Now the party of Rep. Alexandria Ocasio-Cortez and “the Squad,” today’s Democratic Party isn’t exactly renowned for its economic literacy. But even by the Democrats’ low standards for economic policy, Senate Minority Leader Chuck Schumer’s latest proposal is a doozy.
Schumer’s new bill, co-sponsored by fellow Democrat Sen. Ron Wyden of Oregon, would extend the “supercharged” unemployment benefits provided under the $2.2 trillion CARES Act, currently set to expire on July 31, through March 2021 or until state unemployment rates fall below 5.5%.
“If we fail to renew the $600-per-week increase in [unemployment insurance], millions of American families will have their legs cut out from underneath them at the worst possible time — in the middle of a pandemic, when unemployment is higher than it’s been since the Great Depression,” Schumer said.
The idea here is straightforward enough: Democrats such as Schumer argue we shouldn’t get rid of expanded unemployment benefits until there is no longer widespread unemployment, or else people won’t have the resources they need to weather long periods without work. But Schumer’s short-sighted solution gets the problem entirely backward — the expansion of unemployment benefits itself is one of the biggest barriers to getting the unemployment rate back down to normal levels.
Here’s why.
The deeply misguided unemployment expansion was passed as a short-term measure at the height of the COVID-19 pandemic. It both expanded eligibility for unemployment benefits and augmented them with a federally funded additional $600 a week. Unfortunately, this made it more profitable to stay home on welfare than work for the majority of workers.
The economic ramifications of such skewed incentives are dire.
The Heritage Foundation found that the CARES Act’s original unemployment expansion prompted 14 million additional workers to file for unemployment benefits and caused a $1.5 trillion drop in the size of the economy (not exactly what we needed in the middle of a recession!). Unsurprisingly, reports quickly spread of business owners who tried to hire their employees back but couldn’t get them to return to work because, thanks to this expansion, welfare paid more than their regular job.
Extending these lush unemployment benefits would only cause further economic dismay and prolong the current downturn. A report from the nonpartisan Congressional Budget Office that found extending benefits through January 2021 (Schumer’s bill extends them even longer) would cause serious economic harm.
The CBO found that extending supercharged unemployment benefits “would weaken incentives to work as people compared the benefits available during unemployment to their potential earnings, and those weakened incentives would in turn tend to decrease output and employment.” The impact, it concludes, would be higher unemployment throughout 2020 and 2021 and a drop in the size of the economy in 2021.
There are only two real possible explanations here.
It’s possible that Schumer, one of the leaders of the Democratic Party, is simply woefully ignorant of basic economics and is ignoring the mountain of evidence suggesting his bill is destined for economic failure because of political considerations.
Alternatively, a cynic might suspect that Schumer is well aware of the ramifications of his policy proposal — and is pushing it for that exact effect. Why would he do such a thing? If the economy doesn’t rebound until March 2021, Democrats are much more likely to defeat President Trump and take the White House in November.
Of course, Schumer’s true intentions are unknowable. But either way, one thing is for certain: The senator from New York is leading Congress astray at workers’ expense.
Brad Polumbo (@Brad_Polumbo) is a Washington Examiner contributor and fellow at the Foundation for Economic Education.
