Partners - Stock market, economic and political commentary by Patricia Chadwick

In This Case, the President and the Democrats are Right!!

Now is not the time to cut off unemployment benefits in this country. Admittedly, extending the benefits will add to the Federal budget deficit, but not doing so will add to mortgage delinquencies and homelessness and will only serve to impede the still fragile recovery currently under way.

Today’s Wall Street Journal’s editorial argues that “supporting jobless benefits on compassion grounds…..keep[s] people out of the job market”. That is a simplistic notion which may carry a logical appeal, but it is neither accurate nor is it applicable in this economic environment. If that were really the case, then why have so many people given up looking for a job? How will cutting off unemployment benefits make a job miraculously appear? It is spurious logic.

Each recession has different causes, and those causes affect the duration. The causes also require different solutions. The last two recessions in this country (1990/1991 and 2001) might be termed ‘mini’ recessions. They were of limited duration and scope, and peak unemployment was less than 8%. The scope and impact of this recession has been the worst since the Great Depression, and the level of unemployment is unprecedented since the Depression, except for the back to back recessions of 1980 and 1982.

It seems unnecessary and tautological to state that the higher the unemployment rate, the more difficult it is to find a job. The average monthly rate of unemployment over the last 12 months has been 9.7%. There has been only one other time in the last 60 years when the level of unemployment even reached, must less was sustained at that level. That was during the inflation busting and oil crash recession of 1980 – 1982.

The majority of Americans in the workforce today have not experienced a recession like this one. Many of them were either children or yet unborn in the 1980 recession. They want jobs but jobs are not to be had. They need jobs in order to put food on the table, clothe their children, pay their mortgages, reduce their debt and save for their retirement. They are looking for jobs, but the jobs aren’t there. We all know that.

This recession is slowly working its way into a sustained recovery. But it was not your ‘normal’ recession; rather it was a balance sheet recession, i.e. a recession brought about by too much debt on the part of both consumers and the banking system. The deleveraging of balance sheets is underway and that is good, but a balance sheet recovery will be slow because by its nature it impedes discretionary spending.

Extending unemployment benefits is not simply the compassionate thing to do, it is the economically responsible thing to do. Not doing so will only serve to hinder the recover now under way.

There are many ways in which the Federal Government can and must cut costs to reduce the dangerously high budget deficit. However, cutting unemployment benefits for the nearly 10% of the workforce which is trying to find a job is wrong on both moral and economic grounds.

Patricia W. Chadwick
Ravengate Partners LLC

July 20, 2010

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4 Responses to “In This Case, the President and the Democrats are Right!!”

  1. Henry Doss Says:

    I saw this piece on the CNBC web site, and I must say that it’s nice to read a little something that is less ideological and more rational. I don’t know who these people are who have the specious notion that providing unemployment benefits is a disincentive to finding a job. If that is true, why is it not a disincentive during the first month, or two or three? How does unemployment go from being a “good” thing in the first few weeks and then — magically! — a bad thing when unemployment is of a longer duration. It would seem to me — logically — that the exact opposite would be true. Thanks for a rational and fair-minded line of thinking.

  2. patricia chadwick Says:

    Thank you, Henry, for your comment. It seems that we need more common sense in the government and less idealogy.

  3. Doug Jorgensen Says:

    Hi Patricia,

    While I agree with much of your sentiment, I think your economic logic is flawed and only works in the short term. Long term, the out of control spending and deficits will do far more harm than not extending the joblessness benefits. I have come to embrace the philosophy that says absolutely no more spending unless you can cut an equal amount from another program. When both sides are willing to compromise and balance new spending with equal budget cuts, that is when we will gain long term economic growth.

    While I sympathize with those who are unemployed, the long term economics of the country must trump the short term economic pain. We need to get back to the concept of communities banding together to help each other, rather than the recently (and progressive) sentiment that says “let the government take care of all our needs”.

    Your reaction to this is appreciated – the more we dialog the more we can grow in our thinking.

    Thanks for listening to a counter point.

  4. Tom Carroll Says:

    How much longer can this country continue to spend what we don’t have? If you feel so strongly about extending the UEC payments on a compassion basis then do the right thing and fund it. I would strongly suggest using unspent funds from the worthless stimulus. Or; get rid of 50% of the elite federal workforce in DC! We have 60% of our workforce laid off and unless we fix the private sector economy those people will never return to work. Socialist programs will never get it done!