Why should jobless benefits be extended? Here's 2 reasons...

From MarketWatch | July 13, 2010 | PORT WASHINGTON, N.Y. (MarketWatch) -- Figures don't lie but liars
figure.

It's topsy-turvy time. Once more, economics is being turned on its head
by those who forgot what they learned in Eco 101.

The latest example of wrong-headed economic thinking is the flap over
extending jobless benefits to the long-term unemployed.

Those who worry about government spending and thus the budget deficit
are trying to convince us that extending jobless benefits only leads to
prolonged unemployment.

Rather than openly advocate reducing the deficit at a time when the
economy is still soft, these people are using the disincentive argument.
They believe that they can correlate the length of unemployment with
the length of benefit checks.

According to their thinking, the longer a jobless person can collect
benefits, the longer that person will remain out of work, since there is
not much incentive to find work when a government check arrives weekly.
More benefit checks mean longer job searches and a higher unemployment
rate.

By this line of reasoning, if Congress does not extend jobless benefits,
then the unemployment rate will fall because people will be less picky
and thus will find work faster.

If this is beginning to sound weird -- it is. It is just as convoluted
as saying that reducing Washington's budget deficit will help the
economy by boosting confidence - ignoring the withdrawal of buying power
that such a move would entail (see my last two columns).

To the extent that duration of unemployment and benefit checks move
together, it is a spurious correlation, like electric motors and school
grades. Both may appear to correlate, but in actuality they are related
to something else.

In the case of the duration of unemployment and number of benefit
checks, both are really determined by the lousy economy!

Specifically, I am referring to the after-effects of the bursting of the
housing bubble, the financial crisis and technological change, which
resulted in the worst recession in 70 years and the highest overall
jobless rate since the 1930s.

As a consequence there are now more than five applicants for every job.
Clearly, this is not caused by more benefit checks.

Let me simplify this by putting it in terms of dollars and cents. The
median weekly jobless benefit in this country is $300 -- barely above
the poverty level for a family of one and far below the median weekly
pay of $739, which, itself, won't buy much in most parts of the country.

What those who oppose extending jobless benefits would have us believe
is that the unemployed are so lazy they would rather be idle and collect
41% (or less) of what they might be able to earn if they had a job.

I would rather help the unemployed by extending their benefits during
these troubled times. It makes good sense for two reasons.

It helps the jobless get by and it helps the economy as well, since
every benefit dollar will be spent and then some. And more spending is
what this economy needs if it is to avoid a double-dip.

Irwin Kellner is MarketWatch's chief economist.