What’s Wrong with Unemployment ‘Insurance’

May 26, 2016

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In the United States, unemployment benefits or unemployment “insurance” is a government program that takes money from employees and employers (through a payroll tax) and gives money to employees who have become unemployed.  Someone recently asked me to elaborate on why I oppose such programs, and what policy I would prefer instead.

Great questions!

I

I love freedom for its own sake.  I want men to be free.  More government spending (including on unemployment “insurance”) necessarily means less freedom, not least because (though not only because) that money has to come from somewhere:  The fact that the government is spending so much money is the reason that all of us in effect spend the first several months of every year working for the government instead of ourselves.

Freedom also works better; it’s practical.  The short answer is that my preferred alternative to forced unemployment “insurance” would be to be allowed to keep more money in the first place and save it on my own, for just such a rainy day.

— Like under the current system, I would have money waiting for me if I needed it.

— Unlike under the current system, I wouldn’t lose that money if I failed to become unemployed; it would be my money to keep in either case.

— All other things being equal, there would also be more of the money.  Under the current system, it has to be filtered through the government, and the government employees handling those transactions have to be paid for their work; so there’s necessarily loss or waste along the way (even in a perfect world where the government wasn’t also famous for losing or wasting money).

II

Freedom is also better practically because the alternative is artificially making it more difficult to hire people.  Unemployment “insurance” is one more piece in the ponderous burden of taxes and regulations that greet those intrepid souls who still dare to create jobs and hire people in this country.

There are a lot of people who would like to work, and a lot of people who would like to pay someone to do some work.  They should be largely free to form and negotiate those voluntary relationships.  Instead, today, the government often intrudes into that relationship, making it a lot more costly and difficult to employ anyone.

“If you tax something, you get less of it; if you subsidize something, you get more of it.”  This unremarkable axiom is widely and easily acknowledged to be true when the issue at hand is uncontroversial, or when the politics are on the other foot—we tax cigarettes partly because that will make people smoke less, all other things being equal.  We all agree that a cap-and-trade or other “carbon tax” plan would make people produce less carbon dioxide.  Etc.

The iron laws of cause and effect aren’t suspended in the merciless world of the job market—far from it. If we tax hiring, we’ll get less of it.  Separately, if we subsidize unemployment, we’ll get more of it.  The current policy does both, unfortunately.

III

At least some portion of the unemployment-benefits program represents forced redistribution, robbing Peter to pay Paul.  Most people agree that there should be some kind of government “safety net” for the truly needy, for temporary periods.  (I don’t—I would prefer even less government and more freedom—but I acknowledge that this makes me a crazy radical relative to the rest of the country, Democrats and Republicans alike.)  The problem is that entitlement programs have grown out of control (and largely without voters’ having any idea), to the point where forced redistribution accounts for well over half of all federal spending.  In other words, dollar for dollar, forced redistribution is now the main thing the federal government does; in effect, the federal government is now an enormous money-transferring operation with a small national-defense project on the side, rather than vice versa.  (For anyone who doubts it, don’t take my word for it; take it from this think tank, which is in favor of such forced-redistribution programs.  Scroll down for the pie chart.  Forced redistribution adds up to almost 60% of federal spending, while all national defense and “international security assistance” combined amount to only 16%.)

Which is part of why I oppose all forced-redistribution programs in the first place.  It’s not just that they’re morally wrong; the evidence appears to indicate that they’re also totally impractical, totally unworkable.  If a country like the United States—rich, relatively educated, with a long history of liberty and limited government—can’t keep track of entitlement programs and keep them in check, maybe no one can.  Most voters would never guess that those are the numbers today (60% of federal spending is on forced redistribution, 16% on defense and military foreign aid); they’ll keep voting for a bigger welfare state, partly because they imagine that the one we have hasn’t already swallowed the federal government.

It’s also morally wrong.  We (in America more than a lot of places) give a lot of money voluntarily to help those in need; that’s good.  But we would never imagine that putting a gun to our neighbor’s head to force him to donate would be the simple moral equivalent of our own voluntary charitable giving.  Why do we think the morality of the actions is different if we hire someone else to do the dirty work for us?

