that serves as a dramatic warning to the rest of Europe’s lackluster reformers about what happens to countries that take their economics lessons from the op-ed page of the New York Times.

The vote for Mr. Tsipras and his radical leftists is Greece’s final flight from reality. Elections have consequences. The Greeks are about to discover theirs.

Williamson on the "Knowledge" Problem

http://www.nationalreview.com/article/397131/davoss-destructive-elites-kevin-d-williamson

Ayah Hirsi Ali on Answering the Paris Terror Attack

Ayah Hirsi Ali, "How to Answer the Paris Terror Attack," The Wall Street Journal, January 7, 2015

The West must stand up for freedom—and acknowledge the link between Islamists’ political ideology and their religious beliefs.

After the horrific massacre Wednesday at the French weekly satirical magazine Charlie Hebdo, perhaps the West will finally put away its legion of useless tropes trying to deny the relationship between violence and radical Islam.

This was not an attack by a mentally deranged, lone-wolf gunman. This was not an “un-Islamic” attack by a bunch of thugs—the perpetrators could be heard shouting that they were avenging the Prophet Muhammad. Nor was it spontaneous. It was planned to inflict maximum damage, during a staff meeting, with automatic weapons and a getaway plan. It was designed to sow terror, and in that it has worked.

The West is duly terrified. But it should not be surprised

If there is a lesson to be drawn from such a grisly episode, it is that what we believe about Islam truly doesn’t matter. This type of violence, jihad, is what they, the Islamists, believe.

There are numerous calls to violent jihad in the Quran. But the Quran is hardly alone. In too much of Islam, jihad is a thoroughly modern concept. The 20th-century jihad “bible,” and an animating work for many Islamist groups today, is “The Quranic Concept of War,” a book written in the mid-1970s by Pakistani Gen. S.K. Malik. He argues that because God, Allah, himself authored every word of the Quran, the rules of war contained in the Quran are of a higher caliber than the rules developed by mere mortals.

In Malik’s analysis of Quranic strategy, the human soul—and not any physical battlefield—is the center of conflict. The key to victory, taught by Allah through the military campaigns of the Prophet Muhammad, is to strike at the soul of your enemy. And the best way to strike at your enemy’s soul is through terror. Terror, Malik writes, is “the point where the means and the end meet.” Terror, he adds, “is not a means of imposing decision upon the enemy; it is the decision we wish to impose.”

Those responsible for the slaughter in Paris, just like the man who killed the Dutch filmmaker Theo van Gogh in 2004, are seeking to impose terror. And every time we give in to their vision of justified religious violence, we are giving them exactly what they want.

In Islam, it is a grave sin to visually depict or in any way slander the Prophet Muhammad. Muslims are free to believe this, but why should such a prohibition be forced on nonbelievers? In the U.S., Mormons didn’t seek to impose the death penalty on those who wrote and produced “The Book of Mormon,” a satirical Broadway sendup of their faith. Islam, with 1,400 years of history and some 1.6 billion adherents, should be able to withstand a few cartoons by a French satirical magazine. But of course deadly responses to cartoons depicting Muhammad are nothing new in the age of jihad.

Moreover, despite what the Quran may teach, not all sins can be considered equal. The West must insist that Muslims, particularly members of the Muslim diaspora, answer this question: What is more offensive to a believer—the murder, torture, enslavement and acts of war and terrorism being committed today in the name of Muhammad, or the production of drawings and films and books designed to mock the extremists and their vision of what Muhammad represents?

To answer the late Gen. Malik, our soul in the West lies in our belief in freedom of conscience and freedom of expression. The freedom to express our concerns, the freedom to worship who we want, or not to worship at all—such freedoms are the soul of our civilization. And that is precisely where the Islamists have attacked us. Again.

How we respond to this attack is of great consequence. If we take the position that we are dealing with a handful of murderous thugs with no connection to what they so vocally claim, then we are not answering them. We have to acknowledge that today’s Islamists are driven by a political ideology, an ideology embedded in the foundational texts of Islam. We can no longer pretend that it is possible to divorce actions from the ideals that inspire them.

This would be a departure for the West, which too often has responded to jihadist violence with appeasement. We appease the Muslim heads of government who lobby us to censor our press, our universities, our history books, our school curricula. They appeal and we oblige. We appease leaders of Muslim organizations in our societies. They ask us not to link acts of violence to the religion of Islam because they tell us that theirs is a religion of peace, and we oblige.

What do we get in return? Kalashnikovs in the heart of Paris. The more we oblige, the more we self-censor, the more we appease, the bolder the enemy gets.

There can only be one answer to this hideous act of jihad against the staff of Charlie Hebdo. It is the obligation of the Western media and Western leaders, religious and lay, to protect the most basic rights of freedom of expression, whether in satire on any other form. The West must not appease, it must not be silenced. We must send a united message to the terrorists: Your violence cannot destroy our soul.

Ms. Hirsi Ali, a fellow at the Harvard Kennedy School, is the author of “Infidel” (2007). Her latest book, “Heretic: The Case for a Muslim Reformation,” will be published in April by HarperCollins.

Boudreaux on Tolerance

Quotation of the Day…

by DON BOUDREAUX on JANUARY 2, 2015

… is from Stanley Crouch, during an interview in episode 4 of Ken Burns’s marvelous 2001 documentary, Jazz:

Civilization can, to a certain extent, be reduced to one word: welcome.

Indeed.  The civilized human being welcomes all peaceful and productive people; he or she welcomes their ideas, welcomes their feedback, welcomes their goods and services, welcomes them.  The civilized human being, in so welcoming, need not – indeed, does not – embrace every particular idea, good, service, or individual.  (To be civilized does not mean being without judgment, taste, preferences, or discernment.)  But the civilized human being welcomes every peaceful person the opportunity to offer ideas, goods, services, and themselves to him or her and to others without regard to skin color, religious belief, sex, sexual taste, age, nationality, or any other irrelevancy.

The civilized human being understands that ‘localness’ in and of itself has no particular moral or economic merit.  Ditto for ‘the nation.’   Ditto for ‘the familiar.’

To be civilized is to reject the boundaries that are so admired, even demanded, by the stupid, the ignorant, the narrow-minded, the bigoted, and especially the power-mad.