Disappointing thoughts by economists

One would hope that economists would realize that other things are occurring at the same time as the so-called "stimulus" package, but apparently some economists aren't paying attention to the continued changes in unemployment insurance. Not only did we have last year's well timed 50 percent increase in the length of unemployment insurance in July, but that is being continued and there is also a $9 billion increase in benefits in the stimulus package. Last year's increase produced a 0.8 to 1 percent increase in unemployment. The new increase will be substantial even if it is a little smaller. What no one seems to note is that these increases in benefits are eliminated on December 31st of this year? There should thus be a substantial drop in unemployment next year simply because of the change in unemployment insurance (I have written on these points among other places here and here).

Two economists who don't seem to know that these large changes in unemployment insurance benefits will change unemployment rates are Paul Krugman and Russell Roberts. NPR has the discussion here:

Both economists agree that the measure of success of any stimulus package is the unemployment number.

"I want to see the unemployment rate stay safely below 10 percent, which is by no means a foregone conclusion," Krugman says. "And I want to see it coming down notably in the next year."

Roberts says that while dealing with the effects of the recession, we might have to deal with the reality that the government cannot stimulate the economy.

"We seem to assume that it's just a question of finding the right stimulus, but it is very possible that the lack of confidence that people have in the future right now is not easily fixed either by spending or by tax cuts," he says. "Some businesses are going to have to fail. Some people are going to have to have some problems with their debts. Wages are going to have to change.

It would also have been nice if someone had pointed out that because of these subsidies, the unemployment rate is not a particularly good measure of how well people are doing.