In his weekly radio address, President Obama, urged Congress to increase aid to the unemployed and small business. His rationale is right out of the Keynesian playbook of stimulating A. D. (that is Aggregate Demand, not in the Year of our Lord). Obama said:
The fact is, most economists agree that extending unemployment insurance is one of the single most cost-effective ways to help jumpstart the economy. It puts money into the pockets of folks who not only need it most, but who also are most likely to spend it quickly. That boosts local economies. And that means jobs.
"Most economists" does not include me. In fact, it turns out that it may not even include Larry Summers, one of President Obama's chief economic advisers. Summers co-authored a paper in 1995 explaining that increasing the duration of unemployment benefits merely increased the duration of unemployment.
The chart above from a piece by Keith Hennessey shows that workers get real serious about finding and accepting work right before unemployment benefits run out. The longer we extend the benefits, the longer we remove the incentive to find and accept work. One fundamental principle of economics is that you get more of whatever you subsidize. As is often the case, you get what you pay for. If you subsidize unemployment, you get more unemployment.
This is because it takes away one of the primary incentives for finding work. Paul's admonition was "If anyone is not willing to work, let him not eat" (2 Thes. 3:10). Now certainly not everyone in this current economic environment is unemployed because they are entirely unwilling to work. Massive malinvestment during the boom of the mid-2000s has led to the Great Recession, which requires a tremendous amount of capital restructuring and labor reallocation. Nevertheless, by extending unemployment benefits, we enable people to remain less eager to accept productive work that does appear. As it says in Proverbs 16:26
A worker's appetite works for him;
his mouth urges him on.
Extending unemployment benefits prevents the worker's appetite from encouraging him to obtain gainful employment, and it is productive employment that will truly stimulate the economy, placing us on the road to real recovery.