Gas was $1.81 when Barack Obama took office

Really, what else needs to be said? I guess with his economic policies, the good news is that fewer and fewer people are affected by the high gas prices. The cost to drive to work doesn't matter as much when you are unemployed.

Is Subsidized Employment the Answer?

Yesterday, Lynn Tilton was a guest on Bill Bennett's show. She suggested that the way to solve America's problem with people staying on unemployment forever was to adopt a policy of "subsidized employment," like they have in Germany. The way she explained it, if a company was about to lay off people, it would go to the government and the government would pay to keep those people on the payroll so they could keep doing something productive. It would keep factories from going idle, etc. She provides additional explanation on her blog.

While I agree that it would be preferable for people to engage in productive work over drawing a check for doing nothing, I am concerned that this proposal could create perverse incentives. In particular, if a plant is idle, it is likely because no one is buying what the plant is producing. Creating more things that few people are buying will only increase inventory (i.e., supply) and result in lower prices for those goods. How much good would it do to put all of GM's factories to work to build more cars that no one wants (or can afford) to buy? This seems to me to be a temporary fix that could ultimately result in a colossal misallocation of resources and massive market distortion. On the other hand, more people might buy cars if they were cheaper and they might be better able to compete globally. But does a new car really add value to a society that is already awash in automobiles?

Tere is no easy solution. What could the unemployed do that would truly create long term value so that the taxpayer's get something in return for the payments they are making? I am no fan of FDR's policies, but it seems to me that we should be able to find something that could be done to create value without using something like "subsidized employment" to build a bunch of unneccessary inventory. What if, in order to get unemployment benefits beyond, say, 6 months, you had to be willing to work at a project to benefit all of society? Maybe that means building a dam or building some windmills. Maybe that means modernizing and rebuilding schools that actually need it (or roads that actually need it), unlike this recovery.org crap where we are paying for Obama-esque re-election signs to build bridges to nowhere and pave roads that don't need paving. Or does it mean subsidizing employment so we won't have to buy from China?

While I would love to see a free market solution, there is no way that will happen with King Barry in charge. So, we must decide where to get the most bang for the buck. Certainly, paying people to sit at home and watch Oprah is a recipe for disaster. That is creating its own set of perverse incentives and must be stopped. I would certainly prefer subsidized employment to what we currently have - subsidized unemployment.

What happens when you extend unemployment benefits?

You get situations where people turn down jobs to stay on the dole. Food stamp use is at a record high while unemployment benefits continue to get extended. A days back, I met with a local businessman and we discussed some of the aspects of his business. He has a large number of employees and says his biggest challenge is getting and keeping employees. Due to the type of business he is in, wages are always low - just slightly over minimum wage. That is what the market demands, as it is a labor-intensive business and the customers simply will not pay more. In the past few months, he stated that he is having particular difficulty hiring people because they are waiting until their unemployment runs out to go back to work. They don't want to work at $8 per hour when their unemployment plus their food stamps is almost that much. And who could blame them? If unemployment plus food stamps equals $7 or $8 per hour, why go back to work for just marginally more? In Tennessee, you can draw up to $275 per week in unemployment. That is equivalent to $6.88 per hour, based on a 40 hour week.

This is not just idle speculation. He told me that several of the potential employees have told him that they do not want to start work until the unemployment runs out. One of them told him they would be ready to start in three months, once the checks stop.

When you pay more for something, you get more of it. That is what is happening with unemployment. Look at the long-term unemployment in this chart. If you scroll down on this chart, you can see how this has compared to prior recessions back to 1990.

UPDATE: The Wall Street Journal comes forward with additional examples of this phenomenon.