Unemployment in the Gamma Quadrant

| Thu Jul. 8, 2010 9:11 PM EDT

A "friend" emails to inform me that "you've got to weigh in on Arthur Laffer's op-ed today in the WSJ." Thanks, pal. That's five minutes of my life that I'll never get back.

So why am I caving in to him? Most of Laffer's op-ed is just the usual conservative griping about unemployment insurance: it makes people lazy, it doesn't stimulate demand since "for everyone who is given something there is someone who has that something taken away," and stimulus doesn't work anyway. Plus there's some musing about $150,000 unemployment benefits and two people selling apples to each other. Hardly worth bothering with. But then there's a chart. And that makes the whole thing a must-read. Here's what Laffer says about it:

Common sense and personal experience indicate higher unemployment benefits will make unemployment less unattractive and thereby increase unemployment even in the Great Recession. As the chart nearby clearly shows, since the 1970s there's been a close correlation between increased unemployment benefits and an increase in the unemployment rate. Those who argue that things are different today don't have the data to back up their claims.

Yep: Laffer is seriously suggesting that unemployment benefits, which, according to his own chart, begin rising after unemployment rises, are what cause unemployment to rise. It's groundbreaking stuff, but as an exercise for the reader, can you think of an alternate mechanism to explain why total unemployment benefits paid out might go up when the unemployment rate goes up? Anyone? Take your time. I know it's a chin scratcher.

Even by Laffer/WSJ standards this whole thing is pretty surreal. Are business executives who read the Journal really so gullible that they buy this stuff?