The Unemployed Held Hostage, Again

New York Times editorial "The Unemployed Held Hostage, Again" (November 27th, 2010) simply lies to its readers. It claims that there is no reason for tax cuts, but that extending unemployment insurance is a necessity. "There is no good argument for letting jobless benefits expire, or for extending those cuts."

Both of these claims are false. Harald Uhlig in an American Economic Review article "Some Fiscal Calculus" (also discussed here) estimates that for every dollar of government stimulus, in the long run time-discounted $3.40 is lost. For every dollar given up in taxation, time-discounted $2.40 is gained. On the other hand, Robert Shimer has estimated that unemployment insurance accounts for between 1-1.5% of the nation's unemployment rate.