One of the most important principles of economics is that people respond to incentives. You get more of whatever you incentivize. You get less of whatever you disincentivize. This is irrefutable. The supplemental unemployment payment does both—it incentivizes people not to work, and simultaneously disincentivizes them from working. The number of people who have dropped out of the labor force in Colorado, those who are not actively seeking employment, remains near record highs even as open jobs go begging. Employers cannot find sufficient workers to restart their businesses, or to expand existing operations back to full capacity. They face higher costs by having to entice people out of unemployment. After a full year of partial economic lockdown in Colorado, this
Topics:
Paul T. Prentice considers the following as important: 6b) Mises.org, Featured, newsletter
This could be interesting, too:
Eamonn Sheridan writes CHF traders note – Two Swiss National Bank speakers due Thursday, November 21
Charles Hugh Smith writes How Do We Fix the Collapse of Quality?
Marc Chandler writes Sterling and Gilts Pressed Lower by Firmer CPI
Michael Lebowitz writes Trump Tariffs Are Inflationary Claim The Experts
One of the most important principles of economics is that people respond to incentives. You get more of whatever you incentivize. You get less of whatever you disincentivize. This is irrefutable. The supplemental unemployment payment does both—it incentivizes people not to work, and simultaneously disincentivizes them from working.
The number of people who have dropped out of the labor force in Colorado, those who are not actively seeking employment, remains near record highs even as open jobs go begging. Employers cannot find sufficient workers to restart their businesses, or to expand existing operations back to full capacity. They face higher costs by having to entice people out of unemployment. After a full year of partial economic lockdown in Colorado, this is holding back our recovery.
According to U.S. government data, total employment in Colorado has yet to return to pre-lockdown levels. Personal income in Colorado has yet to return to pre-lockdown levels. Real GDP in Colorado has yet to return to pre-lockdown levels. Furthermore, employment and income losses are concentrated among the poor and minorities. The last thing they need is an increased incentive not to work.
Another important economic principle is that income is created by production. When fewer people work and fewer businesses operate at capacity, it is axiomatic that less income is produced. Government payments in lieu of earned income may help some individuals in the short run, but it harms the economy as a whole in the long run. One dollar of supplemental unemployment does not have the same economic impact as one dollar of production-based earned income.
Progressives imagine that they can ignore the laws of economics. But they cannot ignore the consequences of ignoring the laws of economics. They imagine that their policies, that pay people not to work, do not result in fewer people working. They are shocked, shocked, at the very suggestion.
With supplemental benefits, many people receive more in unemployment than they earned in their previous job. And, although even more people receive less in unemployment that at their previous job, the differential at the margin is frequently not enough to incentivize a return to work. A recent article in the Wall Street Journal makes my point, “Unemployment Rolls Shrink Faster in States Cutting Aid.” Businesses see an increase in job applications as jobless aid is reduced. That is based on data—what used to be called “science.”
Even for those who receive more in unemployment than by working, the short-term money cannot make up for the long-term loss of moving up the employment ladder, achieving seniority, and earning raises. At a sociological level, the loss of earned self-esteem that comes from gainful employment is incalculable. Generational damage will occur from children not observing the social benefits of employed parents.
The unintended economic consequences to Colorado of paying people not to work go far beyond the immediate impact of reduced employment. From where will the money come? Taxes on job creators? That harms all Coloradans as fewer jobs will be created. The government printing press? That harms all Coloradans through increased inflation. From Communist China buying more U.S. Treasury debt? That harms all Coloradans by making us more beholden to a country that has shown itself to be a global enemy of freedom.
I am reminded of a saying by one of my favorite economists, Murray Rothbard, “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
Reprinted with the author’s permission.
You Might Also Like
SNB Sight Deposits: Inflation is there, CHF must Rise
2021-07-19
Sight Deposits have risen by +0.2 bn CHF, this means that the SNB is intervening and buying Euros and Dollars.
What Is the Purpose of the Economy? Carl Menger Explains.
2021-07-17
This second part of the series about the Principles of Economics treats Menger’s exposition of the economy. In continuation of the first part, which covered the general concept of goods, the part on the economy treats the role of economic goods in relation to human wants.
Antal Fekete, Gold, and Central Banks
2021-03-10
On the fourteenth of October 2020, Antal E. Fekete, the Hungarian-Canadian economist who saw himself as a monetary theorist following the tradition of Carl Menger, died in Budapest. Behind him was an eventful and fruitful life which was quite typical of the crazy last century. His experiences eventually filled Fekete with dark forebodings for the current century.
Stagflation Cometh
2021-03-03
A gentleman who does work for us sent me a text recently saying the price of his supplies has increased 20 percent, so he wants to increase his monthly fee 10 percent. It was a nice way to ask, and I said sure, especially given that he’s willing to take a haircut on his labor to make the increase more palatable.
The Drive for State and Federal Protective Tariffs in Early America
2021-02-23
Every depression generates a clamor among many groups for special privileges at the expense of the rest of society—and the American depression that struck in 1784–1785 was no exception. If excess imports were the culprit, then voluntary economizing could help matters, and the press was filled with silly fulminations against ladies wearing imported finery.
AOC and Schumer Want Taxpayer Funding for Covid-19 Funerals
2021-02-10
US residents whose family members died with or of covid will be eligible to receive $7,000 for funeral and related expenses, New York senator Chuck Schumer (D) and Representative Alexandria Ocasio-Cortez (D) announced.
A Penchant for Controlling Others
2021-02-06
We all want freedom for ourselves, but many people have doubts about the way others might use their own freedom. Under these conditions, the state is there to help. Get enough people to favor enough restriction, and the state is good to go, administering every aspect of life from its smallest to its largest detail.
Biden Nominee Rachel Levine Was a Disaster in Pennsylvania. Now She’s Headed to Washington.
2021-01-25
On January 19 it was announced that Joe Biden planned to nominate Rachel Levine, the Pennsylvania (PA) secretary of health, for the position of assistant secretary of health in the Department of Health and Human Services. This is potentially good news for Pennsylvanians, who will finally be rid of her after having had to endure her disastrous covid lockdowns and restrictions for nearly a year, but is likely bad news for the rest of the country.
Tags: Featured,newsletter