Texas Stimulus Rebuff Justified
Is Texas making the right decision to pass on $ 556 million in extra funds for unemployment insurance that would most likely cause permanent changes in the state system? Academic studies of the actual benefit and iniquity done by unemployment insurance in the past overwhelming support a limited unemployment plan and bolster Republican Governor Rick Perry’s opinion to refuse the federal stimulus aid from the American Recovery and Reinvestment Act of 2009.
The recent economic crisis has resulted in millions of job losses that do affect the lives of families. Wanting to help those in need is appropriate and moral but what is best method? The concept of unemployment insurance as a method to bridge the gap for families between losing a job and finding a new one as well as a tool to stabilize the economy at first seems a logical and reasonable government program. However, we must remember that governments have limited resources and have to act in a manner that will be the most deft use of those limited resources and will serve most aptly the long term interests of the people the government serves. It is essential that government act responsibly based upon reasonable measures of economic principle and scientific study rather than on emotion.
Unemployment insurance was conceived in the 1960s as an economic instrument the government could use to stabilize the economy in times of recession. According to James Sherk of the Heritage Foundation, however, subsequent research on the true effect of unemployment insurance during the 1970s showed that it had little effect on “stabilizing the economy”. This finding has been confirmed when looking at nation wide or just state wide applications. He recommended that unemployment insurance should be limited.
Numerous studies done from the 1970s to this decade in states like Pennsylvania and Michigan under the auspices of universities like Harvard have repeatedly shown that unemployment insurance will encourage workers to “stay unemployed and companies to delay rehiring laid-off workers”. This creates a paradoxical effect because the number of full time workers in the society as a whole is reduced. Full time workers receiving full pay not just unemployment benefit are better able to increase consumption. The limited income and lack of certainty in future income that occurs with unemployment insurance means these families only have a modest effect on stimulating the economy.
To qualify for the federal package Texas would have to increase the current unemployment insurance program to cover out of work part-time workers. Clearly this would have no substantial effect to improve the economy if full time coverage does not. Other changes that would have to made include increasing benefits for those with dependents, in job training programs, and giving greatest credit to more recent pay data. Although Democratic supporters agree that such changes will increase the cost of insurance that is borne by employers they say that this could be temporary. Opponents note that is historically difficult to reduce entitlement program funding levels once they are established and that increasing the cost of employees to business will not foster more employment during the recession.
Governor Rick Perry of Texas was right on target when according to the Dallas Morning News he said “”People living in Texas are a heck of a lot better off than the vast majority of the other ones,” and continued “”My instinct is they’d whole lot rather have a good-paying job than they would unemployment insurance.”
President Obama has said that we have to rely on science and not sentiment. Here is a prime example where science shows that in the long run unemployment insurance will do more harm then good if it is overused.
Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Revew
