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March 06, 2010


Actually if you read the section from the Macroeconomics book further, you'll find that he actually isn't contradicting himself. You'll find the intricacies of his statement hidden in the "...." part of the paragraph that you edited out. That's where he's contrasting the US method of unemployment insurance (which pays a small fraction -- averaging well under 50% -- of the benefits compared to the unemployed worker's normal income) to the European version that pays benefits BOTH longer and closer to the workers normal income.

This doesn't contradict his belief that a temporary extension of benefits during this economic period is warranted. Check this link for more information on the potential economic disincentive to work created by extended unemployment insurance benefits.


Many critics of UI programs wrongly assume that the behavior of jobless workers largely determines when they find a job. This criticism ignores the reality that employers have to offer employment before jobless workers can find work. Nobel Prize‐winning economist Paul Krugman describes the current labor market situation, one obvious to unemployed workers, in this manner: “What’s limiting employment now is lack of demand for the things workers produce. Their incentives to seek work are, for now, irrelevant.”10 In other words, concerns about the theoretical potential that UI creates a work disincentive is entirely misplaced when the larger issue is that there are virtually no jobs available.

10 Paul Krugman, “Supply, Demand, and Unemployment,” New York Times, The Conscience of a Liberal Blog, Mar. 7, 2010, http://krugman.blogs.nytimes.com/2010/03/07/supply‐demand‐and‐unemployment/.

And another thing.

The stimulus package isn't going to cost us $787B. The current estimates (after selling off expected warrants/securities obtained by the government for issuing the stimulus money) are now much closer to $105B. Take a look at the most recent "105(a) report."

I won't say that I'm smart enough to know whether the debt/equity infusions of the TARP program essentially did it's job. But at least let's speak the truth regarding the expected cost of the bailout (admittedly still an estimated figure because they're not sure if the investments in AIG/Citi for example will ever be recovered).

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