As Greg Mankiw wrote this week, it wasn't illogical for Republican congressman to oppose the federal stimulus and then irrigate some of it into their own districts. This flawed criticism is one of the talking points Obama is repeating this week as we reach the one-year mark of the stimulus plan.
As Mankiw said:
I don't know the facts of the case, but the logic of the Democratic position baffles me. It seems perfectly reasonable to believe (1) that increasing government spending is not the best way to promote economic growth in a depressed economy, and (2) that if the government is going to spend gobs of money, those on whom it is spent will benefit. In this case, the right thing for a congressman to do is to oppose the spending plans, but once the spending is inevitable, to try to ensure that the constituents he represents get their share. So what exactly is the problem?I have a very personal stake in the principle at hand. I am opposed to the extension in unemployment benefits that the Bush administration endorsed, as well as the increases the Obama administration encouraged. Despite that, when I was laid off I signed up for unemployment. Why isn't that hypocrisy?
For one, it would be a completely irrational course of action. Imagine being forced to buy a lottery ticket. Say the ticket costs $5, the jackpot is exactly $100 but the chances of winning are a paltry one in 1,000. I would never choose to buy that ticket, but if I was forced to by the government, would it make sense to refuse to cash in a winning ticket? No it would not. I'm still opposed to the system and its misplacement of incentives.
Granted, my view on the welfare system didn't survive my unemployment experience. My position had been that social programs like welfare, unemployment and disability benefit too many scammers. Not only do we have to pay for these people, but we also lose the taxes that they would otherwise pay.
I still believe that, but I was wrong to think there most of these people are gaming the public system. That's not the right way to look at this problem, because it assumes people are on welfare systems for the wrong reason. People are not on welfare because they are lazy; they are on it because they are smart.
As Milton Friedman explained on his Free To Choose miniseries, when you get a weekly paycheck for not working, it's irrational to take a job that pays less than that free paycheck. If you work, you lose the government assistance. Even a job that pays the same amount is off limits, because you'd be working for free.
But that doesn't mean any job that pays more than the government benefits is worth taking.
Let's say a person gets $300 a week for not working, and is offered a job that pays $400 and requires 40 hours a week.
Normally, we would say that job pays $10 an hour. However, because the cost of something is what you give up to have it, the wage of our subject is really $2.50 an hour. They will lose the $300 weekly government paycheck that required zero hours of work a week. In addition, they also have commute times and transportation costs like gasoline to factor in.
It's easy to see why someone with a lengthy promise of unemployment benefits would be encouraged to stay on it when faced with such an equation. If that person opposes the government program but still accepts the money offered, it doesn't mean they're hypocritical or lazy. It means they're smart.