It is an interesting juxtaposition of two economic theories that business reporter David Ranii captured well in his Page 1 story Tuesday about the prospect of 100,000 North Carolinians losing unemployment benefits.
Over here you have Mitch Kokai with the John Locke Foundation saying: "When you have the unemployment benefits continue to be extended, that gives people more time to procrastinate.....They basically can say, 'I have more time to hold out for something I really want.'"
Over there you have a picture Lorraine Kimble, on our front page, who wants a job. She was at a job fair at the Radisson in RTP Monday. Now, you can make the case that she was at the job fair because she learned last week that the unemployment checks could stop coming. Or you could argue that even though she has a masters, she would take a clerical job. Which does not constitute waiting for what she really wants.
Kokai is not wrong in the macro sense, according to a range of respectable economists. In a 2010 blog post on the New York Times Economix blog, Casey Mulligan, a University of Chicago economist reviewed the research and argued that there is reason to believe extending unemployment benefits deters a fair number of people from aggressively seeking work.
At the same time, the Paul Krugman - "anyone who disagrees with me is a bonehead" - school of economic theory argues that it isn't extended benefits that keeps people from getting jobs, but a lack of demand, which translates to a lack of job openings. Unemployment checks help pump up demand, he says.
As in most economics, there are data points and personal stories that support opposing views. The conservative economists believe that cutting off the jobless checks will get people off the couch and into the workforce and into jobs. Maybe not the jobs of their dreams, but jobs.
If they are wrong, and the jobs are not there, then we will see aggregate demand drop starting Jan. 1 when millions of Americans are left without jobs and without unemployment checks. This is real life, not a graduate seminar. This is one of the Fiscal Cliff (oh God, do I hate that term. Thanks, loads, Ben Bernanke) decisions that Congress must make. There will be bad consequences for the economy if the Chicago School is wrong and 100,000 North Carolinians are without any income to speak of after this month ends.
It's an interesting conundrum for you stalwarts of fiscal prudence and self-reliance, you small business men and women of North Carolina, who are by and large in favor of smaller government. That's because the abovementioned 100,000 buy things with their unemployment checks. These are your customers.