Thursday, March 25, 2010

Borrowing For Unemployment Benefits reports:
"A bipartisan Senate deal to briefly extend a package of expiring provisions fell apart Thursday night, endangering unemployment aid set to expire April 5.

Senate leaders from both parties had neared a deal to allow swift passage of a package providing benefits for another week that would be fully paid for, according to Senate sources from both parties. The compromise was needed because Sen. Tom Coburn (R-Okla.) blocked Senate Democrats from quickly passing a month-long extension. Coburn objected because its cost -- $9.2 billion -- wasn't offset and would increase the $12.7 trillion national debt."
I know, this is going to be reported as such a terrible bit of partisan politics by Senator Coburn. The Senator must be heartless and mean. So, too, I suppose I will seem heartless and mean. And, I have no idea whether the reporting in this article is accurate or not.

But I just have to ask if this is really something we want our government to be either (1) borrowing money for or (2) creating money and thus causing inflation for.

I suspect few of us want to see this $9.2 billion paid for by inflation. After all, does it really make any sense to pay unemployment benefits to people today by causing all of us to have to pay higher and higher prices for the things we need and want tomorrow and the next day. So, let's move on to the only other way this $9.2 billion contribution to the government's budget deficit can be paid for.

Government can borrow this $9.2 billion. Who will be paying this money back when the loans come due? It depends on when the loans have to be repaid. It might be 5 years, or 10 years, or even 30 years in the future. The money to pay off the loans will have to come from tax revenue (unless it is paid by inflation or additional borrowing at that time). It will have to be paid by those paying taxes at that time. Some of these people paying taxes will be you and I. So, here is a question I think we should all ask. Do you want to borrow $9.2 billion today against our own income in the future so that unemployment benefits can be paid to some who are unemployed at this time?

Let me suggest a way to think about this question. Suppose you become unemployed. Would you take a personal loan, assuming someone would make this loan to you, in order to have money to live on while you look for another job? If you do this, you are actually borrowing money from your own future income when you return to working. You would be reducing your future income by the amount of your loan plus interest. More money for consumption today, but less money for consumption at some time in your future.

I don't know that there is a correct answer. But, notice something by contrasting this personal question with the government policy question. If you personally borrow money to cover a period of unemployment, you will personally have to pay the money back. If government borrows the money and gives it to you, then you won't have to pay it back. And, if you are unemployed now and don't have to pay back money you get from government, isn't that like taking money from others?

Let's go back now to that policy question I asked earlier: Do you want our government to borrow $9.2 billion today against our own income in the future so that unemployment benefits can be paid to some who are unemployed at this time? Perhaps you would like that tradeoff: more income for some who are unemployed today but less income for all of us to consume from in our futures.

But, let me add something to your deliberations of these issues. Why has this recession happened? My answer is that it is the result of bad government policies by many people in several Congresses and in the Presidency. It seems Alan Greenspan, along with many others, sees it this way as well. Therefore, the apparent "need" for additional unemployment benefits today is the result of past government actions. So, today there seem to have been many in the Senate who were angered by Senator Coburn who obstructed their efforts to borrow money from our future incomes, mine and yours, because they had chosen bad government policies in the past. I don't know about you, but it seems less than obvious to me that we want to borrow money today to pay additional unemployment benefits.

Still, I have one more thing to ask you to consider. There are children who are not now paying taxes, and who are not now able to vote, such as my 4th grade son, who will be working when the time comes to pay off this $9.2 billion loan to pay today's unemployment benefits. Some of the people who will have to repay these loans haven't even been born yet. Remember the Boston Tea Party? Talk about taxation without representation. These kids can't even vote NO yet and our government is acting on our behalf to promise some of their future incomes to pay off loans for unemployment benefits today. This seems unjust don't you think? Thomas Jefferson thought so to.

Recently I told my son I had a similar deal for him. I said I'd found someone who would loan me money to get another house. He thought: "nothing unusual about that." But, then I told him the punchline. The guy loaning me the money agreed that I didn't have to pay the money back. Instead, when my son began his first job after college this guy would start sending him a monthly bill of $2000 to pay off my loan. My son's response? You guessed it: UNFAIR.

So, please think again about what Senator Coburn did today, and think about about whether it makes any sense at all to borrow money to pay additional unemployment benefits. Perhaps Senator Coburn was merely thinking about taxation of those who aren't yet able to vote?

1 comment:

Tim Canon said...

I'd say it's something that will start having to be paid back immediately, factoring the interest payments on the government bonds, which are effective immediately.

All in all, agreeable post. Senator Coburn may be heartless, but I support his actions. I also do not support making unemployment more attractive, because it is statistically shown to make unemployment higher. No surprise there.