Friday, February 15, 2013

Deception and fantasy rule in stories about North Carolina

North Carolina's state legislature passed a bill on Wednesday, February 13th intended to address the problem of the State's now-bankrupt Unemployment Insurance Trust Fund. The lack of funds for UI benefits has forced North Carolina to borrow from the Federal Government and it is now $2.7 billion in debt to the same. To this end, the bill will do three primary things:
  1. Cut the maximum length of time one can receive UI benefits from 26 weeks to 20 weeks. 
  2. Reduce the cap on benefits from $535 per week to $350 per week. 
  3. Increase employer contributions to UI by $21 per employee per year until the debt to Uncle Sam is paid off.
Needless to say, this bill's passage has sparked some serious outrage from the Left and from the Administration. That outrage--predictably--is focused on points 1. and 2., above. Most stories in the mainstream media fail to note point 3 at all, or at best bury it in the story. Like this one at the New York Times. And this one at HuffPo. And this one at the Washington Post.

Reading these stories, one cannot help but conclude that unemployed people in North Carolina are getting the shaft, not once but twice, as the amount of their benefits is reduced along with the number of weeks they can receive them, while businesses are getting off scot-free. Indeed, the article at HuffPo even tries to pin the problem on businesses:
In a new paper addressing such cuts, the National Employment Law Project, a worker advocacy group, said the poor shape of states' unemployment trust funds isn't due to "generous" benefits for recipients; instead, it's due to the low unemployment insurance tax rates facing employers.
As does the one at the Washington Post:
The loans were needed because many states had neglected their unemployment funds during the economic expansions that preceded the bust, cutting taxes on businesses and reducing balances.
The HuffPo piece cites this study as evidence for the claim--low UI tax rates for employers created the problem--which in turn cites this study. Neither one actually provides any evidence whatsoever to justify this claim, as regards North Carolina. And again, neither bothers to note that the bill being criticized increases these tax rates, which presumably would be the right thing to do. Moreover, neither piece notes that North Carolina had already raised UI tax rates on businesses in the past year, moving it from $42 per employee to $84 per employee, in an effort to help fund the seemingly endless extensions of UI benefits enacted in Washington.

So now the State legislature proposes to increase taxes on businesses yet again, but that point is ignored, so the State can be criticized for daring to cap how long benefits can be received and how much those benefits can be. And in this last regard--caps on maximums per week--the criticism is particularly silly. North Carolina's current cap of $535 per week is one of the highest in the nation, the eighth highest to be precise, exceeded only by (in descending order) Massachusetts, Rhode Island, Connecticut, Pennsylvania, New Jersey, Washington, and Hawaii. Lowering the cap down to $350 per week puts North Carolina in the middle of the pack. Hardly an outrageous move for a State with such a large debt.

But worse than all of this in the articles criticizing the State for it actions is the quoting--in HuffPo and the NYT--of the following bit of stupidity from acting Secretary of Labor Seth Harris, as if it were true as a matter of course:
As a result [of this bill], families struggling to secure their place in the middle class will suffer a grievous blow, and the state's economy will lose $780 million in federal funds that are vital to reducing North Carolina's high unemployment rate.
Follow that logic? UI benefits are not only an economic stimulus, they also help reduce the unemployment rate. We've encountered that noise before. But Harris continues:
"We know that for every dollar spent on Unemployment Insurance benefits, nearly $2 are generated in the local economy," Harris said. "Unemployed workers and their families spend these benefits in local grocery stores and small businesses, and use them to stay current on mortgage or rent payments and utilities."
It's the return of the multiplier effect! Re-quoting Arthur Laffer on the silliness of such arguments:
Quite simply, government taxing people more who work and then giving more money to people who don't work is a surefire recipe for less work, less output and more unemployment.
And of course, this points to the one chief thing we know about extending unemployment benefits: this tends to decrease employment (i.e. increase the unemployment rate). Yet Harris--and the Administration--would have us believe the exact opposite is true: more UI benefits equals a lower unemployment rate. Such a claim is doubly silly when made specific to North Carolina, because as the articles all point out, North Carolina's unemployment rate is much higher than the national average. The State has been on the high side of benefit payments for years, why didn't it's unemployment rate fall accordingly?

If one were to pose such a question to people like Harris, the answer would likely be "Just think how bad the rate would be without those high UI benefits!" Can't argue with that. Because it's nonsense, nonsense on steroids really. But that's because people like Harris and Obama live inside an economic fantasy world, where bills never come due--unless one is rich--where there is always more money to spend, and where flawed theories based on perfect knowledge and a static world can actually be applied to the real world to achieve predictable results.

North Carolina has a problem with it's UI fund. They're taking steps to address it, steps that include both spending cuts and tax increases. One would think the administration would get behind such a balanced approach. One would think progressives and Democrats would applaud it. But alas, they're all clueless hypocrites.

Cheers, all.

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