No Free Lunch in Subsidy Programs | Chris Edwards | Cato Institute: Commentary

No Free Lunch in Subsidy Programs | Chris Edwards | Cato Institute: Commentary: 'any stimulus from UI benefits will be counteracted by the anti-stimulus of the higher taxes needed to pay for them. Many states have been raising their UI taxes on businesses in order to replenish their unemployment funds, and these tax increases are surely harming job creation.

Another negative effect of UI benefits is that they increase unemployment because they reduce the incentive for people to find work. Higher UI benefits delay the need for people to make tough choices about their careers, such as switching industries, taking lower pay, or moving to a different city. It's a basic rule that when the government subsidizes something, we get more of it.'

'Larry Summers, a former top economist to Presidents Clinton and Obama, concluded in his academic work that unemployment benefits contribute to long-term unemployment.

Our UI system causes other problems. It suppresses personal savings because people expect the government to care for them when they are unemployed. That is harmful because personal savings are a key source of economic growth—savings get channeled into capital investment, which ultimately raises productivity and wages.

Another problem is the waste and fraud in the current UI system stemming from people getting benefits that they are not entitled to. The Department of Labor estimated that improper UI payments totaled $17 billion in 2010. As UI benefits expand, the waste grows.'

Here is another idea: Decrease UI amount by 1% each week. It would avoid the hard cliff of completely losing benefits while gradually increasing the incentive to find a job. After 1 year, the compound effect would be a 41% decrease.