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More Unemployment Benefits Will Backfire

I’d like to weigh in on reports that the White House is currently negotiating with Congressional Democrats to extend unemployment insurance. It’s a big story in the Wall Street Journal. I want to suggest to you that more unemployment insurance right now is a very bad idea.

Here’s why: In supply-side terms, if the government subsidizes non-work, than we will get less work. In other words, higher unemployment.

This has been the European disease for decades. They heavily subsidized unemployment benefits. Guess what happened? Until recently, their unemployment rate was substantially higher than ours here in the U.S.

Already, the stimulus program for workers who lose their jobs up to this December 31st get 79-weeks of more unemployment benefits. That’s already in the stimulus legislation. In other words, they get another year-and-a-half on top of the benefit increase they already have from the normal social safety net. That is what’s so amazing.

Now I don't want to sound unnecessarily coldhearted. I like to think I’m compassionate. But supply-side economics is about incentives. And if we re-incentivize unemployment, it will surely diminish the will and the effort of our working people to find new work. That is an economic principle.

So the longer we extend unemployment benefits, and the larger we make them—including healthcare—the more unemployment we are going to get. There have been countless studies showing this. It is something we should consider.

I don't mean to sound heartless, or uncompassionate. But economic supply-side principles have a way of trumping the best of government intentions. And that is why a new stimulus package with more unemployment benefits will backfire and drive the jobless rate even higher.

Questions? Comments, send your emails to: lkudlow@kudlow.com