Larry Summers On Extended Job Benefits

Curiously, according to Tuesday's lead staff editorial in the Wall Street Journal, no less an economic authority than Larry Summers has written....authoritatively....in the Concise Encyclopedia of Economics, that government assistance programs contribute to long-term unemployment.

Specifically, the quoted passage is,

"The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a 'reservation wage'- the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase (the) reservation wage, causing an unemployed person to remain unemployed longer."

One wonders how Summers would therefore view the fourth Congressional extension of unemployment benefits, passed in the past week.

Meanwhile, the US economy has reached at least one record. Among unemployed workers, 44.1% have been so longer than 26 weeks.

Hmmm.

So, Congress just extended benefits for another 20 weeks. Nearly half the unemployed have been so for half a year. They'll get nearly another half year of benefits.

And the stated unemployment rate is 9.7%.

Paying the unemployed extended benefits is, one is to believe, apparently intended to help lower the unemployment rate?

But Mr. Summers' contended that doing so only increases their 'reservation wage.'

Doesn't sound like that will help reduce unemployment from the supply side, does it?

Once again, forget market economics, market-clearing forces and the forces of supply and demand for anything, including labor.

Let's just borrow a few tens of billions more from the Chinese and let our unemployed rest a bit longer.