Unemployment insurance as assurance for all

By Fester:

Unemployment insurance is a basic stabilizing and counter-cyclical policy. It puts money into the hands of people who are getting hit in the junk by forces beyond their control. This money is 'high velocity' money which means it is quickly spent on basic needs and services. High velocity money is good economic stimulus.

However the most important thing about unemployment insurance is the second degree effect. It does not just offer insurance to those who have lost their jobs through a lay-off. It offers insurance and reassurance to individuals who think that it is vaguely possible that they could lose their jobs. Unemployment insurance, in conjunction with savings and secondary work should be able to act as a bridge between positions. This work gap is much easier to cross when there is a decent amount of income coming into a household. This guarantee of a reasonable length of reduced but certain income allows workers who believe that they are at risk to not gear down their current consumption as much as they know that there is a safety net in place.

This calculus changes with situations. The second degree value of insurance decreases when the average time between lay-off and re-employment at nearly comparable wages is minimal. It increases when the average time between lay-off and re-employment is large. Right now the lag time is very large and increasing.

So it shocked me when I read that Bush is promising to veto an unemployment insurance extension in the name of 'fiscal responsibility:'

The bill before the Senate would provide seven additional weeks of coverage for those who have exhausted their unemployment benefits.

The measure also would provide 13 more weeks of unemployment benefits, beyond the 26 weeks of regular coverage, for workers in states with at least 6 percent unemployment rates.

The extension would to pay out about $6 billion in benefits.....

The Bush administration contends that past extensions occurred only when the unemployment rate was considerably higher and that it was fiscally irresponsible to provide extra benefits in states with low unemployment.

So we have money for a $700,000,000,000 bail-out for the well connected and the perversely incented, but it is irresponsible to make 1% of that funding available to deal with some of the direct impacts of the credit crisis.

WOW --- what a maroon.