On moral hazard and unemployment

Michael Paarlberg
guardian.co.uk, Friday 6 August 2010 20.00 BST

First, the bad news: Friday's jobless report from the Department of Labor shows the unemployment rate hovering at 9.5%. More worrying still is that the figure is inflated by fresh layoffs: 479,000 newly out-of-work Americans filed for jobless benefits last week, the highest number since April. In other words, we haven't hit rock bottom yet.

Unemployment insurance (UI) doesn't normally command front-page headlines, but lately it's been creating a big stir. In July, Senate Republicans attempted to block a bill to extend jobless benefits for 2.5m people who were about to see theirs run out. The bill narrowly passed on a party line vote, with newly sworn-in Senator Carte Goodwin casting the deciding vote to break the filibuster.

For Republicans, the filibuster was an enormous gamble. Threatening to cut jobless benefits in the midst of a recession puts the GOP somewhere to the right of Ming the Merciless on the compassion scale. But Republicans pointed to the bill's $34bn price tag, betting that deficit spending will resonate more with their base.