Why Pelosi, Democrats Are Wrong on Unemployment Extension

If the Democrats want more unemployment benefits, they should pay for them.


In her weekly legislative briefing this week, House Speaker Nancy Pelosi called the opposition to $33 billion in new spending on unemployment benefits for 1 million Americans “just cruel” and said this about unemployment benefits:

... This is one of the biggest stimuluses to our economy. Economists will tell you the money is spent quickly, it injects demand into the economy, and is job-creating. It creates jobs faster than almost any other initiative you can name. So it has a double benefit: it helps those who have lost their jobs but it also is a job creator. And for those two reasons at least it should be passed.

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I’m no economist, but three things jump out at me:

First, it just doesn’t pass the smell test with me that unemployment benefits create more jobs than “almost any other initiative you can name.” Maybe there’s an argument that government spending on highway projects and other capital investments like the Big Dig creates more jobs than unemployment benefits. But the vast majority of jobs created in post-WWII America have been created by small businesses. In the long run, removing red tape and unleashing small businesses creates millions more jobs than any government initiative can ever create. 

Second, if Pelosi feels that unemployment benefits are a big stimulus to the economy, why isn’t the legislation being paid for out of stimulus money? Dave Camp, ranking Republican on the House Ways and Means Committee, has proposed doing just that, but Democrats are resisting. "I support, and Republicans have supported, extending unemployment benefits, but we must not do so at a cost to the deficit, to the economy and to future generations. Our inability to get our fiscal house in order isn't just damaging future generations; it is wreaking havoc on jobs today," he said in a statement to Fox News. What Democrats don’t seem to understand is that the growing deficit--and the higher taxes that will have to pay for it--are affecting jobs right now.

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Third, Pelosi’s remarks clearly show the disconnect between the Democratic Party and Main Street businesses. A quick look at Pelosi’s bio shows that, like President Obama, she’s never run a business or had to meet a payroll. She doesn’t seem to understand the uncertainty that so many businesses are facing because of the massive expansion of government and the spiraling deficits: Most businesses are facing the specter of unknown healthcare costs and higher taxes. So no wonder unemployment remains so high--most businesspeople I know are waiting to see where it all shakes out. “High uncertainty is the enemy of investment and growth,” economist Allan Meltzer wrote in a great piece this week in the Wall Street Journal on the common-sense reasons why the president’s stimulus plan has failed to solve the unemployment problem.

If the Democrats would take the time to pay for the bill, the whole debate would be over. But Democrats would rather demagogue about “cruel” Republicans than just pay for the benefits under PAYGO. As a result, they’ve chosen to fuel the uncertainty facing businesses rather than promote real job growth on Main Street.

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