Unemployment insurance pandemic conundrum

Should the government make unemployment insurance more generous and easier to get in the pandemic recession? Well, yes, but it’s not ideal, and a good point on which to ponder the difference between a pandemic recession and a conventional recession.

To get unemployment insurance, you have to actually lose a job (in most cases) and you are supposed to be looking for a new job. In the pandemic recession, lots of people will be temporarily furloughed – -think airline pilots or flight attendants. But assuming, and helping to ensure, that the economy comes roaring back, we don’t want airlines to fire pilots and flight attendants, and we don’t want them walking around looking for new jobs at other shut down businesses. It would be  much harder for airlines to get going again; the employees lose health insurance (!) and other benefits, and people out looking for work are spreading viruses around.

Yes, there are some open jobs now. Amazon is looking for workers, as much activity moves online. Anyone with medical skills should be helping at hospitals. And face-mask and sanitizer companies are hiring. But this cannot make up for the large number of Americans who will be sitting on the sidelines for a few months.

So, we want unemployment and other benefits for people who aren’t technically unemployed, but whose companies are shut down for the virus and can’t afford to keep paying them.

Why don’t we always have that, you might ask? Well, our social programs have a lot of rules and for good reasons — to manage the inevitable unintended consequences and moral hazards of normal times and normal recessions. Government paying salary and health benefits of furloughed workers would give companies a big incentive to routinely furlough employees instead of giving them vacations. Around the world, unemployment insurance and many other benefits are  coupled with job search or training requirements, to avoid the massive overuse experienced before those requirements were put in place. But we don’t want them now.

So our problem is that a pandemic shutdown requires a different set of detailed micro rules and regulations about who get what when. Good old Keynesian stimulus and standard automatic stabilizers are completely inappropriate. Incentives matter, now as much as ever, not just cash.

Here we economists are very clever. Marginal revolution links to many clever ideas to get us through the crisis, new programs and new rules and new ways of getting money to where it is needed. I’ve blogged a few dozen clever ideas too.

But it is nearly impossible to ask bureaucracies to make things up on the fly in a crisis, and invent an implement new rules in a matter of weeks, even if politicians could agree what those programs should look like. This is the lesson of Graham Allison’s Essence of Decision masterpiece on the Cuban missile crisis. (If you’re looking for good self-isolation reading this is a great one. It also shows how important it is to have a President who can make cool decisions in a crisis, when all his or her advisers are screaming nonsense. The many pandemic books are also great reading. We have been here many times before and it’s always the same chaos.) That is the lesson of 2001, when we discovered that half the emergency responders didn’t have the other half’s phone numbers. That’s why when this is over, we need a serious pandemic economic plan, one that gets practiced and refined, and not just another big report that gets shelved and forgotten.

At the cost of repetition, there will be other pandemics.

Read the Full Article here: >The Grumpy Economist