No Safety Net

After the American Century

The American unemployment system does not work well if a recession lasts much more than one year. To be precise, benefits run out after 99 weeks. The first people laid off in 2008 have now reached that point, and they are losing their homes, their cars, and everything familiar in their lives. The Congress is not doing anything for them. In fact, it had trouble getting itself to extend benefits to 99 weeks.

Contrast the New Deal in 1933. President Roosevelt created work programs for the long-term unemployed. They did not pay well, but they gave people enough to live on, a sense of purpose and hope for the future. These programs also helped reforest and replant areas that had been misused, built parks and recreation areas, improved roads, and much else. The money was by no means wasted, and the human capital was not lost either.

Indeed, some important writers were given jobs preparing comprehensive guidebooks to every state in the union, and others worked as actors and directors for an arts program that was supported by the government. Today the United States seems far less able to find creative ways to deal with the crisis.

Unless the economy improves soon, the US Congress might want to learn from the successes of the New Deal.

US Unemployment Benefits Running Out

After the American Century

Unemployment means something much worse in the United States than in much of western Europe. In nations like Denmark, Norway, Germany, or Holland, the unemployed receive higher benefits than in the US, and these benefits last much longer, often several years. At the same time, the European unemployed are given access to free training courses to develop the skills needed in the job market. Best of all, regardless of whether they work or are unemployed, these workers get full health coverage.

In the United States, unemployment benefits vary somewhat by state, but in normal times are for only 39 weeks. In the current crisis the Congress has extended them up to 72 weeks, or about 16 months. As a result, by the end of July "only" 100,000 Americans had exhausted their benefits. They receive nothing at all. In most cases, they have no health insurance.

The situation is about to become much worse. The financial crisis emerged rather suddenly a year ago, and accordingly the number of the unemployed who will receive no benefits at all is about to rise dramatically. It appears that already in September 500,000 people will have no benefits. By Christmas, the number could be 1.5 million. (Click here for more details.)

When that many people fall into destitution, they will lose their homes. After foreclosure, some will be able to move in with relatives, but many will be forced literally into the streets. They will overwhelm charities and public shelters. If nothing is done, Americans may see scenes reminiscent of the Great Depression. Cities and states, already struggling with deficits, and already making considerable cutbacks in services, will not be able to respond to the crisis. If unemployment benefits are not extended, the economy as a whole will also suffer, as the housing market will decline. The gap between rich and poor will widen.

At the same time, the Obama Administration is trying to pass a comprehensive health plan, amid considerable opposition from doctors and insurance companies. In short, the need for that plan will be increasing, but the ability to pay for it will be declining. Thanks to the ineptitude of the Bush years, the US may feel it is unable to afford the change it needs.

But not to worry. It appears that the banks are solvent again and giving big bonuses again.