This video tries to explore these questions further, in its own quiet, thoughtful way:

I don’t think this means we shouldn’t have a government or taxes, by any means; it’s an ancient and venerable American consensus that we should have a government, both to protect us from threats without and to protect our rights from each other within.  (See, e.g., the Declaration of Independence.)  But I would hope that we could all agree at the very least that taxation involves taking money from people by force or threat of force, and should therefore be used only when really necessary—the presumption should be against it—rather than use it like an ATM whenever we collectively feel like it.

Finally, the welfare state isn’t immoral only because it steals from others to pay for it; more importantly, it’s also harmful to the recipient, corrosive to the very human spirit.  Don’t take my word for it; take it from FDR.  (If he’s not an authority in a conversation like this, I don’t know who is.)  He called the welfare state “a narcotic, a subtle destroyer of the human spirit”.  (“I am not willing that the vitality of our people be further sapped by the giving of cash, of market baskets, of a few hours of weekly work cutting grass, raking leaves, or picking up papers in the public parks.  We must preserve not only the bodies of the unemployed from destitution but also their self-respect, their self-reliance, and courage and determination.”)

Or, for those of a more modern inclination, take it from the social scientists.  Read the book Gross National Happiness, by Arthur C. Brooks, about how people can flourish when we take ownership of our own lives—and correspondingly wither to the extent that the government takes ownership of us.

IV

Of course a portion of the unemployment-benefits program can also be understood as not representing forced redistribution, because we pay into the system when we are working.  In other words, the program doesn’t just rob Peter to pay Paul; it also robs Paul to pay Paul.  This is presumably less immoral, but also bad policy.  Again, I’d rather just get to keep more of my money in the first place; I can plan my budget and manage my savings better than the government can, and all other things being equal, there’s also less total money to go around under the current system (because it has to be filtered through the government, and the government employees handling those transactions have to be paid for their work; so there’s necessarily loss or waste along the way).

So…

Why not try freedom

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9 Responses to “What’s Wrong with Unemployment ‘Insurance’”


  1. I get myself in trouble whenever I get sucked into discussions of income redistribution, because I believe that it’s morally wrong, as well as hopelessly inefficient. But whenever I say that all charity should be private and voluntary, the statists start blowing gaskets. The accusations and insults and expletives start flying thick and fast, as they tell me (in their uniquely colorful way) what a horrible, heartless, hateful piece of excrement I must be, since I obviously want poor people to die in the streets. When I point out that the private sector could do the job of taking care of those who are down on their luck or unable to care for themselves, the statists respond that it’s far too big a job for the private sector, and therefore the government must step in and take responsibility. When I ask where the money will come to pay for all the wonderful things they think government should be doing, the usual response is that higher taxes on the rich and cutting military spending would cover it. I don’t bother to point out that military spending is already a small part of the federal budget, or that the rich already pay most of the taxes collected, because leftists refuse to believe any of that; they think the rich don’t pay taxes and the military consumes most of what Washington spends. I just point out that every dollar the government spends, it must first take from the private sector. So if there isn’t enough money in the private sector to take care of the poor and the sick and the unemployed, then the government can’t do it either. If, on the other hand, there IS enough money in the private sector, then what is the argument for putting the government in charge of it? That people in government are somehow more compassionate, more generous, more selfless and caring than the voters who elected them? That government operates more efficiently than the private sector? Only someone completely out of touch with reality could believe anything so foolish. Sadly, a lot of people seem to be living in fantasy land.


    • Great points.

      I agree, it’s very frustrating!

      • Snoodickle Says:

        Also, not every dollar the government spends comes from the private sector. Government employees are taxed as well.


      • Where does their money come from, Snoodickle?

      • Snoodickle Says:

        If you’re asking who actually prints the money, it comes from the government.


      • I’ll take that as conceding the point. Obviously to this point we’ve been talking about wealth, not the paper currency that we use to trade it. The private sector creates wealth; the government extracts it from the private sector. It doesn’t mean we shouldn’t have a government or taxes, but it does mean that the bigger we let it get, the worse everything will work. It’s fundamentally parasitic.

  2. Snoodickle Says:

    Actually, social security and medicare are not really forced redistribution. When I pay into those programs, I benefit from them when I turn 65. Medicaid, on the other hand, would be considered “forced redistribution.”


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